Conduct regulation

Regulation round-up

On 17 January, the FCA published its monthly regulation round-up. This edition the publication of the FCA’s Annual Sector Views*  and the hot topics were 'Misleading Financial Promotion for Over 50s Life Cover', 'Preparing for Brexit' and 'FCA and Practitioner Panel Survey'.

The January hot topics were:

Misleading Financial Promotion for Over 50s Life Cover The financial promotions team have seen promotions for Life Policies for the over-50s where the FCA believe consumers could be misled into thinking they are buying a policy that will cover their funeral costs. Proceeds of these policies can be used for payment of, or towards, the cost of a funeral. However, it is important that, if a firm’s promotion refers to funerals and associated costs, consumers are not misled into believing they are buying a funeral plan that will cover their funeral costs in full.
In November 2012, the Association of British Insurers published “Initial Guidance on Over 50s plan” which providers of these plans may wish to refer to when designing their promotions. 
Preparing for Brexit Earlier in January 2019, the Government lost a vote on the EU Withdrawal Agreement in Parliament. While the position remains uncertain, the FCA continues to prepare for all eventualities in relation to Brexit. This includes a 'no deal' scenario, which would see the UK leave without an implementation period.  The on-shoring of the FCA handbook and temporary permissions regime continues to progress. This will help to minimise cliff-edge risks that are within our power to address.  Firms should continue to make their contingency plans and think about how their consumers might be affected by the UK leaving the EU. For further information, please refer to the FCA website.  In recent weeks, the Government has begun to communicate with consumers and businesses on the need to prepare for a no deal exit. This campaign can be found on the
FCA and Practitioner Panel Survey The FCA and Practitioner Panel Survey provides an opportunity for regulated firms to speak directly to the FCA and share their views and concerns. It provides the FCA Board and Executive with important feedback about the FCA’s performance and enables the FCA to adjust their approach to become a better regulator.  12,000 firms are being invited to take part in the 2019 survey, including a random sample of smaller firms. The survey is being conducted by the independent firm Kantar Public.
The results from last year’s survey showed that both industry’s satisfaction with its relationship with the FCA and the industry’s rating of the FCA’s effectiveness have increased. It also identified some key areas for improvement including: facilitating innovation; increasing transparency of regulation; more forward-looking regulation.  More details about the survey and last year’s results can be found on the FCA website and more about the Practitioner Panel on their website.

The January edition also includes the following articles that are relevant to insurers or insurance intermediaries:
  • Permitted Links Rules consultation
    On 12 December 2018, the FCA published a Consultation Paper proposing changes to the permitted links rules. The FCA proposals would enable retail investors to invest in a broader range of long-term assets – also known as patient capital – in unit-linked funds. These changes aim to promote competition in the industry, while continuing to protect consumers. Responses can be submitted until 28 February 2019.
The publication of this paper and the Patient Capital and Authorised Funds Discussion Paper meets a commitment made in the Chancellor’s Budget 2018 to publish a consultation and discussion paper relating to patient capital.
  • Live & local 2018/19 events for regulated firms
    The FCA have added sessions in April, May and June 2019 to their UK-wide programme of events for general insurance firms. Registration is open for the below events:
    • Interactive workshop on the extension of the Senior Managers and Certification Regime (SM&CR) and the Insurance Distribution Directive (IDD).
    • ‘Ask the regulator’ Q&A roundtable discussions where general insurance firms pose questions and provide feedback directly to a panel of FCA and industry representatives in an open, informal setting.

Fairness of variation terms in financial services consumer contracts – FG18/7

On 19 December, the FCA published finalised guidance regarding Part 2 and Schedule 2 of the Consumer Rights Act 2015 (CRA) which establishes provisions on unfair contract terms in consumer contracts. The CRA replaced the Unfair Terms in Consumer Contracts Regulations 1999 on 1 October 2015. This guidance takes into account developments in UK and EU case law and sets out the FCA's understanding of the provisions of the CRA and recent case law developments in respect of unilateral variation terms.

Firms are expected to make use of this guidance when reviewing existing contracts and drafting new ones, to ensure that variation terms in their contracts are transparent and not unfair.

Horizon Insurance Company Limited administration

On 20 December 2018, the FCA announced that Horizon Insurance Company Limited, a Gibraltarian motor insurance company that also operated in the UK, has been placed into administration. The FCA has advised any customers of Horizon, and third parties with an outstanding claim, should engage with Terry Clarke of Catalyst Consulting Solutions who are the existing claims handlers.

FCA Board Minutes

On 20 December, the FCA released minutes of the FCA Board Meeting held on 15 November 2018. The Board discussed, among other issues, the ongoing progress of the FCA's contingency planning ahead of the UK's withdrawal from the European Union, delays in the launch of the FCA's Credit Information Market Study, the issuance of a 'Dear CEO' letter requesting action surrounding the proper implementation of affordability assessments, and the findings of a report published by the Cryptoasset Taskforce regarding the UK's policy and regulatory approach to cryptocurrencies.

Ex post – Impact Evaluation Framework feedback

On 20 December 2018, the FCA published a feedback statement, and its final Ex post-Impact Evaluation Framework in relation to the responses received from stakeholders to its discussion paper (DP18/3) on the Ex post Impact Evaluation (EPIE) Framework.

The Framework outlines how the FCA use ex post – impact evaluation to assess the impact of its past interventions on consumers, firms and markets and explains:
  • why the FCA do ex post impact evaluations;
  • how they choose specific interventions to study; and
  • how they ensure that our evaluations are robust, impartial, and credible.
The FCA assess the effectiveness and impact of its past interventions to develop a strong evidence base to guide future decisions. The next steps outlined by the FCA in response to the feedback included:
  • considering new ways to ensure the independence of impact evaluations;
  • examining any unintended consequences of interventions as highlighted by qualitative or quantitative evidence;
  • undertaking a study of the cumulative impact of regulations on small firms; and
  • inviting suggestions over what interventions to evaluate in future, via consultations and panels.

FCA statement on Handbook treatment of Gibraltar after Brexit

On 20 December, the FCA announced it will make a rule to maintain the current Handbook treatment of Gibraltar in the post exit day Handbook. This is in line with the Government's commitment that Gibraltar financial services firms should have the same market access in the UK as they do now until December 2020.
For Gibraltar-based firms able to exercise passport rights, the Government’s commitment means they will continue to be able to exercise such rights on exit day. As a result, they will not enter the temporary permissions regime or the financial services contracts regime for firms or funds wishing to operate in the UK from the European Economic Area.

These arrangements will be accompanied by an SI seeking to preserve the pre-exit regulatory provision in relation to Gibraltar more widely, unless specifically provided otherwise, to support continued market access between the UK and Gibraltar more generally.

This approach will mean that the Financial Services Compensation Scheme (FSCS) will continue to apply in respect of Gibraltar firms exercising deemed passport rights in the UK as it does today.

CMCs can now register for temporary permission to continue operating

On 2 January, the FCA announced that claims management companies (CMCs) are now able to register for the temporary permission that they will need to operate when the FCA takes over regulation from April 2019.  Rules applying to all CMCs from April 2019 were published in December 2018 in Policy Statement PS18/23.  Any CMCs in England, Wales and Scotland that are not registered or do not meet the minimum standards by the end of March 2019 will no longer be able to continue operating.

Dear CEO letter – financial promotions

On 9 January the FCA published a Dear CEO Letter to all regulated firms to remind them of their responsibilities relating to the use of financial promotions. The FCA have become aware of firms issuing financial promotions which suggest or imply that all of the activities which they undertake are regulated by the FCA and / or the PRA when they are not. The letter reminds firms’ senior managers and boards of what constitutes fair, clear and unambiguous financial promotions.

The FCA encourage all firms to read and reflect on the letter to ensure that they understand the FCA rules relating to financial promotions noting it is up to firms to ensure that financial promotions are compliant.

FCA Sector Views

On 11 January, the FCA released its Sector Views publication, which provides an annual analysis of the changing financial landscape, the resulting impacts on consumers and market effectiveness. Sector Views include sections on cross-sector themes, general insurance and protection and pensions savings and retirement income. The analysis will feed into the FCA Business Plan for 2019/20. 
The key cross sector challenges are identified as being:
  • technology led changes – in terms of the ways consumers interact with firms;
  • societal changes and their impact on financial needs of different generations;
  • the potential impact of Brexit; and
  • macroeconomic environment which includes Brexit uncertainty and the low interest rate environment.
For the General insurance and protection sector the FCA include the following issues:
  • differential pricing on renewals and the ability to compare product pricing;
  • consumer harm arises if claims are not paid fairly and promptly;
  • claims fraud costs all insureds;
  • access to some products is limited (e.g. Travel insurance); and
  • firms compliance can lead to consumer harm.
Although Sector Views are not a consultation, the FCA is interested stakeholders’ views on their findings. The FCA would welcome comments. Comments should be sent to [email protected].

Brexit and contractual continuity – CP19/2

The financial services contracts regime (FSCR) allows EEA firms to run off their regulated business in the UK, if the UK leaves the EU without an implementation period. This Consultation Paper, published by the FCA on 8 January, sets out details of the FSCR and the rules the FCA propose should apply to firms during the regime.
The FSCR will work alongside the temporary permissions regime, which enables inbound EEA firms to access the UK market while seeking full authorisation in the UK. The FCSR allows EEA firms to conduct an orderly exit from the UK market by running off regulated business. The FSCR will apply automatically to EEA firms who have regulated business in the UK to run off, and either:
  • do not enter the temporary permissions regime; or
  • exit the regime without full UK authorisation.
The consultation period is 3 weeks. Comments are due by 29 January 2019.

Guidance on Cryptoassets – CP19/3

The FCA has carried out work on cryptoassets, both as part of a broader UK Cryptoasset Taskforce and independently to achieve its statory objectives. This Consultation Paper, published on 23 January, is the next step in the FCA’s work on cryptoassets and sets out details on where different types of cryptoassets might fall in the regulatory perimeter.

The FCA is consulting on Guidance for cryptoassets in order to provide regulatory clarity for market participants carrying on activities in this space. The cryptoasset market, and the underlying DLT technology, is developing quickly and participants need to be clear on where they are conducting activities that fall within the scope of the FCA’s regulatory remit and for which they require authorisation.

The final Guidance will help market participants to understand whether the cryptoassets they use are within the regulatory perimeter. This will alert market participants to pertinent issues and should help them better understand whether they need to be authorised and what rules or regulations apply to their business.

This paper sets out where tokens are likely to be:
  • specified Investments under the Regulated Activities Order;
  • financial Instruments under the Markets in Financial Instruments Directive II;
  • e-Money under the E-Money Regulations; and
  • captured under the Payment Services Regulations.
Feedback on the proposals is requested by 5 April 2019.

Optimising the Senior Managers & Certification Regime and feedback to DP16/4 – CP19/4

On 23 January, the FCA published a Consultation Paper (CP) to provide extra clarity in some areas of the Senior Managers & Certification Regime (SMCR) and set out details of the feedback received to DP16/4. The FCA made near-final rules on the SM&CR in July 2018 and final rules for insurers in September 2018. When consulting on these rules the FCA identified a few areas where changes were needed. These proposals are set out in this Consultation Paper and are intended to provide extra clarity in some areas and help firms adjust to the SMCR.

The CP sets out proposals in relation to:
  • Clarifying the application of the SMCR to the Legal Function by excluding the Legal Function from the Overall Responsibility Requirement.
  • Amending the intermediary revenue criteria for the Enhanced tier for solo regulated firms.
  • Amending the scope of the Client Dealing Function.
  • Including the Systems & Controls Function in the Certification Regime.
  • Applying Senior Manager Conduct Rule 4 to non-approved executive directors at Limited Scope firms.
  • Minor changes to our regulatory forms and Handbook.
Responses to the CP are requested by 23 April 2019. The FCA will publish final rules and guidance in Q3 2019.
[email protected]