YOUR COMPLIANCE MATTERS – PCLII PORTFOLIO LETTER – FCA

YOUR COMPLIANCE MATTERS – PCLII PORTFOLIO LETTER – FCA

 Relevance:                   All Firms.

 Action required:         Consider any issues or actions arising from the letter for your own business.

 We are aware of the fact that significant numbers of our clients have received a Portfolio letter

from the FCA, addressed to its Board of Directors.

The letter relates to the Regulator’s concerns, and its planned strategy for supervision, relating to Personal and Commercial Lines Insurance Intermediaries (PCLII).

 The letter is long, and detailed, and we have, therefore, attempted to summarise it below.

 

Customer Outcomes

 

The regulator expects that customers will be provided with products:

 

·      appropriate to their needs

 

·      which pay claims as expected (they mention one example, being a lack of clarity in respect of BI Covid related claims cover – their concern is this may be repeated in other products and cause similar problems in the future).

 

·      offering fair value (undamaged by excessive charges by you and in any distribution chains down the line). This requirement is the reason for insurers requesting detailed information from you about your own charges and those applied by your distributors.

 

Compliance

 

The regulator expects you to comply with its rules (we hope this not news to you) and has highlighted:

 

·      Product Governance and Oversight requirements arising from the General Insurance Pricing Practices Review. Firms must have reviewed (and have an ongoing review process for) issues relating to pricing (including premium finance and fees) fair pricing for any products where you set premium, clarity on automatic renewal processes for consumers and clarity for consumers over the cost of using premium finance versus full payment.

 

We continue to work with firms to ensure a consistent, and principled, approach to Commercial fees (as this has been rather random in the past). Your overall income, including fees, should fairly reflect the work you do. In discussion with clients, we sometimes see an approach where firms charge lower fees for small clients (often paying small commissions). If the commission does not cover the work you are doing, there is a fair argument that you should be applying a fee to cover your actual costs. Discuss.

 

·      Client money compliance. It seems some firms in financial difficulty may have miss-used client assets, in addition to the FCA finding more general failures.

 

·      Prudent business management (please do not run your business into the ground). Evidence from ongoing Financial Resilience surveys suggest there are liquidity problems in the sector – we have seen no evidence of this amongst our own client firms.

 

·      Firms need to keep ahead of regulatory changes – there have been many recently. The FCA does encourage firms to subscribe to its “Regulation Round Up” which provides monthly updates of upcoming issues (simply Google ‘FCA Regulation Round Up’ and subscribe with your email).

 

Business Management

 

The Regulator believes that many of the problems leading to poor customer outcomes are as a result of poor Governance and Controls within regulated businesses.

 

The regulator confirms that the critical components of good governance include:

 

·      Clear accountabilities for activities which affect outcomes with appropriate channels of escalation.

 

·      A robust risk framework which identifies key risks of harm, which is appropriately monitored and mitigated by accountable individuals.

 

·      Strong and independent Board oversight and challenge – only really applicable to larger businesses.

 

 

Additional Issues Raised

 

·      Diversity and inclusion (D&I) and Environmental, Social and Governance (ESG) considerations – the level of engagement here will depend on the size, complexity, and target audience of the business.

 

·      The Senior Managers and Certification Regime – are you ‘Walking the walk’ as far as accountability is concerned. Do your Senior Managers actually understand their responsibilities?

 

·      Cyber threats and operational resilience – Again, an area that is not always receiving complete focus within smaller businesses (understandably).

 

·      Oversight of Appointed Representatives – New rules will be coming into place here later this year.

 

·      Post-sale verification – the regulator is concerned that firms are contacting clients after an initial sale in order to verify the information provided was correct. Understandably, the regulator expects you to get the correct information on the first pass with the customer and not need to go back (potentially increasing their premium) because you did not get the correct information to start with.

 

Summary

 

There is not really anything new here, it is simply a reminder of the responsibilities of which you should already be aware.

 

We would recommend subscribing to the FCA Regulation Round-up as this provides a good feel for the direction of trave for regulation.

 

We will continue to work with all client firms but if there are any immediate issues arising from this, do please get in touch.