RU925 FCA details GI intermediaries’ supervisory approach with portfolio letter

The Financial Conduct Authority (FCA) has written to firms in its personal and commercial lines insurance intermediaries (P&CLII) portfolio setting out its supervisory strategy for and the key risks that firms in that sector can pose to their consumers or markets. The portfolio letter, signed by Matt Brewis, Director of General Insurance and Conduct Specialists/Supervision & Retail Authorisations, identified the most significant risk of harm in the portfolio continued to be through customers buying unsuitable or poor value products.  The FCA last wrote a portfolio letter to P&CLII firms in September 2020.

The letter noted: ‘… , we frequently see examples of harm caused by mis-selling, where firms lack customer-centric cultures and where consumer outcomes have not been appropriately considered.  We also continue to observe ineffective governance and control arrangements.’

The FCA is asking recipients of the portfolio letter to consider the extent of the risks in their business and assess whether they have strategies in place reduce those risks.

The FCA said it would also work closely with firms and their trade bodies during the Consumer Duty implementation period to help identify and work through examples of good and poor practice that assist stakeholders to apply the Consumer Duty.

Issues raised in the supervisory portfolio letter include:

Pricing practices and value for money – The FCA expects firms to implement fully the GI Pricing Practices remedies, alongside an oversight framework that ensures continuous compliance.
Product oversight and governance – It wants to see a market where customers are appropriately supported both in purchasing the right products for their needs, and when they need to claim. The FCA wants to see products sold that offer fair value to consumers, and for there to be strong systems and controls within firms.
Client assets and orderly wind down – firms must comply with the rules set out in the Client Assets Sourcebook (CASS) to protect client money appropriately and return it as quickly as possible, and as whole, as possible in the event of failure. Firms will also need to adhere to their financial resource requirements, in order to conduct business, and wind down and, where applicable, fail without causing significant harm to consumers and market participants.
Diversity and Inclusion (D&I) & Environmental Social and Governance (ESG) Considerations – the FCA welcome that D&I and ESG were increasingly on firms’ agendas. It considered that there was a long way to go before the insurance industry was truly diverse and inclusive
The Senior Managers and Certification Regime (SM&CR) – firms need to ensure that the FCA’s principles and rules are being followed and ensure that SMF holders are aware of their responsibilities. Those individuals will be held accountable where they fail to take reasonable steps to ensure adequate governance, systems and controls, compliance, or fail to treat customers fairly.
Cyber threats & operational resilience – firms need to pay particular attention to their cyber security and ensure that they proactively manage any operational resilience exposure and take appropriate steps to address any gaps that exist in their current arrangements.
Regulatory responsibilities – firms need to be able to show consistently that the fair treatment of customers is at their heart of their business model and have an open and co-operative approach with them. This open and co-operative approach also extended to the FCA, as the regulator reminded firms of their obligations under Principle 11.
Oversight of Appointed Representatives – firms were reminded of their ongoing obligations as Principals to provide adequate oversight of their ARs.
Post-sale verification – the FCA has become aware of firms carrying out certain post-sale engagement to verify information provided during the original sales process, highlighting that questions and information disclosures during the sales journey may not have been sufficiently clear, fair and non-misleading.

BIBA members are encouraged to read the portfolio letter in full.

The FCA said that it will continue to engage with P&CLII firms in 2022 and 2023 through its planned programme of work.  The regulator will also write to firms again towards the end of 2023 to give an updated view of the key risks that firms in the P&CLII portfolio pose, the extent to which these risks are being mitigated, and our updated supervisory plans as a result.  The regulator said that it fully expects firms to keep up to speed with regulatory developments generally and with the areas covered in this letter

BIBA members’ compliance and regulation queries should be directed to: compliance@biba.org.uk quoting their membership number.

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