What’s changing? There are a number of organisational changes for wealth managers or IFAs to consider as an insurance intermediary. Here are the top eight.
What are the new knowledge and ability requirements?IDD requires distributors and their employees to have appropriate knowledge and ability (the minimum requirements include knowledge of policy terms and conditions, applicable laws, claims and complaints handling, and ethics standards), demonstrated by completing a minimum of 15 hours per year of CPD.
What record keeping is needed?IDD will require the adviser to establish and maintain appropriate records to demonstrate their compliance with the employee knowledge and ability requirements.
Professional indemnity insuranceThe IFA will need to review the level of their professional indemnity insurance (PII) to check it is in line with the requirements of IDD. Minimum levels of cover are €1,250,000 per claim per year, and €1,850,000 per year in aggregate. In the UK, existing rules are more detailed than the IDD requirements in some respects. The existing rules include:
- a requirement for intermediaries to maintain a higher minimum aggregate cover – 10% of annual income up to £30m – where this is greater than the IDD minimum amount
- requirements around excess levels
- the need to have specific terms which the PII cover must incorporate (such as cover for legal defence costs and Ombudsman awards).
Are there specific rules on client monies?This may be applicable depending on the structure of the IFA and whether it receives or holds money in the course of or in connection with its insurance distribution activity. If it does, then it is subject to the requirements regarding the protection of clients’ money through the existing options of segregation and risk transfer contained in part 5 of the
client assets and money (CASS) section of the FCA Handbook.
What about complaints handling?IFAs should review their complaints handling process to ensure it is in line with the requirements of IDD. The
FCA Handbook DISP 1.1.10-A states: “A firm must have in place and operate appropriate and effective procedures for registering and responding to complaints from a person who is not an eligible complainant.”
About the expert
Umar Mohamad is a regulatory consultant at Bovill, the financial services regulation specialists. He has also held in-house compliance roles, including for a large US insurer. His experience spans governance and controls, conduct risk, compliance effectiveness and data privacy across insurance, pensions and investment management. He can be contacted at umohamad@bovill.com.
And conduct of business requirements?There are overarching best-practice requirements that insurance intermediaries should abide by, including pre-contract disclosures, managing and disclosing conflicts of interest, demands and needs and a general obligation to meet the customer’s best interests. Here’s where to look in the FCA Handbook:
- SYSC – overarching responsibility to establish and maintain systems and controls as are appropriate to the insurance distributor
- COBS – applies in relation to designated investment business (insurance-based investment products) and long-term insurance business in relation to life policies and long-term care insurance contracts that are pure protection contracts
- ICOBS – applies in relation to non-investment insurance contracts, (that is, general insurance contracts or pure protection contracts that are not long-term care insurance contracts).
How do the rules affect the Insurance Product Information Document?The adviser needs to be comfortable that the information provided to customers meets the IDD requirements. See
ICOBS 6 Annex 3.
How do the rules affect product governance?The adviser will need to review their current product governance framework and amend it for the distribution of insurance products and the requirements of IDD. The product manufacturer must provide the adviser with information relating to the product’s approval as well as any additional information from later reviews to have confidence that their products are being distributed in line with their expectations. This is covered in greater detail in the FCA Handbook under
PROD 4.
What will I need to do now? So, while the IDD obligations are not entirely new, wealth managers and IFAs will be subject to much more prescriptive requirements. They will need to review their current arrangements, enhance current processes, and increase oversight and record keeping.
This article first appears in the Q4 2018 print edition of The Review. All members, excluding student members, are eligible to receive the quarterly print edition of the magazine. Members can opt in to receive the print edition by logging in to MyCISI, clicking on My account, then clicking the Communications tab and selecting ‘Yes’.
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