The FCA has published final guidance for insurance product manufacturers and distributors involved in the general insurance distribution chain (see FG19/5). The guidance builds on existing FCA rules and clarifies its expectations in respect of product development, distribution and review.
Our latest “at a glance” guide (which can be found here) provides a summary of the guidance, including actions for manufacturers and distributors to consider.
This latest publication is just one of many addressing the FCA’s cross-sector priority of ensuring fairness in pricing and product value. The FCA’s earlier thematic review (TR19/2) (see our previous “at a glance” guide here) warned firms that they needed to do more to protect customers from harm in the way that they design and distribute products. The accompanying Dear CEO Letter was framed as “an immediate call to action” to firms to ensure that customer outcomes were at the heart of every firm’s business model.
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 March 2016, the FCA published a thematic review (TR16/2) entitled “Fair treatment of long-standing customers in the life insurance sector”. In the review, the FCA assessed how firms are operating their closed books and whether they are treating their long-standing customers fairly. The report sets out, as draft non-Handbook guidance, the actions the FCA believes firms should be taking to treat their customers fairly in the future. Continue reading