The following Q&As look at what is changing and what it means for life offices, advisers and customers
Q. Why has the Isle of Man Financial Services Authority (FSA) introduced the new rules?
The FSA follows a continual process of refining its regulatory standards to ensure it maintains a robust regime for the regulation and supervision of insurance business. The new rules reflect developments in international standards, particularly in relation to providing transparency to customers and ensuring products are suitable for customers’ needs.
Q. What are the new rules?
Isle of Man life companies will now need to abide by the following set of new regulatory requirements:
- The fair treatment of customers is to be embedded into the policies and procedures of life companies.
- Insurers should only allow customers to access assets in life policies that are suitable for them.
- Customers are to be afforded 30-day cancellation rights on initial premiums, top-ups and increments on regular premiums.
- New terms of business with advisers need to ensure that advisers maintain all necessary licences, authorisations and registrations.
- New requirements have also been introduced in other areas (for example, illustrations, policy valuation statements and managing conflicts of interest relating to fund manager inducements paid to advisers).
From 1 July 2019 further requirements will be introduced as follows:
- Subject to exemptions in certain markets, customers are to be provided with a policy-specific Key Information Document (KID) describing the nature and main features of the product they’re investing in, including the risks, the commission paid, the procedure for taking money out and complaint procedures.
- Advisers need to ensure they maintain all necessary licences, authorisations and registrations.
What if a certain country has similar or the same requirements?
The FSA’s requirement to provide a KID will not be required in the UK, Hong Kong, Singapore or the European Union as there are already local rules in place for insurers to provide a similar disclosure document to the customer. The exemption also applies in the UAE provided the adviser is regulated. In this case, the adviser will need to provide some regulated disclosure wording.
Q. How are advisers impacted?
We see advisers being impacted in three main ways:
- Going forward, advisers need to ensure they only recommend retail funds to retail clients. Clients are required to provide additional consent if they want to access professional-investor type assets.
- Commission will be disclosed in a Key Information Document (KID) from 1 July 2019, which will be provided to the client by the adviser. Ultimately, there will be greater pressure placed upon advisers, by the increased transparency, to justify their remuneration based on the value they bring to their clients.
- There will be increased vetting requirements to ensure advisers maintain all necessary licences, authorisations and registrations in the jurisdictions they operate and give advice in.
Q. What process has the FSA followed to devise the new rules?
The FSA started discussions with the Isle of Man life industry back in 2014. It then issued a series of consultation papers to insurers to capture their feedback and took this into account to arrive at its final version of the Code.
Q. What was Old Mutual International’s response during the consultation process?
Old Mutual International (OMI) has been fully supportive of the FSA’s proposals and the business as a whole was actively engaged throughout the consultation processes, led by Paul Smith, Chief Risk Officer for OMI. OMI believes that in the long term, these changes will help strengthen and grow the international life industry. The new regulations complement the work OMI is doing to support advisers through its Future Fit adviser programme.
Q. What is the likely impact of the new FSA rules in the industry?
The FSA’s new rules will lead to an improvement in transparency levels and the suitability of asset choices for customers choosing Isle of Man life policies. This is good news for consumers and will support those advisers who focus on delivering good customer outcomes.
The new FSA rules are very much in line with regulatory developments elsewhere in the world and will provide a further catalyst for advisers to strengthen their business models. The advisers who add value to their clients will ultimately thrive and fuel the growth of the industry.
Head of International Product, Old Mutual Wealth