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Trust warning over general regulation

IFAs selling protection products must beware pitfalls such as failing to write protection policies in trust, says Scottish Widows protection market director Nick Kirwan.

The warning comes as general insurance regulation arrives on January 14. Kirwan fears some intermediaries may not be aware of some problem areas. He says failure to use trusts for protection products could result in a complaint to the Financial Ombudsman. If in adviser does not put a protection policy in trust and it incurs inheritance tax liability at death, this could result in a substantial case against an IFA.

Kirwan urges intermediaries to document every step of the advice process to avoid non-disclosure. He suggests in addition to following the procedures outlined by the FSA, a copy of the protection application form should be sent to the client before submitting it to the insurer to ensure the client has had the opportunity to answer all questions to the best of his or her knowledge.

Kirwan says: “An adviser must remember absolutely everything must be documented. Unfortunately some clients are rehearsed into saying they have been misinformed or misadvised. I am sorry to have to say that.”

Chadborn Baker & Kearle adviser Peter Chadborn says: “As a matter of course, we would advise on putting policies into trust whereas quite often in a bancassurance type of environ-ment, this will not happen.”

AMI general insurance checklist for mortgage intermediaries

Internal controls

Professional indemnity insurance levels confirmed to meet FSA requirements. For firms offering mortgages and general insurance, this means ensuring your PI policy meets the requirements for both types of business.

Capital and solvency rules reviewed and confirmed.
Regulated business plan reviewed and updated.

Senior management systems and controls reviewed to ensure they cover both mortgage and general insurance lines of business.

The FSA’s requirements of firms for regulatory reporting on general insurance is different to mortgages. Lenders will report, largely, on the mortgage products sold. For GI, this burden falls on the intermediary. The AMI will be issuing further notes shortly.

Inducement review systems in place, to ensure duty of care.
New systems signed off by the senior management team/owner.
Business contracts reviewed.

Where appointed representatives are not permitted to write GI business, ensure “multiple principal agreements” have been entered into where appropriate. Check details with network/principal.

See AMI Factsheet 17: Guide to GI Regulation
Customer-facing

New business process reviewed to ensure com pliance with FSA (not GISC) requirements.


Unlike in mortgage regulation, the word “independent” is not defined by the FSA for GI business. However, set against this is the FSA’s demand that firms deal fairly with customers and that their communications are “clear,fair and not misleading”. Members will want to weigh these statements when describing their firm.
Process for using introducers set up and roles and responsibilities set out, with formal contracts in place. Introducing general insurance business is a regulated activity under Icob’s requirements. While passive display (leaflets in a waiting room, for example) provides an unregulated source of business, the Icob rules are more stringent than the MCOB’s.

Compliant initial disclosure document drawn up. There are various IDD that a mortgage firm may use – mortgage-only, combined IDD (mortgage and general insurance), stand-alone mortgage and general insurance IDDs, etc. The firm must be clear which it is using, when, and with whom and ensure its records reflect this.

Financial promotions reviewed to ensure compliance with FSA requirements.

Letter-headed paper, business cards, etc updated for status disclosure.

Change any messages and/or sales statements for telephone on-hold systems.

Change email and fax “health warnings” and add FSA status statement.

Record-keeping requirements reviewed against existing practice.

Where necessary, agency agreements reviewed and updated.
Commission disclosure. It is not necessary to disclose commission earned from GI sales to retail customers unless they request this information (it is necessary when advising commercial customers). Firms may decide to disclose commission voluntarily if they wish.

Complaints’ procedure

Complaints’ procedure reviewed against FSA requirements.
Complaints’ procedure staff training conducted, especially on the work of FOS and how to handle a complaint.
See AMI Factsheet 16 on successful compliant handling.
Training and competence Staff training on what GI regulation means to the firm developed and under way. Generic training for those not directly affected,specific courses for those who are.

Unlike mortgages, there is no qualification requirement to advice on GI. However, this places more onus on a firm’s senior management to ensure its staff are competent. The rules on training and competence may be different to those covering mortgages but should not be interpreted as being less important.

T&C scheme reviewed and amendments made.

Performance appraisal system implemented (or reviewed in light of FSA requirements).

Prepare “how to answer queries on regulation from clients” for staff.

Advisers fully trained and competence schemes in place.
Move from GISC to FSA competency evidenced.

Focus on ongoing competence requirements understood and staff trained.

This T&C list only touches on some of the issues and parts of it will be more relevant to some firms than others. It is important to realise that regulation will touch every person who works in a firm.

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