Conduct regulation

Regulation round-up 
On 13 December, the FCA published its monthly Regulation round-up. Highlights included the findings from the management of Long-Term Mortgage Arrears and Forbearance Thematic Review, Cyber and technology resilience in UK financial services, and Brexit preparations.

This edition includes the following articles that are relevant to insurers or insurance intermediaries:

  • General Insurance Pricing Practices;
  • Senior Managers and Certification Regime (SM&CR): Extension to Insurers;
  • IDD – delivering clear, fair outcomes for consumers from the insurance sector; and
  • Live & Local 2018/19 events for regulated firms.
Cyber and technology resilience in UK financial services
On 27 November, Megan Butler, FCA Executive Director of Supervision – Investment, Wholesale and Specialists at the FCA, delivered a speech at Bloomberg, London which noted that firms have reported significantly more outages and cyber-attacks over the last year. In the year to October, firms reported a 138% increase in technology outages to the FCA, with 18% of all the incidents reported to us cyber-related. She highlighted that:
  • cyber security is not just a technology risk, it is a human risk;
  • according to an FCA survey, nearly half of firms do not upgrade or retire old IT systems in time; and
  • only 56% of firms say they can measure the effectiveness of their information asset controls.
The speech related to the publication by the FCA of its Cyber and Technology Resilience: Themes from cross-sector survey 2017 - 2018. The FCA, to gain a better understanding of industry’s resilience, surveyed 296 firms during 2017 and 2018 to assess their technology and cyber capabilities. The survey looked at key areas such as governance, delivery of change management, managing third-party risks and effective cyber defences. Firms self-assessed their capabilities and the FCA then analysed the responses for each firm and across sectors.

The resulting report highlights the key themes from the self-assessment alongside data about the operational incidents firms have reported to the FCA. The report identifies areas of strength and those for improvement across all sectors of the financial services industry.

IDD: delivering clear, fair outcomes for consumers from the insurance sector
On 4 December, the FCA published an update to its IDD website pages  ‘IDD – delivering clear, fair outcomes for consumers from the insurance sector’ calling on firms to ensure they comply with the requirements and continue to focus on improved customer outcomes. 

The IDD is focused on customers being better informed and firms providing products which meet their needs. This should then mean customers get good value from their insurance products and the services. As part of the FCA’s implementation of the IDD, they have introduced several changes to the rules which further define regulation and consumer protection in the insurance sector, including requirements to:

  • identify customers’ insurance demands and needs, and ensure that products offered are consistent with them;
  • have in place product oversight and governance arrangements; and
  • adhere to the customer’s best interests rule.
The FCA emphasise the importance of these key areas of interest as the FCA Supervision teams will be focusing on how firms are complying and adopting a customer-centric culture.

Quarterly Consultation Paper No 23 – CP 18/39
On 7 December, the FCA published a quarterly Consultation Paper on proposed amendments to the FCA Handbook, including a number of changes to Chapter 3's Firm Details reporting form to ensure compliance and increase accuracy of firm details reporting.  

The FCA are aware that they currently hold inaccurate and incomplete Firm Details for a significant number of firms, indicating high levels of non-compliance with the rules. For example, many firms have not provided information about their primary compliance contact, or provided us with relevant contact details. Thus the FCA are proposing several changes to improve the Firm Details reporting requirements in SUP 16.10 and in annexes to SUP 15 and 16. These changes include:
  • strengthening the current requirement for firms to carry out an annual ‘accuracy check’, by requiring firms whose Firm Details are accurate to provide confirmation of this;
  • requiring all firms to submit updated Firm Details using one of the FCA’s online systems;
  • reducing the amount of information on the Firm Details report form such as fax numbers; and
  • making the FCA’s expectations clearer, including providing additional guidance to help firms comply with the rules.
Comments must be submitted on or before 6 February 2019.

Guidance on financial crime systems and controls – FG18/5
On 13 December, FCA published finalised guidance on financial crime systems and controls, specifically regarding insider dealing and market manipulation. After a public consultation, the FCA has added a chapter to its guide dealing with insider dealing and market manipulation. The chapter addresses good and bad market practice and the requirements to detect, report and counter the risk of financial crime, as it relates to insider dealing and market manipulation

New rules for claims management companies to enhance consumer protection – PS18/23
On 17 December, the FCA published new rules and fees that will apply to all claims management companies (CMCs) from April 2019; the date when the FCA takes over responsibility for regulating CMCs. The rules will apply to the 1,200 or so CMCs currently operating in the UK. This number has been reducing in recent years with the industry shrinking for the last three years.

From next April, all CMCs set up or serving customers in England, Scotland and Wales will have to be authorised by the FCA to continue operating legally. To be authorised by the FCA they must demonstrate they meet minimum standards to operate. Any firm that is not authorised will have to stop handling claims.

In PS18/23: Claims management: ‘how we will regulate claims management companies’, the FCA aims to ensure that CMCs are trusted providers of high quality, good value services that help customers pursue legitimate claims for redress, and benefit the public interest.

It focuses on three main areas:
  • Customers – wanting customers to be empowered and confident in choosing a value-for-money service which is appropriate for their needs.
  • CMCs – wanting CMCs to help customers get redress in a way that complies with FCA rules and requiring them to meet a common set of standards.
  • Regulatory – regulating in a way that prioritises high standards of conduct, protects consumers and improves public confidence in claims management services.
Diversity in financial services and the challenge to be met
On 19 December, Christopher Woolard, FCA Executive Director of Strategy and Competition, delivered a speech on diversity and inclusion. The main points he made were:
  • The debate has moved well beyond diversity as a ‘nice to have’ – it is now increasingly recognised as a commercial imperative for firms.
  • But while things are moving in the right direction, progress has been slow – the FCA’s statistics show the percentage of women at the senior management level below the Board has increased only 1.5% over the last 10 years.
  • How a firm approaches diversity and inclusion tells the FCA a lot about its culture. And the way firms handle non-financial misconduct, including allegations of sexual misconduct, is potentially relevant to their assessment of that firm, in the same way that the handling of insider dealing, market manipulation or any other misconduct is.
  • Over the last 12 months, the FCA have seen a noticeable upturn in reports which concern issues like discrimination and sexual harassment in financial services. The FCA’s message to firms is clear: non-financial misconduct is misconduct, plain and simple.