The 4th quarter of 2017 has been no different to the previous 3 with a clear dicta coming from both the regulator and government; customer, customer customer! Regulation and policy makers are increasingly asking businesses to demonstrate that their offerings and processes are customer centric. The PRA also opened a valuable consultation on, and extension to, the Senior Managers & Certification Regime (SM&CR) to all insurance firms. Data remains a hot topic with the introduction of the General Data Protection Regulation (GDPR) in May although there is a small reprieve with the implementation of the Insurance Distribution Directive (IDD) being delayed by 7 months until October 2018.
FCA Findings - Financial Lives Survey
On 18th October, the FCA released the results of its Financial Lives Survey 2017. Financial Lives is the FCA’s largest tracking survey of consumers and their use of financial services, and draws on responses from just under 13,000 UK consumers aged 18 and over. The aim of the survey was to provide the FCA with unique insights into people’s experiences of retail financial products and services. The survey provides great insight into the level of financial engagement of various sectors of the population and will make interesting and useful reading, particularly from a product development and target distribution perspective.
Andrew Bailey FCA Chief Exec says the “information which will be used to increase our knowledge and understanding of the issues affecting consumers and how to best protect them. The data gathered will be invaluable in helping the FCA prioritise our work.” Definitely worth a read, you will find the full report here
FCA published ‘FCA Mission – Our Future Approach to Consumers’
When the FCA launched this initiative, it committed to publishing a series of documents that would explain its approach to regulation in more depth. The FCA’s Future Approach to Consumers is the first in this series, and explores the approach to regulating for consumers. The strategy sets out the approach to regulating retail consumers.
The FCA has opened a consultation and are asking for feed back and seeking views on a number of issues including consumer responsibility, identifying vulnerability, and the line between the FCA’s remit and broader social policy issues. The consultation will close on 5 February 2018 and the FCA will publish the final Approach to Consumers later in 2018.
FCA launched Wholesale Insurance Brokers Market Study
On 8th November the FCA launched this study to assess how competition is working in the wholesale insurance broker sector. The FCA wants to ensure that the sector is working well, and fosters innovation and competition in the interests of its diverse range of clients.
The study will consider how brokers compete in practice and whether they use their bargaining power to get clients a good deal, assess what conflicts of interest exist, how they are managed and how they affect competition and client outcomes. They also examine how broker conduct impacts on competition in the sector.
Feedback on the Terms of reference is being taken until the 18th Jan 2018 here
FCA sets out its approach to authorisation and competition
Following on from publishing its Future Approach to Consumers, the FCA has also set out its approach to authorisation and competition in two documents in December, as part of its commitment to publish a series of documents that would explain its approach to regulation in more depth.
Of particular interest to mid-market insurance firms, the publication seeks to establish if there is an understanding of the Threshold Conditions that firms and individuals must meet for authorisation. If not, where the FCA could be more specific and whether there are any views on how the FCA supports firms and individuals to meet the minimum standards. They ask how this could be improved and whether the FCA has suggested the correct commitments to firms making authorisation applications.
EIOPA issues recommendations to improve consumer protection in the unit-linked market
EIOPA’s recommendations highlighted several concerns.
Firstly, conflicts of interest arising from monetary incentives and remuneration between providers of asset management services and insurers identified in the unit-linked market must be prevented from adversely affecting the interests of customers.
Secondly, interests of customers must be safeguarded by insurers under general principles included in existing and upcoming European Union law.
Finally, national authorities have to provide guidance to insurers on how to apply the principles included in the Insurance Distribution Directive and Solvency II Directive when it comes to conflicts of interest arising from monetary incentives.
PRA consultation paper on implementing extension of SM&CR
In the consultation paper the PRA sets out the proposed changes to documentation and other consequential changes and minor administrative amendments related to the extension of the Senior Managers & Certification Regime to insurers. It also sets out proposals for the removal of gendered language from the SM&CR for banking firms and insurers, amongst other changes. It should be read in conjunction with CP8/17, which proposed optimisations to the existing Senior Insurance Managers Regime (SIMR), and CP14/17, which proposed the extension of the SM&CR to insurers.
This paper includes proposals on:
- The rationalisation of the existing SM&CR/SIMR forms to produce a streamlined set of permission forms
- Implementing the extension to insurers, including some transitional arrangements and changes to references to the existing SIMR and Senior Insurance Management Functions(SIMFs)
- The process for transferring from an SMF at an insurance firm to a banking firm
- The removal of gendered language
Consultation closes Wednesday 21 February 2018.
PRA consultation paper on international insurers branch authorisation
In this consultation paper the PRA seeks feedback on its proposed approach to authorising and supervising third-country insurers that carry on (or are considering carrying on) insurance business in the United Kingdom through a branch or by forming a subsidiary. The purpose of the proposals is to support the interpretation of the PRA Rulebook on third-country branches and to explain the PRA’s policy towards authorising and supervising third-country insurers or those contemplating establishing a branch or subsidiary in the United Kingdom.
The PRA proposes new factors to be considered alongside its current requirements for third-country branch authorisation.
When considering applications from a firm for authorisation as a third-country branch, the PRA’s approach is anchored in its statutory objectives and includes an assessment of regulatory equivalence and the ‘superviseability’ of the insurer that seeks to operate in the United Kingdom through a branch. The PRA already considers, and needs to be satisfied that: the home jurisdiction’s prudential supervision regime is ‘broadly equivalent’; the firm is capable of being supervised effectively by the home supervisor; the whole firm is able to meet the Threshold Conditions; there is sufficient supervisory cooperation with the home supervisor; UK policyholders of the firm will be given the appropriate priority in an insolvency and that there is no discrimination against policyholders whose business is written in the United Kingdom in the event of a winding up; and the firm is able to meet relevant PRA rules, including the Senior Insurance Manager Regime (SIMR) rules applicable to the relevant individuals responsible for the branch.
This consultation closes on 27th February 2018.
European Commission delays implementation of Insurance Distribution Directive (IDD) until October 2018
On 20th December the European Commission set out proposals to delay implementation of the IDD until October 2018. Member States would still have to write the new rules into law by the (previous) February 2018 deadline but will not have to apply them until seven months later.
There are four broad areas which firms need to address to implement the IDD:>/p>
- Product oversight
Her Majesty’s Treasury – New Insurance Linked Securities rules
Insurance Linked Securities enable insurers to transfer large and complex risks to capital market investors. The treasury believes that this new regime will help to strengthen the sector’s contribution to the UK economy and enhance the UK’s position as a leader in this global industry. Increased capacity in the market should help reduce costs for insurers, which is good for business and consumers. Currently UK insurers use ILS to help manage the risks of their business by arranging deals with off-shore vehicles. These rule changes ensure the PRA can apply a proper regulatory approach to Insurance Linked Securities vehicles.
General Data Protection Regulations (GDPR)
With implementation dated for May 2018 the GDPR is to protect the privacy of individuals and bring EU data protection laws in line with the rapid developments in technology and increasing flows of data.
The new legislation will replicate the old regime to some extent, but it also introduces new rights for individuals and new obligations for those organisations that control and process personal data. Failure to comply brings with it harsh penalties with fines of up to a maximum of EUR 20 million or 4% of annual global turnover for the most serious infringements. Any company that processes personal data is, therefore, well advised to invest time and money in preparing for the new regime as the risk of not doing so has the potential to be significant. You can find Information Commissioners Office guidance on preparing for the GDPR here
The coalescence of regulatory attention to consumer protection at the end of the year highlights a growing emphasis on consolidating regulatory oversight in a time of economic uncertainty. It is likely that there will be regulatory focus on this area well into the coming year and until the Regulators believe that they have a clear picture of the vulnerabilities of consumers and the changing risks that they are exposed to.
With the proposed delay in implementation of the IDD, insurance businesses may be well advised to use this intervening period to secure timely transition of process to the new rules.