In the first of two consultations scheduled for 2017, the FCA has outlined its proposals for implementing the Insurance Distribution Directive (IDD). The most effective way for firms to assess the impact of the IDD on their business is to undertake a gap analysis. This will provide clarity on the requirements and enable the firm to plan for, and implement, the necessary changes in an efficient, focussed and effective way.
This is important because implementation of the IDD is not a simple straightforward implementation of new requirements for all affected firms. It is actually quite a complex task to assess how the current FCA rules map to the new IDD requirements and what implementation gaps remain for a particular firm. We explain why this is the case below.
The scope of the IDD, like its precursor the Insurance Mediation Directive (IMD), includes authorisation obligations, ongoing regulatory requirements and passporting arrangements for insurance and reinsurance intermediaries. However, the scope of the IDD is wider than that of the IMD and the new regime includes organisational and conduct of business requirements for insurers and reinsurance undertakings. The scope of the regime has also been extended to include Ancillary Insurance Intermediaries (AII), firms who distribute insurance alongside their primary non-insurance business activity.
Implementation is not straightforward because the UK took a super equivalent approach to the implementation of the minimum harmonisation requirements of the IMD. This included applying some IMD requirements to insurance and reinsurance undertakings that were not in scope of the directive. The result is that some of the current FCA rules, for some firms, already meet some of the new IDD minimum requirements whilst others will require changes to the Handbook. The staff knowledge and competence requirements of the IDD is a good example of this complexity – some staff of insurers and intermediaries will be required to undertake a minimum of 15 hours continuing professional development.
The FCA’s current Training and Competence (TC) requirements for staff who advise on certain insurance products is for 35 hours CPD, which exceeds the IDD minimum CPD requirement. However, for other firms the 15 hours minimum CPD will be an entirely new and explicit requirement, which goes beyond the SYSC requirement for all firms to ensure they have competent staff.
Furthermore, the IDD introduces a number of new requirements, which go beyond the FCA’s existing rules. These new requirements include:
Product oversight and governance;
Enhanced conduct rules for insurance-based investment products (IBIPs); and
The requirement for non-life insurance distributors to provide customers with a standardised Insurance Product Information Document (IPID).
The FCA will publish a second consultation focusing on product governance, IPID, IBIPS requirements and potential changes to client money rules e.g. to apply CASS 5 to reinsurance mediation later in 2017.
The IDD affects firms that sell, advise on, conclude insurance contracts or assist in administering or performing insurance contracts. Contact our consultants to discuss how we can help with IDD gap analysis and implementation of the requirements for your firm.