CPD Seminars November 2018 Compliance Update Linda Doyle Items - - PowerPoint PPT Presentation

Brokers Ireland CPD Seminars

November 2018

Compliance Update

Linda Doyle

Items Covered

• Brexit
• IDR
• AML

Effect of ‘No Deal’ Brexit

4

If the UK leaves the EU without a deal in place to maintain some or all of the current passporting arrangements, then passporting rights from and into the UK will cease. What does this mean?

• Authorisations
• Continuity of insurance contracts
• Information Disclosure

What next? Prepare…

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If brokers have clients in the UK… Possible UK Temporary Permissions The UK have drafted up legislation that is intended to take effect on the day the UK leaves the EU which will convert existing body of directly applicable EU law into UK domestic law. If enacted, will implement a ‘temporary permissions regime’. This will allow ROI financial services providers operating in the UK on a passporting basis to continue their activities in the UK for a limited period after exit day in order to allow them to obtain UK authorisation or transfer business to a UK entity as necessary. If a broker wishes to continue passporting its services into the UK (i.e. has clients in the UK) it must seek to obtain authorisation from the UK Regulator (FCA) as soon as possible.

What next? Prepare…

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If brokers are dealing with Insurance Markets in the UK… UK Insurance Markets may not be able to advise clients, arrange or conclude contracts of insurance, collect premiums or handle claims.

• Contingency measures to ensure continuity of service
• Inform customers of the implications
• Clear and non-misleading information

Contingency Measures

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Brokers to assess the contingency measures taken by the UK markets to ensure they are adequate

• Ensure continuity of the insurance contract
• Ensure continuity of the services the UK markets provide
• Ensure continuity of the services the broker providers

Without taking contingency measures, customers of cross-border contracts between the UK and the ROI may face risks when it comes to the provision of services by insurers on a cross- border basis between the UK and the ROI after the withdrawal date.

Brexit Clause

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If Brokers are not happy with the contingency plans put in place by their respective markets, they should be asking these markets to provide a Brexit Clause which will allow the effected contracts of insurance to be serviced for the lifetime of the contract/policy. If this is not possible, to have the ability to effectively cancel the insurance contract mid- term and get full pro-rata refund. Ensure there is no M&D so that full pro-rata refund can be paid. If the Insurer insists on M&D, ensure they can still continue to insure under the contract. In the event that Brexit affects the validity of the insurance contract, and the contract is cancelled mid-term then brokers should insist that M&D is removed, and full pro-rata refund is made. This should all be provided for in the Brexit Clause.

Inform the Customer

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• Possible impact of the withdrawal of the UK from the EU on insurance contracts
• Relevant contingency measures taken by insurance undertakings on the continuity of their

contracts. It concerns all cross-border insurance contracts between the UK and ROI which might be affected by the withdrawal of the UK, including contracts that will already be terminated on the withdrawal date, but for which open claims exist or might be reported thereafter. The information must be clear and not misleading. Customers should be provided with information where no measures are taken and the reason for not taking measures should be communicated to them.

Examples of Possible Impact on Customers

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• change of the contractual cover following a transfer of insurance contracts to another

insurance undertaking,

• continuity of services and validity of insurance contracts,
• In respect of UK pensions for ROI citizens, the pension payments may not be permitted to

be paid into a non-UK bank account.

• change or loss of protection provided by any existing national compensation scheme due

to the transfer of insurance contracts to an insurance undertaking located in another jurisdiction,

• tax implications of insurance contracts including e.g. insurance premium tax following the

relocation of an entity to another member state,

• additional organisational arrangements to deal with customer inquiries related to the

withdrawal of the UK from the EU (e.g. publication of FAQs for customers, contact details, helpline etc.),

• jurisdiction and contact details of the competent authority following a transfer of

insurance contracts to another insurance undertaking or the relocation of an entity,

• change of the law applicable to the insurance contract.

Insurance Distribution Regulations (IDR)

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• Referrals
• Section 30 Receipts
• Product Oversight and Governance
• Manufacturers of Insurance Products
• Distributors of Insurance Products

Referrals

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The activity of “referring” or “introducing” in respect of an insurance product is not contained within the IDD and therefore does not fall with the definition of regulated

• activities. This means, provision 3.25 of the Consumer Protection Code 2012 does not apply.

= a fee, commission, other reward or remuneration may be paid for referrals/introductions. HOWEVER, THIS REFERS TO INSURANCE PRODUCTS ONLY AND NOT INVESTMENT OR MORTGAGE INTRODUCTIONS OR REFERRALS, WHICH CONTINUE TO BE SUBJECT TO THE REQUIREMENTS OF THE CODE.

Section 30 Receipts

13

The Investment Intermediaries Act 1995 – Section 30 Receipt Insurance Distribution Regulations 2018 – Section 55 removes “insurance products” and

• ther “insurance” references from the Investment Intermediaries Act 1995.

Chapter 3.5 of the Consumer Protection Code still applies.

Product Oversight and Governance (POG)

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Product Oversight and Governance (POG) Obligations on brokers and insurers in respect of product oversight and governance POG rules should apply to all newly developed insurance products and to existing products where significant changes have been made to the product. This applies to all insurance products except to “large risks” insurance products. Definition of “large risks” was issued with our Compliance Bulletin on 3 October 2018. POG measures should be chosen and applied in a proportionate and appropriate manner, depending on the complexity of the product.

Manufacturers

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Insurance intermediary autonomously decides on the essential features and main elements

• f an insurance product, including the coverage, costs, risks, and target market.

Manufacturer’s POG:

• Identify Target Market
• Product Approval Process (in a written document)
• Product Testing
• Product Monitoring and Reviewing
• Appointing Distributors
• Provision of Information

Identify Target Market

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• Should be described as a group of customers sharing common characteristics at a

generalised level.

• Features of the product should be adapted to the needs, characteristics and objectives of

that group of customers.

• Simpler, more common products, the target market should be identified with less detail.

Complicated products, or less common products, the target market should be identified with more detail taking into account the increased risk of consumer detriment associated with such products.

Product Approval Process

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Set out in a written document – to be made available to all relevant staff Proportionate to the level of complexity and risks related to the product as well as the nature, scale and complexity of the relevant business of the manufacturer. Should contain measures, and procedures, for

• Designing
• monitoring
• reviewing and
• distributing insurance products
• corrective action if product detrimental to customers.

Over the whole lifetime of the insurance product

• Meet objectives, interests and characteristics of customers
• Not adversely affect customers and prevents or mitigates customer detriment
• Supports proper management of conflicts of interests

Regularly review the process – valid and up to date. Amend where necessary.

Product Testing

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Manufacturers to test their insurance products appropriately. The testing should be conducted before bringing the product to the market or significantly adapting it, or if the target market has significantly changed. The product testing is to assess whether the insurance product over its lifetime meets the identified needs, objectives and characteristics of the target market. Continuously monitor and review

• Identify events that could materially affect the main features or the risk coverage.
• Remain consistent with the needs, characteristics and objectives of the target market
• Reaching target market
• Reaching customers outside the target market.

Appointing Distributors and Provision of Information

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Carefully select the distribution channels that are appropriate to the target market Distributors should have the necessary knowledge, expertise and competence to understand the features of the insurance product and the identified target market. All appropriate information on the product, and the target market including:

• information on the main features and characteristics of the insurance products
• their risks and costs
• including implicit costs
• any circumstances which might cause a conflict of interest to the detriment of the

customer. That information is to be clear, complete and up to date.

Distributors POG obligations

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Include:

• Product Distribution Arrangements (in a written document)
• Informing the Manufacturer of Issues
• Ongoing Requirements

Product Distribution Arrangement

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Set out in a written document – to be made available to all relevant staff To fully comprehend the products the arrangements must contain appropriate measures and procedures to obtain from the manufacturer all appropriate information on the insurance products To take into account the level of complexity and the risks related to the products as well as the nature, scale and complexity of the relevant business of the distributor.

Product Distribution Arrangement

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The product distribution arrangements must ensure that the insurance distributors obtain from the manufacturer the following information;

• Information about the insurance product,
• the identified target market,
• suggested distribution strategy,
• information on main features,
• characteristics of the insurance products,
• their risks and costs, including implicit costs, and
• any circumstances which might cause a conflict of interest to the detriment of the

customer. These arrangements must be regularly reviewed to ensure they are still valid and up to date. Insurance distributors to determine how often to conduct the reviews.

Central Bank Feedback

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On-Line Returns Anti-Money Laundering and Counter Terrorist Financing (AML/CTF) Central Bank Inspections of Retail Intermediaries

Central Bank On-Line Returns (ONR)

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Pre- population errors (e.g. email address and auditors name) Central Bank are aware of

• these. Escalated to IT to fix.

If experiencing other issues, please contact the Central Bank at onlinereturns@centralbank.ie

AML/CTF Findings of Central Bank

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Overall general improvement by intermediaries to comply with AML/CTF obligations. Two areas where there is a concern

• Governance
• Training

Firms unable to demonstrate governance/oversight at director level

• Lack of minutes, decisions, discussions and approval (as appropriate) in respect of AML,
• policy/procedure review,
• training of staff and training of board/managing partners/owners,
• review of risks; existing, new and emerging.

The level of oversight/evidence should be based on the nature, scale and complexity of the firm

AML/CTF Findings of Central Bank

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The AML/CTF legislation does not apply to general insurance brokers, HOWEVER Must be mindful of other legislation that would apply such as the Financial Sanctions regime General insurance brokers would also be expected to have controls and procedures in place to prevent financial crime, and as a result, to report suspicious transactions. Best practice would be that general insurance brokers have adequate systems, controls and training in place. Training sessions would then need to be provided to general insurance staff.

Nature, Scale and Complexity

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➢ Procedures (appropriate and relevant) ➢ Risk Assessment Document reviews of procedures and risk assessments even if no changes made.

• CB expects that larger firms will have AML included on Board agendas, and decisions
• minuted. Approval of Board/Managing Partners/Owner to be evidenced.
• Small firms are to also better demonstrate compliance. Decisions to be documented,

when drawn up initially and when reviewed. Doesn’t have to be detailed. Make sure your procedures reflect the practices within the firm, and vice versa. Use procedures as training material. You need to evidence consideration of the risks, and the controls in place to mitigate the risks. MLRO responsibilities and Training

Ris isk Assessment

Product Name Product AML CTF risk rating Rationale

• No. of

Customers

• No. of Customers

rated High Risk (excluding PEPS)

• No. of

Customer rated Medium Risk

• No. of

Customers rated Low Risk

• No. of

PEPs ABC Product Low Non-Complex 1000 125 600 200 75 XYZ Product High

Document rationale behind assessment, i.e. how did the firm come to conclusion that the product was a low risk etc. (e.g. Non-complex product) Review the risk register regularly (include new risks on existing products). Document the review and approval by board/senior management. A good risk assessment will feed into policies and procedures.

Money Laundering Reporting Officer

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• Is the MLRO function clear?

✓ Necessary skills?

• Is there MLRO reporting?

✓ Documented?

• Does the MLRO get regular training?

✓ Evidenced? ✓ Is it relevant to the role?

Training

30

Make sure everyone is getting the necessary training. Retain the attendance records of attendees at training sessions. Contents of training must be appropriate to firm’s business. Make it relevant. Ensure it reflects the firm’s policies and procedures. Directors need to be trained too to understand their oversight and governance obligations. Includes non-exec directors. Evidence the training.

Expectations

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Evidence your decisions and make them relevant.

Any Questions?