On 4 July 2016, the European Insurance and Occupational Pensions Authority (EIOPA) published its consultation paper (CP) on technical advice on possible delegated acts concerning The Insurance Distribution Directive (IDD)1. Comments are requested by 3 October 2016.
Under the IDD, which must be implemented by Member States from 23 February 2018, EIOPA is responsible for preparing draft regulatory and implementing technical standards.
The CP deals with technical advice on the following areas:
- Product oversight and governance.
- Conflicts of interest.
- Assessment of suitability and appropriateness and reporting.
Product oversight and governance
Article 25 of the IDD requires manufacturers of any insurance product for customers to maintain, operate and review their product approval process for each product.
Product oversight and governance requirements are seen as having a key role in enhancing consumer protection and reducing the potential for mis-selling.
Technical advice on a delegated act on this element will be based on EIOPA’s Preparatory Guidelines2 on product oversight and governance as well any new policy proposals developed by EIOPA.
Conflicts of interest
In respect of conflicts of interest, the IDD imposes new requirements for sellers of insurance products3. EIOPA’s draft technical advice will look at a seller’s organisational and administrative arrangements concerning conflicts of interests. These arrangements are expected to be designed to identify, prevent, manage and disclose conflicts of interest that arise in the course of carrying out any insurance distribution activities.
The term “inducement” is not explicitly defined in the IDD, although clarification is given by reference to payment of any fee or commission (including non-monetary benefits) in connection with the distribution of an insurance based investment product (IBIP) or an ancillary service to or by any third party4.
EIOPA’s approach is expected to specify the criteria for assessing whether inducements paid or received by an insurance firm or intermediary have a detrimental impact on the quality of the service to the customer.
Assessment of suitability and appropriateness and reporting
In relation to advice on IBIPs, Article 30 of the IDD requires firms and intermediaries to ensure advice to the customer is suitable for that customer, taking into account their risk tolerance and ability to bear losses.
EIOPA’s draft technical advice sets out a criteria for determining if a personal recommendation has been given on a reasonable basis. For example, assessment on whether the customer has the necessary knowledge and experience in the investment field connected to the specific type of product or service will have to be made by insurance distributors.
After the consultation closes on 3 October, the draft technical advice is expected to be submitted to the European Commission by 1 February 2017.