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YOUR COMPLIANCE MATTERS – HMT Consultation Appointed Representatives

Tue, 16 Sep 2025 11:39:43 GMT

Relevance: All firms with (or planning to have) Appointed Representatives

Action required: Consider future barriers and current oversight arrangements.

On 11 August 2025, the UK finance ministry, HM Treasury (HMT) published its policy statement ( PS ) on changes to the UK Appointed Representatives regime. The PS is the response to an earlier Call For Evidence published in December 2021, which set out a range of potential reforms to the existing appointed representatives (AR) framework.

The good news is that the AR regime is being retained, which will come as a welcome relief for the industry following initial speculation that it might be abolished entirely. However, HMT has also confirmed in the PS that there will be two key changes to the current AR framework (subject to appropriate primary legislation being enacted and where necessary, the regulators updating their rules):

In the future, UK authorised firms who wish to act as the principal for an AR will need to obtain permission from the UK Financial Conduct Authority (FCA) to do so. This is designed to ensure that the principal firm can demonstrate that it has appropriate resources and expertise to be able to exercise effective oversight over any ARs it appoints. HMT states that firms which already act as principals for ARs before the changes are implemented will not need to apply for the new permission (which presumably means that there will be some kind of grandfathering regime in place, but the details of this are expected to follow in due course).
The jurisdiction of the UK Financial Services Ombudsman ( FOS ) will be extended to allow the FOS to investigate an AR directly where the AR is acting outside the scope of business for which its principal firm has agreed to be responsible, and the principal firm is not at fault.

The timing of the implementation of these reforms is currently unclear. We do not expect the required primary legislation to come into force until 2026 at the earliest.

What is the background to the AR regime and the latest reforms?

The AR regime provides a statutory exemption from the general requirement that a person who carries on regulated activities by way of business in the UK must be authorised to do so.

ARs are exempt from the authorisation requirement because an authorised firm (the principal) will have entered into an express written agreement with the AR to accept responsibility for the regulated activities the AR carries on.

The principal firm may be authorised by the FCA or the UK Prudential Regulation Authority or otherwise authorised through another mechanism provided for in the Financial Services and Markets Act 2000.

The regulated business that can be carried on by an AR under the exemption is limited to a specific list of regulated activities set out in secondary legislation.

The permitted activities include, for example, dealing as agent in investments, arranging activities, various advising activities and credit broking. The AR's agreement with the principal must specify the activities for which the principal is accepting responsibility and in relation to which the exemption from authorisation will therefore apply.

The AR regime is commonly relied upon to avoid the need for the entity acting as AR to be authorised by the FCA. Obtaining and maintaining authorisation can be expensive and time-consuming. In particular, ARs are commonly used in "hosting" services (where authorised third-party providers may provide temporary or long-term solutions to allow new market entrants to carry on regulated business in the UK so that they do not need to wait for FCA authorisation), as well as in intra-group contexts (thereby avoiding an unnecessary proliferation of regulated entities in the group).

In the retail sector, AR structures are also commonly used to facilitate networks of independent investment advisers, so that each adviser does not require separate authorisation, and their use is also widespread in the consumer credit and insurance distribution markets for similar reasons.

Despite these benefits for market participants, the AR regime has come under increasing scrutiny in recent years, with concerns that the use of ARs has become wider than was initially anticipated when the exemption was first introduced.

There is also concern that perceived lax oversight by a principal firm could lead to substantial consumer harm and that it may be difficult for consumers to act against an AR, who may in any case lack substantial resources to pay redress. The FCA has in recent years restricted some principal firms from appointing new ARs.

YOUR COMPLIANCE MATTERS – FCA Premium Finance Market Study update

Wed, 06 Aug 2025 16:38:12 GMT

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YOUR COMPLIANCE MATTERS – FCA Premium Finance Market Study update

Relevance: All firms

Action required: Ensure that you can justify what you earn from premium finance.

The FCA has published initial observations on its premium finance market study, ruling out an APR cap or a ban on commissions (July 2025).

Launched in October 2024, the premium finance market study aims to assess whether consumers are receiving fair value and if competition is functioning effectively across the insurance sector. This is particularly important in the context of the cost-of-living crisis, with more consumers relying on premium finance to manage their expenses. While these customers may have lower financial resilience, the FCA highlights that they’re typically charged 8-11% more than customers who pay annually – effectively subsiding their costs.

In addition to Consumer Duty fair value expectations, there’s also PROD 4 compliance to consider. This requires firms to demonstrate that premiums bear a reasonable relationship to their costs and charges (including APR and profit margins) and are not disproportionately high.

The interim report summarises key findings to date, and firms should prepare for further interactions with the regulator during the second phase of the study.

Premium finance does incur material costs

The FCA’s initial findings confirm that there are operational costs associated with paying for insurance in instalments, including resourcing, IT and compliance. There are also additional costs in the form of bad debt, which accrues during periods of non-payment, but before the provider cancels the policy to mitigate further losses. The FCA notes that this forbearance is integral to consumer protection.

Bad debt was highest for intermediary brokers that had recourse arrangements with specialist premium finance providers (SPFP). In these instances, there was a 3% bad debt to loan balance. However, it was significantly lower for SPFPs (0.6%) and intermediary lenders (1%). Benchmarking these stats across the wider financial sector, a sample of retail banks carried bad debt of 1.9%.

While premium finance is priced to cover those potential losses, the FCA found that some providers’ revenues materially exceed costs, with margins varying from 14-62% (2018-23). The lowest weighted margin was 24% (SPFPs), with the highest of 53% (insurers) – with the FCA noting an exception in 2023 due to broader market conditions. Firms with higher margins should be prepared to demonstrate how their pricing structure reflects fair value to consumers.

No APR cap in premium finance

Around 60% of consumers pay annual percentage rates (APR) between 20-30%, however, nearly a fifth pay more. Comparing these figures across the consumer credit market, the FCA notes average APRs of 35% for overdrafts, around 23%-32% for credit cards (combining Bank of England and FCA reports), and 11% on £5K personal loans. As such, some APRs could be disproportionately high from some providers.

APR over 30% is more common where premium finance is funded by SPFPs and distributed by brokers, although the FCA highlights the importance of the SPFP/broker relationship to enable smaller firms to compete effectively.

Despite greater margins and higher APR in some quarters, other firms are offering premium finance at 0%. This is particularly prevalent in home insurance, where more than a third of consumers pay the same across monthly vs annual payments, compared to less than 3% in motor insurance. This is partly due to more consumers buying home insurance direct from the insurer, with many selecting their own mortgage provider for added convenience – with expected customer loyalty relieving some cost pressures for providers.

Recognising the range of business models and different customer groups across the sector, the FCA has ruled out a market-wide APR cap. But it will explore whether current practices accurately reflect costs and offer fair value to consumers.

No ban on commissions for premium finance

In addition to running costs and APR, there’s also commission to consider. While the FCA’s initial observations don’t discuss commission arrangements in depth, they remain a fundamental element of the premium finance market study.

Brokers need to demonstrate that commission is proportionate to their services and that it doesn’t affect fair value for consumers. Where commission is paid, firms must consider whether the consumer is exposed to a higher APR to offset the cost of commission to the finance provider. If so, firms should undertake an analysis to determine and evidence fair value.

The FCA will continue to assess commission and clawback throughout the remainder of the study but has ruled out banning commissions. This is due to existing rules around remuneration, fair value and consumer understanding – but the regulator highlights that it will act on breaches of those rules.

Next steps

The FCA’s update sends a clear message: that firms must be able to robustly demonstrate that their products offer fair value or face regulatory consequences. As seen with the Product Oversight and Governance thematic review (PROD 4 and PROD 1.4), firms that can’t adequately evidence this could face firm-specific actions such as skilled person reviews or remediation and mitigation plans.

With premium finance remaining in the spotlight, throughout the FCA market study and beyond, it’s essential for firms to review their product governance processes. This includes a critical review of cost models to assess how all costs are allocated and how they translate into the final price.

YOUR COMPLIANCE MATTERS – FCA Consultation - Simplifying the insurance rules

Thu, 29 May 2025 06:48:38 GMT

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YOUR COMPLIANCE MATTERS – Consumer Duty – Vulnerable Customers

Mon, 31 Mar 2025 10:53:04 GMT

Relevance: All firms

Action required: Review your own performance against the FCA review of Consumer Duty issues relating to Vulnerable Customers and consider any additional action that you may want to take.

The FCA has published its review into firm’s treatment of customers in vulnerable circumstances.

To quote ‘Meeting the needs of consumers in vulnerable circumstances can be hard to get right. Our review shows that some firms are making a real difference by supporting consumers and responding flexibly to meet often complex and highly individual needs, which helps to build trust. But most firms can do more, particularly when designing products and services, and monitoring and taking action where vulnerable customers are experiencing worse outcomes than other customers.

Alongside the review we’ve published consumer research and good and poor practice examples to help firms deliver good outcomes for customers in vulnerable circumstances and to provide the extra insight industry is asking for’.

You can read the review here https://www.fca.org.uk/publications/multi-firm-reviews/firms-treatment-vulnerable-customers

The FCA feedback on good, and poor practice in this area is here https://www.fca.org.uk/publications/good-and-poor-practice/delivering-vulnerable-customers

As the FCA state ‘There is no one-size-fits-all approach. The approach that firms take will differ according to their business model, size and customer base’.

To assist you, we have summarised the feedback on good, and poor, practice below.

‘Areas of good practice

Effective use of data to monitor outcomes

A small number of firms used data effectively to identify where customers in vulnerable circumstances were experiencing worse outcomes than others.

Offering flexible and tailored consumer support

We saw examples of firms delivering flexible and tailored support, strengthened by training frontline staff on how to support customers with characteristics of vulnerability.

Clear and timely communications

We saw firms take steps to review and improve the clarity of their messages to customers, tailor communications, and provide these in a timely manner to make sure customers understood product information.

Incorporating consumers’ experiences into product and service development processes

Some firms incorporated feedback from lived experience panels and focus groups into their development processes, and considered how customers in vulnerable circumstances used their products as part of product reviews processes.

Areas for improvement

Ineffective outcomes monitoring

Most firms in our multi-firm work into outcomes monitoring were unable to show how they effectively monitor and act on outcomes for customers in vulnerable circumstances. This includes:

- Not being clear on what good outcomes look like or having clear ways of measuring them.

- Not escalating issues or making changes where needed.

Failure to give appropriate support. Some firms failed to:

- Appropriately support staff in identifying customers in vulnerable circumstances.

- Encourage customer disclosure.

- Provide support promptly and with an appropriate level of care.

Failure to communicate clearly to meet the needs of customers in vulnerable circumstances

We saw examples of firms not providing appropriate or accessible channels to customers in vulnerable circumstances, and a lack of testing of consumer understanding.

Lack of tailored training and embedding consumers’ needs into product and service design

Most firms we engaged with could not show us how they had embedded the needs of customers in vulnerable circumstances into their product and service design processes.

We also saw a lack of training on vulnerability for product and design staff.’

Summary

As always, the FCA expects firms to take an approach which is proportionate to the size, and complexity, of their business and the feedback provided should be used to inform your own approach to this issue.

YOUR COMPLIANCE MATTERS – Consumer Duty – Board Champions

mike.hanson@ycmmail.com (MICHAEL HANSON) — Mon, 10 Mar 2025 10:42:10 GMT

Relevance: All firms

Action required: Review your own performance against the Consumer Duty requirements and decide whether you wish to retain the ‘Board Champion’ role.

In the latest ‘Regulation round-up,’ the FCA confirmed that it no longer expects firms to have a Consumer Duty Board Champion.

FCA statement

‘Now the Duty is in full effect, we want to give firms greater flexibility on their ongoing governance arrangements. Firms are free to retain the role should they wish to do so.

This means that the view set out in our final non-handbook guidance (FG 22/5), where we said we expected firms to have a champion at Board level or equivalent, no longer applies. We will take steps to update FG22/5 to reflect the new position in due course.

We want firms’ Boards and senior management to make good outcomes for consumers central to their firm’s culture, strategy, and business objectives.

In FG22/5, we said that we expect firms to have a champion at Board (or equivalent governing body) level to support the Chair and CEO in raising the Duty regularly in all relevant discussions, and challenging the firm’s governing body/management on how it is embedding the Duty and focusing on consumer outcomes.

The Duty came into force for open products and services on 31 July 2023, and for closed products and services on 31 July 2024. It should therefore be well-embedded in firms’ management discussions, processes, and policies.’

‘… from 27 February 2025 we no longer expect (Firms) to have a Duty champion, although they can retain the role should they wish to do so.

Our rules require firms to ensure that their obligations under the Duty are reflected in their strategies, governance, leadership, and people policies, including incentives at all levels. Firms also need to ensure that retail customer outcomes remain central to the firm’s risk control arrangements and internal audit function.’

Expectations

This does not represent a reduction in focus on the Consumer Duty Principle that requires firms to act to deliver good outcomes for retail customers.

The change does reflect the FCA expectation that firms will have embedded the requirements into the business to the point where collective responsibility is in place, and all firms are monitoring their performance through effective MI and review processes.

Be aware that the Consumer Duty drives much of the FCA supervisory work, and any loss of focus would be inappropriate.

FCA priorities under the Consumer Duty for the remainder of 2024/25.

Thu, 12 Dec 2024 09:40:52 GMT

The FCA has published (9th December) a document covering its Consumer Duty priorities for 2024/25. To quote from the document:

‘The Consumer Duty is one of the most significant changes to our regulatory approach in recent years. It has been in force for open products and services since 31 July 2023, and for closed products and services since 31 July 2024.

Priority areas for 2024/25

1. Embedding the Consumer Duty and raising standards

Assessing across sectors how firms are implementing and complying with the Consumer Duty

We want to understand how firms are improving consumer outcomes. Where we need more data and information from firms, we’ll only ask for what we need.

We have 3 cross-cutting projects which we are grouping into packages of publications in Q4 2024 and Q1 2025:

Review of board/governing body reports and complaints and root cause analysis – Assessing how firms are responding to our outcomes monitoring requirements, for example through our review of Board reports and how firms are using insight from their complaints to identify systemic issues and improve business practices.’

Please see the FCA findings on board reports here https://www.fca.org.uk/publications/good-and-poor-practice/consumer-duty-board-reports-good-practice-and-areas-improvement

Findings on complaints handling here https://www.fca.org.uk/publications/good-and-poor-practice/complaints-and-root-cause-analysis-good-practice-and-areas-improvement

‘Review of treatment of customers in vulnerable circumstances – Assessing firms’ approach to the treatment of customers in vulnerable circumstances.
Review of consumer support outcome and supporting informed decision-making – Looking at how firms support their customers across the customer journey and how they are using communications to support informed consumer decision-making.

Where we identify good practice, we will share it. Where there are areas for improvement, we will remind firms of our expectations and set out where they may need to accelerate progress. We will combine insights from our work where possible to make it easier for firms to understand what good and poor practice looks like. If we identify compliance issues, we will consider appropriate action.

We recognise different firms face different challenges. We want firms to take an approach that is proportionate to their size and to the activities they undertake. Where appropriate, we will set out different approaches smaller firms could take.

2. Enhancing understanding of the price and value outcome

We know firms have found challenges in conducting fair value assessments and have questions about our expectations. We want firms to use robust analysis to assure themselves, and us, that they are offering fair value, and identify and take action where they are not. In Q3 2024, we published reflections on fair value assessments we have reviewed.

Further priorities include Market study into premium finance – Reviewing whether people who borrow to pay for motor and home insurance are receiving fair, competitive deals. We plan to publish an interim report in H1 2025.

3. Sector-specific priorities

We have planned work to tackle areas of existing concern in sectors across the rest of this financial year and into the next. Firms should expect a general focus on their implementation and embedding of the Consumer Duty and customer outcomes as part of any supervisory engagement.

General and life insurance

We completed work looking at general and life insurance firms’ compliance with outcomes monitoring. We published our good and poor practice report in June 2024. We also completed our work looking at consumer support in the bereavement process and pension transfers. We published our findings in November 2024. Our focus is on the price and value outcome, following on from work on GAP insurance, and as shown through our market studies planned in pure protection and started in premium finance.

In addition, we will focus on:

Claims handling arrangements – Understanding insurers’ claims handling arrangements and whether systems, controls, governance and oversight structures drive good consumer outcomes. We aim to publish findings in Q2 2025.

4. Realising the benefits of the Consumer Duty

With the Consumer Duty in force, we published a Call for Input covering our wider requirements on retail firms and asking where we can use the Duty to simplify them. The deadline for responses was 31 October 2024. We will set out next steps in H1 2025.’

Conclusion

There is nothing new here, and the areas of focus should not come as a surprise. The key point is that supervisory work will continue to focus on delivery of the Consumer Duty outcomes. So, firms need to stay focussed on this as an issue and ensure that management processes, and MI reviews, provide clear evidence of the firm’s focus on outcomes (and can demonstrate that action is taken where potentially poor outcomes are identified).

YOUR COMPLIANCE MATTERS: Home and Motor premium finance FCA market study

mike.hanson@ycmmail.com (MICHAEL HANSON) — Wed, 16 Oct 2024 08:49:38 GMT

YOUR COMPLIANCE MATTERS: Home and Motor premium finance FCA market study

Relevance: All firms providing Premium finance.

Action required: Review your own Management information and position against FCA feedback.

As part of a wider review into the private car insurance market, the FCA plans to complete a Consumer Premium finance market study.

To quote the FCA:

‘With recent increases in motor and home insurance premiums and the challenges brought about by the cost of living crisis, many customers are looking to find ways to spread the cost of their insurance products.

We estimate that over 20 million adults pay their premiums in instalments on one or more insurance policy.

Some providers charge the same total amount for a policy whether paying in monthly instalments or in a lump sum up front. However, in most cases using premium finance and paying in monthly instalments leads to higher total payments as there is a charge for offering credit, with Annual Percentage Rates (APR) being as high as 30% in some instances.

We estimate that outstanding premium finance loan balances exceeded £5bn in 2022, generating up to £1.2bn revenues to providers.

Given the demand for this product and how vital it is for some consumers to be able to afford their insurance, it is important that it offers fair value to those customers that use it. But there are concerns that this is not the case, and that competition may not be functioning effectively.

Why are we doing this market study?

The Consumer Duty has brought greater focus on good consumer outcomes. In 2023 when we laid out its strategic priorities in the insurance market, we highlighted that firms needed to consider premium finance as part of their fair value assessments under the Consumer Duty. Our concern is that the premium finance market is falling short of the standards we want to see from firms.

We will be seeking to understand how competition works in the premium finance market and the outcomes it produces for consumers. Based on our findings, we will consider whether there is a need for regulatory action that allows for a proportionate response to any harm uncovered.

Scope of the market study

The scope of this market study is premium finance products, sold to UK consumers, in relation to motor and home insurance policies. We will consider whether there are any wider implications from our investigation for premium finance offered on other insurance products.

Understanding how competition works requires that we assess the market forces that determine how firms and customers make decisions. To do this, we will gather information on premium finance products offered by insurers, intermediaries and specialist premium finance providers.

Issues we will explore

Our market study will assess how the market for premium finance works and will focus on the following key areas:

• The extent to which the premium finance market is leading to poor customer outcomes

• What factors could be driving this, specifically:

– A lack of competitive constraints

– Obstacles to effective customer decision making and the role firms’ practices may be playing

– Incentives created by commercial arrangements between different providers in the supply chain, and whether these may be creating conflicts of interest and shaping misaligned incentives that result in higher prices for customers.

Potential outcomes of the market study

Market studies can lead to a range of outcomes. Where harm is identified, there may be a range of proportionate interventions available to make the market work better.

Next steps

Given the urgency of the wider issues in motor insurance, we are launching this work now. We will engage with firms, industry groups and stakeholders to gather their views on the Terms of Reference and to begin discussions over what data we may need. We expect to start these discussions shortly.’

You can access the Terms of Reference here https://www.fca.org.uk/publication/market-studies/ms24-2-1-premium-finance-terms-reference.pdf

The expectation is that findings will be published in Q2 2025. You should be prepared for any information requests from the regulator from the end of this year. Although the market study will focus on Home and Motor markets, any findings could inform work related to Commercial premium finance.

FCA feedback on Consumer Duty MI.

Thu, 22 Aug 2024 13:46:37 GMT

YOUR COMPLIANCE MATTERS: FCA feedback on Consumer Duty MI.

Relevance: All firms.

Action required: Review your own Management information and position against FCA feedback.

The FCA has been communicating with firms throughout the lead up to Consumer Duty implementation in July 2023, and since then via a number of research and feedback papers. The FCA has published feedback specifically looking at ‘Outcomes monitoring’ - the MI you use to identify whether you are delivering ‘Good outcomes’ to your clients. Feedback was published in June 2024 see:

https://www.fca.org.uk/publications/multi-firm-reviews/insurance-multi-firm-review-outcomes-monitoring-under-consumer-duty/printable/print

The research completed by the FCA was based on Consumer Duty Board reports supplied by 20 ‘larger’ firms back in December 2023 (so maybe a little early in the process). Firms involved included general and life insurers. intermediaries and outsourcers.

The purpose of the review was to identify any general themes emerging and evidence of good practice and areas for improvement. The FCA has always been clear that firms need to take a proportionate approach to its MI (so for a smaller firm, the MI and oversight will be simpler) so their expectations for this group of firms were relatively high.

Good practice

● Clear mapping of metrics to the four outcomes (Consumer understanding, Consumer Support, Price and Value, Products and Services)

● Identification of potential types of poor outcomes and their significance

● Identification of relevant MI (even if not yet available)

● Proactively identifying foreseeable harm

● Monitoring compliance with SLAs where activity is outsourced

● Utilising customer feedback, including online ratings

● Using internal audit results to identify issues

● Full root cause analysis of complaints

● Testing the customer journey to identify issues

● Clear focus on vulnerability

● Clear action and follow up when issues have been identified

Could do better

● Too much focus on internal process (a tick in a box to say that communications have been reviewed does not automatically lead to better outcomes)

● Not enough data (not knowing what was needed, repackaging existing MI without considering whether it really provides the MI needed).

● Limited focus on claims outcomes (e.g. considering speed of resolution without considering whether the customer got the right outcome)

● The governing body of the business was too often receiving data with no analysis, interpretation or recommended action.

● Lack of trend analysis

● Setting the bar for acceptable outcomes too low (and reducing expectations to match outcomes)

● No consideration of vulnerability

● Lack of action when issues are identified

Action required

Firms are expected to review their monitoring of Consumer outcomes and consider whether their approach is sufficiently broad to ensure that the firm is focused on the information needed to identify its ability to deliver good outcomes.

As always, please get in touch if there are any issues that you would like to discuss.

FCA finds concerns over insurers’ valuation of written-off or stolen vehicles.

Thu, 04 Apr 2024 12:36:29 GMT

YOUR COMPLIANCE MATTERS: FCA finds concerns over insurers’ valuation of written-off or stolen vehicles.

Relevance: All firms.

Action required: Ensure your teams are aware of FCA concerns and are ready to challenge insurers as needed.

The FCA has published (27.03.24) a press release identifying shortcomings in how some motor insurance firms are valuing written-off or stolen vehicles.

A link to the press release is here https://www.fca.org.uk/news/press-releases/fca-finds-concerns-over-insurers-valuation-written-or-stolen-vehicles

We were already aware of this issue from your anecdotes. You should be ready to challenge insurers where you believe they are under-valuing vehicles.

To quote from the press release:

‘An FCA review has found evidence that suggests some firms are offering their customers less than their written-off or stolen vehicle is worth and, in some cases, are only increasing that offer when a customer complains.

This comes despite the FCA’s previous warnings that insurers must not undervalue cars or other insured items when settling claims.

The regulator is engaging with the firms included in its review to ensure they make improvements to address the FCA’s findings.

Sheldon Mills, Executive Director, Consumers and Competition at the FCA said:

'Having your vehicle written off or stolen can be intensely stressful and we expect firms to offer the right support to help their customers.We expect all motor insurers to take note of our findings and we are engaging directly with those that have issues that need to be addressed.'

Insurers must handle claims promptly and fairly under FCA rules.

Following the introduction of the Consumer Duty in July 2023, firms are also required to ensure consumers are at the heart of their business and must act to deliver good outcomes for them.

Customers who think their claim may have been undervalued can complain to their insurer and then to the Financial Ombudsman Service if their complaint is not resolved.

If you need to discuss any aspect of this matter with us, please make contact in the normal way.

Pricing information report form REP021 All firms should complete this section for:

a) premium finance – for insurers and intermediaries the business where they set the price and where the price is not set by an insurer or an intermediary the business must be reported by the customer-facing firm;
b) add-ons – the business where they set the price; and
c) fees and charges in addition to the premium – the fees charged by the firm.

6.01

Product

• Motor

Tenure

Premium finance

T10+

6.02

Total charged (£) for retail premium finance in the reporting period

6.03

Number of core motor and home and any add-on policies incepted with retail premium finance in the reporting period

6.04

Number of policies incepted/or renewed in the reporting period with

an APR:

Of 0%

Between 0.1% to 9.9%

Between 10% to 19.9%

Between 20% to 29.9%

Between 30% to 39.9%

Between 40% to 49.9%

50% or more

Add-ons

6.05

Total gross written premiums (£) for add-ons incepted or renewed in the reporting period

6.06

Number of add-ons incepted or renewed in the reporting period

Fees and charges in addition to the premium

6.07

Total pre-contractual fees/charges (£) charged to customers in the reporting period

6.08

Average pre-contractual fees/charges (£) per customer who was charged a fee in the reporting period

6.09

Total post-contractual fees/charges (£) charged to customers in the reporting period

6.10

Average post-contractual fees/charges (£) per customer who was charged a fee in the reporting period

6.01

Product

• Home

Tenure

Premium finance

T10+

6.02

Total charged (£) for retail premium finance in the reporting period

6.03

Number of core motor and home and any add-on policies incepted with retail premium finance in the reporting period

6.04

Number of policies incepted/or renewed in the reporting period with

an APR:

Of 0%

Between 0.1% to 9.9%

Between 10% to 19.9%

Between 20% to 29.9%

Between 30% to 39.9%

Between 40% to 49.9%

50% or more

Add-ons

6.05

Total gross written premiums (£) for add-ons incepted or renewed in the reporting period

6.06

Number of add-ons incepted or renewed in the reporting period

Fees and charges in addition to the premium

6.07

Total pre-contractual fees/charges (£) charged to customers in the reporting period

6.08

Average pre-contractual fees/charges (£) per customer who was charged a fee in the reporting period

6.09

Total post-contractual fees/charges (£) charged to customers in the reporting period

6.10

Average post-contractual fees/charges (£) per customer who was charged a fee in the reporting period

YOUR COMPLIANCE MATTERS – FCA Multi Occupancy Leasehold Insurance Rules effective 31.12.23

mike.hanson@ycmmail.com (MICHAEL HANSON) — Tue, 21 Nov 2023 15:30:59 GMT

Further to our October Newsletter on this topic, we have drafted a format for you to adapt and implement, to assist you in providing the additional information to be disclosed to Residential Leaseholders in Multi-Occupancy properties, for cases incepting, or renewing, from 31.12.23 onwards.

The Policy Statement can be found at PS23/14: Multi-occupancy building insurance: Feedback to CP23/8 and final rules (fca.org.uk) .

As a reminder, a ‘Leaseholder’ is a tenant within the meaning of section 30 of the Landlord and Tenant Act 1985 including a recognised tenants’ association. The Rules will also apply to a ‘policy stakeholder’, being any individual obliged to pay premium. For simplicity we have used the term ‘Leaseholder’ in the remainder of this newsletter.

To be clear, the Rules do not apply to Commercial Leaseholders.

Required disclosure.

You will need to provide additional information to Leaseholders, as soon as reasonably practical following conclusion of the contract.

This information can be sent to the Policyholder, or Property Managing Agent, with an instruction to distribute it to Leaseholders (or send direct to the Leaseholder if you are in touch with them). The FCA has not prescribed a format for the disclosures, but we would suggest something along the following lines. Please adapt to suit the specific circumstances of the case.

Words in italics are for your information and should be deleted from the outbound communication :

----------------------------------------------------------------------------------------------------------------------------

Dear (Leaseholder)

Financial Conduct Authority Rules now require that we supply additional information to the occupants of Residential Multi-Occupancy properties, following Renewal (or inception) if the insurance cover for the building.

We attach a summary of the features of the policy, including main benefits, coverage and exclusions of the policy, duration, and insured sum (produced by insurer).

The policy premium for the building is £XXXX ( Where the policy covers a portfolio of buildings, firms must disclose the premium at building or dwelling level this can be an estimate and is to be produced by insurer).

Our Remuneration for arranging cover is £XXX (including contingent commission and potential profit share, please ensure that this the commission on the premium quoted above)

XYZ will also receive £XXX (if any remuneration is paid to other parties including unregulated Property Managing Agents and freeholders. Delete if not applicable)

Information about potential conflicts of interests, such as ownership links between the intermediary and the insurer (delete if not applicable).

We have obtained quotes from a single insurer only OR We have obtained quotes from X insurers before selecting this insurer (the number of alternative quotes you have obtained with further details of these to be provided on request).

We are happy that the insurer selected provides cover adequate to meet the insurance needs of both the freeholder and leaseholders.

----------------------------------------------------------------------------------------------------------------------------

Further support

You will be expected to deal with queries, either from the Policyholder, or any Leaseholder, in a way which ensures ‘Good outcomes’ for all parties. So, if the Freeholder or PMA has failed to provide the required information, and you are asked for any of the information by a Leaseholder, you will be expected to respond to them.

Action Required

You will need to identify cases impacted by the new Rules, prepare appropriate disclosure processes and formats and be ready to field queries from Leaseholders.

As always, we are happy to discuss any issues arising.

YOUR COMPLIANCE MATTERS – FCA Consultation Diversity and inclusion (D&I) in the financial sector

mike.hanson@ycmmail.com (MICHAEL HANSON) — Thu, 19 Oct 2023 14:21:40 GMT

YOUR COMPLIANCE MATTERS – FCA Consultation Diversity and inclusion (D&I) in the financial sector

Relevance: All Firms.

Action required: Consider any issues you may have with the concerns raised by the FCA. New Rules will be in place in 2025.

The FCA has published a Consultation CP23/20: Diversity and inclusion in the financial sector – working together to drive change (fca.org.uk) . The Consultation period runs to 18/12/2023. There will be a Policy Statement some time in 2024 (followed by a 12-month implementation period).

The FCA has stated that ‘The degree to which firms reflect the societies they serve and how open a culture they create is central to each of the objectives set for us by Parliament: to protect consumers, enhance market integrity, support competition in financial services and facilitate UK competitiveness and economic growth.

That is why, together with the Prudential Regulation Authority (PRA), we have been clear that diversity and inclusion are regulatory concerns. Yet, the evidence suggests the financial services sector is not yet where we should be.

We are clarifying and strengthening our expectations around non-financial misconduct, which will apply to firms large and small, across the financial services sector’.

In this consultation, the FCA sets out proposals to better integrate non-financial misconduct (NFM) considerations into staff fitness and propriety assessments, Conduct Rules, and the suitability criteria for firms to operate in the financial sector (Threshold Conditions).

In practice this would mean the FCA:

- Would expect that staff are held to high levels of fitness and propriety (and any evidence of workplace bullying or discrimination need to be taken in to account).

- Will expand the Conduct Rules to make clear that workplace bullying, harassment and similar behaviours are to be considered as misconduct.

- Would consider evidence of discrimination as impacting the suitability of the firm to be authorised by them.

They are also proposing all firms to report their average number of employees on an annual basis (firms already do this via the 6 monthly RMAR).

Larger, FCA authorised firms (those with 251 or more employees calculated on a solo entity, rather than group basis) will need to:

• collect, report, and disclose certain D&I data

• establish, implement, and maintain a D&I strategy

• determine and set appropriate diversity targets

• recognise a lack of D&I as a non-financial risk’

Action Required

We hope that the proposals will not cause any great concern, but you need to consider any current cultural issues within your business. As always, we are happy to discuss.

FCA Multi Occupancy Leasehold Insurance Rules effective 31.12.23

Tue, 10 Oct 2023 08:05:51 GMT

YOUR COMPLIANCE MATTERS – FCA Multi Occupancy Leasehold Insurance Rules effective 31.12.23

Relevance: All Firms.

Action required: Prepare for additional disclosure Rules and review your approach to commission, and your commercial arrangements with any parties receiving a share of your remuneration.

Following consultation, in April 2023, the FCA has published new Rules in Policy Statement PS23/14: Multi-occupancy building insurance: Feedback to CP23/8 and final rules (fca.org.uk) relating to the treatment of Leaseholders in Multi Occupancy buildings.

The new Rules come into effect for contracts renewing, or incepting, from 31.12.23.

A ‘Leaseholder’ is a tenant within the meaning of section 30 of the Landlord and Tenant Act 1985 including a recognised tenants’ association. The Rules will also apply to a ‘policy stakeholder’, being any individual obliged to pay premium. For simplicity we have used the term ‘Leaseholder’ in the remainder of this newsletter.

To be clear, the Rules do not apply to Commercial Leaseholders.

One point to note from the Consultation was the very high level of input from Leaseholders themselves (generally pushing for more rapid implementation). You should therefore expect a good level of awareness amongst leaseholders, so expect to be called out if you do not comply. You also need to ensure that your staff clearly understand the Rules.

Leaseholders as customers

Leaseholders will need to be treated as ‘customers’, requiring firms to act in the best interests of the leaseholder and bar firms from recommending products based on commission or remuneration levels.

Disclosure

Insurers and brokers will need to provide additional information to Leaseholders, as soon as reasonably practical following conclusion of the contract, including:

A summary of the features of the policy, including main benefits, coverage and exclusions of the policy, duration and insured sum (produced by insurer).

The policy premium. Where the policy covers a portfolio of buildings, firms must disclose the premium at building or dwelling level (this can be an estimate and is to be produced by insurer).

Remuneration (including contingent commission and potential profit share) which any authorised intermediary receives for arranging the insurance, as well as remuneration they pay to other parties including unregulated Property Managing Agents (PMAs) and freeholders (all to be stated in cash terms).

Information about potential conflicts of interests, such as ownership links between the intermediary and the insurer.

The number of alternative quotes the intermediary has obtained (with further details of these to be provided on request) and a brief explanation of why they have proposed or recommended that the policy is in the interests of both the freeholder and leaseholders.

This information can be sent to the Policyholder or PMA, with an instruction to distribute it to Leaseholders (or sent direct to the Leaseholder if you are in touch with them). The FCA has not prescribed a format for the disclosures.

Product Governance

The FCA is changing the PROD rules to include leaseholders as customers for the purposes of PROD 4. This would require insurers and intermediaries to:

Consider leaseholders as a relevant part of the target market when designing, pricing and distributing their products.

Demonstrate that products provide fair value to leaseholders as well as any other customers. This means there must be a fair relationship between the total price and the overall benefits leaseholders receive.

The FCA has stated that they expect these rules to have an impact on current remuneration practices. Intermediaries who receive percentage-based commissions that have increased in absolute amounts as risk premiums have risen would likely need to reduce the percentage they receive. Earnings that increase purely because of premium increases would be unlikely to reflect additional benefits provided to leaseholders, so would not meet FCA fair value requirements.

Additionally, firms would need to consider the amount of remuneration they share with other parties in the distribution chain, such as freeholders and PMAs. The Rules would not allow such payments unless firms can demonstrate they provide fair value to leaseholders.

Action Required

You will need to identify cases impacted by the new Rules, prepare appropriate disclosure processes and formats and be ready to field queries from Leaseholders.

As always, we are happy to discuss any issues arising.

YOUR COMPLIANCE MATTERS – Personal and Commercial Insurance Portfolio letter September 2023

Mon, 02 Oct 2023 08:51:05 GMT

YOUR COMPLIANCE MATTERS – Personal and Commercial Insurance Portfolio letter September 2023

Relevance: All firms

Action required: Review FCA feedback against your own position.

The FCA sent out a Personal and Commercial Lines Portfolio letter, on 20th September, providing an update on their priorities for the Insurance market for 2023-25.

A link to the letter is here https://www.fca.org.uk/publication/correspondence/personal-commercial-insurance-market-priorities-2023.pdf

The FCA highlights the challenges that the market continues to face with ongoing the cost of living problems, and other issues arising from climate change, AI and resource, post covid.

The FCA has confirmed its priorities, both across the market and the specific issues with Personal and Commercial Insurance.

Market wide issues:

Putting Consumers' needs first; Embedding the Consumer Duty – this is covered in more detail below.

Environmental, Social & Governance priorities: Governance and Culture- the FCA specifically comment that ‘Firms should be able to show how they are actively working towards having a diverse workforce at all levels in their organisation.’ This issue is subject to a separate Consultation Paper CP23/20: Diversity and inclusion in the financial sector – working together to drive change (fca.org.uk) and we will send a out a separate note on this issue.

Operational resilience and the increasing reliance on Third Parties – concerns here relate to oversight of outsourced activities and business recovery planning.

Improving oversight of Appointed Representatives – a subject we are already addressing with clients affected by the new Rules.

Personal & Commercial Lines Insurance specific priorities

Putting consumers’ needs first - the FCA is concerned about issues covered by the Consumer Duty:

- Price and Value –, in this case, they highlight ongoing concerns about distribution costs, the quality of MI, premium finance and continued ‘Price walking’. They also identify a worry that few products seem to have been withdrawn from the market, despite their concerns about value.

- Consumer Support – ‘We expect firms to continue to support customers in financial difficulty and reflect on whether they need to do more.’

- Claims – helping customers understand claims settlement offers, the speed of claims resolution, poor motor total loss offers from insurers.

- Access – ‘We continue to see examples of consumers facing barriers to easily accessing affordable or suitable insurance or being unable to buy insurance at all’. The expectation is that we address issues for particular customer groups (vulnerability), poor product design, signposting travel cover solutions for customers with pre-existing medical conditions.

- Sales practices – ‘Firms must ensure that any product they propose to the customer is consistent with their demands and needs and that customers must be provided with appropriate information about the product so they can make informed decisions.’

Strategy for positive change – Environmental, Social & Governance priorities: Governance, culture, and non-financial misconduct – ‘All insurance firms should reflect on their culture to ensure an inclusive culture where employees have the appropriate channels and feel psychologically safe to be able to speak up and raise concerns without fear.’ The issue of non-financial misconduct is also covered by the Consultation Paper, mentioned above.

Ongoing Supervision

Clearly, the above issues will be the focus for supervision work. We believe that you will need to be able to evidence that you have addressed the concerns raised and we will be working with firms to put together a defensive document.

If you have any immediate concerns, please get in touch with your usual contact.

YOUR COMPLIANCE MATTERS – Additional RegData return from January 2024

mike.hanson@ycmmail.com (MICHAEL HANSON) — Thu, 11 May 2023 11:54:35 GMT

YOUR COMPLIANCE MATTERS – Additional RegData return from January 2024

Relevance: All Firms.

Action required: Awareness only, no immediate action.

The FCA has published a Policy Statement, PS 23/3 PS23/3: Creation of a baseline financial resilience regulatory return: Feedback to CP22/19 and final rules (fca.org.uk)

The Financial Resilience Surveys (previously Covid Financial Resilience Surveys) , which the FCA has been requesting on a regular basis, will no longer be required after the end of 2023.

These will be replaced by a reduced report to be completed on a quarterly basis, in line with the firm’s financial year end, to be submitted via RegData. The return needs to be submitted within 20 business days of the end of the reporting period.

The Policy Statement confirms the information requirements, as follows:

1 Total amount of liquid assets that you control or have unrestricted access to

2 Average monthly cash needs arising from fixed costs.

3 Net profit or loss in the last quarter

4 Revenue for the financial year to date

5 Net asset or liability position

They have also provided guidance notes on the information required which will sit behind the data sheets in the RegData system (the guidance is included in the Policy Statement).

Unfortunately, this means that the number of scheduled reports to be completed each year continues to increase (although the irregular nature of the ad hoc Resilience Surveys will now be given some structure).

Once the reports become available, we will of course provide any assistance needed in completing them. They will appear in your normal reporting schedule, and you will receive reminders of the due date from the FCA.

We are happy to discuss any specific issues that you may have so please get in touch with your usual contact.

Post Title

Thu, 11 May 2023 11:53:22 GMT

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YOUR COMPLIANCE MATTERS – FCA Multi Occupancy Leasehold Insurance reforms

mike.hanson@ycmmail.com (MICHAEL HANSON) — Wed, 26 Apr 2023 11:26:31 GMT

YOUR COMPLIANCE MATTERS – FCA Multi Occupancy Leasehold Insurance reforms

Relevance: All Firms.

Action required: Review customers subject to potential new rules, and your commercial arrangements with any parties receiving a share of your remuneration.

On 21 April 2023, the FCA published a Consultation Paper, available here FCA sets out multi-occupancy leasehold insurance reforms | FCA relating to the treatment of Leaseholders in Multi Occupancy buildings.

A ‘Leaseholder’ is a tenant within the meaning of section 30 of the Landlord and Tenant Act 1985 including a recognised tenants’ association.

CP 23/8 consults on new rules to be published in Q3 (the deadline for any response to the Consultation Paper is 9 June 2023) with a three-month implementation date.

Proposed Changes

· Leaseholders would need to be treated as customers, requiring firms to act in the best interests of the leaseholders and bar firms from recommending products based on commission or remuneration levels.

· Additionally, insurers and brokers will need to provide additional information to Leaseholders, including:

- A summary of cover.

- Pricing information.

- Remuneration information

- Placing and shopping around information.

- Conflicts of interest information.

This information can be sent to the Policyholder, with an instruction to distribute it to Leaseholders (or direct to the Leaseholder if you are in touch with them).

· For the first time, the FCA is specifying that the total amount of commission generated must be disclosed alongside information relating to any payments made to third parties (the freeholder or property managing agent, for example). These disclosures need to be in cash terms.

· The FCA has said ‘We expect brokers to immediately stop paying commissions to third parties (including property managing agents and freeholders) where they do not have appropriate justification and evidence for doing so in line with our rules on fair value. We will undertake further reviews across various products and will consider the full range of regulatory tools available to us as this work is progressed.’

· You will be expected to deal with queries, either from the Policyholder, or any Leaseholder, in a way which ensures ‘Good outcomes’ for all parties.

Action Required

Once the consultation period finishes and new rules are published, the implementation date will be tight.

Clearly, there will be very little time for any current commercial arrangements to be reviewed, if you are intending to change them in advance of the rules coming into force.

We are happy to discuss any specific issues that you may have so please get in touch with your usual contact.

YOUR COMPLIANCE MATTERS – FCA Dear CEO letter - Implementation of the Consumer Duty

Wed, 08 Feb 2023 17:52:18 GMT

YOUR COMPLIANCE MATTERS – FCA Dear CEO letter - Implementation of the Consumer Duty

Relevance: All firms

Action required: Review FCA feedback against your own plans.

The FCA sent out a “Dear CEO/Director” letter on 3 February 2023, relating to the above issue.

A link to the letter can be found here Implementing the Consumer Duty in the General Insurance and Pure Protection sectors (fca.org.uk)

The letter provides a reminder of the requirements, although we do not intend to repeat them here (please see our previous newsletters on this topic).

However, in summary:

· Remember the Consumer Duty applies to both Commercial and Consumer “retail” business. It does not just apply to personal lines insurance.

· The implementation deadline is 31 July 2023.

· The FCA has previously sent out guidance relating to customers in financial difficulty. The Consumer Duty has a particular focus on vulnerability generally, but the FCA is highlighting the fact that financial difficulties are a key issue currently.

· Firms should already be complying with the Product Governance rules (which make up a large part of the new consumer duty requirement). It is worth checking that you are comfortable that you have everything in place in this regard.

· Firms should be reviewing their communications with customers, and service delivery, in order to ensure that they are as effective and timely for mid-term changes, cancellations, complaints, and claims as they are for new business.

· Claims processes and outcomes are a particular concern (the FCA point out that this is the point at which a customer actually receives the benefit of the product they have paid for). If you are dependent on any third party providers in this regard, you need to be supervising them very closely.

· For firms with Appointed Representatives, bear in mind that you are responsible for their implementation and compliant with the consumer duty.

Supervisory Activity

From the reviews already completed by the regulator there are some issues that it believes need greater focus:

· Effective prioritisation of implementation plans.

· Effective embedding of the new requirements (too many firms seem to be assuming that their current processes will be compliant with some tweaking).

· Liaison with other firms, where this is necessary, (again, the regulator has picked up issues relating to distribution chains).

Ongoing Supervision

Clearly, this particular issue is not going to go away, and the regulator is planning to engage with firms on an ongoing basis in order to check progress.

There is a particular reminder for Directors and Boards of Directors to challenge implementation plans as the FCA believes that this should be a key priority.

YOUR COMPLIANCE MATTERS – Multi-factor authentication to access FCA’s systems

Thu, 12 Jan 2023 13:07:24 GMT

YOUR COMPLIANCE MATTERS – Multi-factor authentication to access FCA’s systems

Relevance: All Firms.

Action required: Awareness only; starts up in January 2023.

The FCA is introducing “multi-factor authentication” to strengthen how firms and others log into their systems and will also help to protect and control access to data they hold.

Multi-factor authentication

Multi-factor authentication ensures only you access your accounts.

You’ll need to enter a one-time passcode each time you log into:

· Connect – from 20 January 2023

· Reg Data – from 20 January 2023

· Online Invoicing (Fees Portal) – from 20 January 2023

· Shared Intelligence Service (SIS) – from 20 January 2023

· Electronic Submission System (ESS) – from 16 February 2023

You don’t need to take any action now as you will be prompted to turn on multi-factor authentication when you attempt to log in from 20 January 2023; we understand that this will “be quick and easy”.

Further information to help you understand the new process can be found using the following link to the FCA webpage:

Multi-factor authentication for FCA systems | FCA

If you need any further guidance, please call us and we will be happy to provide more help.

YOUR COMPLIANCE MATTERS – GI Value Measures (data July to December 2021)

Mon, 12 Dec 2022 11:42:09 GMT

YOUR COMPLIANCE MATTERS – GI Value Measures (data July to December 2021)

Relevance: All Firms.

Action required: Be aware of how data can be used.

Background:

Back in March 2014, the FCA began its probe into the value of General Insurance products, when it published the provisional findings of its first market study General insurance add-ons: Provisional findings of market study and proposed remedy report.1 1.5

That report,

· explained why they were concerned about general insurance add-ons and what prompted them to consider the issue through a market study;

· set out their approach and methodology;

· presented their assessment of how the add-on mechanism influences consumer behaviour and how effective competition is for add-on insurance products

Since then, the FCA has continued to investigate this area more closely.

· In 2015, following the market study, they published a discussion paper (DP15/4) exploring options for the publication of ‘value measures’.

· In 2016, following feedback to the discussion paper, they launched a pilot of the publication of GI value measures data for buildings and contents, home emergency, personal accident and key cover insurance.

· In 2018, they assessed the impact of the pilot and found it had a positive impact, improved transparency and awareness of different indicators of product value.

· In October 2018, following the implementation of the Insurance Distribution Directive (IDD), they introduced product governance rules. These rules required firms to have processes in place to ensure that insurance products are appropriately designed, marketed, distributed and monitored.

· In January 2019, they published Consultation Paper CP19/8: General Insurance Value Measures reporting, setting out proposals for the report and publication of value measures data across firms and GI products.

· In November 2019, they published guidance for insurance manufacturers and distributors, clarifying their expectation that firms should consider the value that the product and distribution arrangements offer to customers.

· In September/December 2020, in the Consultation Paper CP20/19: General insurance pricing practices, the FCA proposed a package of measures to improve competition and ensure firms offer fair value products in the future.

o Pricing remedy: rules to change the way firms price home and motor insurance.

o Product governance: changes to the existing product governance rules in our PROD sourcebook to ensure firms have processes in place to deliver products that offer fair value to customers.

o Auto-renewal: firms to offer a range of accessible and easy options for consumers who want to cancel auto-renewal on their contract.

o Reporting requirements: new reporting requirements to help ongoing supervision of the home and motor insurance markets.

· Also in September 2020, the FCA issued its Policy Statement and Final Rules; General Insurance value measures reporting and publication, PS20/9.

o The rules came into force on 01 January 2021 (amendments to PROD) and 01 July 2021 (amendments to Glossary and SUP);

o First report for 6-month period covering 01 July to 31 December 2021, due for submission by 28 February 2022.

Which brings us to the latest publication from the FCA, General Insurance Value Measures Data (July to December 2021), issued 25/11/2022.

Here the FCA states:

“The value of insurance products for consumers continues to be an important area for us given cost of living increases and is a central feature of the incoming Consumer Duty. Firms must ensure that their products offer fair value to consumers.

This is a first set of data and we will continue to analyse trends over time. General insurance is an important product for consumers and by and large provides essential protection to consumers at fair value.

However, we are concerned about how the current picture presented in the data appears to compare with firms stating that virtually all products are providing fair value. We will be closely analysing the next data set due in February 2023, as well as testing the robustness of firms’ product oversight and governance arrangements, including fair value assessments.”

We do not intend to closely analyse the data provided in the FCA report, we will leave this to client firms to explore the product areas that most concern their own activities.

There are certain areas of interest to all clients, as follows:

1) What the data shows:

· Users of the data can filter the firm specific information by product to explore the distribution of value measures across different firms.

2) FCA expectations:

· Firms must ensure that their products offer fair value to consumers and take the value measures data into account when assessing fair value.

· Firms must assess the value of their products, considering, among other things, the nature of the product, including the benefits that will be provided, their quality, and any limitations (for example in the scope of cover, exclusions, excesses, or other features).

· Product Governance requirements for General Insurance products stipulate that firms should now have carried out value assessments of their products.

o Firms should refer to FCA rules and guidance in Chapter 4 of the Product Governance (PROD) sourcebook.

· We will ask some of the firms offering potentially lower value products to consumers, according to the value measures data, to explain the value of these products and the outcome of the firms’ fair value assessments.

3) Consumer Duty:

In July 2022, the Consumer Duty was launched, with rules coming into force in July 2023 for products that are open for sale or renewal.
The Duty includes requirements around product governance and price and value, and complying with, PROD 4, should meet the products and services outcome and the price and value outcome of the Duty.
Firms must act to deliver good outcomes for their consumers, as they

o act in good faith,

o avoid causing foreseeable harm,

o enable and support consumers to pursue their financial objectives

4) Publishing data:

· Publish the GI value measures data was a commitment in Policy Statement PS20/9.

· It aims to create incentives for firms to compete on broader elements of product value than price alone, and to improve the value of the products and services they offer consumers.

5) What the data includes:

There is firm specific information on claims frequencies, claims acceptance rates, average claims pay-outs and claims complaints as a proportion of claims, for a wide range of retail GI products.

The Report can be found on the FCA website using the following link:

General insurance value measures data - July to December 2021 | FCA

Clearly, there is a link between the requirements under PROD and the obligations under the Consumer Duty. Firms are urged to ensure that they have sufficient activity planned and evidence obtained to demonstrate that they are in line with the FCA’s expectations.

If you need any further guidance, please call us and we will be happy to provide more help.

New FCA Reporting requirements for Appointed Representatives (AR)

mike.hanson@ycmmail.com (MICHAEL HANSON) — Mon, 05 Dec 2022 15:44:56 GMT

YOUR COMPLIANCE MATTERS – New FCA Reporting requirements for Appointed Representatives (AR)

Relevance: All Firms with Appointed Representatives.

Action required: Ensure that your Connect Principal User is correct, and that you respond to the FCA information request by 28.02.23.

Having completed its Consultation, the FCA has published final rules, updating Firm’s obligations with regard to ARs. The new rules will come into effect from 08.12.22.

These include enhanced reporting requirements in the form of an Appointed Representatives S165 request which will be sent by email to the Principal User on Connect. Therefore, firms should ensure details of their Connect Principal User are correct.

The FCA has recently sent out a reminder as part of its ‘Regulation round-up’ for November including the following:

‘As part of our enhanced reporting requirements, principal firms will receive a mandatory section 165 data request for information about their ARs. We will issue the request between 8 to 10 December … If you are a principal firm and you do not receive the S165, please check your spam/junk folder in the first instance. If the request is not there, please email the FCA at firm.queries@fca.org.uk and a new email and corresponding link will be sent to you.

The S165 request will be accompanied by detailed guidance explaining how to complete the request and will also include a link to FAQs that will be published on our website on 8 December.

Firms will have until 28 February 2023 to respond to the request. The FCA report will include the following:

A	The primary reason for the principal’s appointment of the AR.
B	The nature of the regulated activities the principal permits the AR to undertake (primary and additional markets in which the AR will undertake regulated activity).
C	Whether the AR provides services to retail clients.
D	Whether the AR is part of a group. If so, provide the name of the parent undertaking(s).
E	Whether any individuals from the AR will be seconded or contracted to the principal firm to carry on portfolio management and/or dealing activities, and if so, explain the rationale for entering into such an arrangement.
F	Whether the AR was previously an AR of a different principal, and if so, why the previous relationship was terminated.
G	Information about the nature of the financial arrangements between the principal and the AR
H	Non-regulated business of the AR. This includes: i. The nature of the non-regulated business (financial or non-financial services activity); ii. The proportion of the non-regulated activities compared to the regulated activities.
I	Anticipated revenue from regulated and non-regulated activity during the coming year.

YOUR COMPLIANCE MATTERS – FCA expectations during the cost of living crisis

mike.hanson@ycmmail.com (MICHAEL HANSON) — Mon, 03 Oct 2022 14:49:18 GMT

YOUR COMPLIANCE MATTERS – FCA expectations during the cost of living crisis

Relevance: All firms .

Action required: Ensure you and your staff are aware of FCA expectations and the options for dealing with clients in financial difficulty

The FCA issued yet another, “Dear CEO letter,” on 29 September 2022, relating to the issues arising from the cost of living crisis.

We would suggest that you distribute a copy of the letter to your own staff and ask them to confirm that they have read and understood the letter and have recorded the activity in their CPD log.

A link to the letter can be found here Dear CEO letter: Our expectations on cost of living and insurance (fca.org.uk)

Following previous guidance published during the Covid pandemic, the regulator is reinforcing the need to ensure that you take all necessary steps to address issues arising from financial vulnerability amongst your clients (both consumer and commercial).

Expected Actions

Customers with Vulnerable Characteristics and Customers in Financial Difficulty

In respect of vulnerable customers, the FCA has issued guidance on this issue and we would recommend that you guide staff towards the vulnerability guidance found here: FG21/1: Guidance for firms on the fair treatment of vulnerable customers (fca.org.uk)

For customers in financial difficulty, there are a number of issues that were previously raised in the Covid context which may now be equally applicable. These include:

- Re-assessing the risk profile of customers.

- Identifying more suitable products for customers.

- Working with customers to avoid cancelling necessary covers.

- Waiving cancellation and MTA fees, when applicable.

- For premium finance, discussing repayment problems with the finance provider in order to identify the most effective solution for the customer (amending the way the loan is repaid, reducing payments, waiving interest, allowing payment holidays, etc).

Please be aware that premium finance lenders have received similar guidance from the FCA with regard to forbearance for customers in financial difficulty.

Under Insurance and Uninsured

There is great concern to make sure that customers do not buy the cheapest possible cover, which may not be suitable for them. As professional advisors, we are sure that you would not allow this to happen, but the FCA is expecting you to provide customers with guidance to ensure that they get covers that meet their needs.

Premium Finance

As you already have an obligation under the Product Governance Rules to ensure that premium finance provides fair value, this is just a reminder to ensure that finance is the best option for any given customer, given the cost of the finance versus the freedom to pay over a period of time.

Service levels

The FCA seems to be under the impression that firms may be looking to cut staff in order to reduce overheads. Be reminded that it is your obligation to ensure that all customers receive an appropriate level of service (and this is one of the focus points of the new consumer duty).

Claims

Get them paid without undue delay.

Multi-Occupancy Buildings Insurance

We have already provided a separate Newsletter on this topic but suffice it to say that the FCA is concerned about leaseholders and their financial position as it is about your own policyholders.

Additional Actions for You

As recommended above, we do believe that all staff should be provided with a copy of the letter from the FCA. At the same time, you need to provide them with guidance as to the actions that they should take in any given set of circumstances (any freedom they may have to waive cancellation or mid-term charges for vulnerable customers, referral processes to you, as necessary, etc).

Conclusion

Nothing really new here apart from encouragement from the regulator to look after your customers as well as you can.

YOUR COMPLIANCE MATTERS – Potential FCA interventions to reform the Multi-Occupancy Buildings Insurance Market

Wed, 28 Sep 2022 06:11:12 GMT

YOUR COMPLIANCE MATTERS – Potential FCA interventions to reform the Multi-Occupancy Buildings Insurance Market

Relevance: All firms arranging insurance for Multi Occupancy properties .

Action required: Review your involvement, and the risks arising from excessive commission payments in the distribution chain to Leaseholders

The FCA wrote to firms, in February 2022, regarding the increased insurance costs relating to multi-occupancy buildings, particularly those with flammable cladding.

One of the major concerns was that premiums were increasing, leading to an increase in commission without the intermediary necessarily undertaking any additional work to justify the additional cost.

The FCA view is that Leaseholders are not being considered as customers although they will ultimately pay for the insurance, including any frictional costs/commission absorbed by the Property Managing agent, the Freeholder, and the Broker.

Since that time, the FCA has undertaken further research, both via surveys provided by insurance intermediaries, and by “round table” sessions which engaged with Leaseholders, Freeholders, and the insurance market.

Although the sample size was relatively small, there were sufficient concerns raised to force the regulator to consider how matters can be improved.

They have, therefore, published a report (21 September 2022) detailing their findings and potential remedies to resolve the issues they perceive in the market. The full report can be found here FCA sets out potential interventions to reform multi-occupancy buildings insurance market | FCA

Current Rules

They start by reminding firms that Product Manufacturers must provide products which provide fair value. Intermediaries must ensure that they do not apply excessive costs which could prevent the product from providing fair value to the end user.

The FCA accepts that the Freeholder is usually considered to be the customer. However, Leaseholders ultimately pay the premium and should be considered in the process.

The Regulator has already identified cases where there is significant commission being taken by the Freeholder/Property Managing agent, in addition to that being retained by the insurance intermediary. The concern is whether the level of remuneration fairly reflects the workload undertaken by the various parties in the distribution chain.

Potential Remedies

In addition to the existing rules, the regulator is considering a number of approaches to improve the way the market operates.

The FCA accepts that it can only influence the activities of regulated entities (the insurer and the insurance intermediary) whereas there are parties involved in the process, including the Property Managing agents/Freeholders which may not be regulated by the FCA.

Risk Pooling - For high-risk buildings, particularly, those affected by flammable cladding, this may provide a solution to the industrywide lack of capacity. The FCA is recommending that the ABI continues to work with the government on this specific issue.

Increased Transparency for Leaseholders – The regulator plans to consult on potential changes to the disclosure requirements to Leaseholders in relation to the total cost of the insurance product offered to the Freeholder.

Making Leaseholders ‘Customers’ within the FCA Rules – extending the definition of a “Customer” to include Leaseholders in multi-occupancy buildings, would impact the application of PROD and ICOBS rules requiring appropriate disclosures and fair value to the Leaseholder, as well as the Freeholder. Currently, the new Consumer Duty, effective in July 2023, does not include Leaseholders – the regulator could choose to include them.

Rules on Remuneration – The regulator is consulting on preventing authorised firms paying commission to Freeholders, Property Managing agents and others. They are also consulting on banning remuneration which is a percentage of the overall premium in order to prevent firms earning undue commission without a commensurate increase in their workload.

Other Recommendations

There are a number of other alternatives considered in the paper, some of which will need to be taken forward by the ABI/BIBA or the government because they are outside the scope of the FCA’s authority.

Action Required

Given the increased focus on this particular market, we would recommend that every broker firm creates a register of Multi-occupancy property insurances arranged, any party beneath the broker firm itself which is paid commission, and the total cost versus the total remuneration, applicable to any Leaseholder down the line.

Firms need to ensure that they have a robust process to identify whether they are continuing to cause a problem in this market or whether they are part of the solution.

YOUR COMPLIANCE MATTERS: New Consumer Duty

Mon, 05 Sep 2022 10:14:51 GMT

YOUR COMPLIANCE MATTERS: New Consumer Duty

Relevance: All firms.

Action required: Understand forthcoming FCA requirements under consumer protection.

The Financial Services Act 2021 includes a requirement for the FCA to carry out a public consultation about whether it should introduce a duty of care . The FCA must carry out the consultation, and publish its analysis of the responses, before 1 January 2022 and then publish any final rules by 1 August 2022.

This is why the FCA has recently issued a Consultation Paper entitled “A new Consumer Duty”. The full Consultation Paper can be found at the following link: CP21/13: A new Consumer Duty (fca.org.uk)

This is a brief outline of the proposals.

The introduction includes the following statement:

We want to see a higher level of consumer protection in retail financial markets, where firms are competing vigorously in the interests of consumers. We are proposing to introduce a new ‘Consumer Duty’ that would set higher expectations for the standard of care that firms provide to consumers. For many firms, this would require a significant shift in culture and behaviour, where they consistently focus on consumer outcomes, and put customers in a position where they can act and make decisions in their interests.”

The Consumer Duty would require firms to:

· ask themselves what outcomes consumers should be able to expect from their products and services;

· act to enable rather than hinder these outcomes;

· assess the effectiveness of their actions.

The FCA is proposing to introduce a new Consumer Principle , which is likely to be an additional Principle for Businesses . This would be a high-level obligation, and much like the existing Principles, firms would need to use their judgment to consider how the Principle might apply in any given situation.

The FCA is consulting on two options:

1. A firm must act to deliver good outcomes for retail clients.

2. A firm must act in the best interests of retail clients.

The FCA considers that the new Principle would go beyond Principle 6 (“A firm must pay due regard to the interests of its customers and treat them fairly”). However, its scope would be limited to what could reasonably be expected of a firm carrying out its particular role (e.g., a firm with a very limited role in a distribution chain might not be expected to ensure that a client receives a good outcome overall).

The FCA is also proposing supporting rules and guidance to expand on the Consumer Principle, in the form of “Cross-Cutting” rules and a set of four outcomes.

The Cross-Cutting rules would require firms to:

· Take all reasonable steps to avoid causing foreseeable harm to customers.

· Take all reasonable steps to enable customers to pursue their financial objectives.

· Act in good faith towards customers.

The FCA plans to embed a concept of reasonableness across the new measures, to provide an objective standard for firms to meet. It proposes to set out factors that influence reasonableness, such as the nature of the firm’s role and the type of product or service being provided. As part of this, firms will be expected to consider the outcomes for different types of consumers, and identify if a particular type of consumer is receiving worse outcomes.

The above measures would all be underpinned by a set of four Outcomes :

1. Communications must allow consumers to make effective, timely, and properly informed decisions about financial products and services.

2. Products and services must be designed to meet the needs of consumers, and sold to consumers whose needs they meet.

3. Customer service must meet the needs of consumers, enabling them to act in their own interests without undue hindrance.

4. Pricing for products and services must represent fair value for consumers.

The FCA acknowledges the overlap of the proposed new Principle and supporting measures with Principles 6 and 7, and firms may question whether the new measures will add anything new. There is also significant overlap with existing conduct of business rules, which require firms to act in their clients’ best interests, and with the product governance regime. However, whereas existing rules apply to business involving specific products, the FCA is proposing that the new measures will apply across the retail sector. The extent to which the Consumer Duty represents a significant shift in expectations ultimately will depend on how different it is in practice to existing standards.

The FCA acknowledges that greater protections are needed for consumers of UK retail financial services, and intends to introduce new measures that set a higher standard of care than the existing rules with a view to achieving a shift in perceived mindset by firms.

In particular, the FCA expects that a firm will need to consider the new measures “ at every stage of its processes and at every level of its organisational structure ”. The FCA considers that, in many cases, firms will need to exercise more judgment in determining how their behaviours, policies, and processes help to achieve positive outcomes for consumers.

In addition, the FCA will expect firms to monitor and test their policies and practices on an ongoing basis and be prepared to provide relevant information and data to the FCA. However, the FCA is keen to stress that the new measures will not remove consumers’ responsibility for their own decision-making, nor will they specify exactly how firms should act.

Finally, although the Consumer Duty would apply in relation to products and services sold to retail clients, a firm will have to consider whether through its regulated activities, it can influence material aspects of the design, target market, or performance of a product or service that will be used by retail clients. Therefore, firms operating in the wholesale sector may be caught even if they have no direct contact with retail clients (e.g., if they have a role as part of a distribution chain for products or services sold to retail clients).

The FCA requests feedback by 31 July 2021. The regulator plans to issue a further consultation by the end of the year, in which it will set out proposed drafting for the new rules and guidance. It will also consider the impact of the new measures on the existing Principles for Businesses, and how the FCA intends to supervise compliance. The FCA plans to make any new rules in this area by 31 July 2022.

We will keep firms posted of any developments in this area.

If you need to discuss any aspect of this matter with us, please make contact in the normal way.

Product Governance and Fair value assessments

mike.hanson@ycmmail.com (MICHAEL HANSON) — Mon, 22 Aug 2022 11:09:28 GMT

YOUR COMPLIANCE MATTERS – Product Governance and Fair value assessments

Relevance: All firms .

Action required: Please log all Product Governance and Fair Value Assessments received and continue to cooperate with product manufacture requests for information.

By now we believe you all will have seen the FCA Newsletter highlighting the fact that significant numbers of Product Manufacturers have left it very late to get the Fair Value Assessments to their distributors.

As a reminder, in future, you cannot sell a product unless you understand its value and the type of customer for whom the product may not present fair value. The deadline is 30 September, for Product Manufacturers to distribute the assessments. If they arrive too close to the deadline, you may not have time to review and understand the assessment, before 30th September, meaning that you would not be able to sell that product from 1 October.

Given the potential for market disruption, the FCA will now allow distributors to continue to sell products after 1 October through to 31 December 2022, subject to the following:

1. The distributor has identified the impact that its own distribution arrangements have on the value of the product by 30 September 2022 and completed any identified remedial action as a result of the assessment.

2. The distributor has complied with any requests from the manufacturer for information specified in PROD4.3.10BR.

3. The distributor is able to demonstrate that they received the manufacturer’s value assessment too late for them to be reasonably be expected to meet their obligations by 30 September 2022.

Actions required:

We suspect there will be a flurry of activity, on this issue so you need to keep track of where you are

In order to be able to demonstrate compliance, you will need to keep a log of the Fair Value Assessments as they are received. A template is shown below. If you would like an Excel version, please let us know.

YOUR COMPLIANCE MATTERS – Consumer Duty (2)

Mon, 15 Aug 2022 11:11:06 GMT

Following the publication of its Policy Statement (PS22/9) A new Consumer Duty Feedback to CP21/36 and final rules, we now know what the FCA expects in how firms need to act when providing products and services to retail customers.

In addition, the FCA has issued a guidance document, (FG22/5) Final non-Handbook Guidance for firms on the Consumer Duty July 2022, to help firms implement the new rules.

Each document can be found using the following link: PS22/9: A new Consumer Duty | FCA

There is a lot of detail within each document for the Senior Management of each firm to familiarise themselves with and this newsletter is set at a high level only to point firms in the right direction. We will work with individual firms to ensure they are working towards the various deadlines, as indicated below.

In its press release on 27 July 2022, the FCA stated “has confirmed its plans to bring in a new Consumer Duty, which will fundamentally improve how firms serve consumers. It will set higher and clearer standards of consumer protection across financial services and require firms to put their customers’ needs first.”

BIBA has noted that “As expected, the FCA did not implement wholesale changes or deletions to the proposed rules set out in Consultation Paper21/36 (CP21/36), rather it refined what it had published after receiving feedback from firms in the form of 151 written responses as well as from considerable industry engagement during the consultation period.”

Other comments include “The new Consumer Duty rules set a high bar for firms in the way they manufacture, sell and service insurance products to retail consumers. The FCA are seeking to create a baseline standard that will ensure innovation and competition exists in the interests of the retail consumers firms serve. They are seeking to eradicate the scenario of profit driven by consumer confusion and exploitation.”

The new Consumer Duty applies to all retail customers ; defined as “an individual who is acting for the purposes which are outside their trade, business or profession” .

Firms throughout the distribution chain, who manufacture or distribute products intended for retail customers, are directly affected by the new Consumer Duty rules, even if they are not in direct contact with the customer. They need to consider how their role, which is likely to vary by individual product and distribution agreement, covers issues such as:

· the design, manufacture and servicing of retail products or services, including their price and value;

· the distribution models used;

· preparing and approving communications that are to be issued to retail customers; or

· their role in providing customer support to customers.

The FCA is introducing a new Consumer Principle , which has supporting rules and guidance in the form of three “Cross-Cutting” rules and a set of four “Outcomes” :

Consumer Principle

· A firm must act to deliver good outcomes for retail clients.

Cross-Cutting rules

· Act in good faith towards retail customers

· Avoid foreseeable harm to retail customers, and

· Enable and support retail customers to pursue their financial objectives

Outcomes

· Consumer Understanding.

· Products and Services

· Consumer Support

· Price and Value

Timetable for implementation

The FCA have been quite explicit that firms need to act sooner rather than later and have set out a roadmap for implementation with some specific milestones. It refers to this as an ‘assertive approach’ and is designed to reduce the risks of failure to act in the manner expected by firms.

Firms have 12 months to implement any changes necessary to comply with the new rules, i.e. July 2023, which is an extension to the original date of April 2023.

Although deadlines have been extended by 3 months from the original ones, they are still tight:

· 31 October 2022:

o Boards (or an equivalent management body) are required to have an implementation plan.

· 31 July 2023:

o new Consumer Duty rules come into force for new and existing products or services open to sales or renewals.

· 31 July 2024:

o rules come into force for closed products and services .

So, by 31 October 2022 , the FCA expects that the Board of Directors of each affected firm will have agreed and produced an implementation plan; it is also possible that the FCA may request sight of this document as part of their ongoing monitoring and supervision process so firms will need to put in considerable management time and resource to meet the challenging deadlines for creating an implementation plan and delivering it by 9 months later.

Note: the FCA expect the Board to have oversight of the whole process, so plan for this to be a standing agenda item over the next 18-24 months as your firm responds to the change and monitors the effectiveness of delivery of that change.

The initial exercise is essentially a “gap-analysis” of the products and services available from a firm and should be aligned with the Outcomes required by the FCA. We are able to provide a draft template document that might assist firms in this respect.

Conduct Rules

The Consumer Duty, has also introduced a new Tier 1 Conduct Rule, meaning it is applicable to most staff at your firm.

The new rule 6 says: “You must act to deliver good outcomes for retail customers”

It will be implemented on 31 July 2023; firms will have to provide training on the new Conduct Rule to staff and update necessary documentation, such as employment contracts and employee handbooks, by that date.

PROD developments

Many firms will have recently received an email with letter attachments from the “Insurance Sector Projects Team” on the subject of their “Product Governance multi-firm review”.

It starts off: “We are writing to inform you that we have concluded a multi-firm review on product governance. This review focussed on whether manufacturers of general insurance and pure protection products are undertaking the necessary work to comply with PROD 4 of the FCA Handbook, for products in scope of the transitional provisions.”

As a reminder:

· Manufacturers: firms that create, develop, design, issue, operate or underwrite a product or service would be regarded as a product manufacturer. More than one firm may be involved in the manufacture of a single product. It is also possible that intermediaries may be co‑manufacturers, for example if they set the parameters of a product and commission other firms to build it.

· Distributors: firms that offer, sell, recommend, advise on, propose or provide a product or service would be regarded as distributors.

The Outcomes reinforce what is already clearly set out in the FCA Handbook. Under PROD 4.2.14R , a firm manufacturing a product, for example, “… must ensure the manufacture of an insurance product is driven by features that benefit the customer and not by a business model which relies on poor customer outcomes to be profitable.”

In the case of price and value, PROD 4.2.14E says that: “…‘value’ means the relationship between the overall price to the customer and the quality of the product(s) and/or services provided.”

This area runs alongside the new Consumer Duty rules and we will be issuing a separate newsletter to cover this.

If you need any further guidance, please call us and we will be happy to provide more help.

FCA Policy Statement PS22/11 Appointed Representatives (AR) Rules

Mon, 08 Aug 2022 09:25:04 GMT

YOUR COMPLIANCE MATTERS – FCA Policy Statement PS22/11 Appointed Representatives (AR) Rules

Relevance: All Firms with (or planning to appoint) ARs.

Action required: Review your AR position against the new FCA Rules effective 08.12.22

Having completed its Consultation, the FCA has published final rules, updating Firm’s obligations with regard to ARs. The new rules will come into effect from 08.12.22 .

These rules build on the existing expectation that Firms will have appropriate risk-based controls over their ARs and have adequate resource to supervise them to the same standard as they would their own employees and business activities.

The Policy Statement can be found at https://www.fca.org.uk/publication/policy/ps22-11.pdf

We are not going to attempt to paraphrase the PS here as the document is far too long to make this effective. We will be working with firms impacted by the new rules to implement the actions needed to comply with them. We would draw relevant firms’ attention to the specific changes and requirements that they should be aware of, in the meantime:

1. The FCA will need to be given 30 working days’ notice of the Firm’s intention to appoint an AR. As applications for Senior Managers at an AR already need to be submitted at the same time as the AR application (and potentially have a 90-day turnround) this may be academic.

2. All firms with ARs will need to submit a return, within 60 days of the 8th December implementation date, outlining the basic information shown in the Appendix to this Newsletter

3. Firms will need to provide a report annually, within 60 days of their own Financial Year End, detailing Complaints and Revenue information related to their ARs.

4. Firms will need to complete an annual attestation of the AR firm details.

5. Firms will need to ensure their ARs act within the scope of their appointment having considered guidance on what the FCA consider ‘reasonable steps’ to be in this respect.

6. Firms will need to complete an Annual assessment of the:

a. ARs solvency and suitability;

b. Fitness and Propriety of Controllers, Directors, and Managers of the AR;

c. Adequacy of its own controls and resources for monitoring and enforcing compliance within its ARs.

7. Firms will need to complete an annual self-assessment of its compliance with the AR Rules.

Items 5 and 6 need to be completed by 08.12.23 .

As Introducers (IARs) represent a lower risk, to the Regulator, the level of information required is commensurately lower.

Next steps

As mentioned, we have not attempted to cover the full detail of the PS here. Suffice to say, the FCA is planning to be far more intrusive in this area and this needs to be included in any planning relating to ARs (new or existing) in future.

Appendix – Initial FCA return

A	The primary reason for the principal’s intention to appoint the AR.
B	The nature of the regulated activities the principal will permit the AR to undertake (primary and additional markets in which the AR will undertake regulated activity).
C	Whether the AR will provide services to retail clients.
D	Whether the AR is part of a group. If so, provide the name of the parent undertaking(s).
E	Whether any individuals from the AR will be seconded or contracted to the principal firm to carry on portfolio management and/or dealing activities, and if so, explain the rationale for entering into such an arrangement.
F	Whether the AR was previously an AR of a different principal, and if so, why the previous relationship was terminated.
G	Information about the nature of the financial arrangements between the principal and the AR
H	Non-regulated business of the AR. This includes: i. The nature of the non-regulated business (financial or non-financial services activity); ii. The proportion of the non-regulated activities compared to the regulated activities in the first year following the appointment.
I	Anticipated revenue from regulated and non-regulated activity during the first year of appointment.

YOUR COMPLIANCE MATTERS – PCLII PORTFOLIO LETTER – FCA

mike.hanson@ycmmail.com (MICHAEL HANSON) — Mon, 30 May 2022 09:29:43 GMT

YOUR COMPLIANCE MATTERS – PCLII PORTFOLIO LETTER – FCA

R elevance: All Firms.

Action required: Consider any issues or actions arising from the letter for your own business.

We are aware of the fact that significant numbers of our clients have received a Portfolio letter

from the FCA, addressed to its Board of Directors.

The letter relates to the Regulator’s concerns, and its planned strategy for supervision, relating to Personal and Commercial Lines Insurance Intermediaries (PCLII) .

The letter is long, and detailed, and we have, therefore, attempted to summarise it below.

Customer Outcomes

The regulator expects that customers will be provided with products:

· appropriate to their needs

· which pay claims as expected (they mention one example, being a lack of clarity in respect of BI Covid related claims cover – their concern is this may be repeated in other products and cause similar problems in the future).

· offering fair value (undamaged by excessive charges by you and in any distribution chains down the line). This requirement is the reason for insurers requesting detailed information from you about your own charges and those applied by your distributors.

Compliance

The regulator expects you to comply with its rules (we hope this not news to you) and has highlighted:

· Product Governance and Oversight requirements arising from the General Insurance Pricing Practices Review. Firms must have reviewed (and have an ongoing review process for) issues relating to pricing (including premium finance and fees) fair pricing for any products where you set premium, clarity on automatic renewal processes for consumers and clarity for consumers over the cost of using premium finance versus full payment.

We continue to work with firms to ensure a consistent, and principled, approach to Commercial fees (as this has been rather random in the past). Your overall income, including fees, should fairly reflect the work you do. In discussion with clients, we sometimes see an approach where firms charge lower fees for small clients (often paying small commissions). If the commission does not cover the work you are doing, there is a fair argument that you should be applying a fee to cover your actual costs. Discuss.

· Client money compliance. It seems some firms in financial difficulty may have miss-used client assets, in addition to the FCA finding more general failures.

· Prudent business management (please do not run your business into the ground). Evidence from ongoing Financial Resilience surveys suggest there are liquidity problems in the sector – we have seen no evidence of this amongst our own client firms.

· Firms need to keep ahead of regulatory changes – there have been many recently. The FCA does encourage firms to subscribe to its “Regulation Round Up” which provides monthly updates of upcoming issues (simply Google ‘FCA Regulation Round Up’ and subscribe with your email).

Business Management

The Regulator believes that many of the problems leading to poor customer outcomes are as a result of poor Governance and Controls within regulated businesses.

The regulator confirms that the critical components of good governance include:

· Clear accountabilities for activities which affect outcomes with appropriate channels of escalation.

· A robust risk framework which identifies key risks of harm, which is appropriately monitored and mitigated by accountable individuals.

· Strong and independent Board oversight and challenge – only really applicable to larger businesses.

Additional Issues Raised

· Diversity and inclusion (D&I) and Environmental, Social and Governance (ESG) considerations – the level of engagement here will depend on the size, complexity, and target audience of the business.

· The Senior Managers and Certification Regime – are you ‘Walking the walk’ as far as accountability is concerned. Do your Senior Managers actually understand their responsibilities?

· Cyber threats and operational resilience – Again, an area that is not always receiving complete focus within smaller businesses (understandably).

· Oversight of Appointed Representatives – New rules will be coming into place here later this year.

· Post-sale verification – the regulator is concerned that firms are contacting clients after an initial sale in order to verify the information provided was correct. Understandably, the regulator expects you to get the correct information on the first pass with the customer and not need to go back (potentially increasing their premium) because you did not get the correct information to start with.

Summary

There is not really anything new here, it is simply a reminder of the responsibilities of which you should already be aware.

We would recommend subscribing to the FCA Regulation Round-up as this provides a good feel for the direction of trave for regulation.

We will continue to work with all client firms but if there are any immediate issues arising from this, do please get in touch.

YOUR COMPLIANCE MATTERS – FOS Award Limits increased

mike.hanson@ycmmail.com (MICHAEL HANSON) — Mon, 04 Apr 2022 09:52:45 GMT

YOUR COMPLIANCE MATTERS – FOS Award Limits increased

Relevance: All Firms

Action required: Take note of increases and amend relevant documentation accordingly.

The FCA have recently issued the following statement:

Increase to the FOS Award limit

In March 2019 we published PS19/8 to increase the ombudsman service’s award limit from £150,000 to £350,000 for complaints about acts or omissions by firms on or after 1 April 2019. We increased it to £160,000 for complaints referred to the service on or after 1 April 2019 about earlier acts or omissions.

We said that from 1 April 2020 both award limits are to be automatically adjusted each year to ensure they keep pace with inflation, as measured by the Consumer Price Index (CPI). We said the adjusted figure should be rounded down to the nearest £5,000.

The CPI figures for January 2022 have been released and from 1 April 2022 the limit will increase to £170,000 for complaints referred to the ombudsman service on or after 1 April 2022, about acts or omissions that took place before 1 April 2019. It will increase to £375,000 for complaints referred on or after 1 April 2022, about acts or omissions that took place on or after 1 April 2019.

So, Award Limits from 01 April 2022:

£170,000 for complaints referred to the ombudsman service about acts or omissions that took place before 01 April 2019

£375,000 for complaints referred to the ombudsman service about acts or omissions that took place on or after 01 April 2019

You should ensure that any documentation or training material relating to this topic should be reviewed to ensure that it is kept up-to-date.

YOUR COMPLIANCE MATTERS – FCA Consultation Paper Appointed Representatives (ARs)

mike.hanson@ycmmail.com (MICHAEL HANSON) — Fri, 25 Feb 2022 10:49:42 GMT

YOUR COMPLIANCE MATTERS – FCA Consultation Paper Appointed Representatives (ARs)

Relevance: All Firms with (or planning to appoint) ARs.

Action required: Review your AR position against the potential new FCA Rules.

The FCA published a Consultation Paper (CP 21/34), relating to ARs. The expectation is that new rules will come into effect before the end of the first half 2022.

The FCA perceives that the AR regime has drifted significantly away from its original intent. Additionally, the FCA has done some research which suggests firms with ARs have higher complaint ratios than other firms. At the moment, the FCA has no way of identifying which complaints relate to the firm’s ARs (although this is set to change).

The consultation paper can be found here CP21/34: Improving the Appointed Representatives regime | FCA If you have ARs, or are considering making any appointments, we certainly recommend that you read the CP in order to prepare yourself for rules which will come into effect later this year.

We are not going to attempt to paraphrase the CP here as the document is far too long to make this effective.

However, we would draw firms’ attention to the specific concerns and issues which the FCA are seeking to address through the consultation process:

1. The FCA does not believe it holds enough information about firms’ ARs.

2. The FCA believe that many firms do not fully understand their obligations with regards to oversight of activities of their ARs.

One thing that does emerge from the consultation process is that the FCA does believe that ARs can add value to the market in providing access to additional products and services to consumers. It is therefore treading quite carefully in attempting to avoid disrupting existing business models that rely upon ARs.

Having said that, the FCA will be seeking information in relation to both existing and the new ARs outlining the reasons for the Principal appointing them, regulated activities to be undertaken, non-regulated activities of the AR, involvement with retail clients, previous AR relationships (and why an AR would move from one Principal to another), Group information relating to the AR, financial arrangements between the Principal/AR and expected revenue from the appointment.

As Introducers represent a lower risk, to the regulator, the level of information required is commensurately lower.

More details of the information required can be found in Sections 3.13 and 3.14 of the CP. The information gathered by the FCA will see much greater detail provided in the FCA Register, relating to the activities allowed for the AR.

The FCA is also suggesting that firms need to notify them at least 60 days ahead of the AR’s appointment by the firm. Given that it has currently taken the FCA up to three months to process AR applications, this point seems moot!

Ongoing Changes and Monitoring

Any updates to the information relating to the AR will need to be notified to the FCA.

Additionally, firms will have to complete an annual attestation of the details held for ARs (as they have to do for themselves currently).

Additionally, complaints data will need to be individually reported for the firm’s ARs so that this can be separated from the overall reporting currently provided.

Revenue related to ARs will also need to be separately reported (at the moment, this is not separated from the overall fee data provided by the firm).

Additional guidance is being proposed to enhance and clarify FCA expectations of principals and their responsibilities, most of which will also apply to introducer appointed representatives (IARs).

Size of AR v Principal

Under section 5.23 of the CP, the FCA is also raising questions over the ability of smaller firms to properly supervise ARs which are larger than they are. It is consulting on a number of potential changes in this area.

Regulatory Hosting Services

This is now defined in the proposed Glossary. Fundamentally this issue relates to firms that do not themselves undertake regulated activities for which they have permission but appoint others to do so, sometimes in areas of business which the Principal is not familiar with. The FCA is seeking input and the ways in which harms caused by such arrangements can be addressed.

Application and Periodic fees for ARs and Senior Managers.

Firms should also be reminded of the fact that the FCA intends to start charging fees to add ARs and their associated SMF roles and this needs to be factored in for any plans to appoint new ARs.

Next steps

As mentioned, we have not attempted to cover the full detail of the CP here. Suffice to say, the FCA is planning to be far more intrusive in this area and this needs to be included in any planning relating to ARs (new or existing) in future.

We will provide a further update once the Rules are published.

YOUR COMPLIANCE MATTERS – FCA ‘Dear CEO’ letters - Insurance cost for multi– occupancy buildings

Wed, 02 Feb 2022 12:29:50 GMT

YOUR COMPLIANCE MATTERS – FCA ‘Dear CEO’ letters - Insurance cost for multi– occupancy buildings

Relevance: All Firms.

Action required: Review your approach to such risks and review your distribution arrangements.

The FCA published two ‘Dear CEO’ letters connected to the above issue, on 28th January 2022, highlighting the difficulties being faced by both Property Owners, and their Leasehold Tenants, as a result of rising property insurance prices for multi-occupancy buildings.

The letters are available on the FCA website:

https://www.fca.org.uk/publication/correspondence/dear-ceo-intermediaries-insurance-costs-multi-occupancy-buildings.pdf

https://www.fca.org.uk/publication/correspondence/dear-ceo-insurers-insurance-costs-multi-occupancy-buildings.pdf

The FCA is pointing out the requirement to ensure that products provide ‘Fair Value’ to the customer. In particular, they want intermediaries and insurers to look at the total costs absorbed in the distribution chain to ensure that commissions taken do not adversely affect the value of the ultimate product.

The newsletter highlights the obvious issue that if premiums increase, commissions (if they are a fixed percentage of premium) will increase, without the intermediary or any party in the chain actually doing any more work than they previously had. The FCA expects firms to look at this issue and ensure that their income bears a reasonable relationship to the work that they are doing for the customer (in this case, including the leaseholders).

The newsletters also remind intermediaries of the need to get any re-broking activity underway as early as possible, in order to ensure that the market can react properly and provide the best terms to the client concerned.

As a further reminder, all firms have to disclose their revenue for handling a case (this includes commission, fees, premium finance, and any other source of income) if this is requested by the Policyholder.

Further FCA Activity

It does look like the FCA will be asking firms to complete a questionnaire, detailing the processes that they undertake and remuneration, throughout the chain (including any insurance broker or property managing agent which takes any commission from the premium).

We would recommend that you review all of your significant property-owning cases in order to identify whether there are any issues which need to be addressed, in response to the FCA concerns.

If you need any further guidance, please call us and we will be happy to provide more help.

YOUR COMPLIANCE MATTERS – No Claims Discount (Bonus) – Reminder to send in your annual return in January 2022

mike.hanson@ycmmail.com (MICHAEL HANSON) — Mon, 17 Jan 2022 09:27:34 GMT

YOUR COMPLIANCE MATTERS – No Claims Discount (Bonus) – Reminder to send in your annual return in January 2022

Relevance: All firms selling Private Motor Insurance with protected NCB.

Action required: Submit your next Compliance Declaration to the CMA before 01.02.22

You will remember that, from the 1 August 2016, the Competition & Markets Authority (CMA) Private Motor Insurance (PMI) Order came into force, in relation to No Claims Discount (NCD) protection. This Order affects all policies written as private car products (excluding motorcycle and classic car) where No Claims Discount (NCD) protection is offered (unless such protection is integral to the product).

If you have not done so already, you need to submit your annual declaration by 01.02.21, along with NCD tables for the insurers that you arrange private car business with, where NCD protection applies (as mentioned, this does not apply to motorcycle and classic car).

This can be completed online Here is the link to the CMA’s online reporting form

Please get in touch if you need any help. Otherwise, you need to ensure that you have submitted the declaration before the deadline.

YOUR COMPLIANCE MATTERS: General Insurance Pricing Practices (GIPP) (8)

mike.hanson@ycmmail.com (MICHAEL HANSON) — Thu, 02 Dec 2021 17:49:46 GMT

YOUR COMPLIANCE MATTERS: General Insurance Pricing Practices (GIPP) (8)

Relevance: All firms.

Action required: Reminder to update your Consumer communications to comply with the revised rules from 01 January 2022.

Having provided a number of Newsletters, on GIPP, we thought we should provide a quick reminder to ensure that your Consumer communications will be compliant with Rule changes coming into force on 01.01.22. The following Rules apply only to Consumer customers – they do not apply to Commercial customers:

Auto Renewal – right to opt out
Premium Finance – additional information and active choice by the Consumer.

Auto Renewal

The Rules do not apply to Private Health, Medical Insurance or Pet Insurance, or to policies of less than 10 months duration (therefore monthly renewable policies are not captured by the revised rules).

For all other Consumer policies, in good time before the conclusion of the contract, the firm must:

Inform the Consumer whether the policy is set to auto renew;
Provide the Consumer with an explanation of the impact of the automatic renewal for them; and
Provide the Consumer with confirmation that they have a right to cancel the auto renewal process at any time.

The Consumer needs to be made aware of:

The existence of the right to cancel auto renewal;
The conditions for exercising it;
The consequences of exercising it; and
Practical instructions for doing so.

As always, this must be confirmed writing to the Consumer (Email is acceptable).

Renewals

When renewal is invited, the Consumer needs to be made aware of whether the policy will automatically renew, if they take no action, or whether they need to do something to accept the renewal offer.

Cancellation Methods for Auto Renewal

The firm is obliged to provide easy and accessible methods for cancelling automatic renewal. The methods of communicating a choice to opt out must, as a minimum, include the methods by which the customer was able to take out the policy (whether by telephone, online, etc.).

The customer has the right to opt out of auto renewal at any time, whether this be during the purchase process, during the policy period or prior to renewal. and you cannot charge customers a mid-term adjustment fee for changing between automatic renewal and the opt out choice.

Consumer Premium Finance

If you offer premium finance to Consumers, you need to confirm, in good time, before inception or renewal:

The total cost of the policy if the premium were paid in full.
The total cost of the policy if premium financed is used.
The difference between the two figures.
Confirmation that utilising premium finance will be more expensive than paying for the premium up front.
Details of any differences between the duration of the policy and that of the premium finance arrangement (if there are any).

Information needs to be presented in an accessible manner which makes it clear that this is key information.

It is also a requirement that the customer makes an active choice between paying in full and paying using premium finance. You will therefore need to seek the customer’s confirmation, having provided them with the annual costs and the difference between them, whether the customer wishes to use premium finance or pay the premium in full.

Actions Required

Firms will need to review their scripts, standard new business confirmation letters, renewal invitation letters etc. in order to comply with the new requirements and ensure that staff are aware of the changes.

As always, if you need any help with implementing the revised Rules, please get in touch.

General Insurance Pricing Practices (GIPP) (6)

mike.hanson@ycmmail.com (MICHAEL HANSON) — Thu, 04 Nov 2021 13:18:41 GMT

YOUR COMPLIANCE MATTERS: General Insurance Pricing Practices (GIPP) (6)

Relevance: All firms.

Action required: Ensure any Premium Finance arrangements in place are reviewed to comply with new requirements from 01 January 2022.

The FCA policy statement on General Insurance Pricing Practices (PS 20/19) was published at the end of May 2021.

PS21/5: General insurance pricing practices market study: feedback to CP20/19 and final rules (fca.org.uk)

Previous newsletter emails on this subject have covered;

A general overview of GIPP;

The Pricing Practices Survey,
Reporting requirements;
Auto-renewal; and

Product Governance rules and “Fair Value” requirements.

Significant parts of the new rules will apply only to the parties that set the insurance premium; generally the insurer, but not always.

There are some areas where intermediaries have a direct impact on the cost paid by the consumer, one being Premium Finance ; where it is considered normal practice for the finance provider to agree net charges with the broker, thereby allowing the broker to determine the gross price paid by the end user.

This newsletter will concentrate only on the impact of the new rules in respect of Retail Premium Finance; to be clear, the rules do not apply to Commercial customers .

So from 01 January 2022, if you are planning to offer premium finance, you need to confirm the following items to your customer, in good time, before inception or renewal:

The total cost of the policy if the premium were paid in full.
The total cost of the policy if premium financed is used.
The difference between the two figures.
Confirmation that utilising premium finance will be more expensive than paying for the premium up front.

Details of any differences between the duration of the policy and that of the premium finance arrangement (if there are any).

Information needs to be presented in an accessible manner which makes it clear that this is key information.

It is also a requirement that the customer makes an “active election” between paying in full and paying using premium finance. Therefore you will need to:

provide them with the annual costs and the difference between them; and

seek the customer’s confirmation whether they wish to use premium finance or pay the premium in full.

Guidance from the FCA states:

“For the purposes of ICOBS 6A.2.1R, providing the customer with the choice between paying monthly or annually will not be sufficient to show the customer has made an active election to obtain the retail premium finance.”

The Customer’s Best Interest Rule

You must not put forward a premium finance arrangement unless this is in the customer’s best interest .

You, therefore, need to ensure that any premium finance arrangements that you use do not conflict with this requirement, for example, proposing a premium finance arrangement which is more expensive than that which would be available from the insurer direct.

Product Governance

The FCA rules state that, on a regular basis (at least annually?), you need to consider your premium finance arrangements and assess how these are providing fair value to the customer. You will need to retain evidence of your selection and how this provides fair value to the customer.

To assist firms in reviewing their Premium Finance arrangements, a template form is attached, which will form part of the Compliance Monitoring process we undertake with firms.

If you need to discuss any aspect of this matter with us, please make contact in the normal way.

General Insurance Pricing Practices (GIPP) (5) Product Governance

mike.hanson@ycmmail.com (MICHAEL HANSON) — Wed, 20 Oct 2021 13:07:41 GMT

YOUR COMPLIANCE MATTERS: General Insurance Pricing Practices (GIPP) (5) Product Governance

Relevance: All firms.

Action required:

1) Understand the new rules relating to Product Governance

2) Liaise with your insurers to obtain their Product Governance assessments

We are aware that a number of firms have received a letter from the FCA, in relation to the above issue. We are therefore providing a reminder of the requirements that apply

Manufacture versus distribution

The requirements under the rules vary depending on whether you are a manufacturer (you create, develop, design, or underwrite a contract of insurance), or whether you are a distributor (providing advice or proposing a contract of insurance to customers).

In the main, we believe that most broking firms will fall into the distributor category, and we will therefore concentrate on the rules which apply in this case.

Product Governance Rules – Manufacturer’s assessment

You are required to have procedures in place to obtain the product manufacturer’s assessment under PROD 4.2.29/29A.

This Rule requires that the product manufacturer maintains information relating to the insurance product, its product approval process, and the intended target market for the insurance product.

But it also requires that the product manufacturer provides information to the distributor to enable them to understand the intended value of the insurance product, and the effect that the distributor’s own pricing approach/distribution strategy may have on the value of the product (where this is not known by the manufacturer) and any customers for whom the product is unlikely to provide fair value.

Currently, we do not believe that product manufacturers are publishing this information to their distribution channels, even though it has been a requirement for a number of years.

Action Required: We would recommend that you send a request to all of your product providers along the line of the draft email at the end of this newsletter:

Product distribution strategies

· A distributor is obliged to have arrangements in place which will aim to prevent and mitigate customer detriment, support proper management of conflicts of interest and ensure that the objectives, interests, and characteristics of customers are duly taken into account, in the sales process.

· You need to be able to identify the value that the insurance product is intended to provide to the customer and any impact that your distribution arrangements (including remuneration) have on the overall value of the product, to the customer.

· Specifically, you need to consider the overall price paid by the consumer and the extent and quality of any services that you provide, as the distributor (or any service provided by other parties in the distribution chain).

· You need to consider whether the costs of distribution lead to the product ceasing to provide fair value for the customer, in addition to any potentially detrimental effect where the product is packaged with another product or service.

· In relation to retail premium finance, you need to ensure that the use of premium finance does not adversely impact fair value when the overall cost (including any interest/charges) is taken into account.

· You also need to bear in mind that, in relation to all products, not only premium finance, you should not be offering a facility to the customer if there is a better value facility available through another route (for example, direct from the Insurer). You therefore need to ensure that you have benchmarked your own premium finance arrangements, against those available, in order to ensure that you will always provide the most appropriate option to the customer.

· When distributing add-on products, you need to ensure that, allowing for the cost of the add-on, the overall package offered to the customer remains fair value. You also need to ensure that products do not duplicate cover if this will lead to a reduction in value for the customer.

Circumstances likely to lead to a breach of the rules

· Receiving remuneration that does not bear a reasonable relationship to your costs, or the contribution, level of involvement or the benefit added by any party in the distribution chain to the overall value received by the customer.

· Remuneration arrangements which give an incentive to recommend an insurance product which may not best match the customer’s needs.

Regular review

The firm must undertake an annual review of its distribution arrangements, in relation to the product governance requirements.

Distributor requirements to provide information to the product manufacturer

On request from a manufacturer, you must provide information about:

· Your distribution arrangements and remuneration received

· Information on any add-on products that you sell alongside the manufacturer’s product

· Confirmation that you are compliant with the conflicts of interest and IDD remuneration incentives rules

Additionally, you need to inform the product manufacturer if you consider that the insurance product offered is not in line with the interests, objectives, and characteristics of the target market.

Changes of strategy

Where the distributor identifies any issues which could have an effect on the value provided to the customer, it is obliged to take action to mitigate the circumstances, change its distribution strategy, cease distributing specific products, change its remuneration strategy or find better value products, when required.

Information to staff

Distributors need to have a written product distribution arrangements document, which should be made available to relevant staff.

Suggested email to insurers

RE: FCA Product Governance rules

Dear XXXX,

We are writing to request your assistance in enabling us to comply with rules effective 1st October 2021. If FCA compliance is outside your remit, please pass this to your Compliance team.

Under PROD Rules you have specific obligations in respect of the Products you manufacture. These include an obligation under PROD 4.2.29 to share the following information with your Distributors (us):

PROD 4.2.29 R

A firm which manufactures an insurance product, must make available to a distributor :

1. (1) all appropriate information on the insurance product

2. (2) all appropriate information on the product approval process; and

3. (3) the identified target market of the insurance product.

PROD 4.2.29A G

For a non-investment insurance product , the information required by PROD 4.2.29R should include:

1. (1) all appropriate information to enable the distributor to understand the intended value of the insurance product established by the firm ;

2. (2) any effect the distributor may have on the intended value that has not been fully taken into account by the firm when assessing value, and therefore which the distributor should take into account; and

3. (3) any type of customer for whom the insurance product is unlikely to provide fair value.

PROD 4.3.1 requires us, as a Distributor, to have systems in place to ensure that we obtain relevant information regarding your products. Hence the request to you.

We look forward to hearing from you.

Yours etc.

General Insurance Pricing Practices (GIPP) (5)

mike.hanson@ycmmail.com (MICHAEL HANSON) — Thu, 16 Sep 2021 06:59:44 GMT

YOUR COMPLIANCE MATTERS: General Insurance Pricing Practices (GIPP) (5)

Relevance: All firms.

Action required: Ensure arrangements are in place to comply with new Product Governance rules and “Fair Value” requirements from 01 October 2021.

The FCA policy statement on General Insurance Pricing Practices (PS 20/19) was published at the end of May 2021.

PS21/5: General insurance pricing practices market study: feedback to CP20/19 and final rules (fca.org.uk)

Previous newsletter emails on this subject have covered;

· A general overview of GIPP;

· The Pricing Practices Survey,

· Reporting requirements; and

· Auto-renewal.

This newsletter reminds firms that there are changes coming into effect on 01 October 2021 that are part of the package of remedies that the FCA is using to address problems identified in its market study looking at pricing practices in home and motor insurance markets, such as “price walking”.

Product Governance:

New Rules:

· Product governance rules are expanded to apply regardless of when a product is manufactured;

· New rules applying to “manufacturers” (including intermediaries in appropriate cases) and “distributors”;

· Manufacturers must ensure that their products offer “ fair value ” to customers for a “reasonably foreseeable period” and that any distribution channel used results in fair value to customers;

· Distributors must ensure that any distribution strategy is consistent with the aim of providing “fair value” to the customer

· Products and distribution arrangements must be reviewed at least every 12 months

Changes made by PS21/5:

· Minor changes to rules on sharing of data and the responsibilities of parties in the distribution chain;

· Existing guidance FG19/05 on general insurance distribution chains will be withdrawn once the new rules come into force

Effective from:

· 01 October 2021 (01 January 2022 for the premium finance disclosure rules)

Achieving “Fair Value”:

· “Value” means the relationship between the overall price to the customer and the quality of the products/services provided.

o Whether a product provides “fair value” must be assessed at every stage of the product approval process and records of assessments made and retained.

· “Fair value” considerations include:

a) the nature of the product, its benefits, their quality and limitations;

b) the type and quality of services provided to customers;

c) expected total price to be paid by the customer and its components;

d) how intended distribution arrangements support the intended value of the product.

· All available information should be taken into account, including data published following the FCA’s recent work on general insurance value measures

· Examples of arrangements where “fair value” is unlikely to be satisfied include:

o The difference between the risk price to the firm and total price paid by the customer cannot be justified on the basis of:

a) actual costs incurred;

b) the quality of any benefits; or

c) the cost or quality of any services.

o Price should not be increased on the basis of:

a) whether a policy is subject to auto-renewal ;

b) the customer’s vulnerability ;

c) whether retail premium finance is used to buy the policy.

o Use of an estimated final price to the customer to assess value that does not represent the expected total price including any additional products

· A “reasonably foreseeable period” will vary with the type and length of the contract.

Self-Assessment:

To assist firms in determining their positioning and readiness for the changes, we have attached forms to be used as an initial assessment.

If you need to discuss any aspect of this matter with us, please make contact in the normal way.

YOUR COMPLIANCE MATTERS – FCA increases minimum limits for PII cover

mike.hanson@ycmmail.com (MICHAEL HANSON) — Wed, 08 Sep 2021 09:05:54 GMT

YOUR COMPLIANCE MATTERS – FCA increases minimum limits for PII cover

Relevance: All Firms.

Action required: Ensure increased limits are applied to all PII covers from 01 August 2021.

A recently issued Handbook Notice from the FCA includes an amendment to the minimum levels of professional indemnity insurance (PII) cover required for insurance intermediaries.

The new minimum levels of PII cover are as follows:

· For a single claim against the firm, the limit was increased from €1,250,000 to €1,300,380 (sterling equivalent being approximately £1,102,600);

· For the total aggregate of claims against a firm, the limit was increased from €1,850,000 to €1,924,560 (£1,631,879).

· The higher amount equivalent to 10% of annual income (this amount being subject to a maximum of £30 million) remains unchanged.

The changes are deemed necessary to ensure that consumers will not see the real value of any claims above the indemnity limits being eroded by inflation over time.

They are also consistent with Insurance Distribution Directive (IDD)-revised minimum levels of PII cover.

The new requirements apply to any PII policy or guarantee commenced, renewed or extended with effect from or after 1 August 2021. Non-annual arrangements must also be aligned with the new requirements before 1 August 2022.

If you need any further guidance, please call us and we will be happy to provide more help.

YOUR COMPLIANCE MATTERS – Minimising your FSCS and FOS levies

mike.hanson@ycmmail.com (MICHAEL HANSON) — Tue, 31 Aug 2021 08:48:13 GMT

YOUR COMPLIANCE MATTERS – Minimising your FSCS and FOS levies

Relevance: All Firms with commercial clients

Action required: Consider level of Annual Income declared to minimise FCA Fees and Levies.

It is that time of the year when the FCA are sending out invoices for Regulatory Fees and Levies; your contribution to paying for the costs of regulation.

As a reminder, the fees and levies are always based upon the amounts of income reported in the relevant sections in the year before, i.e. the invoices being sent this year will be based on income reported in 2020.

· Annual Income is the amount of income received and retained by the firm in its financial year in respect of, or in relation to the provision in the UK of regulated activities.

· The regulatory fees and levies are made up as follows:

o Financial Conduct Authority (FCA);

o Financial Services Compensation Scheme (FSCS);

o Financial Ombudsman Service (FOS); and

o Financial Guidance Levy.

There are two levies that firms can investigate to determine if they would benefit from using an approach referred to as “tailored income”; the two levies involved are the FSCS and the FOS.

The FSCS accepts claims from “eligible claimants” and the FOS takes complaints from “eligible complainants”, both of which are defined as follows

Eligible claimants (FSCS):

An eligible claimants is any person (including a body of persons corporate or unincorporate (that is, a natural person, a legal person and, for example, a partnership), who at any material time was:

· a sole trader firm;

· a credit union ;

· a trustee of a stakeholder pension scheme (which is not an occupational pension scheme) or personal pension scheme;

· a firm carrying on the regulated activity of operating , or winding up, a stakeholder pension scheme (which is not an occupational pension scheme) or personal pension scheme; or

· a small business ;

Eligible complainants (FOS):

An eligible complainant must be a person (including a body of persons corporate or unincorporate (that is, a natural person, a legal person and, for example, a partnership), that at the time the complainant refers the complaint to the respondent is:

· A consumer , which is:

o any natural person acting for purposes outside his trade, business or profession;

· A micro-enterprise , an enterprise which:

o employs fewer than 10 persons; and

o has a turnover or annual balance sheet that does not exceed €2 million,

· A charity , which:

o has an annual income of less than £6.5 million t;

· A trustee of a trust, which

o has a net asset value of less than £5 million;

· A small business an enterprise which:

o is not a micro-enterprise;

o has an annual turnover of less than £6.5 million (or its equivalent in any other currency); and

o employs fewer than 50 persons ; or

o has a balance sheet total of less than £5 million (or its equivalent in any other currency),

· A guarantor .

This means that there may be instances where a firm has arranged insurance covers for an entity that would not be able to make a claim to the FSCS or complain to the FOS. The income received in those cases can be deducted from the full amount of annual income declared.

If you have been making the calculation over the past few years then you will recognise the savings that could be had. But if not, then it is a matter of individual consideration as to whether the savings can justify the time and effort required to undertake such an exercise.

There is a “Fee Calculator” available on the FCA website to enable firms to estimate the total of fees and levies. It can be accessed using the following link: Fee calculator | FCA .

Even though you may have reported your income without the benefit of “tailoring”, you can resubmit the amounts, if you believe that there any savings are worth the effort.

If you need any further guidance, please call us and we will be happy to provide more help.

General Insurance Pricing Practices (GIPP) (4)

Tue, 24 Aug 2021 12:29:46 GMT

YOUR COMPLIANCE MATTERS: General Insurance Pricing Practices (GIPP) (4)

Relevance: All firms.

Action required: 1) Understand the new rules relating to auto renewal of policies

2) Liaise with your software provider to ensure that you will have systems in place to enable compliance with the new rules

The FCA policy statement on General Insurance Pricing Practices (PS 20/19) was published at the end of May 2021.

One of the changes applicable for Consumer customers only (customers buying cover not related to their trade business or profession) is the need to give the Consumer a right to opt out of any auto-renewal process which may otherwise apply. The following Rule changes come into force on 01.01.2022.

· As mentioned above, these rules do not apply to Commercial customers.

· The FCA has also chosen not to apply them to Private Health, Medical Insurance or Pet Insurance (given the risks associated with the customer failing to renew).

· The requirement only applies to policies with a policy period of 10 months or more (therefore monthly renewable policies are not captured by the revised rules).

However, for all other Consumer policies, in good time before the conclusion of the contract, the firm must:

· Inform the Consumer whether the policy is set to auto renew;

· Provide the Consumer with an explanation of the impact of the automatic renewal for them; and

· Provide the Consumer with confirmation that they have a right to cancel the auto renewal process at any time.

The Consumer needs to be made aware of:

· The existence of the right to cancel auto renewal;

· The conditions for exercising it;

· The consequences of exercising it; and

· Practical instructions for doing so.

As always, this must be confirmed in writing to the Consumer (Email is acceptable).

Renewals

When the renewal is invited, the customer needs to be made aware of whether the policy will automatically renew, if they take no action, or whether they need to do something to accept the renewal offer.

Cancellation Methods for Auto Renewal

The firm is obliged to provide easy and accessible methods for cancelling automatic renewal and cannot charge customers a mid-term adjustment fee for changing between automatic renewal and the opt out choice.

In terms of the methods of communicating a choice to opt out, these must, as a minimum, include the methods by which the customer was able to take out the policy (whether by telephone, online, etc.).

The firm must not put any unnecessary barriers in the way of the customer exercising the right to opt out of auto renewal; this includes not having unreasonably longer call wait times to cancel the auto renewal feature than to purchase the new policy, or unnecessary questioning before auto renewal is cancelled.

The customer has the right to opt out of auto renewal at any time, whether this be during the purchase process, during the policy period or prior to renewal.

Actions Required

Firms will need to review their scripts, standard new business confirmation letters, renewal invitation letters, client terms of business, etc. in order to make clear whether a policy is subject to automatic renewal and the ways in which the client can opt out of this, if they wish to do so.

You will also need to ensure that your software system has the facility to record whether a client has opted out of auto renewal, so that you can provide the correct renewal letter and follow the correct procedure at renewal time.

As always, if you need any help with implementing the revised Rules, please get in touch.

YOUR COMPLIANCE MATTERS: General Insurance Pricing Practices (GIPP) (3)

Wed, 18 Aug 2021 09:20:49 GMT

YOUR COMPLIANCE MATTERS: General Insurance Pricing Practices (GIPP) (3)

Relevance: All firms.

Action required: 1) Understand what data your firm is required to report to the FCA

2) Liaise with your software provider to ensure that they will have

systems in place to enable compliance with the new rules

Previous newsletter emails on this subject have covered;

· A general overview of GIPP; and

· The Pricing Practices Survey,

This newsletter will outline the data you will be expected to report to the FCA. You will need to ensure that your software suppliers are able to allow you to comply with the new rules.

Reporting Requirements

You will need to submit regular reports for retail home and motor insurance products where you set prices. If you determine the price of any associated items, including premium finance and any fees charged, you will need to report on these.

Information for each product is required to be split by:

· The sales channel;

· including direct (telephone, online and branch), intermediated, intermediated via price comparison websites, and affinity/partnership channels.

· The length of time a customer has held their insurance with the firm.

· Closed books of business;

· information on these books of business will need to be split by product and tenure but not by sales channel.

Where you determine the cost of a product, or fee, detailed information will be required, as follows:

· Net/gross premiums;

· Total/average premiums;

· Expected claim ratios;

· Average prior year premiums;

· Proportion of customers with expected claims ratios between %s;

· Incurred claims ratios and reserve movements;

· Fee information;

· Premiums and policy numbers for add-ons/premium finance;

· Premium finance, add-ons and fees and charges.

Price-setting intermediaries will be required to submit the following information by sales channel, product and tenure:

· Total gross written premium;

· Total net rated written premium;

· Average gross premium;

· Average net rated premium;

· Average prior year gross premium;

· Total number of policies incepted/ renewed;

· The number of policies in force at the end of the reporting period;

· Expected claims cost;

· Expected claims ratio.

A new form has been devised to report to the FCA on; referred to as REP021.

· A copy of the report form can be found at the following link;

SUP 16 Annex 49A Pricing information report form (REP 021) - FCA Handbook

· A set of notes to help in completing the report form can be found using the following link;

SUP 16 Annex 49B Notes on completing the pricing information report form (REP 021) - FCA Handbook

It should be noted that:

· All firms should complete Sections 1 and 6 of (REP021), and in addition,

· insurers and managing agents should complete Sections 2 and 3, and

· Price-setting intermediaries should complete Sections 4 and 5.

In a change to their initial proposal, the FCA require firms to submit a single interim report covering the six months ended 30 June 2022, by 30 September 2022. This is intended to allow firms enough time to make the necessary changes to their systems and reporting processes.

Systems

Knowing what information is needed for the new report form is one thing, collecting it is another.

Where firms use their own in-house systems, work should already be underway to make the necessary changes.

However, where firms are reliant upon third-party software providers, they should be seeking an update on the progress being made by those firms. The FCA are unlikely to accept a failure by a firm to make the required report due to an inability to get the information from the systems used by that firm.

It is vital that firms make contact immediately with the third-party firms, if they have not already done so.

Just as a reminder, all these matters are taken from the Policy Statement published by the FCA that primarily (but not solely) stemmed from the practice of price differentiation, between new business and renewal premiums, how this was carried out by firms and its potential impact on consumers.

The full policy statement can be found using the following link;

PS21/5: General insurance pricing practices market study: feedback to CP20/19 and final rules (fca.org.uk)

The new rules come into effect as follows:

· The rules relating to systems and controls and product governance will come into effect on 01 October 2021 .

· The rules on pricing, auto‑renewal and reporting will come into effect on 01 January 2022 , with a transitional provision (up until 17 January) for the rules on pricing and auto‑renewal disclosure.

As previously indicated, we will be issuing further newsletters over the coming weeks to assist firms with getting ready for the revised arrangements.

If you need to discuss any aspect of this matter with us, please make contact in the normal way.

General Insurance Pricing Practices (GIPP) (2)

mike.hanson@ycmmail.com (MICHAEL HANSON) — Tue, 20 Jul 2021 14:10:39 GMT

YOUR COMPLIANCE MATTERS: General Insurance Pricing Practices (GIPP) (2)

Relevance: All firms.

Action required: Be prepared for potential FCA survey relating to new FCA rules on product pricing and value.

Further to our previous email, on this subject, the FCA has recently sent out a Survey questionnaire to establish firm’s readiness to address the issues relating to Pricing Practices.

As a reminder, the FCA published a policy statement that primarily (but not solely) stemmed from the practice of price differentiation, between new business and renewal premiums, how this was carried out by firms and its potential impact on consumers.

The full policy statement can be found using the following link;

PS21/5: General insurance pricing practices market study: feedback to CP20/19 and final rules (fca.org.uk)

New Rules:

As a reminder, the rules introduce a package of market remedies. These include:

From 01.10.21:

Additions to the product governance rules that require firms to have processes in place to deliver products that offer fair value to customers for all general insurance products. If you set the price for a product, or set fees, these requirements will apply to you directly.

There are also additional Senior management oversight requirements and reporting (the latter from 2022).

From 01.01.22:

Home and Motor renewal prices can be no greater than the equivalent price for new business. This also applies to any additional products associated with the sale, including Premium Finance, Add-on covers and Fees.

Rules requiring firms to offer accessible and easy options for customers wishing to opt out of auto-renewal. These measures will apply to all Consumer general insurance contracts with a duration of 10 months or more.

Additional Premium Finance disclosures for Consumers (not Commercial clients) regarding the cost of using finance rather than paying in full.

Reporting requirements to support the ongoing supervision of the home and motor insurance markets, including additional products such as premium finance and fees.

FCA Survey

A copy of the FCA Survey is attached to this email. The turnround time seems to be three weeks (as some supporting information is needed to complete.

If you need to discuss any aspect of this matter with us, please make contact in the normal way.

General Insurance Pricing Practices (GIPP) (1)

mike.hanson@ycmmail.com (MICHAEL HANSON) — Mon, 19 Jul 2021 09:01:23 GMT

YOUR COMPLIANCE MATTERS: General Insurance Pricing Practices (GIPP) (1)

Relevance: All firms.

Action required: Begin preparations for changes required under new FCA rules on product pricing and value.

The FCA has recently published a policy statement that is the culmination of a few years of investigation and review of the way firms price personal lines General Insurance products. Their concerns primarily (but not solely) stemmed from the practice of price differentiation, between new business and renewal premiums, how this was carried out by firms and its potential impact on consumers.

The full policy statement can be found using the following link; it is over 200 pages long and the final rules are aimed at addressing what has been described as the ‘loyalty penalty’ paid by existing general insurance product customers.

PS21/5: General insurance pricing practices market study: feedback to CP20/19 and final rules (fca.org.uk)

This is a significant set of Rule changes which were driven by Consumer detriment. However, they will impact Commercial business too.

This newsletter is only the initial “wake-up call” for client firms that have not yet started to undertake an assessment of how they might be affected by the new rules.

Over the next few weeks, we will be issuing separate newsletters covering individual topics where changes to firms’ processes and procedures will be necessary.

Background:

The FCA has carried out a number of studies and published various papers on fair value. It has concluded that:

· Firms are failing to implement appropriate and effective strategies, governance, control and oversight of their pricing practices and activities to reliably assess and evidence that they are treating their customers fairly.

· Differential pricing is leading to loyal clients paying significantly higher prices than those that shop around regularly.

New Rules:

The rules introduce a package of market remedies. These include:

From 01.10.21:

Additions to the product governance rules that require firms to have processes in place to deliver products that offer fair value to customers. There is a strong emphasis on the impact that the distribution chain has on the final price.

This will apply to all general insurance and pure protection products. If you set the price for a product, or set fees, these requirements will apply to you directly.

There are also additional Senior management oversight requirements and reporting (the latter from 2022).

From 01.01.22:

Additional Premium Finance disclosures for Consumers (not Commercial clients) regarding the cost of using finance rather than paying in full.

Reporting requirements to support the ongoing supervision of the home and motor insurance markets, including additional products such as premium finance and fees.

Impact

The policy statement marks the end of a long period of discussion about ‘price walking’ whereby the FCA has identified that existing customers pay more than new customers for general insurance products. The new rules will require firms to make a number of significant changes to their internal policies and to existing product governance arrangements. In many cases, the new provisions will impact existing distribution arrangements.

The FCA has stated that “The remedies will support our other work to deliver these outcomes, including the new Consumer Duty, on which we are currently consulting (CP21/13), and our recently‑published Guidance for firms on the fair treatment of vulnerable customers (FG21/1).”

As indicated above, we will be issuing further newsletters over the coming weeks to assist firms with getting ready for the revised arrangements.

If you need to discuss any aspect of this matter with us, please make contact in the normal way.

YOUR COMPLIANCE MATTERS: FCA fines LBGI £90M for misleading customer communications

mike.hanson@ycmmail.com (MICHAEL HANSON) — Tue, 13 Jul 2021 12:44:18 GMT

YOUR COMPLIANCE MATTERS: FCA fines LBGI £90M for misleading customer communications

Relevance: All firms.

Action required: Ensure that your documents do not make claims that you cannot substantiate.

Through our regular audit work, we continue to fail cases where we see claims that premiums are competitive, represent good value or variations on similar themes.

The FCA has now fined LBGI (Lloyds Banking Group) for stating that customers would receive a “competitive price” for their cover at renewal, although LBGI did not substantiate this language or check that assertions around competitiveness were correct.

In addition, the FCA revealed that LBGI informed approximately half a million customers that they would receive a discount based on either their ‘loyalty’, the fact they were a ‘valued customer’, or on a promotional or discretionary basis – the regulator found that ‘the described discount was not applied and was never intended to apply’.

Serious consumer harm

Following its investigation, the FCA declared that LBGI breached Principle 3 and Principle 7 of the FCA’s Principles for Businesses between 1 January 2009 and 19 November 2017, which has led to the fine of just over £90m.

Mark Steward, executive director of enforcement and market oversight at the FCA said: ‘Firms must ensure their communications with customers are clear, fair and not misleading.LBGI failed to ensure that this was the case. Millions of customers ended up receiving renewal letters that claimed customers were being quoted a competitive price, which was unsubstantiated and risked serious consumer harm.’

Action required

You should ensure that none of your client communications make claims that you cannot substantiate.

If you have not obtained alternative quotes, we cannot see how you can claim that terms offered are competitive, good value, or use any other term suggestion anything along these lines.

If you need any specific help on this issue, please get in touch.

YOUR COMPLIANCE MATTERS: FCA Credit Broking Survey July 2021

Wed, 23 Jun 2021 10:02:44 GMT

YOUR COMPLIANCE MATTERS: FCA Credit Broking Survey July 2021

Relevance: All firms.

Action required: Ensure that you respond to any survey request received from the FCA.

The FCA will be asking regulated firms, that hold the credit broking permission, to complete a short survey to update the information they hold on how you are using this permission.

The FCA sent out a pilot survey to 300 firms on 20 May 2021. The survey to remaining firms is expected to go out after the 5th July. It has, according to the FCA, been designed to be quick and simple to complete.

The survey will give the FCA an updated view of how firms are using the credit broking permission. They will, apparently, use the data provided, alongside existing data, to support its ongoing work to mitigate risks of harm to consumers.

It should be possible to complete the survey within 30 minutes, but it may be less for some firms. Firms will have 15 working days to submit their responses.

While the FCA is not seeking this information under its formal information gathering powers, it expects firms to complete the survey. Where firms do not complete the survey, the FCA may contact them to understand the reasons for this.

We know firms will be concerned about phishing emails and scams. When you receive the survey, please check it is from either FCA@fcanewsletters.org.uk or FCACreditBrokingSurvey@fca.org.uk .

A copy of the FAQs, relating to the survey can be found here Credit Broking Survey - Frequently Asked Questions (fca.org.uk) .

As always, if you have any questions, or need any help completing the survey, so please get in touch.