The FCA has released the second part of the IDD consultation and this can be found at: https://www.fca.org.uk/publications/consultation-papers/cp17-23-idd-implementation-ii
The FCA has now advised that the IDD will be a three-part consultation with the third and final part to follow later in the year. Given the short-time that will be available to implement the required changes, which need to be made in February 2018, the third consultation may have a much shorter response period.
CP17/23 is split into two parts; part one is concerned with those regulated firms which are subject to COBS (the Conduct of Business Sourcebook). This is primarily IFAs and those firms selling or advising on investment products.
The General Insurance Broker is of course subject to ICOBS (The Insurance Conduct of Business Sourcebook), so this article concentrates on part two, which is Chapters 9 – 14 of the consultation paper, as follows:
Chapter 9 – Conflicts:
For the general insurance profession, the FCA propose to maintain the existing rules but extend rules for MiFID (Markets in Financial Instruments Directive) based firms, which are generally speaking those firms subject to COBS (see above) to the equivalent level, so there is significant impact in the proposals for the general insurance broker.
The only potential change to consider is the proposal to introduce a proportionate rule:
“the IDD specifies that the arrangements put in place to prevent conflicts of interest should be proportionate to the activities performed, the insurance products sold and the type of distributor. We intend to include this additional provision in SYSC 10.”
SYSC being the Systems & Controls Sourcebook, which sets out rules and guidance on managing a regulated entity.
This new proposed rule will allow flexibility in how conflicts are manged, but should not have any significant impact on the general insurance broker
There will also be a new section in SYSC Chapter 3 for insurers, but that will not impact on the insurance broker.
Chapter 10 – Product Oversight & Governance:
For non-MiFID (general insurance) business, the FCA will rely on existing provisions and guidance, but they propose to incorporate a new chapter 4 in PROD (Product Intervention and Product Governance Sourcebook), which will govern product development and oversight and is aimed to a great degree at MiFID firms to govern those insurance entities who manufacture or design their own bespoke products or schemes.
However, the FCA does not expect any notable change in practice as existing rules and guidance broadly cover the IDD requirements; an example perhaps of gold plating bearing fruit or ‘future proofing’.
However, MiFID firms will see a greater change with a number of new provisions, but we do not need to concern ourselves with these.
Chapter 11 – Organisational Requirements:
This is focused on client money and reinsurance money, and the FCA is satisfied that the current regime is adequate for IDD purposes; they propose that it will be extended to reinsurance business to ensure consistency of regulation.
There should be minimal impact on insurance brokers, other than those who transact reinsurance business.
Chapter 12 – Professional Requirements:
The main change here seems to be a requirement to demonstrate record keeping in the good repute area and a move from MIPRU (the Sourcebook which governs rules on capital adequacy and related financial matters) to SYSC, as having all the ‘governance’ rules in one place would seem to be logical.
This will also be extended to ancillary insurance intermediaries except for travel insurance.
In practice, this should not prove too onerous as such matters are generally reviewed as part of an appraisal or competence review.
Chapter 13 – Additional Handbook Changes:
This introduces the concept of the IPID (Insurance Product Information Document) similar to the current ‘key facts’ document, but it must be given for each consumer contract (including ‘add-ons’) at new business and renewal. However, this requirement will not be extended to commercial customers.
It is the product producer’s responsibility to provide and the insurance brokers to issue.
The exact form and content is still under discussion within the EU, so may well change. Although there is a ‘sample’ document within the consultation paper on Pg. 164.
Now here is an area that I think needs further exploration, as there is a significant opportunity to enhance protection for all clients and the insurance broker as well.
I will not go into more detail now, but there is an additional article exploring Chapter 13, which is available by clicking here, so please look for this as it will give you something to consider.
Chapter 14 – Consequential Changes to the Handbook:
The proposed consequential changes in this section are largely administrative and do not reflect any change in policy. They generally consist of incorporating cross-references to IDD requirements, updating language and ‘tidying up’.
Summary:
Chapter 13 aside, I do not see at this stage any significant issues, but of course a lot can change between now and the Policy Statement in the Autumn.
As ever, we urge all clients to read this document and make representations to the FCA or you can route your thoughts via ourselves and we are happy to present your views along with any of our own. It is your chance to help shape future regulation and also to help the FCA understand more comprehensively how the general insurance profession operates.
The deadline for responses is 20th October 2017.
Please feel free to contact us if you wish to discuss any aspect of the above, or your thoughts on the separate Chapter 13 article.
Terence Clark
Chairman
