Revoking the Insurance Distribution Directive – What happens next?
The Financial Services and Markets Act 2023 is now on the statute book. The Act has a wide range of purposes, but the headline is that it provides the legal basis on which the government will revoke all the “retained EU law” (REUL) which applies to financial services undertaken in the UK.
The Act is on the stature book – but there is still much to do before the bulk of it is implemented. The amount of UK financial services law which is REUL is vast. All of this needs to be replaced (or not).
In a great number of cases the Financial Conduct Authority (FCA) will be left to decide how to deliver the “Brexit freedoms” which the government wants to achieve via revocation of REUL.
How will that be achieved with regard to probably the most influential REUL law affecting general insurance conduct of business – the Insurance Distribution Directive (IDD)?
We now know a little more about this because, on 14 July, the FCA published a new webpage providing information on how it will approach the repeal and replacement of REUL with FCA Rules. You can find the webpage here:-
https://www.fca.org.uk/firms/repeal-and-replacement-retained-eu-law
You will see from this page that the FCA says that it will
“when replacing those repealed REUL provisions in our Handbook, we will generally do so in line with some core principles. These principles seek to support our overarching aim for the Handbook: to enhance the overall user experience by making it clear, accessible, and navigable, while reducing regulatory costs”.
I guess you will feel enriched to know that! If you want to read what these principles are you will find them at the bottom of the webpage.
At a more practical level we do find out, from the webpage, that the FCA will issue a Consultation Paper in Q4 2023 to set out how the Handbook may change to reflect the repeal of the IDD.
For general insurance that will be the litmus test as to how much difference, in real life terms, the FCA (and its political masters) envisage should then exist between the law of our erstwhile European partners and our own “post Brexit” financial services law.
I will be pretty surprised if the answer (in most cases) turns out to be radical. A great deal of the IDD was actually reflective of the UK’s approach to insurance conduct of business regulation – and all that has been very comfortably plumbed into ICOBS and PROD (and now the Consumer Duty) in a way which is, and will remain, fundamental to our law and regulation, moving forward.
There will be plenty of opportunity for the FCA to “tidy up” tiresome and/or over complex concepts and terminology but little (but by no means none) of that is likely to involve you in fundamental business change.
What might be significant changes?
One of the biggest “EU” inputs into the IDD was the requirement for the Insurance Product Information Document (IPID). At the time, this approach (a massively prescriptive format for consumer facing documentation) ran utterly contrary to the UK approach of principles-based, regulation.
So – will the IPID be disposed of?
Will then FCA take the opportunity to seek to remove (or rather not replace) the connected contract exemption (it has never been keen on it – and it is REUL)?
It will also be interesting to see how the FCA will tidy up the mess of ICOBS provisions relating to cross-selling.
Will the training, knowledge and ability requirements be overhauled?
I could go on – but as my mother used to say – “we will find out in due course”.
I do think, however, that your firm should have an expectation of change in conduct of business (and in some cases structure of business) being an issue for senior management and compliance during 2024/5.
The FCA will say (with some justification) that if you meet the Consumer Duty then you should have no difficulty in adjusting to whatever post Brexit changes will occur. This will be largely the case (I expect).
However the devil is often in the detail – and where retained EU law is concerned there is a lot of detail!!!.
