The Financial Conduct Authority (FCA) is removing the requirement for fair value assessments to be conducted where non-investment insurance products are distributed through international firms to international customers.
However, where these products are sold to UK customers the rules will still apply.
The regulator said it was making the changes as it had heard from UK-based providers and distributors that they were experiencing difficulties with overseas firms who were “reluctant to provide information when requested”.
The changes proposed in its quarterly consultation paper CP22/26 are different depending on whether the product is exclusively for overseas distribution, or whether it is intended for both the UK and overseas markets.
Where a firm manufactures or distributes a general insurance or pure protection product which is intended to be distributed exclusively to customers outside the UK, the regulator is proposing to disapply generally the fair value rules introduced last year for both manufacturers and distributors.
“To do this, we are proposing to introduce a new defined term of ‘overseas non-investment insurance product’,” the FCA said.
“However, the changes we have proposed include the condition that if such a product is sold to a UK customer the full set of PROD 4 rules will apply.
“Where a product is manufactured to be distributed both within the UK and overseas, the rules introduced in PS21/5 will continue to apply in full with respect to the manufacture and distribution of the product, except that firms will only be required to obtain and assess information in relation to the UK distribution channels when determining fair value,” it added.
Existing products will continue to be subject to the full rules where there are contracts in force with UK customers and this also includes existing legacy products.
Savings of £30,000 per firm
As a result of the changes the regulator said it expected that some firms may choose to split their products between those for overseas customers only and those for international or domestic clients.
But it added that most firms already differentiated between UK and non-UK products, so does not consider these costs are likely to be more than minimal significance.
Overall, it estimated the proposed changes would reduce firms’ costs by £30,000 to £104,000 per firm, although the typical amount is likely to be at the lower end because firms which offer products to UK and non-UK customers must still comply with all of the rules for UK products.
Manufacturers unable to comply
The fair value product governance rules came into force on 1 October 2021 and require providers to identify whether their products give fair value to consumers and will continue to do so for a reasonably foreseeable period.
This includes the impact of distribution arrangements and requires the collection of specified information from distributors, including commissions, fees, and charges.
The FCA wrote to firms in July acknowledging problems in obtaining information from international distribution partners and saying it would act accordingly.
Explaining why it was acting the FCA said: “We have heard from firms and industry representatives that manufacturers have experienced difficulties with overseas firms, who may not be subject to our regulation, and who are reluctant to provide information when requested by UK manufacturers and distributors.
“Without this information from distributors, the resulting value assessment will be incomplete and potentially inaccurate, as well as leaving manufacturers unable to comply with our rules or facing increased compliance costs.
“We are also aware that in many overseas markets there are regulations controlling matters such as pricing and the costs of distribution. These are more appropriately determined by authorities in those markets.
“We want to ensure that the product governance arrangements provide appropriate protection for these consumers and are both reasonable and proportionate in relation to products which are distributed overseas.”