The FCA seems happy with the outcome of a review of suitability it undertook last year which captured 1,142 individual pieces of advice given by 656 firms.

The review looked at pension and investment personal recommendations delivered by firms to retail customers during 2015 – it did not consider how firms met the suitability rules when managing investments.

The FCA found that ‘suitable advice’ was given in 93.1% of cases reviewed. The FCA describes this as a ’positive result’ which they attribute to the RDR. In addition, 2.5% of cases were described as ‘unclear’ due to inadequate information on file – which the FCA regards as a breach of COBS 9 (‘Suitability’) as the firms responsible were unable to demonstrate that suitable advice had been given.

The exercise also looked at disclosures (relating to firms’ charges and services, product information and suitability reports) although the findings were less positive with only 52.9% of cases being deemed ‘acceptable’ in respect of all three areas.

We are advised that there will be a communication programme rolled out over 2017/18 which will share further details of these findings including examples of good and poor practice. We are also warned that there will be a repeat of the review in 2019 which will “measure how the sector has responded to our findings and communications plan”. This review will not only look at suitability of advice and compliance with the disclosure rules, but also compliance with any new relevant rules, including those under MiFID II, PRIIPs and IDD.

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The Insurance Distribution Directive

The Insurance Mediation Directive (“IMD”), implemented in 2005, regulates the sale of insurance products and was intended to create a single market for the sale of insurance products. During a review of the market in 2005-2008, the European Commission found application of IMD to be inconsistent at the national level. The playing field is tilted.
The Insurance Distribution Directive (“IDD”) is an attempt to improve the IMD; to strengthen policyholder protections, ensuring a level playing field between all participants involved in the selling of insurance products. It is a minimum harmonisation directive so should not, therefore, preclude Member States from maintaining or introducing more stringent provisions (gold plating) in order to protect customers.

Insurance is distributed by a variety of persons/organisations (from banks to car rental firms) and the same level of consumer protection should apply whatever the source. This Directive will apply to persons whose activity consists of providing insurance or reinsurance distribution services to third parties, including comparison websites.

It does not apply to mere introducing, nor to persons with another professional activity, such as tax experts, accountants or lawyers, who provide advice on insurance cover on an incidental basis in the course of that other professional activity.

Member States must transpose the IDD into national law by 23 February 2018. There is a transitional provision for intermediaries registered under the IMD until 23 February 2019. The UK is of course moving towards a referendum. Even if overtaken by events, to trade in Europe, UK based providers and intermediaries will need to comply.

Accordingly, until publication of detailed rules at a national level, firms involved in insurance distribution will need to be alert to, and plan for, the main proposals, which are:

• To extend the scope to cover all sales of insurance products, whether by intermediaries or insurance undertakings and also to provide exemptions for those who sell insurance products incidentally to another professional activity,
• To enhance the suitability requirements linking products to a customer’s demands-and-needs,
• To require that those selling insurance have professional qualifications (including Continuing Professional Development) that match the complexity of the products they sell,
• To focus on identifying, managing and mitigating conflicts of interest. In particular, in terms of ownership, disclosure of status and remuneration,
• For insurance intermediaries to disclose the nature of, and basis (but not amount) of remuneration received before the conclusion of the contract,
• The strengthening of administrative sanctions and other measures applied in the event of a breach of key provisions,
• To increase the minimum professional indemnity insurance requirement for intermediaries,
• To clarify and simplify the procedure for cross-border entry to insurance markets across the EU.

The IDD includes additional specific and stricter requirements in relation to packaged retail insurance-based investment products (“PRIIPs”).

A review is expected to be carried out five years after IDD comes into force.

Key Dates

• Member States to transpose the IDD into national law by 23 February 2018
• Referendum 23 June 2016

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