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    FCA consult on CP23/19: Future Regulatory Framework – The Insurance Distribution Directive



    FCA consult on CP23/19: Future Regulatory Framework – The Insurance Distribution Directive

    The Financial Conduct Authority (“FCA”) has published its consultation (CP23/19) on its proposal to move a tranche of retained EU ‘delegated regulations’ which is linked to the Insurance Distribution Directive (IDD) into its Handbook.

    What are the FCA consulting on?

    The FCA are consulting on changes to various sourcebooks intended to replace the provisions of the repeal and replacement of retained EU law (“REUL”). The FCA intend to maintain the requirements set out in EU law once the relevant parts of the REUL are repealed. To support this, the FCA are proposing amendments and changes to their Handbook and some changes which it believes will provide greater clarity on these rules. The FCA have stated that their ‘intention is to provide continuity of the regulatory regime applying to insurance related activities’.

    What will the proposed changes affect?

    The UK fully implemented the Insurance Distribution Directive (IDD) in 2018. Most of this was done through changes to the FCA’s rules, but some of the requirements were contained in EU delegated regulations which were directly applicable whilst the UK was a member state of the EU.

    Transferring the retained IDD Regulations directly into the FCA’s rules will mean changes to the FCA sourcebooks, including:

    • the Senior Management Arrangements, Systems and Controls sourcebook (SYSC)
    • the Conduct of Business sourcebook (COBS)
    • the Insurance: Conduct of Business sourcebook (ICOBS)
    • the Product Intervention and Product Governance Sourcebook (PROD)

    Following the UK’s exit from the EU, the FCA replicated the versions of the IDD delegated acts in the REUL in the relevant sourcebooks as ‘UK’ provisions. As this legislation is to be repealed, the FCA’s proposal is to replace the replicated provisions with its own rules and guidance. In most cases these are straight copies of what was in the ‘UK’ provisions. The FCA are suggesting some amendments which are intended to improve unclear drafting and ensure the wording follows ‘Handbook-style drafting’. These changes include:

    • Where terms defined within the Handbook Glossary are used in existing related rules those defined terms will be used in the new rules and guidance.
    • Some language has been adjusted to make it consistent with the writing style within the Handbook. For example, the word ‘shall’ is generally replaced with the word ‘must’.
    • The FCA are also proposing changes where there are cases of the legislative provisions cross-referenced with others. The example provided by the FCA is where some provisions say ‘As required by Article X…’. this has been replaced these with cross-references to the relevant rule.’
    • The FCA have also split legislative provisions into two where the Regulator consider a part of the provision is more appropriately classified as guidance rather than a rule.
    • The FCA are also proposing to delete defined terms which are no longer required by the rules.

    The proposed changes are intended to maintain the regulatory requirements on firms. The FCA has stated that these changes do not intend to introduce any new requirements, nor to remove any requirements which currently apply.

    Who does the consultation apply to?

    The proposed changes included within the consultation are relevant to all firms involved in insurance activities.

    What are the FCA aiming to achieve?

    The IDD delegated regulations provide important detailed requirements on firms which supplement the obligations from the IDD itself. Once these parts of the REUL are repealed, these requirements will cease to apply to firms directly. The FCA wish to maintain these requirements by including them as rules or guidance in their Handbook to ensure the regulatory regime remains unchanged. This includes requirements such as:

    • The regulation on product oversight and governance sets out detailed ways in which insurance manufacturers must ensure their products meet the needs of customers within the target market.
    • The regulation on distribution of insurance-based investment products (IBIPs) contains detailed requirements for firms to assess the suitability of products when they recommend them to customers.
    • The regulation on the insurance product information document (IPID) sets out the format and content of the IPID document, to ensure consistency and comparability.

    The FCA state that they consider this approach ‘the most appropriate way to maintain consumer protection and regulatory standards.’

    What are the next steps?

    The consultation on the proposed changes is now open and any feedback firms and key industry stakeholders wish to make must be done so by the 9th of October 2023.

    You can read the full consultation here and feedback can be submitted by using the form on the FCA’s website.

    Once the consultation period has ended, the FCA will consider the feedback received and publish its finalised rules.

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