PROTECT LEGAL AND REGULATORY REVIEW MARCH 2015

What a joy it is... (c) Paginator Limited 2015

To do my job! (c) Paginator Limited 2015

It’s a doddle... (c) Paginator Limited 2015

Since November there’s only been...  Some proposed remedies for competition issues in the GAP market  More obsession from FCA on claims ratios  A new Structure for FCA  A review of Financial Crime (it doesn’t pay to ignore it)  Some stupid proposed changes to complaints handling  A launch of Simple Products (pause to applaud ABI)  Some Latvians taking an interest in IMD 2  The FCA being nice about Retrospective Regulatory Action  Everyone having their say on Unfair Contract Terms  A new Insurance Act 2015 (PhD in law required)  The FCA trying to explain “Attestations”..  FCA trying to be nice about Fraud, Whistleblowing and Enforcement  FCA trying to save you from the horrors of “performance management”  FCA getting into social media (c) Paginator Limited 2015

I really don’t know why I bother to go to work.. (c) Paginator Limited 2015

But I suppose I should mention that..  at last somebody (other than me) has actually bothered to explain what “conduct risk” is and to demonstrate just how exposed you are to it... (c) Paginator Limited 2015

.. and we have...  a new “buzz” word for (c) Paginator Limited 2015

“Vulnerability” (c) Paginator Limited 2015

So - not much to talk about really!! (c) Paginator Limited 2015

Since I really want to talk about conduct risk and vulnerability  Here comes a whistle-stop tour of all that other stuff! (c) Paginator Limited 2015

The Proposed GAP remedies (c) Paginator Limited 2015

The first consultation on add-on insurance “remedies”  FCA still working on:-  the calculation and publication of claims ratios  a ban on pre-ticked boxes (‘opt-outs’); and  improvement in the way add-ons are offered through price comparison websites (c) Paginator Limited 2015

The proposed GAP remedy...  Proposed amendments to ICOBS to:-  require “improved information” to be provided by a firm which wishes to sell GAP insurance “in connection with” the sale of a vehicle by it (or by a person connected to that firm); and  ban firms from concluding a GAP contract unless (with one exception) 2 clear days have elapsed since the firm provided required information to the customer  The exception is that a “confident consumer” be permitted to initiate a sale the day after the information has been provided (c) Paginator Limited 2015

“GAP sold in connection with”... ?  There will be sufficient “connection” between a GAP contract and the sale of a vehicle if the GAP contract is sold “in connection” with a credit agreement for the vehicle.  A person “connected” with a firm would include persons acting as an introducer or appointed representative of that firm (c) Paginator Limited 2015

How the proposed GAP remedy works... (c) Paginator Limited 2015 Day 1 Required Information given to customer GAP insurance sale banned until process followed Day 3 GAP sale still banned Day 4 GAP sale can be made Day 2 GAP sale still banned unless customer initiates the sale

What is the “required information”?  The total premium of the GAP insurance policy, separately from other prices;  The significant features and benefits, and significant and unusual exclusions and limitations, of the GAP insurance policy; and “cross references to the relevant policy document provisions”;  The duration of the policy;  That GAP insurance can be purchased from other sources;  Whether the GAP insurance policy is optional or compulsory;  How the deferred opt-in works, including the date on which the prescribed information was provided; and  The date on which all the above information was provided to the customer (c) Paginator Limited 2015

ICOBS  Some of the required information is already required under ICOBS  The required information is additional to any other information required to be given to customers under ICOBS  Before concluding a GAP contract a firm should consider whether the customer should receive the required information again (e.g. if there is a long period between delivery of the information and purchase of the GAP) (c) Paginator Limited 2015

GAP remedy - the next steps  The Consultation on the remedy ended on 13 March 2015  A Policy Statement confirming the remedy is expected in June 2015  The final remedy will be in force from 1 September 2015 (c) Paginator Limited 2015

What has been the reaction?  Very little concern regarding the sale of new vehicles  Probably shifts in the way in which the sales process for used cars will be structured where an opportunity to market GAP is desired  Generally the Add-on remedies in isolation are a bit of a damp squib - except (possibly) publication of claims ratios – but...  Remember that FCA has stated that the entire GI market should be alert to its core “confirmed findings”... (c) Paginator Limited 2015

The “Confirmed Findings”  That:-  the add-on “mechanism” has a clear impact on consumer behaviour and often (adversely) affects consumers’ decision-making and weakens engagement; and  there is a lack of transparency and comparability about the value provided by general insurance products  More on this later (c) Paginator Limited 2015

A New Structure for FCA (c) Paginator Limited 2015

A new Structure for FCA (c) Paginator Limited 2015  On 5 January 2015, the Authorisation and Supervision Divisions were integrated into one Division.  That Division will then be split, from April 2015, into two new Divisions:-  One will regulate larger C1 and C2 firms,  The other will regulate all other firms.  This means that the distinction between C3 and C4 firms will disappear.  The impact is that there will be a much greater focus by FCA on whether the business models of small and medium sized firms meet FCA’s requirements for consumer focus, good outcomes and the minimisation of conduct risk  And that is potentially very dangerous – more on that later..

Financial Crime (c) Paginator Limited 2015

Financial Crime  FCA published its review into compliance with requirements to manage financial crime risks  The conclusions were that “most intermediaries fail to manage risks effectively”.  The review related to commercial insurance intermediaries - but FCA observe that all firms are subject to its financial crime rules - and should therefore ensure that they:-  note the review; and  have correct controls in place...  So - here follows a two minute guide to what you must do - and why.. (c) Paginator Limited 2015

The background...  One of FCA’s three statutory objectives is its “integrity objective”  “To protect and enhance the integrity of the UK financial system”  If FCA lets any firm facilitate any financial crime, then FCA breaches its regulatory objective  Which it is not going to do – so we better understand.. (c) Paginator Limited 2015

What is financial crime?  Section 6(3) of FISMA says that financial crime “includes”:-  Fraud or dishonesty  Misconduct in, or misuse of information relating to, a financial market  Handling the proceeds of crime (c) Paginator Limited 2015

How does FCA regulate financial crime?  The application of the Principles for Business  Some specific Handbook Rules  A great deal of Guidance (c) Paginator Limited 2015

The four relevant Principles for Business (1) A firm must conduct its business with integrity (2) A firm must conduct its business with due skill, care and diligence (3) A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems (11) A firm must deal with its regulators in an open and cooperative way, and must disclose to the appropriate regulator appropriately anything relating to the firm of which that regulator would reasonably expect notice (c) Paginator Limited 2015

The Handbook Rules  The main Rules are at SYSC and 6.1.1:-  These require firms to establish and maintain effective systems and controls to prevent the risk that they might be used to further financial crime  There are specific Rules and Guidance regarding anti-money laundering at SYSC 3.2.6A to SYSC 3.2.6J and at SYSC 6.3:-  These involve establishing if there is any risk of your business being used to launder money – and, if so, putting in place all necessary systems and controls to prevent this (c) Paginator Limited 2015

FCA Guidance on preventing financial crime  Contained in “The Financial Crime Guide” - found as a “Regulatory Guide” within the Handbook  The Financial Crime Guide says that effective systems and controls help firms detect, prevent and deter financial crime  So, you must assess risk of financial crime affecting (or existing within) your business, and if you find any risk, do something very effective to deter and prevent it!  Remember that financial crime includes “dishonesty” - so keep an eye on (the possibility of) rogues within your business (c) Paginator Limited 2015

Complaints Handling Review  Consultation closed on 15 March 2015  Proposed implementation date March 2016  Some changes from 14 May 2015 to meet EU ADR Directive requirements  Covered in the January meeting so only brief comment from me (c) Paginator Limited 2015

What FCA want is for.. ... front line staff to take more responsibility in immediately dealing with establishing what has caused the customer to complain - and to seek, informally, to put things right if they can  Only if they can’t do this should the formal complaints process begin (c) Paginator Limited 2015

FCA’s proposed changes  Extend the time period for dealing with a complaint less formally, from the end of the next business day following receipt of the complaint, to the end of 3 business days  If a firm resolves the complaint “informally” within the 3 days it will:-  not have to send a ‘final response’ letter; but  will be required to send a written communication explaining that the customer still has the right to refer their complaint to the ombudsman service if they are unsatisfied (and they don’t have to wait 8 weeks to do so)  Firms will have to report and publish all complaints to FCA including those informally resolved within the 3 days (currently complaints resolved before the close of the next business day don’t have to be reported)  If a complaint is unresolved after 3 days - then the existing DISP rules kick in (c) Paginator Limited 2015

FCA expect...  That the outcome of these proposals will be that 60% + of complaints will be handled and resolved informally by frontline staff  I expect this to cause great difficulty as it will involve firms in training frontline staff to a very high standard in “informal” complaints handling (and recording/reporting)  My guess is that firms will carry on as before – using the 3 day window as a first stage of their formal process (c) Paginator Limited 2015