The FCA’s proposed new ‘Consumer Duty’ – what does it mean?

The FCA has published its long-awaited consultation on ‘duty of care’ which has morphed into a proposed package of measures intended to deliver better outcomes for consumers – together a new ‘Consumer Duty’.

The consultation, which is open until 31 July 2021, proposes:

  • a new Consumer Principle that provides an overarching standard of conduct; and
  • a set of Cross‑cutting Rules and four Outcomes that support the Consumer Principle.

The proposals apply to regulated products and services sold to ‘retail clients’.

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COVID 19 – PRA and FCA guidance on key workers in financial services

The UK Government has published guidance requesting that schools and other educational institutions provide limited care for children whose parents have roles that are critical to the COVID-19 response. This includes parents working in certain financial services roles, including in the insurance sector, that are essential to the functioning of the economy (referred to as “key financial workers” or “KFWs“).

The PRA and FCA have now published their own guidance, setting out the steps that firms should take.

Identifying KFWs

  • A KFW is any individual who fulfils a role which is necessary for the firm to continue to provide (i) essential daily financial services to consumers, or (ii) ensure the continued functioning of markets.  The guidance provides a list of example KFWs (PRA) (FCA).
  • KFWs could work for any categorisation of financial institution, including insurance companies and intermediaries
  • Firms are best placed to identify their KFWs; they should start by identifying the firm’s activities, services or operations which are essential to services in the real economy or financial stability and then identify the individuals essential to support those functions.
  • In the insurance sector, KFWs are likely to include individuals essential to the processing of claims and renewal of insurance policies.

Outsourced functions

  • When considering KFWs, firms should also identify any critical outsource partners that are essential to the continued provision of services, even if these are not financial services firms.

 Process

  • The PRA/FCA recommend that the individual designated as Chief Executive Officer under the Senior Managers and Certification Regime (SMF1) (or, if not applicable, an equivalent senior member of the management team) should be accountable for ensuring an adequate process so that only roles meeting the KFW definition are designated.
  • Firms should consider issuing letters to all individuals identified as KFWs as evidence of their status.

Our general briefing on COVID-19 – Key Issues for Employers is available here.

 

Clive Cunningham
Clive Cunningham
Partner, London
+44 20 7466 2278
Alison Matthews
Alison Matthews
Consultant, London
+44 20 7466 2765
Mark Staley
Mark Staley
Senior Associate, London
+44 20 7466 7621

FCA warns CEOs to tackle non-financial misconduct

The FCA has warned CEOs that how a firm handles non-financial misconduct is indicative of a firm’s culture. It is the FCA’s view that embedding healthy cultures includes, therefore, taking steps to address the discrimination, harassment and bullying that remains “prevalent” in firms.

In a ‘Dear CEO’ letter (the Letter), which follows recent incidents in the wholesale general insurance sector, the FCA considers the need for fundamental change in firms’ culture and calls on leaders to bring about that change. Continue reading

AML/CFT COMPLIANCE A KEY FOCUS OF RECENT SUPERVISORY INSPECTIONS BY THE HONG KONG INSURANCE AUTHORITY

Late last week, the Hong Kong Insurance Authority (IA) published a circular setting out its key findings from anti-money laundering and counter-financing of terrorism (AML/CFT) onsite inspections of authorised insurers carrying on long term business.

The IA conducted visits of more than 20 insurers to review their AML/CFT policies, procedures and controls and their compliance with the relevant legislative and regulatory requirements. Continue reading

EXTENDING THE SENIOR MANAGERS AND CERTIFICATION REGIME TO INSURERS

The UK Senior Managers and Certification Regime (SMCR) is being extended to all financial services firms during 2018. PRA and FCA proposals applying to insurers build on the Senior Insurance Managers Regime (SIMR) although the transition to the SMCR is complicated by overlapping Solvency II requirements.

We have prepared a guide for insurers to the proposals set out in PRA CP14/7 and FCA CP17/26 (please click here for a copy).

Our experience of working with clients on the SMCR and the SIMR suggests that implementation projects should begin now rather than waiting for the outcome of the consultations.

FCA CONSULTS ON EXTENDING THE SMCR TO INSURANCE INTERMEDIARIES

The FCA has published proposals to extend the Senior Managers and Certification Regime (SMCR), which already applies to banks, to other financial services firms.  The new rules, which are designed to make individuals more accountable for their actions, will affect insurance intermediaries and their employees.

We have prepared:

  • a two page “at a glance” guide (click here) to the FCA’s proposals; and
  • a more detailed briefing (click here) which considers the implications for insurance intermediaries and their employees of the FCA’s proposals.

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PRA consults on amendments to the Senior Insurance Managers Regime (SIMR)

The PRA has published a consultation paper (CP8/17), which includes proposed amendments and optimisations to the Senior Insurance Managers Regime (SIMR).  It also includes a proposal to strengthen governance through requiring insurers to take steps to encourage board diversity.  This CP is relevant to all Solvency II insurance firms (i.e. UK Solvency II firms, the Society of Lloyd’s and Lloyd’s managing agents, and third country (re)insurance branches), and to large non-Directive firms (large NDFs).

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A new regime for senior insurance managers: changes to the approved persons regime for Solvency II firms

In November 2014, the PRA and the FCA proposed wide-ranging reforms of the Approved Persons Regime (APR) for insurers and reinsurers.

The PRA will introduce a Senior Insurance Managers Regime (SIMR), in line with its commitment to extend to insurers changes being made for banks. Outrage expressed about a lack of individual accountability has been more muted in the case of insurers than for banks. The underlying driver for change is, however, the same. It is considered unacceptable for senior managers within financial institutions to shirk responsibility when those institutions fail. The fast-approaching Solvency II start date was a further reason for the PRA and the FCA (together, the Regulators) to look again at the APR. Continue reading