FS regulatory affairs newsletter - Q1 2024
In this instalment of the FS regulatory affairs newsletter, our experts have summarised the significant updates firms should be aware of in the first quarter of 2024.
Suspension of GAP sales and fair valueThe FCA confirmed the agreement from 80% of the market to pause sales of Guaranteed Asset Protection (GAP) insurance in February. While this headline is significant, the FCA’s concerns with GAP insurance are long-standing, dating back to the FCA’s 2014 Market Study. Just last year, in September 2023, the FCA issued a stark warning to GAP insurance firms asking them to take immediate action to prove customers are getting fair value. This was following the publication of the 2022 FCA General Insurance (GI) value measures data which revealed that, in some instances, up to 70% of premiums were paid out in commissions throughout the distribution chain, such as to motor dealerships. This prompted serious concerns around the value delivered to retail customers. The value measures data has implications for the wider motor market to consider in their own distribution chains and value offerings. Excess protection, as a motor add-on, was also flagged by the FCA as an area of concern. For further information on the suspension of GAP insurance, please visit our Regulatory Insights Page. Anti-greenwashing ruleAs part of the FCA’s Sustainability Disclosure Requirements (SDR), the FCA published guidance on complying with the new anti-greenwashing rule (which comes into effect on 31 May 2024). Greenwashing concerns relate to “marketing that portrays an organisation’s products, activities or policies as producing positive environmental outcomes when this is not the case”. Under the new rule, insurance firms who make sustainability claims must ensure claims are:
The application of this rule to the insurance industry are vast and can be seen across the (re)insurance value chain, for example, in relation to Net Zero commitments and underwriting risks. For further information on anti-greenwashing rules, please visit our Regulatory Insights Page. Non-financial misconduct: FCA data requestIn February 2024, the FCA circulated a letter that requested all regulated Lloyd’s Managing Agents and London Market Insurers (including P&I Clubs) and Lloyd’s and London Market Insurance Intermediaries (and Managing General Agents) complete a survey on incidents of non-financial misconduct. Non-financial misconduct has been at the forefront of FCA focus for the last few years. The latest information request asked for data from 2021-2023 regarding:
The FCA has requested that the data distinguishes between Senior Management Functions (SMF) and non-SMF incidents, and incidents both in and outside of the workplace. This request includes incidents that did not meet FCA reporting thresholds previously, and subsequently were not reported to the FCA. The survey deadline was 5 March 2024, and this information will form part of the FCA’s ongoing supervisory work programme, which could be used to inform broader learning. |
What management should considerFirms should evaluate and assess their:
The Treasury Select Committee’s report, ‘Sexism in the City’, is an ongoing review of misogyny and harassment within the financial services sector. In January, the Chief Executive and Executive Director at the FCA, and the Chief Executive and Executive Director at the PRA attended an event with government ministers to address the issue. The Treasury Committee called for urgent action in March 2024 to address sexism within the workplace. |
PRA CP2/24 - Solvent exit planning for insurersIn January, the Prudential Regulatory Authority (PRA) published a consultation paper on how insurers should prepare for an orderly ‘solvent exit’ with limited disruption to customers and the market. The proposals in the Consultation Paper (CP) include:
The deadline for responding to the CP is 26 April 2024. The proposed rules are set to be implemented from Q4 2025 when all in scope insurers would be expected to have an SEA in place. |
What management should considerFirms should ensure that their SEA:
Senior Managers under the PRA’s Senior Managers and Certification Regime will be accountable for the firm’s preparations for a solvent exit. |
International Association of Insurance Supervisors (IAIS) Newsletter February 2024The IAIS aims to promote effective and globally consistent supervision of the insurance industry. On 29 February, the IAIS published its newsletter to update the sector on its areas of focus, including:
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What management should considerFirms should ensure that their risk management system features an enterprise risk management framework for solvency purposes. Firms should be able to identify, measure, report and manage their risks in an ongoing and integrated manner. The framework should include an evaluation of a firm’s specific risk, options for possible recovery scenarios, and an assessment of their ability to meet future regulatory capital requirements. Firms that are internationally active should be aware of future insurance capital standards and requirements. Firms should continue to assess their capital robustness and compliance. |
IAIS: Regulation and supervision of artificial intelligence and machine learning (AI/ML) in insuranceIn December 2023, the IAIS released a thematic review of the adoption of AI/ML in the insurance value chain (marketing, underwriting, pricing, claims management etc.). The review focused on the associated risks, including:
The IAIS addressed the different levels of maturity of AI/ML legislation and guidance across a variety of jurisdictions. With the growing use of AI/ML in the insurance sector, the IAIS plans to publish an application paper on the topic this year. |
What management should considerFirms should keen on top of regulatory change concerning AI/ML, particularly with regards to model risk management. They should also consider how they use AI/ML in their operations and how to mitigate the associated risks. Firms should consider whether their current AI/ML operations are:
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Get in touchIf you would like to speak with a member of our insurance team, please click the button below to get in touch. |
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