Over the last year, regulatory activity from the Financial Conduct Authority (FCA), Prudential Regulation Authority (PRA), and HM Treasury has intensified. Several key initiatives, including Appointed Representatives, Financial Promotions, and the Consumer Duty, are expected to continue to impact consumer insurance markets throughout 2023, with repercussions extending to commercial insurance markets as well, as the Future Regulatory Framework also starts to take shape.
These regulatory changes primarily aim to protect consumers from activities that previously operated ambiguously within the regulatory framework or featured unfair terms targeting specific consumer groups.
The collapse of Greensill Capital and other similar failures prompted a review of the Appointed Representatives and Financial Promotions regimes, revealing their inadequacies.
Regarding the Appointed Representatives regime, new rules effective from December 2022 will have a substantial impact on the use of Appointed Representatives in the distribution chain of consumer insurance policies. Among other requirements, the updated regulations introduce an advanced FCA notification process before appointing a new AR, granting the regulator more authority to review and challenge such appointments.
Additionally, Principal firms must now annually report both complaints and revenue data related to their ARs to the FCA, determining the level of capitalization needed to address the risks posed by their ARs.
The enhanced rules extend beyond Appointed Representatives to affect Introducer Appointed Representatives (IARs) as well. This prompts many firms to assess whether utilizing IARs remains cost-effective as an introduction channel when seeking greater oversight over non-financial services firms and staff involved in the introduction of financial and insurance products.
Changes to Financial Promotions from February 2023 introduced greater control over authorized firms approving financial promotions on behalf of others. The new regulations incorporate various heightened requirements, including the establishment of a Gateway through which firms must gain authorization to approve third-party financial promotions.
Additionally, the rules impose greater restrictions on the marketing of certain financial promotions, specifying the nature of the promotions and the target audience. This has recently been accompanied by a new Guidance Consultation, GC23/2, in respect of 'Financial Promotions on social media', which can be viewed here, with a closure date of 11 September 2023.
Lastly, the Consumer Duty is anticipated to be one of the most impactful regulatory developments in the UK since the introduction of twin-peaks regulation. This duty carries significant implications for providers of new business and closed-books. Concerns have arisen regarding the cost of meeting the evidential standards expected by firms under the Consumer Duty, particularly in demonstrating the Four Outcomes related to Price and Value.
In contrast to the regulators' inclination to increase regulatory standards and expectations, the UK government has conveyed a message of relaxing regulation in several financial services areas.
Early announcements outlined changes to aspects of the Solvency II regime, benefitting insurers and the UK economy due to the country's departure from EU insurance regulations. This move represents the government's intention to bring regulation onshore and diverge from European standards in various areas.
HM Treasury, the FCA, and the PRA have signalled their intent to consider further divergence from EU rules post-Brexit in 2023. Recent announcements have focused on the potential relaxation of additional UK regulatory requirements, including those under the Senior Managers & Certification Regime (SMCR). These measures aim to enhance the UK's competitiveness and restore its previous status as one of the world's leading financial services and insurance hubs.
As part of the Financial Services framework initiative during his recent Mansion house speech the Chancellor commented briefly on the progress the Government and HM Treasury is/will be making in getting-rid of EU retained law in the financial services sector. HM Treasury at the same time has published its Plan for Delivery in relation to the Building a Smarter Financial Services Framework which deals with both amendments to Solvency II and also the regulation of insurance intermediaries. This indicated that the government is repealing IMD and IDD over the course of this year, enabling the Financial Conduct Authority (FCA) to determine the most appropriate way to regulate this policy area. The FCA has just announced that it intends publishing a Consultation paper on this subject in Q3 2023.
The regulatory landscape for the year ahead promises to be eventful. While many forthcoming developments are known, several aspects remain to be clarified.