General Insurance Brokers
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Treating Customers Fairly – How are things progressing?
2. Data Security – Understand the implications
3. Unfair contract terms
4. The ICOBS transitional period ends soon
5. FSA publish - 2008/09 Fees and Levies
6. FSA Monitoring Visit – Feedback
7. Is General Insurance Broking a regulatory “Low Risk” area?
8. FSA review - Focus on ‘Benefits’ as well as ‘Price’
Ladies & Gentlemen
Please find enclosed the latest compliance and industry news.
As usual, sit back and enjoy!
Kind Regards
ateb consultants
Which article applies to me?
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1. Treating Customers Fairly - How are things progressing?
We have come up with some typical Q&As to help understand some of the FSAs’ expectations:
Q. Are your Management Information (MI) Systems in place?
A. They should be - March 2008 was the deadline.
Q. What type of MI is produced?
A. Typically, results of files checks, training, business spreads, complaints etc
Q. How often do your MI systems report information to you?
A. For small firms, monthly would be sensible
Q. Where do you discuss the MI?
A. Directors, Partners or compliance meeting would be a potential answer
Q. What does the MI tell you?
A. Should be able to highlight trends, both positive and where improvements can be made
Q. What do you do about the MI?
A. Analyse it and then document the action taken (or that no action is taken)
Q. What would be an example of action taken?
A. An instruction to gather more fact find information following a poor file check
Q. What would be an example of a trend?
A. Insufficient benefit statements being made within suitability letters (or Demands & Needs) for a period of, say, three months.
Q. If a trend was highlighted – what action could you take?
A. Could lead to a possible training need or requirement to improve the firm’s systems
Q. Are you doing suitability as well as material compliance (completeness) checks?
A. You should be - and these should be documented carefully
Q. Where do you document the above?
A. An Individual file check feedback proforma, a tailored report and /or meeting note or similar.
| Ateb view: |
We predict many firms will be fined later this year and next year if they do not act swiftly and implement systems.
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| Action required by you: |
Look for gaps in your process and talk to ATEB if you are still unsure.
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2. Data Security - Understanding the implications
Recent editions of the newsletter have contained articles on data security, so let’s not lose the momentum. How many of you have since taken action in this area? - Not many I bet!
The safekeeping of customer data is a crucial responsibility for firms. The FSA have emphasised the importance of data security for several years, and they currently regard poor data security controls as a serious, widespread and high-impact financial crime risk. In particular, the FSA have identified data security as a key risk because financial services firms, by the nature of their business, generally hold lots of data about their customers. It is the FSA’s firm belief that consumers are entitled to rely on firms to ensure their personal information is secure.
Despite the Data Protection Act’s requirement for firms holding customer data to keep it secure, data is sometimes lost, either though error – such as when an employee loses a company laptop – or theft. Firms are vulnerable to both types of loss. Firms should note that the FSA support the Information Commissioner’s position that it is not appropriate for customer data to be taken offsite on laptops or other portable devices which are not encrypted. The FSA may take enforcement action if firms fail to encrypt customer data taken offsite.
The implications of data loss are very serious. It can lead to false credit applications, fraudulent insurance claims, fraudulent transactions on a victim’s account and even a complete account takeover. Identity fraudsters use sophisticated technology to make full use of the stolen data, both by creating false documents and by making fraudulent transactions. Please be aware that there is an expansive international market for stolen customer data, including data belonging to UK citizens. Sets of data are bought and sold freely in social settings such as pubs and clubs and subsequently traded through criminal networks that often operate on the internet.
| Ateb view: |
Firms’ responsibilities in this area form part of the ‘Treating Customers Fairly’ standards and are defined in the FSA Principles 2 and 3. Also relevant is FSA Rule SYSC 3.2.6R, which states that ‘a firm must take reasonable care to establish and maintain effective systems and controls for compliance with applicable requirements and standards under the regulatory system and for countering the risk that the firm might be used to further financial crime’.
It is likely that most small firms will need to make changes to bring their current systems up to the standards required. We would encourage those changes to be made sooner rather than later.
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| Action required by you: |
Look at related articles in previous editions of the newsletter and put together a strategy for dealing with this growing area of importance. Create and develop the systems, and work them until they become habitual.
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3. Unfair contract terms
The fairness of Consumer Contract Terms is a fundamental factor in firms treating their customers fairly. Firms have a legal responsibility to ensure that the contracts they enter into with consumers contain fair and balanced terms. This obligation comes from the Unfair Terms in Consumer Contracts Regulations 1999 ('the Regulations') and forms part of a wider responsibility to treat customers fairly.
Having unfair terms in consumer contracts may provide evidence that firms are not treating customers fairly. This is particularly relevant with the December 2008 Treating Customers Fairly deadline rapidly approaching.
The FSA have recently carried out a project to see how firms have responded to their obligation to ensure that their consumer contract terms are fair and over half of the sample contracts reviewed contained at least one variation term which was, in the FSA’s view, drafted unfairly.
| Ateb view: |
We believe that smaller firms should be proactive in reviewing their contract terms for fairness. Being fair is all about being clear and getting the right balance between your rights and the rights of your customer.
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| Action required by you: |
We suggest that you review your contracts from time to time to ensure that the terms they contain are balanced and written in a fair way.
For further information about the Regulations please see Unfair contract terms - FAQs.
http://www.fsa.gov.uk/Pages/Doing/Regulated/consumer/faqs/index.shtml
Please see the link below for an example of how the FSA have applied the Regulations to a smaller firm: http://www.fsa.gov.uk/pubs/other/undertaking_hayburnrock.pdf
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4. The ICOBS transitional period ends soon
Reminder: The new ICOBS full replace ICOB on 6 July 2008.
The new Insurance Conduct of Business sourcebook (ICOBS) was published on the 6 January 2008. They focus on the high level outcome of protecting consumers, and less on specific and detailed rules.
| Ateb view: |
Although, this will mean more flexibility for firms, the FSA will require that the same high standards of conduct remain.
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| Action required by you: |
All firms selling general insurance products will need to understand and comply with the new requirements in order to ensure they are treating their customers fairly.
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5. FSA publish - 2008/09 Fees and Levies
The FSA fees for 2008/09 were recently published in the annual Policy Statement, on the FSA fees web pages.
The fees and levies invoices for 2008/09 will be issued in June/July.
The instalments plan introduced in 2005 and facilitated by Premium Credit Limited (PCL) has been renegotiated for 2008/09.
| Ateb view: |
In the interests of fairness and transparency - I wonder if the FSA are paid a commission from Premium Credit Limited and, if they are, whether they rebate or retain it – Answers on a post card!
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| Action required by you: |
Firms wishing to utilise the credit facility again need to re-apply to PCL using the form enclosed with the invoice.
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6. FSA Monitering Visit - Feedback
Following the last newsletter we have information on another medium sized General Insurance broker that has received an FSA visit recently and we thought you might be interested in the feedback.
The approach by the FSA was in three stages:
- Prior to their visit there was a request for information
- There was an interview in the morning with management
- Later in the day there was an examination of records
Pre-visit request for information
The FSA requested copies of the firms TOB; Complaints Procedure & Log; Advertising Log; Client Money calculations and procedures; TCF Plan & Strategy; latest Management Accounts and Professional Indemnity Policy
Questions asked by the FSA during the Interview:
- The FSA asked for background to the business
- Discussed types of business spread
- Checked organisation, responsibilities and who supervised who
- Asked how the firm kept up to date on compliance matters
- Clarified recruitment & T&C responsibilities and processes
- Probed into the firms advertising and financial promotions controls
- Asked how client money in a chain was monitored
- Enquired as to what work had been done on TCF, had a gap analysis been undertaken, was MI used / had any action taken from the MI?
- File checks: Asked about any trends and action taken
- Were interested to know how often the firm reviewed its insurer panel
- Asked about how actively a risk was marketed
- Checked how often they disclosed commission
- Enquired as to whether they had a ‘Disaster Recovery’ plan
Examination of paperwork, systems and procedures:
The FSA team spent time looking at the back office system and how D&N statements were issued and their format. They also looked through some staff training files.
| Ateb view: |
Although, this particular firm was relatively well prepared, we suspect that many firms are still not and should the FSA come calling there may be problems ahead.
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| Action required by you: |
Make sure you can provide the information above, readily and if not we suggest you seek guidance.
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7. Is General Insurance Broking a regulatory "Low Risk" area?
We hear this quite a lot on our travels ……. not sure we agree though!
We have been conducting a series of audits at various firms and here is a summary of some findings:
- Junior and senior staff unable to explain TCF
- Regular file checks not being done
- No or inappropriate allocation of compliance duties
- No MI or if MI is available no analysis or application
- Conflicts of interest for example premium finance targets without disclosure of commissions
- Poor client file security for example filing cabinets left unlocked overnight
- No disclosure of fees, particularly when receiving commission into the bargain
- Unclear promotion of ‘fair analysis’ when in reality only one insurer being approached
- No written and defined broking / re-broking procedures
- No T&C records
- No training in key areas such as data security and financial crime
- In accurate information reported via the RMAR
- ‘Introducers’ exceeding their regulatory limits
- No controls over appointed representatives
- Client PIN details left on the client file
- Client money missing following poor controls with client money, sub brokers and risk transfer
- Inability to reconcile client payments due to inadequate IT systems and records
- No annual audits or regular monitoring
| Ateb view: |
We urge firms not to be complacent, we hear the terms “general insurance” and “low risk” mentioned in the same breath quite regularly and yet in our humble opinion, at the present time, there are more challenges here than with investment firms.
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| Action required by you: |
If you haven’t done so already conduct or detailed audit of your systems and controls or alternatively speak with your local ATEB consultant.
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8. FSA review - Focus on 'Benefits' as well as 'Price'
In a review of 17 insurance comparison websites, the FSA found there was mixed evidence in terms of the clarity, fairness and accuracy of the information given to customers.
Specifically, the FSA findings reinforce the need for firms to:
- Alert consumers to the fact that they need to consider other information apart from price
- Check their websites and promotions do not provide misleading legal disclaimers
- As part of their advised process, present a broad basis of product comparison, which includes excess levels, legal cover, courtesy car, breakdown cover, protected NCB etc.
- Provide a policy summary information which provides a clear overview well in advance of the contract concluding
- Provide an explanation of contract subtleties such as the difference between voluntary and compulsory excesses.
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Important Note:
The ATEB Newsletter is intended to provide general guidance on areas of compliance and T&C; however it is not a replacement for the main Rules and Guidance contained within the FSA Handbook.
We welcome all feedback. If you have any feedback or questions relating to any articles then please direct them to your local ATEB consultant or the newsletter editor Steve Bailey email steve@atebconsulting.co.uk
Unless you have consulted specifically (as part of a regular visit) with ATEB on a particular issue then ATEB Consulting accept no liability for any actions taken based on the information contained solely within the newsletter. |
Contact Us:
Ateb Consulting
The Old Post House
29 Nedderton Village
Northumberland
NE22 6AX
T: (01670) 822984
M: (07703) 576951
E: steve@atebconsulting.co.uk
W: www.atebconsulting.co.uk
