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FSA orders firms to carry out protection review

The FSA has told all firms selling standalone protection policies to review their sales process after finding “significant failures” by firms to comply with oral disclosure rules.

The regulator has written to all firms selling pure protection policies, i.e. protection that is not linked to an investment sale, to ensure they comply with the Insurance Conduct of Business Sourcebook rules.

In a letter dated November 29 FSA director of conduct policy Sheila Nicoll “requests” that firms carry out a review of their sales processes to ensure they comply with ICOBS.

Firms will have to provide written confirmation to the FSA within six months that a review has been completed and their protection sales process is compliant.

If firms cannot comply with ICOBS within six months, they still have to write to the FSA with a plan and timetable of how they will change their processes to meet ICOBS rules.

In the letter Nicoll says: “We will continue to monitor closely whether the information provided by firm complies with our requirements. Should it come to our attention that a firm is not complying, we will consider the extent of the breach and the appropriate regulatory action.”

In June the FSA published its post-implementation review of the ICOBS rules which came into effect in January 2008.

It found that firms were not making it clear to customers whether they were being given advice or information, and that product features were explained poorly.

The regulator also found significant exclusions and limitations were often not highlighted, and firms frequently failed to highlight the importance of disclosing pre-existing medical conditions.

The findings were based on consumer research with over 1,000 customers across two studies in 2008 and 2009, and a call listening exercise with 11 firms in 2009.

The FSA says although their findings relate specifically to sales of critical illness cover, the same ICOBS rules still apply to all non-investment protection products.


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There are 11 comments at the moment, we would love to hear your opinion too.

  1. And what if you have elected to conduct all business in accordance with COBS as opposed to ICOBS?

  2. The Dear CO letter text on the FSA website says “All firms selling protection products are required to establish, implement and maintain
    adequate policies and procedures sufficient to ensure compliance with the rules in ICOBS.”

    ICOBS 1 Ann 1 part 2 3.1 R excludes situations where firms elect to treat pure protection contracts as designated investments, as the previous poster points out. So, to demonstrate compliance, you show that you have so elected.

  3. I would guess that the majority of IFA firms will sell standalone protection policies of one sort or another, even if their main activity is investment business.

    It is not unreasonable to assume that at the end of the 6 month period allowed by FSA for firms to provide written confirmation of their compliance with ICOBS that there will be a number of firms selected for a Supervision visit.

    For those firms which have not experienced a Supervision visit from the FSA let me caution them to take the time provided to check not only that their sales are compliant but also that the files clearly show that they were and are complaint. I am not a compliance adviser but an IFA defence lawyer – this is what I do.

    Firms who have had a Supervision visit, for instance in relation to traded endowments or the promotion of UCIS, will already know what they can expect.

    The basic problem with the regulatory system that IFAs have to follow is that it is based on generically worded Principles for Business and very specific but mostly opaquely complex Rules.

    Interpretation of these Principles is open to entirely subjective interpretation by the Investigating Officer. The Rules are very long on specifying the IFAs duties, responsibilities, what he has to do and when. They are somewhat short on any guidance let alone actual prescription as to how the IFA goes about his job.

    The obligation on the IFA is to know his client and to gather sufficient information to enable him to give suitable advice to be confirmed in a statement of demands and needs. There is absolutely no guidance as to how that information is recorded, and how it is presented.

    Anticipating that you may be selected for a Supervision visit you can prepare now – your records already are what they are, but you can use the time allowed to ensure that the right documentation is in the right place. You should also use the intervening period to ensure that you are fully acquainted with the ICOBS not only as regards the general import of the Rules but also that you know the actual clause numbering of the various Rules that apply.

    I have a number of UCIS cases where there is a real issue with the FSA claiming the IFA did not know the Rules when clearly he understood what they required him to do although he may not have been able to recite the clause and sub-clause numbering.

    Preparing for an Investigation isn’t a process that starts the day before, or the week before. It should be undertaken from the very outset of trading but, in this instance, you have advance notice from the FSA. Know the Rules and how to apply the Rules. But above all, record the fact that you know them and have followed them.

    Remember, if it’s not on paper, then it didn’t happen.

  4. The Sheila Nicoll job creation scheme 30th November 2010 at 2:45 pm

    The Sheila Nicoll FSA job creation scheme looking to justify its continued attack on independent advice. Tell you what Sheila – go regulate a bank, Keydata or the next Equitable Life scandle and lay off hard pressed IFAs trying to look after their clients!

  5. Alasdair

    I completely agree with your sound advice. We at Telos, amongst other things, do help firms prepare for supervisory visits, and unfortunately more often have to pick up the pieces afterwards.

    You have correctly identified a recurring pattern in Dear CEO letters, followed by supervisory visits, followed by Remedial Action Plans.

    In my experience anyone receiving one of these letters can make a 10 fold saving in costs by being proactive, rather than having a false assumption that “I’m all right jack”. All too often firms in this position conduct an internal review without sufficient challenge or external benchmarking. Unfortunately this lead to a false sense of security.

    Alasdair, once again, well done for bringing this up and I hope that those in the receipt of the letter act now.

    Richard Farr
    Telos Solutions

  6. Mr Sampson, I’d be more inclined to do business with you if all those tedious required disclosures on your website – like a real-world contact address and the full proper name of the proprietor of the business – were on there. I fear their absence of legal details doesn’t reflect well on your service offering.

  7. Yet another compliance consultancy rubbing their grubby hands with glee at the thought of more FSA regulation and the fat fees that accompany it, whilst pretending to have concern for the poor downtrodden IFA (Richard 2:56pm).

    Having worked for the FSA for a few years, I’ve seen many firms set remedial action plans after engaging expensive, yet ineffective, compliance consultants. I’ve also seen firms sail through FSA visits with prudent use of internal resource only.

    The golden rule here is that if you are going to use external resource you are best off using either one of the Big 4 (FSA are generally scared to challenge them and their staff second to the FSA so are well connected) or use an individual contractor with subject matter expertise (cheaper than a compliance consultancy).

  8. anyone else want to use this thread to tout for business?

  9. The firms the FSA is prodding into action are indeed short on oral disclosure. “Pile ’em high sell ’em quick, make a bundle, don’t bother with the rules because they cost us sales”.

  10. Having read all the comments I seem to be none the wiser. What exactly are we supposed to be doing wrong? I haven’t advised anyone to implement a CI policy in years but I’ve certainly advised people to take out other forms of protection. The same process applies to all my advice. You know, a fact find, an illustration including the key features etc. Does my boss have to scrawl on a wall somewehere that we advise correctly else we are in for some sort of penal action?
    I’m afraid that the lunatics have indeed taken over the asylum. The FSA use words only found in CII examination papers. Why on earth can’t they be explicit, just like I am when I’m advising. It’s not that difficult is it?

  11. Exactly Mr Brydon! Don’t allow people to talk to you in “Regulate Speak.”

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