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
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.
EIOPA has published an opinion and FAQs emphasising the need for insurers and insurance intermediaries to explain to policyholders how Brexit will affect their insurance cover.
At first sight, EIOPA’s comments appear to reinforce concerns that political compromise cannot be expected on policies written (or performed) on a cross-border basis before the UK’s withdrawal from the EU (so-called “legacy contracts”). The particular issue for UK insurers is whether they will have the authorisation they need, post-Brexit, to continue to meet their obligations to EEA policyholders under these contracts. Closer examination of the words used by EIOPA may, however, mean that fewer policies are caught by this issue than has been assumed to date.
Our discussion of EIOPA’s latest opinion can be found here.
An opinion published by EIOPA on 21 December 2017 raises concerns for UK insurers who have policyholders in EEA states other than the UK. This will include, for example, every life company with annuitants living in an EEA state*, perhaps because they moved from the UK on retirement.
Insurers have been aware of issues raised by Brexit for legacy contracts written (or performed) cross-border since the UK referendum on EU membership (see, for example, our client briefing issued in July 2016). However, it has been widely hoped, to now at least, that a sensible compromise would be reached by the UK government and EU authorities to ensure that firms do not need to embark on expensive and time-consuming processes to avoid detriment to policyholders once the UK finally leaves the EU. Such a compromise currently appears less likely. Continue reading
In May 2017, the FCA published a guidance consultation paper (GC17/5) entitled “Proposed guidance on the FCA’s approach to the review of Part VII insurance business transfers”. The draft guidance in this document sets out the FCA’s approach to reviewing insurance business transfer schemes under Part VII of the Financial Services and Markets Act 2000 (FSMA) (Part VII Transfers). Continue reading