1. In July 2016, the Financial Conduct Authority (FCA) published a thematic review titled "Principals and their appointed representatives in the general insurance sector" and has voiced concerns over ways in which non-life firms and intermediaries manage and monitor appointed representatives (ARs).
FINDINGS
1. Based on a thematic review, more than half of the 15 principal firms in its sample could not demonstrate that they had effective risk management and control frameworks to identify and manage the risks coming from the activities of their ARs.
2. Almost half of these firms could not prove they had understood the nature, scale and complexity of the risks arising from their ARs’ activities, and in particular, the risk to customers.
3. Many principals could not demonstrate how they had met their obligations to consider the solvency and suitability of the AR, the impact on their own compliance with threshold conditions, or the adequacy of their own controls and monitoring resources.
4. Some principals had not been effective in setting up an appropriate operational framework for their ARs, both in terms of contractual arrangements and the broader control environment.
5. Over half of the principal firms in the sample were not able to demonstrate consistently that they had adequate controls over the ARs’ regulated activities or adequate resources to monitor and enforce compliance by their ARs with the relevant requirements.
FCA'S ACTIONS
1. The resultant failings in the sales processes and practices of many of the ARs increased the risk of mis-selling and gave rise to instances of actual and potential customer detriment. These shortcomings relate to rules and obligations that are clear and longstanding, FCA have found material issues and potential breaches of rules and have taken timely actions to address the issues identified.
2. These actions include agreeing the imposition of requirements on their regulatory permissions, asking principal firms to cease sales activities and commissioning two FSMA section 166 skilled persons reports to assess whether detriment has been suffered by customers from mis-selling and consider the adequacy of systems and controls.
3. FCA are also considering the need for customer redress and held principal firms accountable for the issues identified, both those resulting from their own actions and those arising from the activities undertaken by their ARs.
THOUGHTS
1. Distributors of insurance policies may have believed that being an appointed representative was a lighter touch than being directly regulated.
2. This time the focus is on the principals, underlining that the regulator expects them to take full responsibility for anything their appointed representatives do.
3. A 'top-down' review of appointed representatives will required by CEOs of all insurance providers and insurance brokers who deal with appointed representatives.
