THE Financial Services Authority (FSA) helped to set the terms of Marsh & McLennan’s £450,000 investigation into corruption in its UK business, four months before the City watchdog formally begins regulating the insurance industry, The Times has learnt.

The revelation indicates that the FSA is more concerned about market-rigging allegations made against insurance brokers by Eliot Spitzer, the New York attorney-general, than it has admitted.

Last Friday, following allegations that a few employees at the American offices of the world’s largest insurance broker had steered the broker’s clients to insurers most likely to pay lucrative volume based “contingency commissions”, Bruce Carnegie-Brown, chief executive of Marsh in the UK, brought in Freshfields, the London law firm, to establish whether similar abuses had taken place in Britain.

It is understood that Mr Carnegie-Brown gave Freshfields full access to all Marsh employees and documents. About 20 lawyers are thought to have set up a temporary office at the broker’s headquarters at Tower Hill, London, and are interviewing key managers.

The investigators will also talk to insurers that deal with Marsh, to establish whether they believe inappropriate payments have been made.

A source close to the issue said the broker had kept the FSA informed of all its movements since Mr Spitzer accused Marsh & McLennan nearly two weeks ago of widespread price fixing in the US.

“Marsh told the FSA of its plans for the investigation and the FSA said it had some ideas on what questions it would like included,” the source said.

The City watchdog will not begin regulating general insurance until January 15. The FSA refused to comment on discussions it had held with Marsh, but it is understood to have helped the broker to decide on two main objectives for the investigation.

Freshfields will look at whether there was any type of wrongdoing in the UK. It will also investigate whether Marsh’s market service agreements (MSAs) worked to the detriment of the broker’s clients, and report in November.

A source close to the company said that the chief executive was confident that there was no market rigging or price fixing in the UK.

Separately, two London-based brokers, Jardine Lloyd Thompson and Heath Lambert said that they would halt payments of contingency commissions from next year.

Times Recommends

• C&G axed - 1,660 jobs to be lost
• UK house prices rise 1.1% as buyers return
• Mixed reaction to US banks repaying bailouts