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A Financial Conduct Authority (FCA) thematic review (TR16/6) in the UK general insurance sector has found significant shortcomings in the control and oversight of appointed representatives by their principal firms.
The FCA initially identified an initial sample of 190 principal firms operating a network of appointed representatives in the general insurance sector and requested and received information from these firms via a survey. A sample of 15 principals was then selected using a risk-based approach for more detailed review.
Findings from that review fell under three main headings: business models and risk management; governance and oversight; and customer outcomes. Members may access the TR16/6 report by clicking here.
The FCA’s main concern was the material risk of customer detriment arising from the activities of appointed representatives that are not subject to appropriate control and oversight from their principal. The regulator noted in its report that firms did not appear to have understood the full extent of their obligations for ensuring their appointed representatives complied with regulatory requirements. More than half of the 15 principal firms in its sample could not consistently demonstrate that they had effective risk management and control frameworks to identify and manage the risks arising from the activities of their appointed representatives.
The FCA also found that almost half of the principal firms in the sample could not demonstrate that they had understood the nature, scale and complexity of the risks arising from their appointed representatives’ activities and in particular the risk to customers.
The FCA discovered examples of potential mis-selling and customer detriment as a result of appointed representatives’ actions at a third of the principal firms in the review, with most of these issues not previously identified by the principals. The poor customer outcomes identified included customers buying products they may not need, products they may not be eligible to claim under or customers not being provided with enough information to make an informed decision.
As a result of the findings the FCA has taken early intervention actions in relation to five of the principal firms in the sample. This includes:
- the commissioning of two section 166 skilled person reviews to assess whether detriment has been suffered by customers from mis-selling and consider the adequacy of systems and controls;
- asking two firms to stop selling;
- imposing requirements on all five firms’ regulatory permissions to stop them taking on new appointed representatives;
- considering the need for customer redress and whether further regulatory action in relation to the issues identified is required.
The FCA will be sending a ‘Dear CEO’ letter to the chief executive officers of principals with ARs in the general insurance market, setting out its expectations and what actions the regulator expects them to take to address the issues raised in the report. Further work will also be undertaken with some of the firms who were in the wider sample but not included in the detailed work.
BIBA will be working with the FCA to help share the regulator’s messages in this area with our members (at events such as regional compliance forums and knowledge days).
BIBA members’ compliance and regulation queries should be directed to: compliance@biba.org.uk
The post FCA’s thematic finds failings in control and oversight of appointed representatives appeared first on British Insurance Brokers' Association.
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