By Sharron Lindsay
Ahead of the Consumer Duty deadlines, the FCA issued Dear CEO letters to a range of sub-sectors. General Insurance and Pure Protection (GI&PP) brokers should pay attention to the letter aimed at this sub-sector whether or not they act as a co-manufacturer. The FCA gives a very clear warning that they will act “much faster and more assertively” where firms do not meet the requirements of the Duty.
Focus areas for implementation plans
The FCA has identified a number of areas where firms’ implementation plans need improvement. Areas for brokers to focus include:
- reconfirming that the implementation of PROD meets the requirements, expectations and spirit of FCA intent (where applicable)
- preparing for receipt of information from manufacturers (or providing information to other distributors where undertaking a co-manufacturing role)
- being clear where firms act as co-manufacturer and how responsibilities are split with other co-manufacturers (including having a co-manufacturing agreement in place).
“Brokers should not underestimate the impact of the Duty. With deadlines fast approaching, firms and senior management need to rapidly assess the impact on their business.”
Working with other firms
Brokers will need to work with other firms in the distribution chain, whether these are manufacturers or other distributors. Co-manufacturers need to ensure they request information from their distributors and meet the April deadline for information. This is a key risk in complex distribution chains and brokers that are part of these should ensure they are liaising with other parties to ensure the timely sharing of information.
Target markets and fair value
Brokers need to ensure that they understand the target markets for the products they are distributing, and have controls in place to demonstrate they are not distributing outside of these. Where a broker is a co-manufacturer they will need to work with the other party to define the appropriate target market for products.
Brokers will need to be prepared to process the information from manufacturers come the end of April regarding target markets and fair value assessments and be ready to pass this down the chain of distribution as required. They will also need to satisfy themselves that the income they receive from products does not adversely impact fair value and this should take account of any additional fees charged from further down the chain. Where fair value cannot be demonstrated brokers will need to consider the impact on their ability to distribute the product and on their own remuneration.
Whilst the FCA has indicated that compliance with the PROD rules will result in compliance with the Duty for these outcomes, it is concerned with firms’ implementation of PROD. Firms should revisit this.
Other outcomes
Brokers should ensure their own communications are appropriately tested and customers are able to understand the information imparted. Where brokers are undertaking claims management, there will be a need to ensure that support levels are appropriate to customer needs. Claims processes will be a clear focus of the FCA so it is important to ensure this process gets sufficient focus in programmes.
The regulator is particularly concerned about firms who believe they already meet the Duty, and have taken insufficient action as a result. Given that the FCA has the appetite to react more swiftly than previously, the need for diligence is clear.
Brokers should not underestimate the impact of the Duty. With deadlines fast approaching, firms and senior management need to rapidly assess the impact on their business.The regulator is particularly concerned about firms who believe they already meet the Duty, and have taken insufficient action as a result. Given that the FCA has the appetite to react more swiftly than previously, the need for diligence is clear.
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