The Insurance Distribution Directive IDD
The first FCA consultation paper, CP 17/7, was issued on 6 March 2017. Comments were requested on it by 5 June 2017.
The deadline date for compliance is 23 February 2018.
The FCA has considered the industry feedback and published new ICOBS rules in a Policy Statement (PS 17/21) on 25/09/2017.
Also published on this date were Consultation Papers 2 and 3, for which Policy Statements will be issued in December 2017/January 2018.
The following change is noted in the Policy Statement;
As part of these rules, advisers will face a “detrimental impact test” when recommending insurance-based investment products (IBIPs) This means they must make sure any inducement does not have a detrimental impact on compliance with the customer’s best interests rule and does not have a detrimental impact on the quality of the relevant service. This is different from the rules under MiFID II, which say the inducement must “enhance the quality of the relevant service” to the client.
NB. The new IDD, unlike the predecessor IMD, includes insurance companies and distributors. Sites offering insurance comparison services will also be covered if they receive remuneration as part of their activities.
A new requirement will mean that it will be obligatory for certain staff to have undergone a minimum of 15 hours CPD. Appropriate records of this will need to be kept.
Further key points to note include:
- the IDD’s general principles will necessitate changes to ICOBS (for non-investment insurance) and SYSC
- additional requirements for pre-contract disclosures, such as the fact that the regime now applies to insurance providers (“undertakings”)
- firms must confirm whether they are an intermediary or an undertaking
- firms must confirm whether they offer a personal recommendation
- intermediaries must state whether they are acting on behalf of the customer or the undertaking
Intermediaries will be required to disclose any of the following conflicts of interest:
- holding 10% or more of the voting rights or capital of an insurer
- should their advice be based on a “fair and personal” analysis of the market and the details of insurers with which they place business if they give no such advice
- the identification of any insurers with which they are contractually bound to place business by way of exclusive distribution arrangements
Furthermore, the IDD also requires:
- intermediaries to disclose the nature (i.e. the type) and the basis (i.e. the source) of the remuneration received directly in relation to the contract proposed, and insurers to disclose the nature of the remuneration paid to their employees
- that information is provided to customers “in a clear, accurate and comprehensible manner” and free of charge. There will be a standardised insurance product information document or “IPID”
- firms providing a personal recommendation must provide a personalised explanation of why the proposed product best meets the customer’s demands and needs
- in situations where insurance is ancillary, the customer must be able to buy the primary product without the insurance
A new category of intermediary is defined, called “AIIs”. Such entities will only distribute insurance products that are complementary to their primary professional activity.
The volume of change generated by the IDD is assessed as being ‘high’. Affected firms should commence preparatory work immediately.
How can Thistle help you?
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