Out-Law Legal Update 4 min. read
29 Mar 2017, 10:11 am
The Insurance Distribution Directive will come into force next year around Europe. The UK will implement the Directive despite plans to leave the EU in 2019. It will have less impact in the UK than elsewhere, though, because it replicates many provisions that already in force in the UK.
FCA rule changes
The FCA will change its rules to reflect the IDD. In a consultation it proposes:
The FCA drew attention to the Treasury's consultation on changing the scope of the 'connected contracts' exemption in light of the similar/more expansive concept of “Ancillary Insurance Intermediaries” proposed under IDD. IDD does not require direct regulation of such intermediaries, but the FCA proposes to treat “in-scope AIIs” (i.e. firms who do meet the AII definition in IDD but are caught by the FCA’s existing regulatory perimeter) as regulated intermediaries in any event and so not to extend the existing exclusions in this regard. They do, however, propose reduced conduct requirements for connected travel insurance providers.
This consultation does not deal with elements that are still under consideration by the European Commission and the European Insurance and Occupational Pensions Authority (EIOPA), which is providing technical advice that will shape further rules on the implementation of the IDD. It will consult on these issues later this year.
The consultation closes on 5 June and the FCA will publish finalised rules by September.
UK government consultation
The Treasury is also consulting on the implementation of the IDD, focusing on the changes that will be needed to the Financial Services and Markets Act of 2000 and the Regulated Activities Order associated with it.
The FCA will be responsible for implementing the associated prudential and conduct changes through amendments to its rules. The Treasury is consulting on:
As the IDD is a minimum harmonising directive, the government has scope to both decide the means by which it will legislate for the directive to take effect and also whether to 'gold-plate' its transposition with additional regulation. This is the path the government took for the Insurance Mediation Directive (IMD), the predecessor to the IDD. One of the positive impacts for firms here is that many of the new regulatory measures introduced by the IDD already apply in the UK because of the IMD 'gold-plating'.
The consultation will close on 22 May and legislation will be amended later this year.
Further EU changes
Parts of the IDD allow for further 'delegated acts' to be created to implement technical standards and guidelines. These are non-legislative acts which the Commission can use to supplement or amend parts of the IDD.
The Commission has proposed delegated acts covering product oversight and governance (POG), conflicts of interest, inducements and the suitability of insurance-based investment products (IBIPs).
The Commission asked EIOPA to provide technical advice on these proposals, which it did in February.
Creators of insurance products should keep consumers' needs in mind throughout the development process, EIOPA said. It has further developed its guidelines to extend them to insurance intermediaries who act as 'manufacturers' of products, and to define what qualifies as a manufacturer. It has also laid out the level of granularity that it expects from manufacturers when defining their target market, depending on the type of products and the insurance coverage involved.
EIOPA has also published technical standards detailing the standardised format of the Insurance Product Information Document (IPID). This must be drawn up and provided to customers prior to the conclusion of certain products. It is proposed that this will be adopted by the Commission as an implementing regulation, which will be directly applicable in the UK after its publication in the Official Journal of the EU.
EIOPA also published its consultation on guidelines for the assessment of IBIPs that incorporate a structure which makes it difficult for the customer to understand the risk involved and for the assessment of IBIPs being classified as non-complex. That consultation is open until 28 April and EIOPA will issue its guidelines by 23 August.
Ian Sawers is an insurance expert at Pinsent Masons, the law firm behind Out-Law.com