Insurance Distribution Directive (IDD)

16 October 2018

Following the EU’s recent decision to amend the implementation date for the IDD, now seemed like an ideal opportunity to further explore the implications of the new directive.

Updated timetable for implementation

  • 1 July 2018 
    Member States shall adopt and publish the laws, regulations and administrative provisions necessary to comply with this Directive 
  • 1 October 2018 
    The Insurance Mediation Directive is repealed and replaced with the IDD. So, Monday 1 October is the final date by which all insurance brokers and insurers must have implemented all the changes. 

H M Treasury will lay a new Regulated Activities Order before Parliament to enact the new legislation.

Data breach

The FCA will also issue ‘Final Rules’ to fully enable all parties to implement changes. The three Policy Statements issued previously included ‘Near Final Rules’. It is not anticipated that there will be any significant changes to the proposed rules.
As a result, firms can proceed with a fair degree of certainty and plan changes accordingly. In our last article on the IDD, we recommended that brokers should take a common-sense approach and ensure they start to take action. In our view, that recommendation still stands, as while implementation has been delayed, brokers will be facing other changes to regulation as the year progresses that will need to be addressed – GDPR requires significant attention and then later in the year, SMCR will need to move up the broker agenda. 
Therefore, brokers should try to avoid a regulatory implementation ‘log jam’ later in the year and start the work as soon as possible.

Key points to consider

  • Employee knowledge and competence 
  • Professional indemnity insurance
  • Complaints
  • Conduct of business
  • Pre-contract disclosure
  • Conflicts of interest
  • Means of providing information
  • Non-advised sales
  • Advised sales
  • Cross selling and ancillary insurance intermediaries (AIIs) 
  • Connected travel insurance (CTI) providers
  • The regime for out-of-scope AIIs.
As we have said before, many of the changes are not too onerous, and our strong recommendation is that you could start to implement now, such as mandatory CPD, so as to be in advance of the 1 October deadline: with both GDPR and SMCR happening in the near future, it makes sense to get ahead now.

Some further thoughts on the Insurance Distribution Directive

In addition to the topics detail above, there are a few other areas which brokers should be aware of, specifically: 

As we know, the FCA has a timescale of six months from the date an application for a new firm authorisation is received to give a decision.
The FCA has advised that the authorisation process will remain largely the same under the IDD but that the regulator will now be required to deal with a complete application within three months instead of the current six months’ timescale.
This will bring the timescales into line with others such as ‘Change in Control’ and will be a welcome benefit to new start-ups or firms moving from Appointed Representative status to directly authorised.
Appointed Representatives (AR)
The FCA is also amending the requirements regarding the obligations of principal firms when taking on any AR.
The FCA Handbook (Sup 12 for those really keen) will be updated to include a requirement on the principal firm to collect some new information from the AR in accordance with the requirements of the IDD. This affects the relationship between the principal and AR rather than any notifications that need to be made to the FCA.
The new requirements include:
  • Ensuring that the AR establishes, maintains and keeps appropriate records to demonstrate compliance with the good repute requirements
  • Gathering identities of shareholders with more than a 10% holding in the AR and any persons with close links. The principal firm should establish that those with holdings of more than 10% and close links do not prevent the effective supervision of the firm 
  • The requirement that the AR informs the principal of any changes to the information gathered from the AR in relation to shareholdings and close links.
So, for those firms with ARs, it is important that they address these issues, build these additional requirements into their formal annual monitoring plan and gather evidence that these are being complied with.

Final thoughts

Implementing the changes required by the IDD will be a challenge, which is why firms need to look at this now and take a common-sense approach.  
Don’t be afraid to seek expert external help so you can ensure you have correctly understood the key issues and have/are taking the right action to bring your business into line with the new IDD requirements.