The FCA’s thematic review of with-profits business has found “signs” that a small number of firms are in breach of its rules. Despite this, the FCA is not taking enforcement action against any of those firms. This is presumably because it has determined that, “in most cases” at least, there is no evidence of customer harm.
The FCA has also concluded that poor practice in a number of areas is creating a risk of future customer harm, which must be addressed by firms. In particular, it argues that a higher risk of harm is often associated with governance failings.
Our briefing, which can be found here, considers the FCA’s report (“TR19/3”) and notes the following in particular:
- This is just the latest example of adjustments being made to regulatory expectations without any amendment to the Handbook, making it ever more difficult for firms to be sure that their actions meet required standards.
- The FCA’s argument that firms should observe the “policy intention” behind the requirement for a Run-Off Plan suggests that its rules and guidance are not sufficiently clear and should be changed to reflect the FCA’s expectations. For example, the comment that firms should treat their Run-Off Plans as “living documents” in our view stretches the meaning of existing guidance somewhat.
- Where court-approved schemes determine how a firm must operate its with-profits business, the FCA’s comments do not in our view take proper account of how their terms might (depending on their wording) constrain firms’ actions and firms’ ability or willingness to apply for a scheme to be changed.
Firms that have been given specific feedback will clearly need to address the FCA’s concerns. Others not covered by the review will need to study the FCA’s conclusions carefully and consider what they mean for their business.
Authors: Geoffrey Maddock, partner, and Alison Matthews, consultant
In line with its continuing focus on fairness in pricing and customer value, the FCA has published a thematic review on the general insurance distribution chain (TR19/2). The review contains a clear warning to firms involved in the design and sale of general insurance products that they must do more to protect customers from harm.
That warning is further emphasised in its Dear CEO letter, which sets out expectations of general insurance firms and reminds them of their responsibilities under both the new rules introduced by the Insurance Distribution Directive (IDD) and the Senior Managers and Certification Regime (SMCR). Alongside the thematic review, the FCA has published proposed guidance (GC19/2) for insurance product manufacturers and distributors (including, for example, retail banks) to clarify its expectations in terms of product development and distribution approaches.
The FCA has indicated that it intends to conduct further supervisory activities in this area and will intervene using its full range of enforcement tools to ensure firms meet their regulatory obligations.
Our “at a glance” guide (which can be found here) provides a summary of the thematic review and guidance consultation, as well as the implications for insurance manufacturers and distributors. The deadline for responses to GC19/2 is 9 July 2019.
Following last week’s agreement between the UK and the EU to extend Article 50 until 31 October 2019, the FCA has confirmed that it will also extend the deadline for incoming EEA firms to enter the UK Temporary Permissions Regime (“TPR“) to 30 May 2019. The FCA’s announcement only applies to firms for which the FCA is the “relevant regulator”, which includes insurance intermediaries.
If the Withdrawal Agreement can be ratified by 30 May 2019, the TPR will not come into force. This is because an implementation period would allow incoming EEA firms to continue their activities in (or into) the UK until the end of December 2020.
If no agreement is reached by the UK and the EU before the end of May, it is not clear whether the FCA will extend the window for notification to align with the Article 50 deadline of 31 October 2019. The FCA has stated that it will continue to keep the TPR notification window under review, but it is unlikely that further detail will be provided until there is greater political clarity on if, when and how the UK will leave the EU.
In light of this uncertainty, any incoming EEA intermediaries who intend to rely on the TPR should proceed on the assumption that they will need to submit their notifications by the end of 30 May 2019.
The position for insurers is different. The PRA has confirmed that “[the] deadline for a firm to notify the PRA that it wishes to enter the TPR has passed” and that it “does not intend to further extend the notification period”.
The period for notifications set out in the PRA’s Direction: ‘Temporary permission and variation: notification before exit day’ 7 November 2018 as amended by the PRA Direction – ‘Temporary permission and variation: notification before exit day (amendment) 28 March 2019) ended on 11 April 2019. The validity of notifications made by insurers before the deadline is not affected.
With a month to go until the UK is due to leave the EU, FCA guidance published yesterday is too late for most UK insurers and intermediaries to change their plans. Understandably, the FCA has waited for views to be expressed by EIOPA before commenting itself on the position for insurers and brokers. It took until last week, though, for that EIOPA guidance to be published (see our previous comments). The FCA’s guidance adds little, if anything, to what was said by EIOPA. For brokers, in particular, the FCA acknowledges that this is “a complex area” and advises firms to contact local EEA regulators and seek legal advice.
Two FCA statements are directed at insurers and insurance intermediaries:
Some key points are set out below. A warning about the advice issued by FCA is, however, that much of the following is a matter of individual EEA state discretion. It cannot be assumed, therefore, that the approach advocated by the FCA (and by EIOPA) will be adopted in all jurisdictions. As is often the case for Brexit-related questions, the answer depends on taking local advice in the relevant EEA state.
The FCA has followed up today with the publication of near-final rules and guidance that will apply if the UK leaves the EU without a deal (see FCA PS19/5). The PRA has also published an update to firms on its plans for Brexit, including near final materials (see PRA PS5/19). Feedback from both regulators includes further details on use of the temporary transition power, through which they aim to ensure that firms and other regulated entities do not generally need to prepare now to meet new UK regulatory obligations. In most cases, firms will be given a period of 15 months to adapt to these changes.
The FCA portal for incoming EEA firms to notify the PRA and the FCA of their intention to enter the UK Temporary Permissions Regime (“TPR”) is now open.
The TPR will apply if the UK leaves the EU on 29 March 2019 without an implementation (transitional) period. It ensures that EEA firms currently operating under an incoming passport (either from a UK branch or on a cross-border services basis into the UK) can continue to carry out regulated activities in the UK until they receive new direct authorisation by the UK regulators.
This short “at a glance” guide contains an overview of how the TPR will apply to EEA (re)insurers and suggests some next steps. Notifications must be submitted before 29 March 2019.
Near-final rules for the extension of the Senior Managers & Certification Regime (SMCR) to all financial services firms, including insurers and insurance intermediaries, have been published today by the PRA and the FCA. The FCA has also confirmed that the extension of the SMCR to insurance intermediaries will take effect from 9 December 2019.
EEA insurers and reinsurers doing business in the UK under the insurance passport must prepare for the UK’s withdrawal from the EU. We consider, in our latest “At a Glance” guide, the impact of Brexit on the cross-border activities of EEA (re)insurers, including how firms might respond to the European Council’s recent agreement to a transition period.
The “At a Glance” guide can be found here.
Recent announcements made by the PRA and FCA clarify their approach to Brexit following the European Council’s agreement to a transition period for the UK’s withdrawal from the EU. In particular, insurers, insurance intermediaries and other financial services firms have been encouraged to assume that they will continue to benefit from passporting rights until December 2020. Whilst this is a welcome development, firms cannot be complacent:
- As “nothing is agreed until everything is agreed”, there can be no certainty about the transition period until all terms of the Withdrawal Agreement are approved, which will only come much later (if at all) in the Brexit negotiations.
- Failing such agreement, the UK’s “temporary permission” regime will enable firms coming into the UK from other EEA jurisdictions to carry on business here while they obtain the PRA and FCA authorisations needed for those activities. UK firms with EEA operations seem unlikely, however, to benefit from a similar concession.
- In practice, this means that UK firms with significant EEA interests are continuing to plan, for now at least, on the assumption that there will be no transition period. Otherwise, they risk disruption to their business if the UK leaves the EU without agreeing the envisaged transition period as part of the terms for its withdrawal.
We consider the latest announcements from the PRA and the FCA. We also note the PRA’s policy statement (PS4/18) and Supervisory Statement (SS2/18) on its approach to branch authorisation and supervision, which were issued at the same time. Continue reading
On 20 December 2017, the Treasury, PRA and FCA clarified their approach to EEA-headquartered financial services firms wishing to carry on business in the UK post-Brexit. More recent evidence to the House of Commons Treasury Committee (“TC”) sheds further light on the PRA’s thinking. It also highlights the difficulty for the PRA of giving guidance to firms while so much uncertainty surrounds the UK’s future relationship with the EU.
The PRA’s consultation (CP30/17) on its approach to third country insurers, a separate “Dear CEO letter” and comments made to the TC on 16 January merit further comment.
To read the full article, click here. Continue reading
Delay to IDD start date
The EU Commission published draft legislation today (in the form of a proposed Directive and a proposed Delegated Regulation) to delay the IDD start date to 1 October 2018. It has agreed to requests for a delay made by the European Parliament and a number of Member States despite expressing the view that industry has already been given considerable time to adapt to the new rules. Individual states are still required to transpose the IDD into domestic regimes by 23 February 2018. The European Parliament and the Council will need to agree the new date in an accelerated legislative procedure.
Brexit – UK approach to incoming financial services firms
The Treasury, PRA and FCA have today set out proposals for dealing with EEA-headquartered financial services firms wishing to conduct regulated activities in the UK post-Brexit. The concern, of course, is how those firms, including (re)insurers and (re)insurance intermediaries, can operate in the UK once they have lost passporting rights (assuming that they do so).