FCA publishes industry insights on cyber security
As part of its cyber resilience initiative, the FCA has published a short document which shares information and ideas from other financial services firms about their cyber experiences. Aimed at smaller and medium-sized firms, the document covers matters such as security governance, the appropriate protection of assets and use of good detection systems.
FCA completes its wholesale insurance brokers market study
The FCA has surprised the insurance sector by publishing its ‘Final Report’ on the wholesale insurance market much earlier than expected. Overall, the FCA says it did not find evidence of significant levels of harm to competition that merits the introduction of intrusive remedies. It did, however, identify some areas which warrant further action in relation to conflicts of interest, the information firms disclose to clients and certain specific contractual agreements between brokers and insurers. It intends to address these areas within its usual supervisory processes.
FCA consults on widening its ‘value measures’ pilot
The FCA has issued Consultation Paper CP19/8 (‘General Insurance Value Measures reporting’) which proposes to implement the reporting of claims frequencies, claims acceptance rates and average claim pay-outs across nearly all consumer insurance products. In addition, the FCA wants to add a further metric – claims complaints as a percentage of claims. Consultation on the new reporting requirements, which are aimed primarily at insurers, runs until 30 April 2019 and final rules are expected later in 2019.
Maximum FOS award increasing from 1 April 2019
The FCA has issued rules in Policy Statement PS19/8 which increase the maximum FOS award limit from £150,000 to £350,000 with effect from 1 April 2019. For incidents which occurred prior to that date but were referred to FOS on or after 1 April 2019, the limit proposed is £160,000. Both maximum award limits will be increased annually for inflation, in accordance with the Consumer Prices Index, starting from 1 April 2020.
The FCA has issued its finalised guidance (FG19/2) on Statements of Responsibilities and Responsibility Maps for solo-regulated firms. There are no material changes to the consultation guidance but a few more examples have been included.
The FCA has also published final rules (PS19/7) on its new online ‘Directory’ which will sit alongside the Financial Services Register. The Directory is to include details of certified staff, non-executive directors and directors who are not part of the Senior Managers’ Regime.
The FCA has released a short video on its website in which senior leaders from four financial services firms, together employing over half a million staff, talk about their experiences of adopting the SMCR in 2016 and how it helped improve culture and governance in their respective organisations.
HMRC takes steps to eliminate VAT avoidance
New legislation came into force on 1 March 2019 which restricts the right of insurance intermediaries to reclaim VAT by forming arrangements with organisations outside of the EU to re-supply or ‘loop’ those services back to United Kingdom consumers. Previously such intermediaries were able to reclaim the VAT and thereby gain a competitive advantage over purely UK-based firms.
EIOPA publishes Framework for assessing conduct risk through the product lifecycle
In February 2019, the European Insurance and Occupational Pensions Authority (EIOPA) published a framework document designed to address product lifecycle risks which can result in poor conduct outcomes. The framework recognises that poor conduct outcomes may stem from product characteristics, how products are brought to market and from interactions with customers at the post-contract stage.
FCA issues its first decision under competition law
The FCA has issued its first formal decision under its competition enforcement power. This followed three asset management firms breaching competition law by sharing strategic information between themselves.
FCA fines Carphone Warehouse over £29m for insurance mis-selling
An FCA investigation, which stemmed from whistleblowing reports, has resulted in the regulator fining Carphone Warehouse £29.1 million for inappropriate selling of mobile phone insurance between December 2008 and June 2015. The firm was found to have failed in giving its sales consultants the right training to provide suitable advice to customers, or to assess their demands and needs properly. As a result, some policies were recommended to customers who already had cover, for example through their home insurance or bank accounts.
Lloyd’s to change its approach to third party oversight
Lloyd’s is consulting on a proposed new approach to its third party oversight, relating primarily to coverholders and Third Party Administrators (TPAs). The deadline for feedback is 15 April 2019. To support the proposed changes, which are to start in the summer, Lloyd’s will also be rolling out a new integrated, online compliance system, known as Chorus. This will replace the current ATLAS and BAR systems.
EIOPA has issued a paper entitled ‘Recommendations for the insurance sector in light of the United Kingdom withdrawing from the European Union’. This includes its interpretation of the application of Article 16 of the Insurance Distribution Directive in the event of a hard Brexit.
In the light of the recent agreement between the European Council and the UK Government to a two-week delay to the process of the UK’s withdrawal from the EU, the FCA has confirmed it intends to extend the notification window for the temporary permissions regime for incoming EEA firms until the end of 11 April 2019.
The FCA has issued Brexit Policy Statement PS19/5 in which it gives responses to its five previous consultation papers on a no-deal Brexit. The Policy Statement also amends certain provisions implementing the Insurance Distribution Directive, which were previously expected to be consulted on separately. The FCA intends to publish the final instruments on exit day, if the withdrawal agreement between the UK and the EU is not ratified.
The FCA has also published updated information on its website to ‘help support’ firms in finalising their preparations for as smooth a transition as possible when the UK leaves the EU.
Finally, the Treasury has published draft legislation which would temporarily empower the FCA to make transitional provisions if the UK leaves the EU without an agreement in place. The regulator intends to use this power to ensure that firms and other regulated entities do not generally need to prepare now to meet the changes to their UK regulatory obligations that are connected to Brexit.
Digital regulatory reporting
The FCA and the Bank of England are continuing to explore the feasibility of digital regulatory reporting. A six-month pilot, to build upon the proof of concept, took place in 2018 and a second phase of the pilot commenced in February 2019. The FCA says it welcomes requests for further information and expressions of interest in becoming involved in the pilot.
FSCS Management Expenses Levy limit 2019/20 announced
The FCA and Prudential Regulation Authority (PRA) launched a joint consultation (CP19/9) on the management expenses levy limit (MELL) for the Financial Services Compensation Scheme (FSCS) for 2019/20 which proposed an increase of 2.4% over the previous year, which is roughly in line with inflation. The MELL ensures that the FSCS has adequate funding to continue to operate and meet its objective of providing a compensation scheme for consumers. The MELL for 2019/20 is expected to be confirmed in Q2 of 2019.
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