UK regulator FCA extends its mis-selling charge to brokers & agents

The UK’s chief regulatory agency  Financial Conduct Authority (FCA) took its second consecutive swing at the insurance industry, singling out brokers and agents in fresh correspondence for their role in mis-selling product and underserving customers.

The letter comes hot on the heels of a similarly toned missive to London Market players, suggesting a growing retort after having listened to industry complaints during several months of testimony to the House of Lords.

At issue again: “significant risks of potential harm that both the market and individual firms need to address,”  FCA director Matt Brewis (pictured) wrote in a portfolio letter to personal and commercial lines insurance intermediaries, loss assessors and others involved in broking.

The unattained goal: the right product offering fair value for the right client, strong customer support at both sale and claim and “strong systems and controls within firms.”

“We frequently see examples of harm caused by mis-selling,” Brewis said with an apparent eye to cases where a salesperson’s interests outweigh those of the customer.  In Brewis’ grasp, that frequency may be overwhelming. His attempt to be even-handed can only half-heartedly mention “some notable examples where intermediaries have supported their customers.”

The  FCA cited “ineffective oversight of remuneration within the distribution chain, including via appointed representatives.” Fees and commissions can “significantly inflate” premiums and deliver poor outcomes.

Insufficient attention to the prior portfolio letter on governance from September 2020 has left the industry harming clients in many of the same ways noted then.

“It is disappointing to note that we continue to see evidence of consumer harms where we can attribute the failings to poor governance or insufficient focus on good consumer outcomes,” Brewis wrote.

Likewise, the  FCA's rules against price-walking should have forced firms into better pricing oversight stances.  FCA action against high-rise insurance costs should have set much of the tone. A consumer duty rule-book should have cleared many doubts. And yet.

Once saddled with a product, customers are at risk of insufficient cover at claim or a lack of coverage on account of ambiguous wordings. “We are concerned that the issue may be more widespread” than the much-discussed conflicts over business interruption, he wrote.

Elsewhere in the letter:

Wind-down: signs say that “a substantial” portion of firms holding client assets have largely failed to make proper wind-down planning.

ESG and D&I: “Still a long way to go.”

Cyber & operational resilience: should be under tighter grasp “given the current heightened international tensions.”

Oversight of appointed representatives: As previously warned, a policy statement is pending “in due course” with new rules and guidance to strengthen principal's responsibilities and increase the timeliness of information flow to regulators.

Post-sale verification: “is not a substitute for appropriately clear pre-sale questioning and it does not take away the firm’s responsibilities to ask the right questions and assess the customers’ demands and needs before offering the product for sale.”

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