After taking part in the Regulation seminar at The BIBA Conference 2023 Matt Brewis, Director of Insurance at the FCA, shares his thoughts on Consumer Duty, Appointed Representative (AR) regime and working with BIBA to support brokers.
Just like the firms we regulate; we’re busy at this time of year setting our objectives and priorities for the coming year. BIBA have, as ever, inputted into our discussions this year, especially via the 2023 Manifesto. Whilst we won’t always agree – our discussion with BIBA, as with other trade bodies, is invaluable in helping us understand challenges, obstacles and intricacies that stand in the way of our shared aims.
What we do as regulators affects consumers, businesses, and the UK economy. There is no doubt that brokers play a critical role in the distribution of products and helping clients get the right product for their needs. The market simply wouldn’t work without brokers and never has doing that role well been more important to consumers given today’s economic climate. For all these reasons we want brokers to succeed whilst putting customers at the heart of what they do. Which brings me on to the Consumer Duty (the Duty).
The Duty is designed to set and test higher standards and to reduce and prevent serious harm – which underpins our mission and encapsulates our 3-year strategy. It requires firms to consider how their behaviour affects the end result for their customers. As the Duty encourages consumer protection and market integrity, we feel it will also boost economic growth and international competitiveness.
Quite a bit of the essence of the Duty is already present in the insurance broker market given rules that have been introduced over the last 5 years – think the Insurance Distribution Directive, value measures, pricing practice remedies and product governance. That doesn’t mean that there is not lots still to be done, but it should mean that insurance firms, including brokers, are well placed to have implemented the Duty by July.
With the significant interest in the Duty has come invitations for staff at the FCA to attend and speak at various events. My diary has been full and that’s been the case for my senior leadership team and colleagues across the FCA. And generally, the amount of material, guidance and comment being committed to the subject by the industry and trade-press has been welcome. We have been working hard to put material on our website and other platforms to help firms with implementation and you’ll see more of this.
One of the concerns we’ve certainly heard is that implementation of the Duty is a burden, and the cost and effort is disproportionate to the gain. We don’t underestimate the work required, which is why we’re keen to get out and talk as much as we can. There are great opportunities here for firms – as our Executive Director of Consumers and Competition, Sheldon Mills spoke about recently. Firms should embrace them. The Duty is a customer-centric regulation and if firms get it right, they can expect to be rewarded with loyalty and fewer complaints. It will mean lower costs down the line and less new rules as we move to a more flexible and less prescriptive regulatory framework.
I want to mention fair value specifically. It is one of the four outcomes of the Duty (the price and value outcome), and in the context of supporting customers through hard economic times, consumers should expect a reasonable relationship between the total price they pay and the quality of the products and services they receive. We recently published the first set of value measures data collected from firms. We want firms, both manufacturers and distributors, to challenge themselves whether products are offering fair value using this data, and to take notice that we will take action where firms are unable to do so. As we said to distributors in relation to our work on insurance costs for multi-occupancy buildings, they need to ensure they do not take action that undermines the aim of providing fair value of products, such as commission which doesn’t reasonably reflect the costs incurred or the benefits provided.
We are acutely aware of the challenges brokers have experienced in the completion of their fair value assessments, even despite the extended deadline of 31 December 2022. We are discussing this challenge with BIBA, and we’ll look to work with the industry to make the product reviews and fair value assessment processes more efficient in the future.
Also this year, changes to the Appointed Representative (AR) regime will be relevant to many brokers. ARs can bring benefits such as supporting innovation, providing more choice, and driving competition in the market. But we have seen increasing harm from the AR model so new rules clarify and strengthen the responsibilities and expectations of principals. The changes we are making to the AR regime go hand-in-hand with the Duty. If you are a Principal firm, you will need to ensure that you have the right controls in place to oversee your ARs’ activities and ensure that they also comply with the Duty.