As the regulator with responsibility for conduct in retail and wholesale markets, the FCA’s overarching objective is to protect and enhance confidence in the UK financial system.

This goal is to be achieved via their statutory objectives: securing an appropriate degree of protection for consumers; promoting  effective competition in the interests of consumers; and protecting and enhancing the integrity of  the UK financial system.

The FCA has delivered a number of recent speeches about its ‘new’ approach to regulation. The  creation of the FCA was the perfect opportunity for the financial services watchdog to reinvent  itself, and to become a more proactive, forward- looking regulator, which is judgement-based and  outcomes focused.

The FCA is clear that firms need to build their culture and their ethics around the customer: “firms should put customers at the heart  of their business”. The message is that firms should develop their business strategies and models  while putting the interests of customers first, and that this culture must come from the senior  management and the way through the customer facing staff. In the regulator’s view, this is the only  way to ensure that consumers have trust and confidence in the industry.

The FCA urges all regulated firms not to be tempted to adhere to a tick-box approach to compliance. The rules must be followed, but should be so with a true outcomes-  focus, in order to ensure that customers genuinely get a fair deal and are treated fairly.

This is no different in respect of the insurance industry. The FCA recognises the importance of the sector and consequently the need to  ensure that consumers can feel confident when they take out insurance products and services, i.e. that the products will deliver the protection and security expected of them.

Four key areas of regulation that the FCA is focusing on are:

  • Financial crime risks

Financial crime risks The FCA is concerned that insurers are not doing enough to prevent financial crime. The concerns  arise both from when insurers make direct offerings (when dealing with policyholders and claimants)  and when they have delegated underwriting and claims handling. The regulator expects firms to have  robust due diligence processes,  both internally and as performed on third parties.

  • Claims handling

The regulator makes it clear that the way insurers handle their claims is a clear indicator of the  firm’s culture. The way customers are treated during the claim process helps demonstrate the firm’s  integrity and how it acknowledges the different degrees of customer sophistication. The FCA is  carrying out a thematic review of claims handling across 10 firms, including some from the London  market, and this review is due to report sometime in 2014. The results of this review are likely to attract significant media attention.

  • Managing conflicts of interest

Another important area of focus for the FCA is that relating to conflicts of interest. Brokers, in  particular, are of potential concern to the regulator. This is because many of them will generate  revenue both from insurers and their clients for arranging insurance. It is therefore paramount  that brokers can adequately manage any potential conflict of interest while complying with  regulatory obligations, always ensuring that their customers are at the heart of their business and  treated fairly. Another thematic review is currently underway in respect of how UK insurance  brokers manage conflicts of interest, and the findings of this review are likely to be published soon.

  • Delegation of authority

The core focus of the FCA’s supervisory engagement with London market insurers is where insurers  outsource services to other companies. The regulator has reiterated the message that insurers  remain responsible for the actions of their agents, and where oversight of delegated authority  falls short of expected standards, regulatory action may well follow.

The FCA published a paper on its approach to advancing its objectives in July 2013, and asked for  comments on it. It is due to publish of summary of comments received and final guidance on its  approach by early 2014.