Insurance Regulatory eBulletin - Conduct regulation

Regulation round up
On 15 March, the FCA published its monthly Regulation round-up. The Hot Topics included transforming culture in financial services and EU withdrawal. This edition includes the following articles that are relevant to insurers or insurance intermediaries:

  • Update on Alpha Insurance and CBL Insurance Europe
  • FCA: Live and Local regional programme events in 2018
  • EU withdrawal survey*
*covered below

FCA value measures pilot
On 1 March, the FCA published the second set of value measures data in their general insurance value measures pilot, which was introduced to remedy deficiencies including poor value in both add-on and stand-alone products, and a difficulty for consumers, firms and other organisations to assess value, found in the FCA's general insurance add-ons market study. The second set of data relates to 36 insurers and covers the year ended 31 August 2017. This publication follows the first GI value measures data publication in January 2017 which covered data for the year ended 31 August 2016.

FCA publishes discussion paper on transforming culture in financial services – (DP18/2)
On 12 March, the FCA issued a new Discussion Paper (DP18/2) on transforming culture in financial services. The paper presents views from both academics and industry thought leaders to stimulate further debate for transforming the culture within the financial sector.

The paper is a collection of 28 essays discussing what a good culture might look like, the role of regulation and regulators, and how firms might go beyond incentives. For the FCA, culture and governance is a priority. The FCA “hope that the range of views expressed in this paper can act as a springboard to speed up the pace of change, build consensus and, ultimately, drive better outcomes for consumers and markets.”

Transforming culture in financial services – speech by Andrew Bailey
On 19 March, Andrew Bailey, Chief Executive of the FCA, spoke at the ‘Transforming culture in financial services’ conference. His speech emphasised:

  • work on firm culture is embedded in the work of the FCA’s supervisors and is an important priority for the FCA;
  • the essays in the FCA’s Discussion Paper (DP18/2) on transforming culture in financial services indicate that culture is about encouraging and incentivising good things, not just stopping bad things from happening;
  • the Senior Managers Regime and measures to govern the payment of remuneration are important developments in creating incentives for good culture.
Mr Bailey concluded that “there is no single ‘right’ culture. It depends on circumstances, and there are certainly cultural characteristics which are highly suggestive of good outcomes. The role of regulation in culture is not to attempt sweeping rules, but rather to use rules and supervision to create the right incentives and to provide tools to diagnose the key characteristics.” The FCA can prompt and persuade. Reward has a role to play in creating the right incentives for good culture and leadership plays a crucial role in shaping culture. Mr Bailey also predicted this issue will “run and run”.

EU withdrawal survey - for EEA inbound passported firms
In December 2017, the UK Government announced that if necessary it will legislate to provide a temporary permission scheme for EEA firms and funds passporting into the UK. EEA firms and funds which receive a temporary permission would be able to enter into new business and fulfil existing contracts with UK customers for a period of time after exit day, while seeking full authorisation in the UK.

On 9 March, the FCA requested EEA inbound passported firms to complete a short online survey to help inform future FCA communications on the issue and to identify firms for which a temporary permission may be relevant. The information will also help contribute to the overall design of the scheme as well as enabling the FCA to communicate directly with interested firms about the scheme and the authorisation process.

The survey includes questions covering contact details, the directives under which firms are passporting in to the UK and firms’ intentions around accessing the UK market following the UK’s withdrawal from the EU.

FCA Mission: Approach to Supervision and Approach to Enforcement
On 21 March, the FCA published two Consultations on its mission seeking comments on its ‘FCA Mission: Our Approach to Supervision’ and ‘FCA Mission: Our Approach to Enforcement’.

The Approach to Supervision shows how the FCA aims to be more forward-looking and pre-emptive in its supervision of firms. Firms’ strategies and cultures are at the root cause of most major failings. The FCA’s supervision involves proactive engagement with firms focussing on business models and the drivers of behaviour in firms. The FCA will prioritise its activities according to the greatest risk of harm. The Approach document explains how the FCA has an intelligence-driven and data-led approach that enables it to take prompt and incisive action once harm has been identified.

The Approach to Enforcement outlines how the FCA conducts investigations and its powers. It also shows how enforcement sets out to achieve fair and just outcomes in response to misconduct and to ensure FCA rules and requirements are obeyed. The overriding principle in the FCA approach to enforcement is substantive justice – to ensure it carries out investigations in a consistent and open-minded way to get the right outcomes.

Comments on either or both documents should be submitted on or before 21 June 2018.

Call for Input: Regulating the pensions and retirement income sector
On 20 March, the FCA launched a Call for Input seeking views on the pensions and retirement income landscape, respective remits and relationships with other bodies in the sector. The FCA noted it is working with The Pensions Regulator (TPR) on a strategic approach to the pensions and retirement income sector setting out how the FCA and TPR will work together over the next 5-10 years to tackle the key risks facing the pensions sector.

To help inform this work the FCA want to hear views on the biggest current and potential risks in the sector, and how the regulators should tackle them.

There will be three roundtable events held in March and April in London, Edinburgh and Manchester so that the FCA can hear from stakeholders.

Comments should be received by 19 June 2018 and the FCA expects to publish their final strategic approach in Autumn 2018.

Women in finance: keeping up the pressure for progress
On 22 March, Megan Butler, Director of Supervision - Investment, Wholesale and Specialists at the FCA, delivered a speech to the Women in Finance Summit in London. The speech emphasised that:
  • diversity is a key supervisory issue for the FCA;
  • firms with monocultures are significantly more likely to have governance-related issues;
  • we need to keep up the pressure on creating change;
  • targets on gender diversity are an option for firms to consider.