FSA chief to quiz Spitzer over Marsh

Insurance scandal: Fears grow for broking giant as European arm pushes for Andersen-style break-up
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The Independent Online

John Tiner, the chief executive of the Financial Services Authority, is meeting Eliot Spitzer in the United States this week to discuss the New York attorney general's escalating allegations of bid rigging and improper commissions in the insurance industry.

Mr Tiner, who arrives in New York today, will ask Mr Spitzer whether he is planning to widen his lawsuit, currently against Marsh & McLennan, to include other insurance brokers and underwriters. He is also expected to highlight concern emanating from the UK that Mr Spitzer's case could spark a global break-up of Marsh, which is one of the biggest firms in the London market, in the same way that groups of partners of Arthur Andersen splintered off to join rivals after the accountancy firm was involved in the collapse of Enron.

The FSA does not have responsibility for regulating insurance brokers in the UK until January, but it is keen to be as fully briefed as possible about the alleged abuses committed by US insurers and brokers, and the impact of Mr Spitzer's inquiry on the UK. This is especially the case as the City watchdog has been accused of being "asleep on the job" for not intervening earlier in previous crises, such as the failures of the split-capital investment trusts.

A spokesperson for the FSA said Mr Tiner had already been planning to go to New York for a meeting of the international regulators body, Iosco, and that the interview with Mr Spitzer had been arranged to fit in.

Discontent is mounting in Marsh's London offices, where senior employees are enraged that their reputations have been marred by improper actions they see as having been committed by a limited number of employees in the US.

There is also concern at the choice of Michael Cherkasky, the former chief executive of Kroll, as the replacement for Jeffrey Greenberg, Marsh's chief executive who was forced to step down on Monday. Marsh acquired Kroll this year, in one of its most significant deals. Mr Cherkasky was confirmed in the post after initial reports that Jules Kroll, the corporate investigation firm's founder, would be the one to step into Mr Greenberg's shoes.

Sources said that when the rumour swept Marsh's offices on Friday that Mr Kroll was to take over the world's largest brokerage, it caused outrage among its long-standing employees, who saw it as an attempt by the Kroll contingent to gain the ascendancy over the entire company.

Marsh's senior employees only agreed to the emergency appointment of Mr Cherkasky, it is understood, to help avoid a criminal indictment of the company. Mr Cherkasky, a former government lawyer, has worked with Mr Spitzer in the attorney general's office. Shortly after the appointment was announced on Monday Mr Spitzer said it was now "unnecessary" to pursue a criminal prosecution of Marsh. "The actions announced today by the board of directors permits Marsh and this office to move forward toward a civil resolution of our lawsuit," Mr Spitzer said.

Mr Cherkasky has unveiled plans to abandon Marsh's previous business model of receiving the "contingent commissions" which, according to Mr Spitzer, are harmful as they encourage brokers to give business to insurers paying the highest fees rather than to those offering customers the best deals.

Marsh will, Mr Cherkasky promised, be a model of "complete transparency" from now. Employees around the world will have to adhere to Marsh's beefed up "global compliance organisation", including submitting extra documents to ensure the broker is not involved in situations where there could be a conflict of interest.

Mr Cherkasky admitted Marsh had "taken a battering". "There is a lot of anger and unhappiness," he said. He added that in addition to four employees who have already been suspended, an internal investigation was taking place. "People who are culpable will absolutely not stay," he added.

Mr Cherkasky may not be able to persuade Marsh's European heads of practice, who are in charge locally of different lines of business, to stay with the company. Europe makes more than 15 per cent of Marsh's global sales and 30 per cent of its profits.