1.1 PS17/21: Insurance Distribution Directive implementation - feedback to CP17/7 and near-final rules
On 25 September 2017, the Financial Conduct Authority (FCA) published a policy statement, PS17/21, which sets out its response to the feedback received to its March 2017 consultation paper CP17/7, which was the first of three consultation papers on implementation of the Insurance Distribution Directive (IDD).
The policy statement also sets out near-final rules implementing the following areas of the IDD:
- application of the IDD;
- professional and organisational requirements;
- complaints handling and out-of-court redress;
- changes to conduct of business rules (for non-investment insurance contracts);
- the regulatory regime for ancillary insurance intermediaries.
The FCA is publishing near-final rules because some of the rules proposed rely on domestic legislation that has not yet been made. Also, given the interdependencies on the terms within the FCA's Handbook Glossary and certain overlapping requirements between CP17/7 and the later consultations, it believes it is preferable to make final rules. Publishing near-final rules gives firms more time to continue their plans for IDD implementation. The FCA intends to publish its final rules alongside the third policy statement. This is likely to be in January 2018.
Based upon the feedback received the FCA is going to implement the rules as set out in CP17/7, although it has made the following changes:
- in the Insurance Conduct of Business sourcebook (ICOBS) the FCA has revised its guidance on the choice given to customers on how they receive information;
- in ICOBS, the FCA has included guidance on the means of providing information on renewal to customers who took out their policy before 23 February 2018.
The FCA is also considering whether further guidance is needed on the IDD rule which prohibits remuneration of a firm that conflicts with the duty to act in their customers' best interests.
Firms affected by these changes will need to ensure compliance from 23 February 2018.
1.2 FG17/8: Streamlined advice and consolidated guidance
On 28 September 2017, the FCA published finalised guidance, FG17/8 on streamlined advice and consolidated guidance, which aims to address two of the recommendations made by the final report of the Financial Advice Market Review (FAMR) by:
- supporting firms offering streamlined advice on a limited range of consumer needs (recommendation 4);
- clarifying the fact find process (recommendation 10).
The finalised guidance also includes material from FG12/10 and FG15/1 covering adviser charging, complaints and redress, professional standards, appropriateness and discretionary investment management.
In its August 2017 consultation paper, CP17/28, the FCA consulted on proposals for:
- Handbook changes arising from amendments to the definition of advice on retail investments;
- guidance on personal recommendations;
- guidance arising from experiences of the FCA’s Advice Unit;
- guidance on the treatment of insistent clients.
The FCA says that in December 2017 it will publish a policy statement following the CP17/28 consultation and incorporate new guidance on personal recommendations in the Perimeter Guidance Manual from 3 January 2018.
At the same time, the FCA is also proposing to publish consolidated non-Handbook Guidance which brings together in one place FG17/8 and new guidance based on the proposed Advice Unit guidance in CP17/28. At this point, FG12/10 and FG15/1 will be retired.
In 2019, the FCA will conduct a review of the financial advice market against the measures specified in its June 2017 baseline report. The findings of this review will be published in 2020.
1.3 CP17/33: Insurance Distribution Directive implementation - consultation paper 3
On 25 September 2017, the FCA published a consultation paper, CP17/33, which follows on from its two earlier consultation papers CP17/7 (published in March 2017) and CP17/23 (published in July 2017) with further proposals on how it plans to implement the Insurance Distribution Directive (IDD) in the UK.
The IDD replaces the Insurance Mediation Directive. It aims to enhance consumer protection when buying insurance (including general insurance, life insurance and insurance-based investment products (IBIPs)) and to support competition between insurance distributors by creating a level playing field.
This consultation paper covers changes to the FCA's rules to reflect the requirements of the IDD delegated acts.
For life insurance distribution business these relate to:
- inducements requirements for IBIPs (see chapter 4);
- suitability and appropriateness requirements for IBIPs (see chapter 5);
- disclosure requirements for IBIPs and mandatory occupational pensions (see chapter 6).
For all insurance distribution business, including life and non-investment business these relate to:
- conflicts of interest (see chapter 7);
- product oversight and governance (see chapter 8);
- changes to the Perimeter Guidance (see chapter 9);
- regulatory processes (see chapter 10);
- additional changes, including consequential amendments, to other parts of the Handbook (see chapter 11).
Comments are requested by 25 November 2017. The FCA plans to publish a policy statement in January 2018.
1.4 MiFID II: FCA statement on the work plan for ESMA opinions on pre-trade transparency waivers and commodity position limits
On 28 September 2017, the FCA published a statement in response to the European Securities and Markets Authority's (ESMA) announcement (see item 4.16 below)regarding the joint work plan of ESMA and national competent authorities (NCAs) for opinions on MiFID II pre-trade transparency waivers.
The statement explains that, while ESMA intends to finalise the opinions on equity waivers by the end of 2017, due to the high number and complexity of applications that need to be assessed, it is unlikely to be in a position to issue opinions on a majority of non-equity waiver notifications before 3 January 2018.
With regard to pre-trade transparency waivers, in light of ESMA’s clarification of its process, the FCA will now communicate responses on complete non-equity waiver applications before the finalisation of ESMA opinions. Any waiver the FCA communicates will take effect from 3 January 2018, and applicants should prepare on that basis. However, waivers may be subject to review once an ESMA opinion has been provided. If the FCA decides to amend its response in light of that review, it will contact the affected applicant to discuss with them the period of time that would be reasonably practicable for them to adapt their rules, systems and processes in order to comply before it takes any final decision.
The updated work plan also refers to non-equity waiver applications that miss essential information required for a compliance assessment under the Markets in Financial Instruments Regulation. The FCA conducts its own review of completeness before submitting waivers to ESMA and will contact venues directly where it believes information is missing.
With regard to equity waiver applications, the FCA's plan remains to communicate decisions after finalisation of ESMA opinions.
With regard to commodity position limits, in October 2017, the FCA intends to start publishing the position limits that will come into effect on 3 January 2018 on commodity derivatives contracts traded on UK trading venues. If the FCA decides it is necessary to change these limits in the light of ESMA opinions, or as otherwise required under the MIFID II Directive, it will provide an appropriate notice period before the revised limit replaces the initial limit, to allow market participants to adjust positions and, if eligible, apply for a hedging exemption.
1.5 Providing support with financial matters without needing to be subject to regulation: FCA and The Pensions Regulator guide for employers and trustees
In recommendation 11 of its final report, the Financial Advice Market Review (FAMR) said that the FCA and The Pensions Regulator should develop and promote a new factsheet to set out what help employers and trustees can provide on financial matters without being subject to FCA regulation. The FAMR recognised that that the workplace can play an effective role in assisting consumers to make sound financial decisions.
On 28 September 2017, the FCA and The Pensions Regulator jointly published such a factsheet which covers:
- promoting pensions;
- promoting other workplace benefits;
- what advice an employer or trustee should not give;
- what an employer or trustee might want to do instead of answering specific questions;
- examples of practice and considerations.
1.6 Where next for investment and asset management regulation? Speech by Megan Butler
On 28 September 2107, the FCA published a speech given by its Executive Director of Supervision - Investment, Wholesale and Specialists, Megan Butler, at the FT Investment Management Summit Europe 2017.
In her speech, among other things, Ms Butler discussed:
- the importance of the investment community to the UK and its role in supporting the FCA Mission;
- the introduction of the asset management authorisation hub to support new entrants navigate regulatory requirements;
- the range of priorities affecting the sector, including the senior managers and certification regime and MiFID II, and the need for regulatory co-operation;
- five very basic conduct questions that firms should ask themselves.