Implementing RDR Phase 1

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True to form, a huge amount of proposed legislative changes were published towards the end of last year.

Formal consultation on the draft regulatory instruments to be used to give effect to Phase 1 has commenced, and other instruments were published for comment in December 2016, with more to follow early in 2017.

Amendments to the following regulatory instruments are proposed:

The General Code of Conduct

  • Proposal OO: Product supplier commission prohibited on replacement life risk policies. This entails that new monitoring obligations are to be imposed on insurers in respect of replacements of life risk policies
  • Proposal QQ: Conflicted remuneration on RA transfers – transfers of retirement annuities and living annuities from one provider to another constitute a replacement and are therefore subject to all relevant replacement disclosure obligations.

FAIS Fit and Proper Standards

  • Proposal B: Standards for “low advice” distribution models entails steps to define and recognise “automated advice” as a specific, customised form of advice requiring specific competency requirements.
  • Proposal D: Standards for sales execution, particularly in non-advice distribution models, will include a definition of “execution of sales” and set differentiated competency standards for intermediaries performing this activity where it is carried out strictly in accordance with a predetermined script.
  • Proposals BB, CC, DD and EE: Various proposals relating to product supplier responsibility for advice and distribution to ensure appropriate sharing of responsibility between product suppliers and intermediaries for fair customer outcomes. This includes setting specific competence standards in relation to “class of business” and “product specific” training.

FAIS Regulations

  • Proposal Y: Advisers may not act as representatives of more than one juristic intermediary (adviser firm). The Regulation will provide that an individual may not be appointed as a representative by more than one FSP in respect of the same product classes.

The Long and Short Term Regulations

  • Proposal V (long-term): Insurer tied advisers may no longer provide advice or services on another insurer’s products. A new provision will allow agreements with another insurer only in relation to a class of policies which neither the “home” insurer nor another long-term insurer in its group of companies is registered to underwrite.
  • Proposals J, Z, AA and ZZ (long-term and short-term): Various proposals relating to strengthened standards and remuneration caps for binder and outsourcing arrangements. A new Part 3C of the LTIA Regulations and Part 5B of the STIA Regulations, entitled “Limitation on Remuneration for Outsourcing” is to be introduced.
  • Proposal OO (long-term): Product supplier commission prohibited on replacement life risk policies.
  • Proposal PP (long-term): Commission regulation anomalies, and specifically causal event charges on “legacy” insurance policies to be reduced to 5% over time.
  • Proposal UU (short-term): Remuneration for selling and servicing short-term insurance policies to address the charging of fees other than commission.
  • Proposal AAA (long-term): Commission cap for credit life insurance schemes with “administrative work” to be removed and replaced with 7.5% as-and-when cap.

Policyholder Protection Rules

  • Proposals BB, CC, DD and EE (long-term and short-term): Various proposals relating to product supplier responsibility for advice and distribution. New PPRs will specifically provide that no agreement may be entered into unless and until the intermediary complies with applicable FAIS competency requirements. These include the new FAIS Fit & Proper Standards in relation to line of business and product specific training. New PPRs relating to advertising, brochures or similar communications will be introduced, as well as Regulations regarding complaints management.
  • Proposal FF (long-term and short-term): General product supplier and intermediary responsibilities in relation to receiving and providing customer related data.
  • Proposal VV (short-term and long-term): Conditions for short-term insurance cover cancellations. The insurer will remain liable under the policy for specific periods until prescribed requirements regarding notice to the policyholder or proof that the policyholder has secured alternative cover are met.

For a more detailed version of the above, please click here