The recently published status update on phase 1 of the RDR proposals provided insight into the Regulator’s thinking after receiving feedback from the industry on two proposals contained in the original RDR discussion document.
The basic principles of outsourcing should improve efficiencies and be in the interest of policyholders.
Binder Thematic Review
The FSB indicated at the Insurance Regulatory Seminar that it will publish the findings of the binder thematic review, carried out in 2014, before the end of 2015. These findings were also considered as part of the bigger RDR consultation process.
The review findings will provide an indication of the FSB’s enhanced supervisory expectations of steps to be taken by insurers to mitigate conduct risks identified during the review and in the course of its ongoing general supervision of binder and outsourced arrangements. The Insurance division is also planning a follow-up information request regarding specific aspects of binder arrangements.
These review findings and the information request will in turn form strengthened conduct standards for both binders and other insurance outsourcing arrangements.
It was evident that the claims thematic review, conducted in 2014, brought a lot of practical insight to the FSB, as was evident from the resultant Information Letter 3 of 2014 – Key Findings and Supervisory Expectations.
As part of the implementation of the future Insurance Act, the current insurance Outsourcing directive 159.A.i (LT & ST) (“the Outsourcing directive”) will fall away and its provisions (subject to necessary amendments) will be largely incorporated into prudential standards to be issued under the enabling provisions of the Insurance Act.
As the Insurance Act is primarily focused on prudential matters, consideration is being given to possibly also amending the Regulations or the PPRs under the Long-term and Short-term Insurance Acts to introduce the strengthened conduct standards for outsourcing arrangements. Consultation on these measures will take place during March and April 2016, with implementation expected in July 2016. This consultation will form part of broader consultation on other regulatory changes required for implementation of the Insurance Act.
Consultation and technical work on outsourcing of non-insurance activities to advisers – including in relation to investment management outsourcing by CIS managers – will continue, with a view to implementing relevant standards in future phases of the RDR roll-out.