GI firms are failing their customers on value: This week in regulation

  • General insurance firms failing customers on value
  • FCA levies second-highest ever penalty for AML breaches
  • FCA to reinforce cooperation with Australian watchdog post-Brexit
  • Instructions issued for accessing and downloading FCA FITRS files

General insurance firms failing customers on value

General insurance (GI) distribution chains can result in customers paying significantly higher prices than they should, a report from the FCA says. Consequently, the regulator will be conducting more supervisory work to ensure firms are acting on the findings and meeting the FCA’s expectations.

The report highlights that customers are receiving poor outcomes where:

  • Distribution chains contain multiple parties, leading to excess remuneration of each party driving costs far beyond the value of the product
  • GI products are sold alongside a non-financial product, leading to a high risk of unsuitable sales.

The FCA also uncovered examples of customers experiencing poor outcomes when making claims or complaints.

While scrutiny of the sector has increased in recent years with the introduction of the Insurance Distribution Directive and SM&CR, progress has been slow and the potential for customer harm remains. The FCA points to a lack of focus on customer outcomes, particularly ensuring the GI distribution chain acts in accordance with the best interests of customers, and poor governance of product design and distribution as the main causes of harm. However, the underlying cause is often poor culture that does not hold due regard for ensuring customers receive true value for the products they purchase.

As a result, the FCA will be carrying out further supervisory work and will intervene with firms where it deems necessary. Firms should review the report now and address any issues applicable.


FCA levies second-highest ever penalty for AML breaches

The FCA has uncovered significant deficiencies in a bank’s customer due diligence controls and AML monitoring, leading to a fine of £102m. The US has also imposed a fine for contraventions of its money laundering laws and regulations.

Key areas of failings, discovered within its wholesale bank correspondent banking business and branches in the UAE, were:

  • Failing to establish and maintain appropriate and risk-sensitive AML policies and procedures.
  • Significant deficiencies in the bank’s internal monitoring and adequacy assessments of its own AML controls.

This left the bank exposed to the risk of it being used to launder the proceeds of crime, evade financial sanctions and finance terrorism. The bank is now improving its AML controls, including making sure its global branches and subsidiaries apply UK standard AML due diligence and monitoring policies and procedures.


FCA to reinforce cooperation with Australian watchdog post-Brexit

Two Memoranda of Understanding (MoU) have been agreed with the Australian Securities and Investments Commission (ASIC) to cover trade repositories and alternative investment funds (AIFs) in a bid to ensure continuity and minimise disruption post-Brexit.

Here’s a summary of what’s covered:

  • MoU on Trade Repositories – required because some functions and supervisory powers currently held by ESMA will need to be acquired by FCA. The MoU will ensure ASIC will be able to access relevant data on derivatives contracts.
  • MoU on AIFs – provides a framework for adequate supervision of AIFMs and AIFs operating on a cross-border basis.
  • Equivalence decisions – existing Australian-EU equivalence decisions granted before exit date will be subsumed into UK law and will continue to apply after Brexit. The UK will also adopt existing equivalence decisions relating to Australia’s supervisory and regulatory regime for trading venues, OTC derivatives markets and credit rating agencies.


Instructions issued for accessing and downloading FCA FITRS files

The FCA has published instructions on how to access and download FCA Financial Instruments Transparency System (FITRS) files, which firms will need access to should the UK leave the EU without a deal. This relates to the FCA’s Statements of Policy on the operation of the MiFID transparency regime and Supervisory Statement, created should a no-deal Brexit occur. Please note that FCA FITRS is not available for testing currently, but firms will be notified in due course.

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