On 24 March 2015, the Financial Conduct Authority (FCA) published its business plan for 2015/16 (the Business Plan).
In this article, we highlight some of the FCA’s “key priorities” for the coming year which could have a significant impact on insurers and insurance brokers. We examine the FCA’s upcoming work in the “general insurance and protection” sector and assess the potential implications for FCA-regulated firms.
The FCA’s Business Plan lists seven key priorities which will form the basis of its regulatory work over the coming year. The areas of most interest to insurers and insurance brokers are:
1. Anti-Bribery and Corruption
Last year the FCA examined insurance broker’s anti-bribery and corruption (ABC) systems and controls and published a thematic review of its findings called “Bribery and Corruption in Commercial Insurance Broking” (for further details see http://www.clydeco.com/insight/newsletters/view/ corporate-insurance-newsletter-january-2015). The review found some regulated firms had good ABC policies on paper, but that their implementation in practice was not as strong as expected. The FCA identified gifts and corporate hospitality as an area in which most firms could improve.
Firm’s ABC controls will continue to be an area of focus for the FCA in the coming year, with visits to other smaller firms already scheduled for 2015.
2. AML and Sanctions
In 2014, the FCA published its findings on its study of antimoney laundering (AML) systems and controls at small banks.
Last year saw rapid changes to sanctions regimes. The adoption of the Fourth Money Laundering Directive is now on the horizon. Against this background, the FCA has stated that it will continue to focus on the effectiveness of all firm’s AML systems and controls. The Business Plan states this will include how regulated firms manage the risks posed by terrorist financing and sanctions.
3. Financial Crime
Both ABC and AML reviews mentioned above were published at the same time as the FCA opened a consultation on its “Financial Crime Guide”. The FCA will continue its work on firms’ systems and controls for preventing financial crime in the coming year, expressing concerns that:
Technology may have outstripped firms’ investment in their systems and controls; and
Firms may be operating from policies and procedures which have not been updated to reflect the changed regulatory landscape.
“Changing culture” at regulated firms is another key area of focus for 2015/16. The FCA’s Business Plan highlights the fundamental role of individual accountability for senior managers in complying, and fostering a culture of compliance, with the expanding regulatory framework which includes the FCA’s rules. The importance to the regulators of improving senior management’s individual accountability in changing culture at regulated firms is demonstrated by other recent proposals being implemented alongside the PRA, such as to:
- Expand the scope of the Senior Insurance Managers Regime
- Introduce a new regulatory regime for Independent NonExecutive Directors at insurers
- Adopt new “fit and proper” tests for approved persons
- Significantly change the requirements for whistleblowing procedures at regulated firms
The FCA Business Plan also sets out its proposed projects for 2015/16 which will solely target insurers, which include:
- Publishing the results of their review of the effectiveness of distribution chains and systems and controls where authority is delegated. The FCA’s findings are expected to be available in the latter half of 2015
- Reviewing the role of principals and the robustness of their systems and controls in overseeing the distribution of general insurance products by their Appointed Representatives (ARs). This will include a review of ARs’ sale practices and the provision of post-sales services to customers
- Conducting a market study of how insurance firms use “Big Data”, including analytics and behavioural data, and the potential risks and benefits for customers
Given the emphasis in the FCA’s Business Plan on the importance of fighting financial crime as an ongoing policy objective, it would appear that ABC and AML will remain at the top of the FCA’s agenda not only for the coming year, but well into the future.
The FCA’s proposals in relation to individual accountability are not likely to take effect until 2016 at the earliest, giving insurers some breathing space to assess how to best implement proposed changes in their businesses.
The seven key priorities in the Business Plan cover a wide range of regulatory and compliance issues. The FCA’s insurance focused work will no doubt give rise to developments and guidance in the future.