Compliance Newsletter – November 2017

IDD expected to be delayed until 1 October 2018
The European Parliament’s Economic and Monetary Affairs Committee has recommended to the European Commission (EC) that the application date for the Insurance Distribution Directive (IDD) be delayed until 1 October 2018. Early indications received by insurance trade bodies are that this recommendation has been accepted in principle, although no official announcement has been made at the time of issuing this Newsletter.

If the EC accepts the recommendation, it is understood that member states would still be expected to transpose the IDD into their own national legislation by 23 February 2018, but firms would not be required to comply with it until 1 October 2018.

Readers are advised to monitor developments.

FCA issues further IDD publications
The FCA published two key documents in late September 2017: a Policy Statement (PS17/21) on implementation of the IDD plus ‘near final rules’, and a third and final Consultation Paper (CP17/33).

The Policy Statement does not include any significant changes to the draft rules which were published in March 2017. Among the topics covered in the third consultation paper are conflicts of interest and the enhanced rules which will apply to product manufacturers and distributors.

To read, PS17/21 click here and for CP17/33, click here.

The FCA is planning to issue further rules, which follow on from its second consultation paper (CP17/23), in December 2017 and final rules in January 2018.

Wholesale market probe begins
The FCA has launched a market study to assess how competition is working in the wholesale insurance broker sector, in response to significant changes which have taken place in recent years to brokers’ services and business practices. The topics to be explored include the effect of individual brokers’ market power, conflicts of interest and broker conduct. Larger brokers are expected to come under particular scrutiny, although any wholesaling broker could be contacted by the regulator.

Firms are invited to respond to the FCA’s terms of reference for the market study by 19 January 2018. An interim report is expected to be published in autumn 2018.

For more information, click here.

Delegated authorities back in the spotlight
The FCA has advised insurance trade bodies of the commencement of follow-up work on its 2015 Thematic Review on ‘Delegated authority: Outsourcing in the general insurance market’ (TR15/7). The intention is to assess progress made by firms (and the industry as a whole) against previous findings, as the FCA considers that enough time has been allowed for enhanced risk frameworks and control measures to be implemented.

To read the 2015 Thematic Review, click here.

Meanwhile, the International Underwriting Association (IUA) has published a guide to good practice for delegated authority arrangements in the London company market. It urges firms to keep customer impacts uppermost in mind when outsourcing particular functions, highlighting the need for detailed risk assessments when selecting new coverholders and stressing the importance for comprehensive ongoing oversight of any partners.

For more details, click here.

‘Value in the distribution chain’ under scrutiny
The FCA has announced to insurance trade bodies that it will soon be commencing ‘discovery’ work on value in the distribution chain, as mentioned in its 2017/18 Business Plan. The focus of the work will be on the roles played by the various parties, the relationships and interactions between them, the products and services they provide and the remuneration they receive.

Approximately 40 firms (a mixture of insurers, intermediaries and service providers) have been selected to participate in this project. The FCA has stated that its focus will be on products for tradesman (sole traders and SMEs), travel insurance and GAP/vehicle ancillary products.

This discovery work is scheduled to continue until Q2 2018, after which the regulator is expected to share its feedback with the market.

Firms falling short on renewal expectations
In October 2017, the FCA revealed that it had been monitoring how firms have implemented the consumer renewal disclosure rules which came into force on 1 April 2017.

Although examples of good practices were seen, the regulator found instances where firms ‘obscured’ the required transparency information or failed to give it sufficient prominence. It has also observed some firms extending their ‘shopping around’ message to suggest that the broker has already done that work for the customer, as well as the failure to treat some policies which ‘expire’ as renewals, even though they could be carried forward for a further year.

The FCA’s monitoring has resulted in several cases of firms being asked to re-contact customers, to clarify their renewal information retrospectively. The FCA made it clear that it will continue to monitor this area of compliance and intervene where it finds firms are not adhering to the rules.

For more information, click here.

FCA issues further consultation on reviewing the funding of the FSCS
The FCA has issued CP17/36 which proposes changes to funding classes and provider contributions to reduce the volatility of FSCS levies, and to better align the risk profiles of firms in specific classes. This follows a previous consultation in December 2016 (CP16/42). Various options are being considered although the FCA has ruled out a previous suggestion of applying risk-based levies to intermediaries which place business with unrated insurers.

The consultation closes on 30 January 2018 and a Policy Statement is expected in Q2 of 2018.

For more information, click here.

FCA Mission: ‘Our future approach to consumers’
The FCA has issued the first of a series of consultation publications which form part of its mission. This includes questions based around firm and consumer responsibility, vulnerable consumers, tackling exclusion and delivering better outcomes for all consumers. The FCA also raises the possibility of introducing a new duty of care for firms into its handbook.

The consultation closes on 5 February 2018 and a final publication will follow later in the year.

For more information, click here.

FCA alert: Firms with ARs and IARs
The FCA has issued an alert on its website to all firms with Appointed Representatives (ARs) and/or Introducer Appointed Representatives (IARs). This highlights the risks to a Principal of not having adequate oversight over such relationships.

For more information, click here.

Possible extension of FCA Principle 5
As part of its Consultation Paper (CP17/37) on Industry Codes of Conduct, the FCA has invited views on whether the fifth of its Principles for Businesses (‘A firm must observe proper standards of market conduct’) should be extended to cover a firm’s business activities which sit outside the regulatory perimeter. The FCA may decide to issue a consultation paper on the subject, depending on the feedback received. Responses are invited by 5 February 2018.

For more information, click here.

Lloyd’s round-up
Lloyd’s has announced the release of an updated ‘Code of Practice – Delegated Authority’, updating the previous version issued in March 2015. It expects Managing Agents to have fully embedded the requirements of the Code (and where applicable, the Delegated Authority Minimum Standards) by 31 March 2018.

For more information, click here.

The Lloyd’s Market Association (LMA) has produced a briefing note on the enforceability of applicable law, jurisdiction and arbitration clauses in policies, post-Brexit. The note is relevant to contracts being underwritten now, where property or other risks are located, or interested parties are resident in, an EU member state, since a dispute may arise after the current Brexit date.

For more details, click here.

GDPR round-up
The Information Commissioner’s Office (ICO) has launched a dedicated advice line for small businesses preparing for the new data protection law. Click here for details.

It has also issued draft guidance to data controllers on due diligence when appointing data processors, as well as the contents of contracts required between controllers and processors under the GDPR. Click here for details.

In addition to the above, the ICO has confirmed that a new fee regime will apply from 1 April 2018. The current draft proposal is a three tier system, which will differentiate between small and large organisations and how much personal data is being processed. More news is expected by the end of 2017. Click here for details.

The Article 29 Working Party (the group of EU data protection authorities charged with agreeing European-wide guidance on GDPR) has published guidelines on profiling and breach reporting. Click here for details.

Complaints data published for H1 2017
The FCA has published complaints data for the first half of 2017 which show that 3.32 million complaints were received by authorised firms, representing a 10% increase over the corresponding period in 2016. Around 60% of insurance and protection complaints were upheld, with Payment Protection Insurance (PPI) remaining the most complained-about general insurance product.

For more information, click here.

CMA market study into the use of PCWs
The Competition and Markets Authority (CMA) has published the results of its year-long study into Price Comparison Websites (PCWs) and apps. Whilst it found that they offer a range of benefits, the regulator issued recommendations to provide greater protection and service for consumers.

The study also led to a competition law investigation into how a particular PCW had set up its contracts with insurers, because it suspected this may have resulted in inflated home insurance prices.

For more information, click here.

The information provided in this Newsletter is based on the Managing General Agents’ Association’s knowledge and understanding of regulatory issues at the date of publication. However, it is generic in content, and matters in UK regulation change regularly. Members should take their own professional advice in connection with any issues which could affect their business. The Managing General Agents’ Association accepts no responsibility or liability for any actions taken based on the information contained within this Newsletter.

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