Marsh under FSA pressure on corporate governance

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The UK arm of Marsh & McLennan, the insurance broker charged in the US with corruption, has been asked by the Financial Services Authority to improve its corporate governance by appointing a non-executive director to its board.

The development emerged as Freshfields, the City law firm, published a report clearing Marsh's British business of the allegations of illegal insurance bid rigging that have been levelled at its US division by New York's attorney general Eliot Spitzer.

In the light of the charges by Mr Spitzer, Bruce Carnegie-Brown, the chief executive of Marsh in the UK, called in Freshfields to conduct an inquiry into its London business.

Even though Marsh's business in Britain has not been included in Mr Spitzer's lawsuit, its reputation has come under fire among clients. It has also been scrutinised by the FSA, which will take on responsibility for regulating insurance brokers in January.

Mr Carnegie-Brown said Marsh would add a non-executive to its British board, currently made up entirely of executives, after "conversations" with the FSA about the matter. The board in London reports to the group's board in New York.

The FSA has provisionally approved Marsh to continue operating in the UK. But senior FSA figures are watching the situation in the US closely to ensure that Michael Cherkasky, the new chief executive of the Marsh group and a former colleague of Mr Spitzer, stamps out all vestiges of inappropriate behaviour by employees.

While Freshfields gave Marsh in Britain a clean bill of health overall, it said fees known as contingent commissions used throughout the group created a conflict of interest between acting in the best interest of clients and a desire to maximise profits.

There were "a number of specific examples" of Marsh brokers in London being encouraged by senior managers to direct business to certain underwriters because they paid more generous commissions, Freshfields said. But the conclusion of its six-week probe was that there was no "evidence that a particular client paid more for insurance, or was insured on less favourable terms" because of Marsh brokers' actions.

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