The FCA has published its Perimeter Report for the period 2020/2021. In it, the regulator has called for ‘legislative change to address concerns beyond its remit’.
The FCA’s perimeter (meaning its remit) determines the activities that require FCA authorisation, as well as the level of protection consumers can expect for the financial services and products they buy.
Relevant points in the report include:
- The general insurance perimeter: The FCA acknowledges that there is not complete definition of insurance, but highlights concerns in two areas in which contracts may be taken outside of its perimeter, which are: where firms have absolute discretion not to pay out. The FCA argues that this is an unfair term or the provider would never exercise this absolute discretion and therefore the contracts should properly be categorised as insurance. Secondly, where firms claim that their warranties are ‘mainly service contracts providing repair services, with a minor indemnity element that pays benefits if the product is lost or damaged’. The FCA believes that many of these contracts artificially describe the repair services and are really contracts of insurance.
The FCA is considering the further action it can take to give the industry and consumers more clarity on its position on these types of products. This might include: potential amendments to its perimeter guidance on insurers (PERG 6) and taking action to ensure that firms are not acting illegally by providing insurance contracts without appropriate authorisation.
- Appointed Representatives (ARs): The FCA is carrying out targeted supervision of ARs. A new annual fee has been introduced - principals will now have to pay an annual fee to the FCA of £250 per AR and £75 per IAR. The FCA will work with HM Treasury on potential legislative changes, and a pilot on being “tougher at the gateway” has shown that 50% of firms intending to appoint ARs have either withdrawn their applications for authorisation or the FCA has decided to refuse them.
- Business Interruption Insurance (BI): The FCA has highlighted the lack of certainty regarding what is covered by a BI policy, both at the point of purchase and when the customer needs to make a claim. The FCA will consider this issue further over the coming year, including through work with the Prudential Regulation Authority (PRA).
- Outsourcing and third-party service providers: Although not regulated by the FCA, there is some focus on third-party providers, with the regulator wanting to ensure that firms work effectively with third-party providers where they are providing important business services. Firms should also make sure that the way these services are provided is mapped and tested so that vulnerabilities can be identified and addressed.
FCA Chief Executive, Nikhil Rathi, said of the report, “The annual perimeter report is an important part of our accountability to Parliament, particularly the Treasury Committee. The FCA is committed to being more innovative, assertive and adaptive. That means being more proactive at the limits of our regulation, working with partners and other agencies where we don’t have powers and setting out where we believe more powers are necessary.
“We see real risks to consumers from outside our remit from both online advertising and from those using exemptions to sell products to ordinary customers. Change is needed and we will continue to push for powers where we need them.”
If you need advice on any of the above, please contact your RWA Business Manager or email helpdesk@rwagroup.co.uk.
