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Financial Services - a business as usual topic by Tracey Calvert
Whilst we wait for the SRA’s long overdue announcement about the launch date for the new Standards and Regulations, it’s important not to lose sight of the business as usual topics on the compliance agenda. Financial services anyone?
It would be timely to review your understanding of this topic and, in particular, the changes triggered most by the Insurance Distribution Directive (IDD) which prompted changes to the SRA Handbook in October 2018.
Perhaps the most important question that you should be asking yourself focuses on whether you know what you can do in circumstances where your law firm is not authorised by the Financial Conduct Authority (the FCA). The short answer is that we are allowed to ‘dabble’ in certain types of financial services but only where that dabbling is done in a competent manner and in accordance with the SRA Handbook. So, in fine tuning the initial question, I would ask this: are you confident that you deliver financial services to your clients in a legal and ethical way?
The fact that all bar a handful of law firms are not FCA-authorised but they can nevertheless perform certain financial services activities is a huge gift from the financial services world. We are trusted to deliver a limited number of services because we are professionals who also operate in a regulated environment. If we were not trusted to do this, there would be a number of different services which we would not be able to provide to our clients and which we would have to outsource.
It is not uncommon, however, for there to be less interest in this topic and all the compliance requirements which come with it than, say, money laundering and data protection. The fact that this is a topical discussion is due to the fact that the aforementioned IDD has created greater protections for consumers of insurance products and we are expected to demonstrate that we understand this and deliver these services in an appropriate manner.
Who needs to understand this topic?
The managers, compliance officers and compliance team, the insurance distribution officer and everyone who is involved in providing services which include arranging or recommending insurance policies for their clients.
What is the Insurance Distribution Directive?
The Insurance Distribution Directive (IDD) is European legislation containing regulatory requirements to support the protection of consumers when buying insurance products. It came into force on 1 October 2018. This is not a new protection; the IDD replaced the Insurance Mediation Directive which previously applied. However, the IDD has wider application. A breach can, in some cases, be a criminal offence.
Solicitors and law firms often provide services to clients which involve insurance products and must therefore ensure that they are complying with the IDD. Where the firm is not authorised by both the FCA and the SRA, the latter has provisions in the SRA Handbook which those individuals and law firms must observe when carrying on these activities.
These provisions are contained in the SRA Financial Services (Scope) Rules 2001 and the SRA Financial Services (Conduct of Business) Rules 2001. Full compliance with these Rules is likely to ensure compliance with the IDD.
What are insurance distribution activities?
Insurance distribution activities are a type of financial service activities. Specifically, these are the activities of advising on insurance contracts, making recommendations, carrying out work prior to the completion of a contract of insurance such as making arrangements, the completion of an insurance contract, and assisting in the administration and performance of a contract.
It is most likely that the personal injury, conveyancing and probate teams in your law firm will be involved in insurance distribution activities; familiar examples include arranging/advising on such insurance policies as after the event insurance, buildings insurance, defective title and similar.
Key requirements
- The firm must be on the FSA register and appointed an insurance distribution officer
- The firm must state that it is an ancillary insurance intermediary and update its status disclosure statement (usually included in the client care or terms and conditions literature)
- The firm must give some general information to the client: this includes information about whether they are also acting for the insurer in the transaction
- Information about the basis on which a personal recommendation has been made must be provided
- A demands and needs statement must be provided
- The status of insurers and other third parties involved in the process must be checked
- Complaints handling duties must extend to non-clients
- Remuneration considerations must be considered
- The firm must be satisfied that relevant employees possess the appropriate knowledge and ability to understand what they are doing
- The firm must ensure that the client is given an Insurance Product Information Document and other appropriate information from the insurer
I have published a more detailed guidance note on this topic. Please do get in touch with me if you would like a copy of this.
Tracey Calvert, 20 February 2019
Oakalls Consultancy Limited
tcalvert@oakallsconsultancy.co.uk
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