Conduct regulation

Regulation round up

On 20 September, the FCA published its monthly Regulation round-up. The Hot Topics included the consultation on the SMCR for claims management companies and the Payments Services Directive. This edition includes the following articles that are relevant to insurers or insurance intermediaries:

  • insurance brokers due diligence on insurers;*
  • Insurance Distribution Directive. (IDD);*
  • Live & Local 2018/19 events for regulated firms.
*covered below

Speech at the FCA’s Annual Public Meeting 2018

On 11 September, Charles Randell, Chair of the FCA, delivered a speech at the FCA’s Annual Public Meeting. Mr Randell began his speech with personal observations of his first five months as Chair, which included his view that the FCA was strongly committed to delivering public value – a continuing theme of the speech.

Mr Randell then moved on to discuss the FCA's mission and commented that adaptability is essential to managing the depth and breadth of developments that can be seen in the financial services industry. He stated that the FCA's business plan for 2019 continues to devote considerable resources to Brexit and identified an EU withdrawal budget of around £30 million. He also noted the FCA has worked to deliver its commitment to public value by keeping to an overall budget that is flat in real terms.

He then discussed the impact of technological developments and commented that innovation in areas like big data and machine learning are a test of regulators' abilities to adapt. He concluded his speech by discussing the FCA was continuing in its serious approach to mitigating financial crime risks by conducting a significant volume of enforcement work against firms and individuals.

Outcome of investigation into four life insurance companies

On 19 September the FCA announced that it had closed its investigations into four life insurance firms following its thematic review into the fair treatment of longstanding customers in the life insurance sector.

The FCA launched the investigation following a thematic review, published on 3 March 2016 which identified further work was required to determine whether 6 of the 11 firms that were involved in the thematic review had failed to meet the FCA’s standards. The 6 firms were Abbey Life, Countrywide Assured, Old Mutual, Police Mutual, Prudential and Scottish Widows. The investigations into Police Mutual and Scottish Widows were closed earlier without any further action. All of the remaining investigations have now been closed. The FCA found the conduct of the 4 remaining firms (Abbey Life, Old Mutual, Prudential and Countrywide Assured) did not warrant enforcement action. However, in each firm, some issues have been identified which are being addressed as part of the ongoing supervision of the firms.

firms, which was undertaken following the FCA thematic review into the fair treatment of longstanding customers in the life insurance sector. According to the FCA, the conduct of several firms, namely Abbey Life, Old Mutual, Prudential and Countrywide Assured, did not warrant enforcement action. During the investigations, certain issues have been found in each firm, which are being covered as part of the FCA's ongoing supervision of those firms.

Claims management companies: applying the SMCR to claims management companies – CP18/26

On 20 September the FCA issued a Consultation Paper (CP18/26) setting out proposals on the application of the Senior Managers and Certification Regime (SMCR) to claims management companies (CMCs). 

In CP18/15, which sets out how the PFCA proposes to supervise CMC’s it proposed classifying CMCs into two groups based on their annual reported turnover:

  • Class 1 CMC – a CMC with annual total income of £1 million or above; and
  • Class 2 CMC – a CMC with annual total income below £1 million.

The FCA are proposing to treat CMCs that do not carry on any other type of FCA-regulated activity as Limited Scope Firms (firms that are subject to fewer requirements than other firms in scope of the SMCR) which means that every CMC must have someone performing the ‘Limited Scope Function’. This person will be a Senior Manager, who must be approved by the FCA, as ‘fit and proper’ to do their job and will be responsible for assigning responsibilities under SYSC 4.4.3 R and establishing and maintaining controls under SYSC 4.1.1 R. Class 1 CMCs will also need to have a Compliance Oversight Function, who will also be a Senior Manager.

The draft rules and guidance on the SMCR would be applicable to CMCs serving customers in, or constituted under the laws of, England and Wales or Scotland. This consultation paper will be of interest to all CMCs that intend to continue trading from 1 April 2019 onwards, and to all businesses considering establishing CMCs in the future.  

Comments on the  consultation should be submitted on or before 6 December 2018.

Insurance Distribution Directive (IDD)

The Insurance Distribution Directive (IDD) applies to firms from 1 October 2018. The FCA’s IDD material can be found on its dedicated IDD web page. The page includes relevant links to:
  • the legislation – the IDD and implementing technical standards and delegated acts;
  • EIOPA’s guidelines;
  • The FCA’s key publications (three Consultation Papers, two Policy Statements and a Handbook Notice).

Insurance brokers due diligence on insurers

The recent failures of Alpha, Enterprise and Gable demonstrate the customer harm that can be caused if an insurer fails and is unable to pay claims. The FCA has published a web page on ‘Insurance brokers and due diligence on insurers’ to remind insurance brokers of the vital role they have to play in preventing further instances of customer harm through failing insurers.

The FCA expect insurance brokers to demonstrate that they have carefully considered the insurers that they place their customers’ business with. To support this, they have listed examples of what brokers should consider as part of their insurer due diligence with links to relevant web pages.  

They note their ‘message is clear on the importance of providing clear insurer details to allow customers to make informed decisions on where their insurance is being placed’ and have seen examples where some brokers think the Managing General Agent (MGA) is the insurer and are not aware of the insurer behind the MGA.

The FCA are also planning to do further work to verify that insurance brokers are conducting appropriate due diligence on the insurers they use.

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