For most insurance businesses, 14th January 2005 will see FSA regulation for the first time. But even now they can ask to be governed by FSA rules in their distance marketing activities, so the FSA’s publication of its top ten tips for interpreting the relevant rules offers welcome clarity in this challenging area.
Who: The Financial Services Authority
When: October 2004
The Financial Services Authority ("FSA") published its "Top ten tips" for reading the Insurance Conduct of Business Source Book ("ICOB").
From 14 January 2005, advertising, advising on, broking and selling most types of insurance will be regulated by the FSA.
All those operating in the sector in the UK will need to look at whether they need to get "authorised" by the FSA. They will also need get outside the principal set of rules that will apply, the Insurance Conduct of Business Rules ("ICOB").
Some parts of ICOB will also be relevant to those operating in the insurance industry at an earlier date. From 31 October 2004 distance sales of insurance will be governed by UK rules implementing the EU Distance Marketing of Consumer Financial Services directive.
There are two sets of UK rules. There are the HM Treasury Regulations "The Financial Services (Distance Marketing) Regulations 2004." There are also the equivalent FSA rules, which apply to all those operating in the financial services sector who are regulated by the FSA. As we have just said, the insurance industry as a whole will not be so regulated until 14 January 2005, but insurers have been told that they may, if they wish, opt to be governed in their distance marketing by the FSA rules as opposed to the HM Treasury Regulations between 31 October 2004 and 14 January 2005.
During the run-up to ICOB coming into force, the FSA has been publishing a number of guides to navigating and understanding the "FSA Handbook for Mortgage and General Insurance Intermediaries." One of its recent new guides has been its "Top ten tips" for reading ICOB.
Handbook, sourcebook, etc.
Some readers may be confused between the terms "sourcebook" and "handbook", which appear to be used interchangeably by the FSA throughout their documentation. One of the new top ten tips sheds light on this apparent anomaly. This is tip 3. It clarifies that the term "FSA Handbook" is the umbrella term for the entire book of rules published by the Financial Services Authority. Within the Handbook are numerous different sections referred to as either "sourcebooks" or "manuals".
For instance there is an "authorisation manual" dealing with the whole process of authorisation. This has been abbreviated endearingly to "AUTH". Examples of two sourcebooks are the Mortgage Conduct of Business Sourcebook or "MCOB" and ICOB.
Another tip reminds us that any word in the Handbook that is written in italics is a "defined term" which is defined in the Glossary. This can be found on the FSA's website at www.fsa.gov.uk/vhb. Do bear in mind, however, that not all defined terms do feature in the Glossary. For instance we had difficulty finding in the Glossary the extremely important term "qualifying credit promotion", nor could we find another highly important term, which is "regulated mortgage contract".
This results from the curious FSA approach which dictates that rules that are not yet in force do not feature in the sourcebooks or manuals in which they will eventually appear. An example of this is the highly important authorisation manual or "AUTH" that we have just referred to. If you print off AUTH you will find that appendix 4 is strangely absent. Appendix 4 is fairly important because it contains what the FSA quaintly calls "perimeter guidance" on regulated activities connected with mortgages. This is excluded from AUTH at the moment however because it is not yet in force, so all those seeking to hunt down appendix 4 of AUTH will need to look at a separate set of rules called "MCOB Consequentials" and entitled "Mortgages: Conduct Of Business Sourcebook (Consequential Amendments to the Handbook) Instrument 2003".
Another of the top ten tips explains that two terms are used to refer to insurers when acting as product providers. "Insurance undertaking" refers to a product provider whether it is authorised by the FSA or not". "Insurer" is a narrower term and refers only to product providers that are authorised by the FSA. So now you know.
Another tip tells us that most of ICOB applies to "Insurance Intermediaries". Contrary to what you might imagine at first blush, this term can include an insurer, typically when it is selling directly to the customer, as well as a broker.
Another tip talks about requirements in ICOB that information must be in a "durable medium" whilst other rules require that information is "in writing." The tip then goes on to tell us where we can find definitions of these two terms. Although it has just told us in another tip that all defined terms are contained in the Glossary, it goes on to tell us that the definition of "in writing" is not contained in the Glossary but in another part of the Handbook, "General Provisions Section 2.2." However if you are still with us, a definition of "durable medium" at least is contained in the Glossary. The tip tells us that the most significant difference between "durable medium" and "in writing" is that a website will usually not qualify as a "durable medium" but will meet the requirements of "in writing".
Why this matters:
It is certainly helpful of the FSA to publish tips on how to set about understanding its book of rules. It might have been even better if the book of rules had been designed in the first place so that it did not need guidance on how to read it. It might also have been a good idea to have one set of rules and one set of guidance, rather than a seemingly endless variety of sometimes overlapping regulations and guides, all bristling with cross references to numerous other sets of rules and guidelines.