The Financial Conduct Authority (“FCA”) has published its Business Plan for 2018/2019 (“Plan”), setting out the regulator’s key priorities for the upcoming year for insurance and other regulated industries.
Perhaps unsurprisingly, preparation for Brexit is at the forefront of the Plan, with the Chair of the FCA acknowledging that the year ahead will be a “challenging one for the regulator”.
Broadly speaking, the FCA’s work on Brexit is split into the following areas: Working with the Government; Future Functions; Supervision and Risk; FCA’s Operations; and International Cooperation. In particular, the FCA has predicted that the cost of Brexit to the regulator will be around £30 million, the direct effect of which is that the FCA will need to redirect its resources by re-prioritising non-critical activity.
The Plan also reflects the uncertainty that surrounds Brexit, with the FCA expecting to continue working on Brexit related activities beyond March 2019, acknowledging the possibility of both immediate implementation of a new agreement with the EU and a transitional period. Although a 21 month transition period was agreed in principle in March 2018, it is not guaranteed (neither is a withdrawal agreement); the Plan emphasises that the European Union (Withdrawal) Bill 2017-19 will, if implemented, ensure that a robust regulatory system is in place from the day the UK leaves the EU.
In addition to Brexit, the Plan also outlines the FCA’s cross-sector/sector specific priorities and its other key activities. Of particular relevance to the insurance sector are:
- The importance of self-governance and accountability: this is reflected in the extension of the Senior Managers and Certification Regime (SM&CR) to all regulated firms, including dual regulated insurers. The FCA’s policy statement and new rules will be published in the second quarter of 2018 and the SM&CR will be extended to insurers on 10 December 2018.
- Insurance Distribution Directive (“IDD”): the FCA has acknowledged that one of the most significant regulatory changes of 2018 will be the implementation of the IDD (scheduled to come into force on 1 October 2018). The FCA considers that the IDD will help to reduce conflicts of interest and ensure that regulated firms act in their consumers’ best interests.
- Value in general insurance distribution chains: in the second half of 2018, the FCA aims to report its findings on its initial phase of diagnostic work into the value in general insurance distribution chains. As part of this process, the FCA has considered three insurance products: tradesman insurance, travel insurance and motor ancillary insurances, including guaranteed asset protection (GAP) insurance, with the aim of identifying the impact of different distribution chains on the insurance product consumers ultimately receive.
- Wholesale Insurance Brokers: in 2017, the FCA began a market study which aims to assess (amongst other issues) the impact of broker conduct on competition and the degree to which conflicts of interest may arise. The FCA intends to publish its interim findings from the market study by the end of 2018.
The FCA’s plan can be accessed here.