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Price comparison sites may be in breach of financial advice regulations when they lead customers to insurance policies, regulator the Financial Services Authority (FSA) has said.

Companies must have FSA permission to provide financial advice, but some price comparison website activity could amount to a regulated activity, it has warned.

The FSA has written to operators which direct web users to home and car insurance providers after a review found some websites were leading customers to inappropriate insurance deals.

Websites must make sure that they comply with their legal responsibilities and should not offer financial advice to customers unless they have permission to do so, the regulator warned.

"Consumers may be being misled about the services they are receiving from price comparison sites," the FSA said in its letter to price comparison website operators (11-page, 230 KB PDF).

It warned that in some cases this could lead to people being "unable to claim benefits through a lack of opportunity to disclose all material facts".

Websites should consider whether they are introducing, arranging or advising customers on purchasing an insurance contract, and whether they have the correct permission for that role, the FSA warned.

Websites should be careful not to inadvertently promote particular firms through the prominent use of names or logos on generic pages, and should also avoid 'pick of the best' products or star ratings unless intending to give advice, the letter said.

"Advising might include suggesting the purchase of specific contracts of insurance because they meet investors' requirements," the FSA warned.

The letter reminded price comparison websites of their responsibility to check customer eligibility or that all the relevant information had been disclosed before making a recommendation. The FSA found that many of the companies it interviewed between June and September 2010 thought the onus was on the customer to provide sufficient information.

Terms and conditions of insurance policies are often too complicated to expect customers to disclose all the relevant information to the insurer, and to ensure that they have bought an appropriate policy, the regulator warned.

Websites also have a duty to make it clear to customers which firm they are actually dealing with, and who they should be making any complaints to, the FSA said. This is particularly important in the case of 'white labelled' sites, which use another company's comparison tools to provide search results.

The FSA's letter follows a review of 19 price comparison websites by the regulator, including market leaders MoneySupermarket, CompareTheMarket, Confused and GoCompare.

The FSA found "failures to comply with our rules which could result in consumers not being treated fairly," the letter said.

Price comparison companies have until 8 August to respond to the regulator's letter.

Technology law news is also available from Bootlaw, a free resource for technology start-ups, with regular events hosted by Pinsent Masons.

Copyright © 2011, OUT-LAW.com

OUT-LAW.COM is part of international law firm Pinsent Masons.

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