Britain’s financial services regulator has signalled a clampdown on vertically integrated business models in the insurance industry, in a bid to manage conflicts of interest.

The Financial Conduct Authority’s recently appointed insurance director, Chris Knight, warns businesses bringing together underwriting, distribution, intermediary activity, premium finance and other ancillary services will face scrutiny.

The regulator has written to some companies it thinks have a heightened risk of conflicts, and it will randomly request data and call for businesses to show how their arrangements deliver benefits to customers.

“We assess business models through our supervisory work and market analysis. We’ll act where we identify poor governance, weak controls or evidence of customer harm,” Mr Knight said.

If a company operates with vertically integrated or connected arrangements, it is expected to review its business model, governance arrangements, systems and controls, and conflict management frameworks.

“This isn’t just a theoretical concern,” Mr Knight said. “We’ve taken enforcement action before against firms where conflicts of interest weren’t properly managed, and where ownership or remuneration arrangements influenced customer outcomes.”

In 2017, the FCA fined Bluefin Insurance Services more than £4 million for having inadequate systems and controls, and failing to properly inform customers about its model.

From March 2011 to December 2014, the broker – wholly owned by insurer Axa at that time – said it was “truly independent” in the advice it provided and the insurers it recommended.

FCA says simply telling customers about a conflict does not remove an obligation to manage it properly.

“You should look at how you design products and panels, how you communicate with customers, how you structure remuneration, and whether your customer-facing information is genuinely transparent about commercial relationships that could affect a customer’s decision,” the FCA said.

“Wherever a firm happens to be in the chain, it needs to assess and be able to evidence the value added in each link.”