Compliance Newsletter – November 2019

FCA finalises guidance for product manufacturers and distributors
The FCA has issued its Finalised Guidance (FG19/5) for general insurance product manufacturers and distributors, the purpose of which is to help firms consider the value of their products and how distribution arrangements can affect value to the end-customer. The guidance addresses a number of areas of the original consultation which some stakeholders considered needed greater clarity. Alongside the new publication, the FCA has also given a summary of the feedback it received on its consultation.
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FCA tackles the ‘loyalty penalty’
The FCA has published an interim report on its Market Study into GI pricing practices, which focuses on motor and household insurance. Overall, the FCA found that the markets for these products is not working well for all customers. Whilst a large number of people shop around, many loyal customers are considered not to be getting a good deal. As a result, the FCA has signalled its intention to intervene by proposing certain remedies, which are discussed in this report. A final report and consultation is expected in Q1 2020.
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Lloyd’s responds to GI pricing practices Market Study
The Lloyd’s Market Association (LMA) has published a response to the FCA’s proposed remedies contained in its interim report on the GI pricing practices Market Study. Whilst Lloyd’s generally welcomes measures to reduce consumer detriment, it raises concerns over pricing intervention proposals.
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FCA reviews success of its renewal transparency intervention
The FCA has published Evaluation Paper EP19/1 which considers the outcome of its consumer insurance renewal transparency interventions. The regulator analysed more than 620 renewal notices from 17 firms and conducted extensive customer surveys. It estimates that the introduction of the new rules and guidance in April 2017 has produced consumer savings of between £39 million and £330 million a year. It attributed the result to firms’ increased focus on renewal practices, and consumers being in a position to make more informed decisions.
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PRA explains priorities for the coming year
A ‘Dear CEO’ letter sent by the Prudential Regulation Authority (PRA) to general insurers has identified its current areas of regulatory focus. These include accuracy of reserving (and associated governance and controls), discipline in underwriting strategies, general insurers’ responses to the FCA’s pricing practices review and maintaining a culture where staff feel able to speak up and raise concerns.
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EIOPA turns its attention to value in travel insurance
The European Insurance and Occupational Pensions Authority (EIOPA) has issued a warning to insurers and insurance intermediaries about tackling the high commissions which are often paid on travel insurance products. This follows its recent thematic review, which identified problematic business models where excessive commission levels combined with low claims ratios resulted in customers being offered products which were of poor value. Other concerns included the number of travel claims which were being rejected as a result of no pre-contractual medical screening.
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FCA to launch fourth GI value measures pilot
The FCA is to launch a fourth general insurance value measures pilot. Whilst the regulator is considering feedback to its January 2019 proposals to review value measure definitions, participating insurers will begin another exercise to report value measures data to the FCA using existing criteria: claims frequencies, claims acceptance rates and average claims pay-outs.
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FCA publishes firms’ complaints data for H1 2019
Complaints data for regulated firms for the first half of 2019 shows an increase in complaints from 3.91m in H2 of 2018 to 4.29m for H1 of 2019. As anticipated, there was a marked increase in new PPI claims as the August 2019 deadline approached. However, if data on PPI complaints are ignored, a more positive trend emerges.
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Enforcement round-up
The FCA and the PRA have banned and fined the former CEO of an insurer for a breach of Statement of Principle 1 (Integrity) of the FCA’s Statements of Principle for Approved Persons. This followed the individual concerned transferring excessive amounts of his own remuneration to his wife, in order to reduce his liability for income tax.
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The PRA has fined Citygroup a record amount of £44m for failing to submit complete and accurate regulatory returns. As a result of this failure, the organisation’s financial position had been misrepresented to the regulator.
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FCA acts to protect those buying motor finance
The FCA has issued Consultation Paper CP19/28, which proposes a ban on commission models that give motor finance brokers/dealers an incentive to raise interest rates charged to customers. In addition, the FCA is consulting on minor changes to some of its rules and guidance to ensure that all credit brokers give more relevant information about commission to their customers. The deadline for responses is 15 January 2020, with final rules expected later in 2020.
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LMA’s IDD endorsement updated
The LMA has updated endorsement LMA5312, the purpose of which is to allocate product governance responsibilities under the Insurance Distribution Directive (IDD), to a new version, LMA5312A. The revised endorsement clarifies that, where more than one underwriter subscribes to a binding authority, the default position is that the lead underwriter will always be a manufacturer, either sole or jointly with the coverholder.
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Future funding of FOS
The Financial Ombudsman Service (FOS) has published feedback to its consultation with stakeholders about future funding of the service, which is expected to reduce in size following the run-off of PPI-related claims. More detail about the FOS’s proposed 2020/21 plans and budget will be made available in December 2019.
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ICO round-up
The Information Commissioner’s Office (ICO) has published new guidance on data which the GDPR singled out as being potentially more sensitive and therefore in need of extra protection (‘special category data’).
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New guidance and resources designed to help small to medium-sized UK businesses prepare for data protection compliance in the event of a no-deal Brexit has been added to the ICO website. The content is of particular relevance to businesses which receive personal data from contacts in the EEA, or have an established presence in the EEA, or customers in the EEA.
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New FCA information page for passported-in firms
The FCA has published a new web page which sets out certain FCA Handbook rules which apply to incoming firms exercising a passporting right under the Insurance Distribution Directive.
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GABRIEL user feedback published
The FCA has stated that feedback from over 1,000 GABRIEL users and stakeholders will inform the development of its new regulatory reporting platform. Frustrations about accessing the system (including speed and availability of support), viewing the data reporting schedule, and the lack of guidance for firms when submitting data will all be addressed. The FCA’s online survey is still open to firms to provide feedback.
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TPR extended
As a result of on-going Brexit delays, the FCA has announced an extension to the cut-off date for insurance firms for notification of entry into the temporary permissions regime (TPR), to 30 January 2020. The FCA has reported that about 1,400 firms have applied for the regime so far.
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FCA sees Open Finance as an opportunity
A recent speech given by the FCA Director of Competition revealed that the FCA considers Open Finance to be an area of significant regulatory interest, as it has the potential to improve access within financial services and substantively change the nature of competition. It is seen as an opportunity to allow consumers and SMEs to access and share their data with third party providers who can then use that data to develop innovative products and services.
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CII Qualifications Guide issued
The Chartered Insurance Institute (CII) has launched its 2020 qualifications guide.
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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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