The IDD is designed to improve consumer protection when buying insurance products, such as general insurance, life insurance and insurance-based investment products. It is also aimed at supporting competition between insurance distributors by creating a level playing field.
In its consultation paper on IDD implementation, the Financial Conduct Authority (FCA) said on Monday it was not seeking to introduce any new standards but wanted to be consistent and to protect consumers.
The three areas the FCA plans to go beyond the minimum IDD requirements are:
- Maintaining its own enhanced standards on inducements;
- Standardising the requirements for managing conflicts of interest across different kinds of insurance businesses, and
- Introducing the revised Markets in Financial Instruments Directive (Mifid II) provisions on product oversight.
The regulator said it would limit its activities to these three areas because it was keen not to burden advisers during a period of heavy regulatory change.
On inducements, the FCA acknowledged that there was different terminology in Mifid II and IDD. Mifid II requires an inducement to “enhance the quality of the service”, while the IDD requires it “not have a detrimental impact”.
The FCA said it will add both definitions to adviser handbooks so as ‘not to give impression of different standards’.
Existing RDR standards, which preclude insurance advisers from the ban on being paid by commission from product providers, will also apply.
Conflicts of Interest
In the case of conflicts of interest, the FCA said it would reflect the IDD in terms of regulations for insurers and other firms where the regulation applies.
The regulation, which applies to other firms, will also include other examples of conflicts of interest not mentioned in the IDD.
For product oversight, the FCA said it was maintaining its Responsibilities of Product Providers and Distributors for the Fair Treatment of Customers, and it didn’t expect the IDD to lead to significant changes for UK firms.
However, the design and development of insurance products by an intermediary (previously an unregulated area) will be added to the rules in the new product oversight handbook.
IDD is also designed to improve customer protection when it comes to matching the right product with the clients needs, or its suitability. The FCA said it will reproduce the IDD rules for suitability alongside its existing rules for insurers and advisers, including a glossary to ‘translate’ some terms.
The FCA’s consultation closes on November 25 and the IDD comes into effect in February.