The FSA has found a lack of understanding within the industry about the regulated activities being conducted by firms selling general insurance policies through price comparison websites (aggregators), leading to failures to comply with FSA rules. It is now proposing new guidance and has published a consultation on its proposed guidance
The guidance relates to firms selling regulated insurance products and services online through price comparison websites and "white label" websites.
The FSA has written such firms asking them to carry out checks. Specifically, they need to
- Ensure that they are appropriately authorised or otherwise exempt;
- Enter into contracts with firms holding appropriate authorisation or exemptions;
- Withdraw assistance from third parties if they are not properly authorised;
- Review disclosure documentation, sales procedures, terms and conditions to ensure they are all regulatory compliant with FSA Principles, ICOBS and the Unfair Terms in Consumer Contracts Regulations 1999; and
- Establish, implement and maintain adequate policies and procedures to ensure regulatory compliance for countering the risk of furthering financial crime.
THREE AREAS OF CONCERN
The request for these checks derives from the FSA having identified three areas of concern:
- Potential breaches of the general prohibition
Section 19 of FSMA broadly requires firms to either be authorised or exempt before conducting any regulated activity (which includes arranging or advising on contracts of insurance). The FSA considers there is a risk that firms may not be aware that they are likely to be arranging contracts of insurance and in some circumstances may be advising.
Price comparison websites
Examples of where a price comparison website firm may be arranging contracts of insurance include where the firm:
- provides links to product companies or intermediaries for the purposes of enabling the customer to purchase a chosen insurance product;
- requires a pre-purchasing questionnaire to be completed in order to filter sales, particularly where the electronic questionnaire form is pre-populated;
- provides a comparison of the terms of different policies as opposed to a passive display of the features of different policies;
- runs a website which is funded by one or more insurance or mortgage providers; and/or
- offers a special discount on the product to its website users.
Examples of where a price comparison website firm may be advising on insurance include:
- The logo/name of only one insurance product is displayed on the website in a manner suggesting that product is preferred over others;
- A particular insurance product is recommended as the "pick of the best";
- A particular insurance product is star-rated by a website, compared to the star ratings of other products;
- A scripted questionnaire gives a recommendation or opinion which influences the choice of product;
- The questioning process has resulted in the identification of one or more insurance producers by way of scripted questioning or otherwise;
- Where generic best buy tables are used and not populated from specific consumer information;
- Where generic statements on a website are not dependent on consumer information being populated and where displayed in such a way that the website operator is making value judgments as to the merits of buying etc.
White labelling firms
Host firms – the firm which uses in its own business a price comparison tool provided by a third party website (the 'provider firm') are asked to be aware of the risk that they are conducting regulated activities and ensure that they have the appropriate authorisation or exemptions.
Provider firms are asked to:
- Ensure that host firms with which they are partnering have the appropriate regulatory status for carrying out the regulated activity in which they are engaged;
- Establish, implement and maintain adequate policies and procedures sufficient to counter the risk that they might be used to further the activities of another firm that give rise to an offence which amounts to a misconduct in a financial market and is generally a criminal conduct relating to financial services;
- Have adequate policies and procedures in place to reduce the risk that the host firm will use that proprietary software to conduct regulated activity in breach of the general prohibition.
If any provider firm then knowingly or with sufficient foresight provides or continues to provide software to a host firm which then conducts regulated activity using that software in breach of the general prohibition risks facing a secondary liability for aiding and abetting the section 23(1) FSMA offence and being charged as a principal offender.
- Non-compliance with ICOBS
The FSA has given guidance on what firms are required to do to avoid falling short of ICOBS requirements:
- Customer eligibility
Firms are reminded that it is their obligation to check eligibility and firms are not entitled to exclude this duty.
- Status disclosure
Firms should provide to customers details about the firm, whether it is financially interested in or linked to a given insurer, and procedures for making complaints.
- Scope of service
Firms must consider whether they provide advice and then whether they are discharging the obligations associated with the provision of advice.
- Statement of demands and needs
Firms are responsible for providing the demands and needs document and cannot delegate this responsibility to the insurer or another intermediary.
- Ensuring that customers buy policies under which they are eligible to claim benefits
Firms should take reasonable steps to ensure that a customer only buys a policy under which he is eligible to claim benefits. Firms should also take steps to ensure that customers know what material facts they should disclose and why, and what the consequences of nondisclosure might be.
- Non-compliance with SYSC
Firms also need to consider whether they are establishing, implementing and maintaining adequate policies and procedures to ensure compliance with their obligations under the regulatory system and for countering the risk that the firm might be used to further financial crime