FSB urged to stop 'kickbacks'

Barbara Hogan, the chair of parliament's finance portfolio committee, said a lack of control over such incentives opened the way for abuse.

"As soon as the authorities begin focusing on one aspect of remuneration, suddenly a whole range of new incentives that are not wage related start emerging in the market.

"And this just leads to further abuse and further abuse," she said.

The FSB was briefing the committee on progress in implementing the Financial Advisory and Intermediary Services Act.

The law, approved by parliament last year, establishes a professional code of conduct for all financial services providers.

It brings under the regulatory net virtually all the activities of the entire broker fraternity in the long-term and the short-term insurance industries, as well as those of portfolio and fund managers.

In terms of the provisions, financial service providers must disclose commissions paid, and companies are obliged to act at all time in the interest of clients.

However, the act does not cover non-wage related incentives paid to brokers.

Hogan asked whether the FSB had any intention of stopping or limiting the amount of cash incentives, or kickbacks, that brokers could be paid.

The United Kingdom, for example, restricted the amount of incentives brokers could receive.

"If you are receiving a kickback from a product supplier, and you've got five product suppliers, you are going to start focusing on a product supplier that gives you the biggest kickback.

"I just see the potential for huge abuse in that area, and I urge you, please to have a look at this question of whether it is not proper for us to be regulating cash incentives," she said.

FSB deputy executive officer Gerry Anderson assured the committee that the board would look into the issue.