The Financial Conduct Authority is proposing to introduce a new test for inducements in life insurance distribution.
The regulator has published plans for how it will implement the Insurance Distribution Directive which comes into effect in February and aims to enhance consumer protection when buying insurance products.
As part of these rules, advisers will face a “detrimental impact test” when recommending insurance-based investment products.
This means they must make sure any inducement does not have a detrimental impact on the quality of the relevant service.
This is different from the rules under Mifid II, which say the inducement must “enhance the quality of the relevant service” to the client.
The FCA has said it will maintain the existing rules, without change, for life insurance business other than insurance-based investment products.
Meanwhile it will retain the existing Retail Distribution Review rules on adviser charging, which precludes insurance advisers from the ban on being paid by commission from product providers.
The FCA has also said it will apply the IDD rules on suitability to all firms which are subject to its existing rules to make sure all firms are subject to consistent requirements.
The IDD suitability requirements include requirements on the level and type of information firms should collect, the use of automated and semi-automated systems to assess suitability and the contents of a suitability statement.
On information and product disclosure, the FCA has said it will retain the existing rules since these go beyond what the IDD has proposed.
But the IDD includes new regulation on mandatory insurance-based occupational pensions, which might affect some schemes in the UK following the introduction of auto-enrolment.
The FCA said: “We would expect this requirement to have relevance where a scheme is structured in a way which involves a contract of insurance.
“For example, the disclosure could be required for a pension arrangement which is based on a group insurance contract to which individual members directly obtain rights or benefits.
“Where these pension arrangements take the form of individual insurance contracts issued to members, the IDD requirements would apply directly to the distribution of each new contract.”
The FCA has proposed introducing an obligation on making providers of these schemes provide the relevant information to the trustees or operators of the scheme in the expectation they will pass it on to members when they enrol.
damian.fantato@ft.com
