Conduct regulation

Regulation round-up 

On 15 November 2018, the FCA published its monthly Regulation round-up.  Highlights included a reminder of the extension to insurance firms of the Senior Managers and Certification Regime (SM&CR) from 10 December 2018, final guidance on the handling of certain regular PPI complaints and release of general information for consumers about how they may be affected by Brexit. This edition includes the following articles that are relevant to insurers or insurance intermediaries:

Topic Commentary
SM&CR extension to insurers Reminding firms to submit documents by midnight on 2 December 2018
Fairer treatment of regular premium PPI complaints The FCA issued final guidance and a Consultation Paper (CP18/33) clarifying their expectations about certain regular PPI complaints handling; firms should assess commission disclosures not only at the point of sale but on an ongoing basis under the FCA general complaint handling rule.  The CP is also proposing new rules (consultation closes on 7 December 2018) requiring firms to write to around 150,000 consumers who had previously complained unsuccessfully, informing them they can make a new complaint by 29 August 2019.  A policy statement is expected in late January 2019, with mailings by firms to be completed by 29 April 2019.
General information update for consumers on Brexit The FCA have updated general information for consumers about how they may be affected by the UK’s withdrawal from the EU, and signposts further details including potential scenarios that may occur depending on whether an implementation period is agreed or not, as well as scam awareness information.

Dear CEO letter: FCA expectations of general insurance firms undertaking pricing activities 

On 31 October 2018, the FCA published a letter to financial firms regarding issuance of their thematic report on household insurance pricing practices.  Key issues noted include:
  • firms failing to have appropriate and effective strategies, governance, control and oversight of their pricing practices and activities, such that they are unable to reliably assess and evidence whether they are treating their customers fairly;
  • differential pricing leading to some identifiable groups of consumers paying significantly higher prices than other identifiable groups of consumers with similar risk and cost to serve characteristics; 
  • the risk of discriminating against consumers through using rating factors in pricing based (directly or indirectly) on data (including third party data) relating to or derived from protected characteristics. 

The FCA regards pricing as one of the most significant business activities for general insurance and for those intermediaries undertaking this activity, with the potential to cause significant harm to consumers. The FCA reminds firms to comply with FCA rules over pricing activities from 1 October 2018 (due to the implementation of the Insurance Distribution Directive), and to establish and maintain appropriate systems and controls.  The FCA expects firms to take immediate steps where necessary to address issues identified in the thematic report.

FCA launches general insurance market study

On 31 October 2018, the FCA published a press release regarding intended measures dealing with insurance, following a review of its supervisory work on insurance pricing practices for home and motor insurance.

General insurance pricing practices have attracted much public interest and debate. This includes a Citizens Advice super-complaint to the Competition and Markets Authority (CMA) about excessive prices for disengaged customers. The FCA is working closely with the CMA as it investigates the super-complaint.

The FCA has been concerned that general insurance pricing practices have the potential to cause harm to consumers, particularly those who are vulnerable and is continuing its supervisory work in this regard. Following this initial work the FCA has decided that a package of measures is necessary, including:
  • A market study on general insurance pricing practices (comments on the terms of reference by 3 December 2018);
  • Addressing conduct by firms - including looking at renewal communications some firms have sent to their customers and considering the extent to which these may not always have been clear and not misleading. The FCA is also engaging with firms about governance, control and oversight of pricing practices and have issued a letter to CEOs setting out our expectations;
  • a wider discussion paper (DP 18/9) on the fairness of pricing in financial services (comments by 31 January 2019);
  • evaluating the FCA’s previous actions on general insurance pricing.

The FCA’s  goal is to ensure that retail general insurance markets deliver competitive and fair prices for consumers and its market study will focus on the following key issues:
  • the consumer outcomes from pricing practices;
  • the fairness of outcomes from pricing practices;
  • the impact of pricing practices on competition; 
  • remedies to address any harm that the FCA finds.

2018 Letter to RemCo Chairs: Remuneration at firms 

On 1 November 2018, the FCA published the text of a letter (dated 20 August 2018) written to the Chairs of Remuneration Committees regarding the FCA's assessment of firms' remuneration policies and practices.  Specifically, the letter details how the FCA will assess firms in proportionality level 1 in 2018-2019.  This includes information relating to:
  • the connection between accountability and remuneration in the Senior Managers & Certification Regime;
  • review of firms' approaches to applying ex-post risk adjustment;
  • ending the practice of sending non-objection letters; and
  • the FCA's March 2018 discussion paper, and accompanying conference, on 'Transforming Culture in Financial Services'.

Annex 1 to the letter includes further information regarding the FCA's findings from the 2017-2018 remuneration round.

FCA Q2 2018/19 Number of skilled person reports commissioned 

On 1 November 2018, the FCA published a list of the number of skilled person reports (of which three relate to General Insurance & Protection) commissioned during Q2 of 2018. Three skilled persons reports have been commissioned in the General Insurance and Protection sector in Q2 and 16 in total.

FCA Board Minutes: 26 and 27 September 2018

On 8 November 2018, the FCA released its Board minutes from its meeting on 26-27 September.  Matters referred to include the FCA's interim report on payment protection insurance, the FCA's financial penalty policy, monthly reports from the independent panels and the quarterly performance report for Q1 2018/2019.

Regulatory fees and levies: policy proposals for 2019/20 – CP18/34

On 15 November, the FCA published a Consultation Paper (CP18/34) on its proposed policy changes to the way that it will raise fees from 2019/20. The CP is part of the FCA’s annual cycle of consultation on fees.

The FCA is consulting on the following proposals:
  • The fees structure the FCA intend to establish for credit rating agencies and trade repositories if responsibility for their regulation passes to us from ESMA (European Securities and Markets Authority) when the UK leaves the EU (European Union) on 29 March 2019.
  • A proposal to discontinue fee-block F. This contains mutual societies that are registered by the FCA on the mutuals register but not authorised or regulated by the FCA. Most are run by volunteers who require the FCA to issue paper invoices. The process is expensive and restricts its ability to improve cost efficiency through greater take-up of online invoicing. The register is maintained as a public service so the FCA intend to recover the cost as an FCA overhead. This would represent an addition of approximately 0.3% to the fees of variable fee-payers. The FCA also propose to remove charges for inspecting the register, except where a member of the public requests a personal visit to FCA offices.
  • Define the data used to calculate periodic fees for insurers and propose adjustments to the weightings applied to the premium and liabilities elements of the data.
  • Clarify how the FCA apply on-account payment rules to the illegal moneylending levy and the Single Financial Guidance Body (SFGB) levies.
  • A proposal to streamline the process of setting consumer credit fees by exempting community finance organisations and credit unions.  They are currently exempt from paying minimum fees. Identifying the few that are eligible for variable fees and calculating their charges is an inefficient use of our resources. The reduction in revenue would be less than 0.3% of the total revenue from consumer credit fees.
  • UK firms who currently contribute to debt advice funding across the UK will continue to do so but part of their contribution will be designated for the devolved authorities’ debt advice in Scotland, Wales and Northern Ireland. EU firms in the temporary permissions regime will contribute to the devolved authorities’ debt advice levy on the same basis as UK firms.
Comments are required by 14 January 2019.

Financial Services and Markets Act 2000 (Claims Management Activity) Order 2018

On 22 November HM Treasury issued a draft statutory instrument following its consultation of April 2018 on secondary regulations enabling the transfer of claims management regulation to the FCA.

The statutory instrument confirms the final approach to defining the scope of claims management activities for the purposes of FCA regulation and the approach to the temporary permissions regime. The FCA will take over regulation of claims management activity on 1 April 2019 and the transfer of CMC complaints handling to the FOS will take place at the same time.

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