The FCA has published (9th December) a document covering its Consumer Duty priorities for 2024/25. To quote from the document:

‘The Consumer Duty  is one of the most significant changes to our regulatory approach in recent years. It has been in force for open products and services since 31 July 2023, and for closed products and services since 31 July 2024.

Priority areas for 2024/25

1. Embedding the Consumer Duty and raising standards

Assessing across sectors how firms are implementing and complying with the Consumer Duty

We want to understand how firms are improving consumer outcomes. Where we need more data and information from firms, we’ll only ask for what we need.  

We have 3   cross-cutting projects  which we are grouping into packages of publications in Q4 2024 and Q1 2025:

• Review of board/governing body reports and complaints and root cause analysis  – Assessing how firms are responding to our outcomes monitoring requirements, for example through our review of Board reports and how firms are using insight from their complaints to identify systemic issues and improve business practices.’  

Please see the FCA findings on board reports here https://www.fca.org.uk/publications/good-and-poor-practice/consumer-duty-board-reports-good-practice-and-areas-improvement

Findings on complaints handling here https://www.fca.org.uk/publications/good-and-poor-practice/complaints-and-root-cause-analysis-good-practice-and-areas-improvement

• ‘Review of treatment of customers in vulnerable circumstances  – Assessing firms’ approach to the treatment of customers in vulnerable circumstances.
• Review of consumer support outcome and supporting informed decision-making  – Looking at how firms support their customers across the customer journey and how they are using communications to support informed consumer decision-making.

Where we identify good practice, we will share it. Where there are areas for improvement, we will remind firms of our expectations and set out where they may need to accelerate progress. We will combine insights from our work where possible to make it easier for firms to understand what good and poor practice looks like.  If we identify compliance issues, we will consider appropriate action.

We recognise different firms face different challenges. We want firms to take an approach that is proportionate to their size and to the activities they undertake. Where appropriate, we will set out different approaches smaller firms could take.

2. Enhancing understanding of the price and value outcome

We know firms have found challenges in conducting fair value assessments and have questions about our expectations. We want firms to use robust analysis to assure themselves, and us, that they are offering fair value, and identify and take action where they are not. In Q3 2024, we published reflections  on fair value assessments we have reviewed.  

Further priorities include Market study into premium finance  – Reviewing whether people who borrow to pay for motor and home insurance are receiving fair, competitive deals. We plan to publish an interim report in H1 2025.

3. Sector-specific priorities

We have planned work to tackle areas of existing concern in sectors across the rest of this financial year and into the next. Firms should expect a general focus on their implementation and embedding of the Consumer Duty and customer outcomes as part of any supervisory engagement.

General and life insurance

We completed work looking at general and life insurance firms’ compliance with outcomes monitoring.  We published our good and poor practice report  in June 2024. We also completed our work looking at consumer support in the bereavement process and pension transfers. We published our findings  in November 2024. Our focus is on the price and value outcome, following on from work on GAP insurance, and as shown through our market studies planned in pure protection and started in premium finance.

In addition, we will focus on:

• Claims handling arrangements – Understanding insurers’ claims handling arrangements and whether systems, controls, governance and oversight structures drive good consumer outcomes. We aim to publish findings in Q2 2025.

4. Realising the benefits of the Consumer Duty

With the Consumer Duty in force, we published a Call for Input  covering our wider requirements on retail firms and asking where we can use the Duty to simplify them. The deadline for responses was 31 October 2024. We will set out next steps in H1 2025.’

Conclusion

There is nothing new here, and the areas of focus should not come as a surprise. The key point is that supervisory work will continue to focus on delivery of the Consumer Duty outcomes. So, firms need to stay focussed on this as an issue and ensure that management processes, and MI reviews, provide clear evidence of the firm’s focus on outcomes (and can demonstrate that action is taken where potentially poor outcomes are identified).

YOUR COMPLIANCE MATTERS:         Home and Motor premium finance FCA market study  

Relevance: All firms providing Premium finance.  

Action required: Review your own Management information and position against FCA feedback.  

As part of a wider review into the private car insurance market, the FCA plans to complete a Consumer Premium finance market study. 

To quote the FCA: 

‘With recent increases in motor and home insurance premiums and the challenges brought about by the cost of living crisis, many customers are looking to find ways to spread the cost of their insurance products. 

We estimate that over 20 million adults pay their premiums in instalments on one or more insurance policy. 

Some providers charge the same total amount for a policy whether paying in monthly instalments or in a lump sum up front. However, in most cases using premium finance and paying in monthly instalments leads to higher total payments as there is a charge for offering credit, with Annual Percentage Rates (APR) being as high as 30% in some instances. 

We estimate that outstanding premium finance loan balances exceeded £5bn in 2022, generating up to £1.2bn revenues to providers. 

Given the demand for this product and how vital it is for some consumers to be able to afford their insurance, it is important that it offers fair value to those customers that use it. But there are concerns that this is not the case, and that competition may not be functioning effectively. 

Why are we doing this market study?  

The Consumer Duty has brought greater focus on good consumer outcomes. In 2023 when we laid out its strategic priorities in the insurance market, we highlighted that firms needed to consider premium finance as part of their fair value assessments under the Consumer Duty. Our concern is that the premium finance market is falling short of the standards we want to see from firms. 

We will be seeking to understand how competition works in the premium finance market and the outcomes it produces for consumers. Based on our findings, we will consider whether there is a need for regulatory action that allows for a proportionate response to any harm uncovered. 

Scope of the market study  

The scope of this market study is premium finance products, sold to UK consumers, in relation to motor and home insurance policies. We will consider whether there are any wider implications from our investigation for premium finance offered on other insurance products. 

Understanding how competition works requires that we assess the market forces that determine how firms and customers make decisions. To do this, we will gather information on premium finance products offered by insurers, intermediaries and specialist premium finance providers. 

Issues we will explore  

Our market study will assess how the market for premium finance works and will focus on the following key areas: 

• The extent to which the premium finance market is leading to poor customer outcomes 

• What factors could be driving this, specifically: 

– A lack of competitive constraints 

– Obstacles to effective customer decision making and the role firms’ practices may be playing 

– Incentives created by commercial arrangements between different providers in the supply chain, and whether these may be creating conflicts of interest and shaping misaligned incentives that result in higher prices for customers.

Potential outcomes of the market study  

Market studies can lead to a range of outcomes. Where harm is identified, there may be a range of proportionate interventions available to make the market work better. 

Next steps  

Given the urgency of the wider issues in motor insurance, we are launching this work now. We will engage with firms, industry groups and stakeholders to gather their views on the Terms of Reference and to begin discussions over what data we may need. We expect to start these discussions shortly.’ 

You can access the Terms of Reference here https://www.fca.org.uk/publication/market-studies/ms24-2-1-premium-finance-terms-reference.pdf

 The expectation is that findings will be published in Q2 2025. You should be prepared for any information requests from the regulator from the end of this year. Although the market study will focus on Home and Motor markets, any findings could inform work related to Commercial premium finance.

YOUR COMPLIANCE MATTERS: FCA feedback on Consumer Duty MI.

Relevance:     All firms.

Action required:       Review your own Management information and position against FCA feedback.

The FCA has been communicating with firms throughout the lead up to Consumer Duty implementation in July 2023, and since then via a number of research and feedback papers. The FCA has published feedback specifically looking at ‘Outcomes monitoring’ - the MI you use to identify whether you are delivering ‘Good outcomes’ to your clients. Feedback was published in June 2024 see:

https://www.fca.org.uk/publications/multi-firm-reviews/insurance-multi-firm-review-outcomes-monitoring-under-consumer-duty/printable/print

The research completed by the FCA was based on Consumer Duty Board reports supplied by 20 ‘larger’ firms back in December 2023 (so maybe a little early in the process). Firms involved included general and life insurers. intermediaries and outsourcers.

The purpose of the review was to identify any general themes emerging and evidence of good practice and areas for improvement. The FCA has always been clear that firms need to take a proportionate approach to its MI (so for a smaller firm, the MI and oversight will be simpler) so their expectations for this group of firms were relatively high.

Good practice

●                Clear mapping of metrics to the four outcomes (Consumer understanding, Consumer Support, Price and Value, Products and Services)

●                Identification of potential types of poor outcomes and their significance

●                Identification of relevant MI (even if not yet available)

●                Proactively identifying foreseeable harm

●                Monitoring compliance with SLAs where activity is outsourced

●                Utilising customer feedback, including online ratings

●                Using internal audit results to identify issues

●                Full root cause analysis of complaints

●                Testing the customer journey to identify issues

●                Clear focus on vulnerability

●                Clear action and follow up when issues have been identified

Could do better

●                Too much focus on internal process (a tick in a box to say that communications have been reviewed does not automatically lead to better outcomes)

●                Not enough data (not knowing what was needed, repackaging existing MI without considering whether it really provides the MI needed).

●                Limited focus on claims outcomes (e.g. considering speed of resolution without considering whether the customer got the right outcome)

●                The governing body of the business was too often receiving data with no analysis, interpretation or recommended action.

●                Lack of trend analysis

●                Setting the bar for acceptable outcomes too low (and reducing expectations to match outcomes)

●                No consideration of vulnerability

●                Lack of action when issues are identified

Action required

Firms are expected to review their monitoring of Consumer outcomes and consider whether their approach is sufficiently broad to ensure that the firm is focused on the information needed to identify its ability to deliver good outcomes.

As always, please get in touch if there are any issues that you would like to discuss.

Pricing information report form REP021 All firms should complete this section for:

a) premium finance – for insurers and intermediaries the business where they set the price and where the price is not set by an insurer or an intermediary the business must be reported by the customer-facing firm;
b) add-ons – the business where they set the price; and
c) fees and charges in addition to the premium – the fees charged by the firm.

Further to our October Newsletter on this topic, we have drafted a format for you to adapt and implement, to assist you in providing the additional information to be disclosed to Residential Leaseholders in Multi-Occupancy properties, for cases incepting, or renewing, from 31.12.23 onwards.

The Policy Statement can be found at PS23/14: Multi-occupancy building insurance: Feedback to CP23/8 and final rules (fca.org.uk).

As a reminder, a ‘Leaseholder’ is a tenant within the meaning of section 30 of the Landlord and Tenant Act 1985 including a recognised tenants’ association. The Rules will also apply to a ‘policy stakeholder’, being any individual obliged to pay premium. For simplicity we have used the term ‘Leaseholder’ in the remainder of this newsletter.

To be clear, the Rules do not apply to Commercial Leaseholders.

Required disclosure.

You will need to provide additional information to Leaseholders, as soon as reasonably practical following conclusion of the contract.

This information can be sent to the Policyholder, or Property Managing Agent, with an instruction to distribute it to Leaseholders (or send direct to the Leaseholder if you are in touch with them). The FCA has not prescribed a format for the disclosures, but we would suggest something along the following lines. Please adapt to suit the specific circumstances of the case.

Words in italics are for your information and should be deleted from the outbound communication :

----------------------------------------------------------------------------------------------------------------------------

Dear (Leaseholder)

Financial Conduct Authority Rules now require that we supply additional information to the occupants of Residential Multi-Occupancy properties, following Renewal (or inception) if the insurance cover for the building.

• We attach a summary of the features of the policy, including main benefits, coverage and exclusions of the policy, duration, and insured sum (produced by insurer).

• The policy premium for the building is £XXXX ( Where the policy covers a portfolio of buildings, firms must disclose the premium at building or dwelling level this can be an estimate and is to be produced by insurer).

• Our Remuneration for arranging cover is £XXX (including contingent commission and potential profit share, please ensure that this the commission on the premium quoted above)

• XYZ will also receive £XXX (if any remuneration is paid to other parties including unregulated Property Managing Agents and freeholders. Delete if not applicable)

• Information about potential conflicts of interests, such as ownership links between the intermediary and the insurer (delete if not applicable).

• We have obtained quotes from a single insurer only OR We have obtained quotes from X insurers before selecting this insurer (the number of alternative quotes you have obtained with further details of these to be provided on request).

• We are happy that the insurer selected provides cover adequate to meet the insurance needs of both the freeholder and leaseholders.

----------------------------------------------------------------------------------------------------------------------------

Further support

You will be expected to deal with queries, either from the Policyholder, or any Leaseholder, in a way which ensures ‘Good outcomes’ for all parties. So, if the Freeholder or PMA has failed to provide the required information, and you are asked for any of the information by a Leaseholder, you will be expected to respond to them.

Action Required

You will need to identify cases impacted by the new Rules, prepare appropriate disclosure processes and formats and be ready to field queries from Leaseholders.

As always, we are happy to discuss any issues arising.

YOUR COMPLIANCE MATTERS – FCA Consultation Diversity and inclusion (D&I) in the financial sector

Relevance:                   All Firms.

Action required:         Consider any issues you may have with the concerns raised by the FCA. New Rules will be in place in 2025.

The FCA has published a Consultation CP23/20: Diversity and inclusion in the financial sector – working together to drive change (fca.org.uk). The Consultation period runs to 18/12/2023. There will be a Policy Statement some time in 2024 (followed by a 12-month implementation period).

The FCA has stated that ‘The degree to which firms reflect the societies they serve and how open a culture they create is central to each of the objectives set for us by Parliament: to protect consumers, enhance market integrity, support competition in financial services and facilitate UK competitiveness and economic growth.

That is why, together with the Prudential Regulation Authority (PRA), we have been clear that diversity and inclusion are regulatory concerns. Yet, the evidence suggests the financial services sector is not yet where we should be.

We are clarifying and strengthening our expectations around non-financial misconduct, which will apply to firms large and small, across the financial services sector’.

In this consultation, the FCA sets out proposals to better integrate non-financial misconduct (NFM) considerations into staff fitness and propriety assessments, Conduct Rules, and the suitability criteria for firms to operate in the financial sector (Threshold Conditions).

In practice this would mean the FCA:

-      Would expect that staff are held to high levels of fitness and propriety (and any evidence of workplace bullying or discrimination need to be taken in to account).

-      Will expand the Conduct Rules to make clear that workplace bullying, harassment and similar behaviours are to be considered as misconduct.

-      Would consider evidence of discrimination as impacting the suitability of the firm to be authorised by them.

They are also proposing all firms to report their average number of employees on an annual basis (firms already do this via the 6 monthly RMAR).

Larger, FCA authorised firms (those with 251 or more employees calculated on a solo entity, rather than group basis) will need to:

• collect, report, and disclose certain D&I data

• establish, implement, and maintain a D&I strategy

• determine and set appropriate diversity targets

• recognise a lack of D&I as a non-financial risk’

Action Required

We hope that the proposals will not cause any great concern, but you need to consider any current cultural issues within your business. As always, we are happy to discuss.

YOUR COMPLIANCE MATTERS – FCA Multi Occupancy Leasehold Insurance Rules effective 31.12.23

Relevance:                   All Firms.

Action required:         Prepare for additional disclosure Rules and review your approach to commission, and your commercial arrangements with any parties receiving a share of your remuneration.

Following consultation, in April 2023, the FCA has published new Rules in Policy Statement PS23/14: Multi-occupancy building insurance: Feedback to CP23/8 and final rules (fca.org.uk) relating to the treatment of Leaseholders in Multi Occupancy buildings.

 The new Rules come into effect for contracts renewing, or incepting, from 31.12.23.

 A ‘Leaseholder’ is a tenant within the meaning of section 30 of the Landlord and Tenant Act 1985 including a recognised tenants’ association. The Rules will also apply to a ‘policy stakeholder’, being any individual obliged to pay premium. For simplicity we have used the term ‘Leaseholder’ in the remainder of this newsletter.

 To be clear, the Rules do not apply to Commercial Leaseholders.

 One point to note from the Consultation was the very high level of input from Leaseholders themselves (generally pushing for more rapid implementation). You should therefore expect a good level of awareness amongst leaseholders, so expect to be called out if you do not comply. You also need to ensure that your staff clearly understand the Rules.

  Leaseholders as customers

  Leaseholders will need to be treated as ‘customers’, requiring firms to act in the best interests of the leaseholder and bar firms from recommending products based on commission or remuneration levels.

Disclosure

Insurers and brokers will need to provide additional information to Leaseholders, as soon as reasonably practical following conclusion of the contract, including:

• A summary of the features of the policy, including main benefits, coverage and exclusions of the policy, duration and insured sum (produced by insurer).

• The policy premium. Where the policy covers a portfolio of buildings, firms must disclose the premium at building or dwelling level (this can be an estimate and is to be produced by insurer).

• Remuneration (including contingent commission and potential profit share) which any authorised intermediary receives for arranging the insurance, as well as remuneration they pay to other parties including unregulated Property Managing Agents (PMAs) and freeholders (all to be stated in cash terms).

• Information about potential conflicts of interests, such as ownership links between the intermediary and the insurer.

• The number of alternative quotes the intermediary has obtained (with further details of these to be provided on request) and a brief explanation of why they have proposed or recommended that the policy is in the interests of both the freeholder and leaseholders.

 This information can be sent to the Policyholder or PMA, with an instruction to distribute it to Leaseholders (or sent direct to the Leaseholder if you are in touch with them). The FCA has not prescribed a format for the disclosures.

 You will be expected to deal with queries, either from the Policyholder, or any Leaseholder, in a way which ensures ‘Good outcomes’ for all parties. So, if the Freeholder or PMA has failed to provide the required information, and you are asked for any of the information by a Leaseholder, you will be expected to respond to them.

  Product Governance

 The FCA is changing the PROD rules to include leaseholders as customers for the purposes of PROD 4. This would require insurers and intermediaries to:

• Consider leaseholders as a relevant part of the target market when designing, pricing and distributing their products.

• Demonstrate that products provide fair value to leaseholders as well as any other customers. This means there must be a fair relationship between the total price and the overall benefits leaseholders receive.

 The FCA has stated that they expect these rules to have an impact on current remuneration practices. Intermediaries who receive percentage-based commissions that have increased in absolute amounts as risk premiums have risen would likely need to reduce the percentage they receive. Earnings that increase purely because of premium increases would be unlikely to reflect additional benefits provided to leaseholders, so would not meet FCA fair value requirements.

 Additionally, firms would need to consider the amount of remuneration they share with other parties in the distribution chain, such as freeholders and PMAs. The Rules would not allow such payments unless firms can demonstrate they provide fair value to leaseholders.

  Action Required

  You will need to identify cases impacted by the new Rules, prepare appropriate disclosure processes and formats and be ready to field queries from Leaseholders.

 As always, we are happy to discuss any issues arising.

YOUR COMPLIANCE MATTERS – Personal and Commercial Insurance Portfolio letter September 2023

Relevance:                   All firms

Action required:         Review FCA feedback against your own position.

The FCA sent out a Personal and Commercial Lines Portfolio letter, on 20th September, providing an update on their priorities for the Insurance market for 2023-25.

A link to the letter is here  https://www.fca.org.uk/publication/correspondence/personal-commercial-insurance-market-priorities-2023.pdf

The FCA highlights the challenges that the market continues to face with ongoing the cost of living problems, and other issues arising from climate change, AI and resource, post covid.

The FCA has confirmed its priorities, both across the market and the specific issues with Personal and Commercial Insurance.

Market wide issues:

Putting Consumers' needs first; Embedding the Consumer Duty – this is covered in more detail below.

Environmental, Social & Governance priorities: Governance and Culture- the FCA specifically comment that ‘Firms should be able to show how they are actively working towards having a diverse workforce at all levels in their organisation.’ This issue is subject to a separate Consultation Paper CP23/20: Diversity and inclusion in the financial sector – working together to drive change (fca.org.uk) and we will send a out a separate note on this issue.

Operational resilience and the increasing reliance on Third Parties – concerns here relate to oversight of outsourced activities and business recovery planning.

Improving oversight of Appointed Representatives – a subject we are already addressing with clients affected by the new Rules.

Personal & Commercial Lines Insurance specific priorities

Putting consumers’ needs first - the FCA is concerned about issues covered by the Consumer Duty:

-      Price and Value –, in this case, they highlight ongoing concerns about distribution costs, the quality of MI, premium finance and continued ‘Price walking’. They also identify a worry that few products seem to have been withdrawn from the market, despite their concerns about value.

-      Consumer Support – ‘We expect firms to continue to support customers in financial difficulty and reflect on whether they need to do more.’

-      Claims – helping customers understand claims settlement offers, the speed of claims resolution, poor motor total loss offers from insurers.

-      Access – ‘We continue to see examples of consumers facing barriers to easily accessing affordable or suitable insurance or being unable to buy insurance at all’. The expectation is that we address issues for particular customer groups (vulnerability), poor product design, signposting travel cover solutions for customers with pre-existing medical conditions.

-      Sales practices – ‘Firms must ensure that any product they propose to the customer is consistent with their demands and needs and that customers must be provided with appropriate information about the product so they can make informed decisions.’

Strategy for positive change – Environmental, Social & Governance priorities: Governance, culture, and non-financial misconduct – ‘All insurance firms should reflect on their culture to ensure an inclusive culture where employees have the appropriate channels and feel psychologically safe to be able to speak up and raise concerns without fear.’ The issue of non-financial misconduct is also covered by the Consultation Paper, mentioned above.

Ongoing Supervision

Clearly, the above issues will be the focus for supervision work. We believe that you will need to be able to evidence that you have addressed the concerns raised and we will be working with firms to put together a defensive document.

If you have any immediate concerns, please get in touch with your usual contact. 

YOUR COMPLIANCE MATTERS – Additional RegData return from January 2024

Relevance:             All Firms.

Action required:     Awareness only, no immediate action.

The FCA has published a Policy Statement, PS 23/3 PS23/3: Creation of a baseline financial resilience regulatory return: Feedback to CP22/19 and final rules (fca.org.uk)

The Financial Resilience Surveys (previously Covid Financial Resilience Surveys) , which the FCA has been requesting on a regular basis, will no longer be required after the end of 2023.

These will be replaced by a reduced report to be completed on a quarterly basis, in line with the firm’s financial year end, to be submitted via RegData. The return needs to be submitted within 20 business days of the end of the reporting period.

The Policy Statement confirms the information requirements, as follows:

1 Total amount of liquid assets that you control or have unrestricted access to

2 Average monthly cash needs arising from fixed costs.

3 Net profit or loss in the last quarter

4 Revenue for the financial year to date

5 Net asset or liability position

They have also provided guidance notes on the information required which will sit behind the data sheets in the RegData system (the guidance is included in the Policy Statement).

Unfortunately, this means that the number of scheduled reports to be completed each year continues to increase (although the irregular nature of the ad hoc Resilience Surveys will now be given some structure).

Once the reports become available, we will of course provide any assistance needed in completing them. They will appear in your normal reporting schedule, and you will receive reminders of the due date from the FCA.

We are happy to discuss any specific issues that you may have so please get in touch with your usual contact.