Australia: Insurance Focus - Part II

June 2011
Last Updated: 23 June 2011
This article is part of a series: Click Insurance focus - Part I for the previous article.

Better late than never – insurance contract law reform in the UK

To the surprise of many the Consumer Insurance (Disclosure and Representations) Bill had its first reading in the House of Lords on 16 May. This first stage is a formality whilst the second reading opens the general debate on all aspects of the Bill, which will begin its passage through Parliament in the Lords before reaching the House of Commons. Many had thought it unlikely that the Bill would get parliamentary time and the second opportunity to reform insurance law for consumers would be lost. Michael Mendelowitz and Laura Hodgson consider the main provisions of the Bill.

The Law Commissions of England and Wales and of Scotland began their review of insurance contract law in 2006. Calls for reform of the law on misrepresentation and non-disclosure in insurance contracts are not new. A law reform committee first recommended reform in 1957, followed by further calls in a 1980 report. Indeed, the 1980 English Law Commission report described reform to the law of insurance contracts as "too long delayed".

There has been widespread support for reform in the area of consumer contracts as the existing law can have harsh consequences on a public largely oblivious to their legal obligations. For many years industry practice guidelines and the Financial Ombudsman Service's (FOS) approach to resolving complaints have been out of sync with the strict letter of the law.

The current law, set out in the Marine Insurance Act 1906 (MIA) requires prospective insureds to volunteer information about the risk they are seeking insurance for. Section 18 of MIA requires insureds to disclose those "material circumstances which would influence the judgement of a prudent insurer in fixing the premium, or determining whether he will take the risk". Failure to do so can allow the insurer to avoid the contract. At present there is no obligation in law for the insurer to ask questions and a consumer should consider what information a professional underwriter would wish to know. Very few consumers are even aware of this duty; and, if they are, do not have the means to know what information they are required to volunteer to the insurer. The current law does not take into account what a reasonable consumer might think relevant to disclose.

The 1906 law was drafted in an age when insurance contracts were invariably conducted through brokers who had capacity to advise their customer of their obligations towards the insurer. This is no longer the case. Consumers currently buy a significant proportion of insurance policies through aggregator websites or directly though the insurer – a fundamental shift in the nature of pre-contractual negotiations.

Section 20 of MIA further imposes a duty upon insureds not to misrepresent the information which they do tell the insurer. Any misrepresentation will allow the insurer to avoid the contract. The law will recognise a distinction between a misrepresentation of a fact and an honestly held expectation or belief which then proves to be untrue. Nevertheless, the resulting consequences of an inadvertent misrepresentation (as with a non-disclosure) can be severe where an apparently minor mistake invalidates an insured's claim.

The proposed new regime: the insured's duty to take reasonable care

The Bill proposes to change the nature of the parties' pre-contractual negotiations so that insurers are obliged to ask those questions about the risk they want to know. In response, consumers will be under a new duty to take reasonable care to answer the questions asked by the insurer fully and accurately.

Where a consumer has made a mistake in answering the insurer's questions, the Bill makes a distinction between "careless" and "deliberate or reckless" misrepresentations. The remedy which an insurer will have in the event of a misrepresentation will depend upon the category of mistake. This new classification of misrepresentations will give legislative effect to the approach currently taken by the FOS. The remedies for the various types of misrepresentations are as follows:

  • Where the misrepresentation was deliberate or reckless, the insurer may refuse the claim. A statement will be deliberate or reckless if the consumer knew that it was untrue or misleading or did not care that it was so and knew that the matter was relevant to the insurer. Following a deliberate or reckless misrepresentation the policy will be treated as if it had never existed and all claims by the insured can be refused. This approach is similar to that taken under the current law, although the insurer will now be able to retain any premium unless there are compelling reasons for this to be returned (for example in certain life policies containing an investment element). The retention of premium and avoidance of the policy retains the penal element currently included to dissuade consumers from deliberately or recklessly misleading insurers.
  • Where the misrepresentation is merely careless, the Bill provides for a proportionate remedy which will reflect the position that the insurer would have been in had the true facts been known. It is for the insurer to show that a misrepresentation was deliberate or reckless, otherwise it will be deemed merely careless. Under the current law, insurers are able to avoid the entire policy for an innocent misrepresentation with potentially severe consequences for the insured. The Bill provides the insurer with a compensatory remedy. Therefore, where the insurer would have excluded a particular type of claim, the insurer should not have to pay claims falling within this exclusion. Where a warranty or excess would have been imposed, the resulting claim should reflect the policy had such a warranty been included. Where the insurer, on knowing the true facts, would have charged a higher premium, a proportionate settlement should be given to the insured. Finally, where the insurer would have declined the risk altogether, the policy may be avoided and the premium returned.

The proposed new law retains the requirement that the insurer must have been induced by the misrepresentation (as set out in Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1995] 1 AC 501). Consequently, under the proposed Bill, the insurer will still have to demonstrate that, without the misrepresentation, it would not have entered into the contract at all – or at least on the same terms. However, the new law no longer requires the insurer to prove that the misrepresentation would have influenced the judgement of other underwriters in the market. It will be enough for the insurer to show that they were so induced and that a reasonable consumer would not have made such a mistake.

The Bill requires that insureds take reasonable care not to make a misrepresentation. The standard of care will be that of "a reasonable consumer" but an additional element is added which demands that the insurer should take into account the actual circumstances of the individual consumer where they are aware of them. It further includes an additional specification to clarify that a dishonest misrepresentation (even if reasonable to the average consumer) will always be unreasonable. This prevents the more knowledgeable person relying upon the excuse that a less well informed consumer would not have known the significance of a particular fact.

As mentioned above, consumers are required to take reasonable care not to make any misrepresentations. However, the Bill will take into account certain circumstances which will affect the degree of care that should be taken. The following must be taken into account:

  • the type of consumer policy and its target market
  • any relevant explanatory material or publicity produced or authorised by the insurer
  • how clear and specific the insurer's questions were
  • whether or not an agent was acting on the insured's behalf.

The Bill has largely followed the approach taken by the Financial Services Authority (FSA) and various EU directives in their definition of a consumer insurance contract which covers contracts taken out for purposes "wholly or mainly unrelated to the individual's trade, business or profession". However, one key distinction is that the definition will extend the application of consumer law to certain mixed contracts.

Determining the principal of an intermediary

The Bill introduces a statutory determination of when the intermediary will be considered to be acting for the insurer rather than the insured. This matters in those circumstances where it is the intermediary who has acted carelessly or recklessly in transmitting the insured's information to the insurer.

If the intermediary acts for the consumer, any mistake in the information presented via the intermediary to the insurer will be the responsibility of the consumer. However, where a mistake is made by an intermediary acting for the insurer, any claim must be paid in full.

In its 2007 Consultation Paper on reforming consumer insurance law, the Commissions proposed a single bright line test to determine whether an intermediary acted for the consumer or the insurer. The Commissions' initial view was that, unless an intermediary clearly acted for the consumer, they should be taken to act for the insurer. In response to considerable criticism of this approach, Schedule 2 of the Bill now states that an intermediary will be acting for the insurer in the following circumstances:

  • where the intermediary is the appointed representative of the insurer
  • the insurer has given the intermediary express authority to collect the information as its agent
  • the insurer has given the intermediary express authority to enter into the contract on the insurer's behalf.

In other cases the intermediary is presumed to act for the consumer unless, in light of relevant circumstances, it appears that they act for the insurer. The Schedule sets out factors which will tend to show whether the agent is acting for either the insurer or the insured.

Basis of the contract clauses outlawed

The Bill abolishes "basis of the contract" clauses by stating that any representation made by a consumer is not capable of being converted into a warranty by means of a provision of the contract. Basis clauses have been criticised for many years and their use was prevented under the Association of British Insurer's 1986 Statement of General Insurance Practice (withdrawn in 2005). The FSA rules do not directly outlaw basis clauses, even though their application to consumers would fall foul of the FSA's Principle 6 (which requires firms pay due regard to the interests of its customers and treat them fairly). In their research, the Law Commissions found numerous examples of the continued use of basis clauses in consumer contracts; the Bill would unequivocally remove these onerous terms from consumer policies.

Proposals for group and life policies

Special provisions are included in the Bill for group insurance schemes. Under section 7 of the Bill, where a misrepresentation is made by a group member of a scheme there will only be consequences for that individual, rather than for the group as a whole. Group policies such as those made by businesses on behalf of their employees do not usually fall within the consumer regime. The proposals ensure that any dispute about a misrepresentation made by a person entitled under the group policy will be treated in accordance with the consumer rules.

In addition to the proposals for group policies, the Bill establishes that where a consumer takes out insurance on the life of another person, and information is provided by the person insured (but not the policyholder) to the insurer, any misrepresentations will be treated as though they were supplied by a party to the contract. Under the current law, should the person insured make a misrepresentation (for example about their state of health) the insurer is not entitled to any remedy as only the policyholder is under a duty not to misrepresent information. In the absence of basis of the contract clauses, the insurer is offered no protection in such circumstances. The Bill addresses this potential problem by placing both the policyholder and the insured under the duty to take reasonable care not to misrepresent information.


It is believed that pressure from Europe to harmonise consumer insurance contracts has prompted the Bill's introduction into the Parliamentary timetable. We will continue to inform you about the Bill's progress through Parliament – implementation is anticipated by 2013.

Article by Michael Mendelowitz and Laura Hodgson

Case notes

R (on the application of the British Bankers Association) v The Financial Services Authority [2011] EWCH 999 (Admin)1

The British Bankers Association (BBA) has lost its legal challenge to new regulatory provisions and guidance concerning the handling of complaints related to payment protection insurance (PPI). The package of measures was contained in the Financial Services Authority's (FSA) Policy Statement 10/12: The assessment and redress of Payment Protection Insurance Complaints published on 10 August 2010, which included amendments to Handbook rules, guidance about how complaints should be handled and the basis on which they should be decided, and an Open Letter identifying what the FSA considers to be "common failings" in sales of PPI. The measures include guidance on "root cause analysis", a mechanism whereby firms may be required to pay redress for losses suffered by those who have not complained.

Amongst other things, the BBA stated that it was concerned that the provisions and guidance effectively apply new standards to past sales (from January 2005). It has been estimated by the FSA that the costs relating to compensation for PPI complaints handling could be between £0.8 billion and £1.3 billion over five years, with wider costs of the package ranging between £1.1 billion and £3.2 billion. Between 3.8 million and 11.3 million non-complainant customers might be contacted and 15 million might be assessed for initial mailing by firms which, according to the BBA's submission, could lead to at least 35 insurance firms folding at a £35 million cost to the FSA's compensation scheme.

The judge rejected the BBA's arguments and held that the provisions and guidance were lawful.

  1. The FSA and Financial Ombudsman Service (FOS) were entitled to rely upon Principles which were not themselves actionable by way of damages under section 150 of the Financial Services and Markets Act 2000 (FSMA) in determining compensation claims.
  2. The specific rules made by the FSA in the Handbook did not mean that the Principles could not be applied. The Principles provided the overarching framework for regulation, and the specific rules were applications of the Principles. Specific rules could not, therefore, oust the Principles.
  3. Section 404 of FSMA authorised the Treasury to authorise the FSA to conduct an industry-wide review of past business and to introduce remedial measures. That procedure had not been followed, but that did not preclude the use of other powers in FSMA.

On 9 May 2011, the BBA published a statement confirming that, in the interest of providing certainty to their customers, the banks and the BBA have decided not to appeal the decision. The BBA states that it continues to believe that there are matters of important principle which it plans to take forward in other ways with the authorities.

1. This case summary contains elements of a Financial Services Briefing published by Norton Rose LLP in April 2011.

Sienkiewicz v Greif (UK) Ltd; Wilmore v Knowsley Metropolitan Borough Council [2011] UKSC 10

In March 2011, the Supreme Court unanimously dismissed two appeals against findings of liability for exposure to asbestos.

In Sienkiewicz, Mrs Costello died of mesothelioma on 21 January 2006. She worked for the defendants from 1966 until 1984, during this period she was exposed to asbestos dust, although the exposure was very light. The evidence showed that even if Mrs Costello had not been employed by the defendants, she would have been subject to environmental exposure, and that her employment had increased the risk of disease from 24 cases per million to 28.39 cases per million.

In Willmore, Mrs Willmore died of mesothelioma on 15 October 2009. Before her death Mrs Willmore asserted that she had been exposed to asbestos at the secondary school at which she had been a pupil, by reason of work involving ceiling tiles containing asbestos and the storing of those tiles in a girl's lavatory at the school.

The Supreme Court, upholding the decisions of the Court of Appeal, held that both defendants were liable in tort.

  1. In mesothelioma cases the law recognised that, where there were consecutive exposures by different defendants it was impossible to prove which exposure was the cause of the disease and accordingly a defendant was liable if his exposure constituted a material increase in the risk of the disease being contracted. That meant that, in a multiple exposure case, every defendant faced liability (Fairchild v Glenhaven Funeral Services Ltd [2002] UKHL 22).
  2. Under section 3 of the Compensation Act 2006, reversing Barker v Corus UK Ltd [2006] UKHL 20, every defendant was 100 per cent liable to the claimant for the loss.
  3. Section 3 did not lay down any principle of causation, but merely provided that if a defendant had exposed the claimant to asbestos and the claimant had contracted mesothelioma, that defendant was 100 per cent liable. The question of causation remained a matter for the common law, the test being whether there was a material contribution to the risk of injury.
  4. There was no distinction to be drawn between multiple exposure cases, such as Fairchild, and single exposure cases such as the present, where there was only one defendant and the competing causes were either exposure by the defendant or environmental exposure due to asbestos dust in the general atmosphere. The question was whether the defendant had materially contributed to the risk of injury.
  5. The "double the risk" test – whereby if statistical evidence showed that the defendant had doubled the risk of injury, it followed that it was more likely than not that the defendant had caused the injury – had no part to play in mesothelioma cases, and (the majority view) had no part to play in other cases. Epidemiological evidence had to be used with great caution in the context of establishing liability.

Article by Rob Merkin

War risks – "ordinary judicial process" exclusion – The Silva [2011] EWHC 181 (Comm)

War and strikes risks insurance against capture, seizure, arrest and detainment usually excludes from cover any detention resulting from the commercial operation of the insured ship, such as action taken to enforce civil debts or obtain security for a cargo claim. The English High Court has recently provided guidance as to the scope of this "ordinary judicial process" exclusion.

On 24 December 2008, the SILVA was arrested in Port Suez to enforce a claim for a share of an unpaid 1996 judgment in respect of a pollution incident in 1989 involving the vessel SAFIR. The share represented a five per cent contribution on damages awarded which was ordered to be paid to "the Judges' Fund", for health and welfare benefits to judicial officials and their families.

The arrest was maintained on the basis of evidence that the SILVA was in common ownership with the SAFIR. This evidence was fabricated by a convicted forger who was remunerated by the Egyptian Ministry of Justice for assistance in the collection of debts. Despite this, the Egyptian authorities refused to release the SILVA from arrest. After more than 12 months had elapsed, the insured claimed that the vessel was a constructive total loss. War risks insurers disagreed, relying on the "ordinary judicial process" exclusion.

On the facts, the High Court decided that by no stretch of the imagination could this judicial process be described as "ordinary". On the contrary, it amounted effectively to extortion. The shipowners were therefore entitled to recover in full.

Exclusion clauses will be interpreted strictly. Where there is ambiguity, an exclusion clause will be interpreted against the party seeking to rely upon it. As a result, it may be necessary for insurers to consider redrafting the "ordinary judicial process" exclusion if they wish to exclude similar claims in future.

Article by David McKie

International focus


CIRC drafts rules on the transfer of insurance business in China

On 22 March 2011, the China Insurance Regulatory Commission (CIRC) issued its draft Interim Administrative Measures on Transfer of Insurance Business by Insurance Companies (the Measures) for public consultation. The Measures indicate that a legal framework will soon be in place to facilitate and regulate entire or part transfers of insurance business between insurance companies in China. The consultation closed on 11 April 2011.

Under current Chinese law, an insurance business portfolio transfer can only be completed where a reinsurance arrangement is made or a life insurance company becomes insolvent. The lack of a legal framework for transfers of insurance business has become an obstacle for the restructuring and acquisition of insurers over recent years. The Measures are a response to the recent increased demand for mergers and acquisitions of insurance businesses amongst both domestic and foreign insurers in the Chinese market.

The Measures have 21 articles in total. They purport to protect the interests of both policyholders and assureds. They also set out clear regulatory procedures for insurance companies to comply with when undertaking portfolio transfers.

The Measures state that any proposed transfer of insurance business should be approved by the CIRC. Upon obtaining approval, the transferor should notify policyholders and assureds, requesting their consent. The notification should provide basic information about the transfer proposal and the transferee. Where an assured under a life insurance policy has died, the transferor should notify and obtain consent to the transfer from the beneficiary of the policy concerned. It is unclear what would happen if assureds do not give their consent to the transfer of the policies.

The Measures also require the insurance companies involved in the transfer to make a joint public announcement in the media and on their own respective websites.

The Measures state that the insurance companies involved in the transfer should appoint both professional accountancy firms and law firms to advise on the value of the business to be transferred and on whether the transaction is compliant with applicable laws.

The Measures explain that after the transfer, the transferee assumes all obligations which were owed to the policyholder, the assured and the beneficiary by the transferor as if it were a party to the original insurance policy.

In the event of a transfer of the whole business of an insurance company, within fifteen working days of completion of the transfer agreement, the transferor must apply to the CIRC for cancellation of its insurance permit and to the relevant office of the State Administration for Industry and Commerce for deregistration of its business licence.

The Measures have a number of weaknesses which will need further consideration. Nonetheless, once formally adopted, they will provide a basic legal framework for insurance companies to structure the transfer of insurance business, and achieve their plans for the restructuring and acquisition of insurance business in the Chinese market.

Article by Lynn Yang


Court rules on the imposition of surcharges for deferred payment of insurance premiums

On 29 July 2009, the Federal Court of Justice confirmed that surcharges for deferred payment by way of instalments are invalid if the annual percentage rate is not explicitly stated in the insurance policy. There has recently been a second decision considering this topic in the Regional Court of Hamburg, which came to the same result. These decisions affect a great many insurance companies who apply a surcharge to policyholders for choosing to make biannual, quarterly and monthly insurance premium payments, as opposed to yearly payments.

If an insurance company, which falls within the scope of the decision, fails to use a valid provision regarding surcharges, policyholders may reclaim interest rate payments in excess of four per cent. These decisions may be of interest to insurers in other European countries, as the relevant German provisions were implemented in line with the European Consumer Credit Directives.

A decision in the Regional Court of Bamberg affirmed by the Federal Court of Justice in 2009, stated that deferred payment in instalments constituted the granting of credit by the insurance company. Pursuant to statutory law, the premium for pension insurance falls due annually. The insurance company used its policy to make an offer to the policyholder to defer the payment and, as consideration, demanded a surcharge. This is similar to the standard situation in which a processing fee is paid as consideration for a deferred payment. As with the classification of credit, the annual percentage rate has to be included in the insurance policy.

The scope of the latest Regional Court decision is limited as follows:

  • The decision applies to private insurance companies only. It does not apply to contracts with investment funds.
  • A consumer needs to be party to the contract.
  • The decision only applies if the yearly insurance premium exceeds €200.
  • It is unlikely that the decision will apply to private health insurance contracts, which usually provide for monthly payments as standard. The decision only applies when there is a surcharge for payment in instalments instead of annual payments.

The impact of the decision was limited as the litigation was between an association and an insurance company. The court held that the insurance company must refrain from using the invalid provision. However, the case has additional consequences due to statutory law. The failure to include the annual percentage rate means that the statutory interest rate of four per cent applies. Consequently, policyholders are able to reclaim interest rate payments in excess of four per cent, and should only have to pay the statutory interest rate in the future.

It should be noted that the decision needs to be treated with some caution as the Federal Court of Justice did not have an opportunity to decide the case on its facts due to the consent decree, ie, the defendant recognised the plaintiff's claim irrespective of the merits of the case.

Article by Andreas Börner

Hong Kong

Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Bill of Hong Kong

The Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Bill was published in Hong Kong on 29 October 2010. The proposed legislation aims to improve the current anti-money laundering regime by bringing it in line with the prevailing standards adopted by the Financial Action Task Force (FATF). One of the key proposals is the codification of customer due diligence and record keeping requirements, which are largely similar to those set out in the guidelines provided by the Hong Kong Monetary Authority (HKMA), Securities and Futures Commission (SFC) and Insurance Authority (IA).

In relation to beneficiaries of an insurance policy, the proposed legislation suggests that, where a beneficiary is identified, the financial institution must record its name. If a beneficiary is designated by description or other means, the financial institution must obtain sufficient information about that beneficiary to satisfy itself that it will be able to establish its identity at the time the beneficiary exercises a right under the insurance policy or at the time of payout.

The proposed legislation allows financial institutions to conduct simplified customer due diligence in certain transactions involving the following products:

  • a provident, pension, retirement or superannuation scheme that provides retirement benefits to employees, where contributions to the scheme are made by way of deduction from income from employment and the scheme rules do not permit the assignment of a member's interest under the scheme
  • an insurance policy for the purposes of a pension scheme that does not contain a surrender clause and cannot be used as a collateral
  • a life insurance policy in respect of which an annual premium of no more than HK$8,000 or a single premium of no more than HK$20,000 is payable.

In the event of breach, the relevant authorities (HKMA, SFC, IA, Customs and Excise Department) are empowered under the proposed legislation to take disciplinary action against a financial institution that has contravened the specified customer due diligence or record-keeping requirements. A relevant authority can publicly reprimand the financial institution, and order it to take remedial action and to pay a pecuniary penalty not exceeding HK$10 million or three times the amount of profit gained or costs avoided as a result of the contravention.

The Bill was handed to the Legislative Council on 10 November 2010 and is currently tabled for discussion. Subject to the passage of the Bill, the Government aims to implement the new regime on 1 April 2012.

Article by Camille Jojo


Compulsory mediation procedure subject to legal challenge

On 12 April 2011, the Italian Administrative Court upheld a petition lodged by the National Bar Association. The petition claimed that Legislative Decree no. 28/2010 (which introduced a compulsory mediation procedure prior to the commencement of any lawsuit involving insurance disputes) was not compliant with several of the principles established in the Italian Constitution.

The petitioner reported seven separate examples of constitutional principles allegedly infringed by the Legislative Decree. For example, the petitioner stated that:

  • having implemented the mediation procedure as a compulsory condition in order that parties to a dispute might have access to the courts, the Italian Government had exceeded the delegation issued by Parliament, under which the mediation procedure was intended as a voluntary measure to prevent litigation as opposed to a condition for accessing it
  • having made mediation compulsory for some of the matters indicated in the Legislative Decree, and not for all, the Italian Government had breached the basic principle of equally regulating similar/comparable matters
  • having removed from the requirements any reference to the professionalism and independence of the public/private bodies that will conduct the mediation procedure, the Italian Government had breached the delegation issued by Parliament, under which the mediation procedure should have been carried out by bodies selected under a criterion of professionalism and independence.

The Constitutional Court will make the final decision on this matter. If Legislative Decree no. 28/2010 is considered to be in breach of the constitutional principles, the recently introduced mediation procedure will prematurely expire.

Article by Cecilia Buresti

United Kingdom

The House of Commons Treasury Committee publishes details of the Government's response to its report on the proposals for financial regulation reform

In May 2011, the House of Commons Treasury Committee published the Government's response to its report on the proposed reform of financial services regulation, which the Committee published in February this year.

The Committee's report expressed concern that the Government's current proposals say relatively little about some of the key segments of the financial sector, such as insurance. The Government responds that as the lessons of the financial crisis have predominantly focused on the micro and macro-prudential regulation of the banking sector, it is inevitable that the presentation of proposals for improving regulation should focus on banking. However, the Government states that it recognises the importance of effective regulation in all sectors of the financial services industry. To this end, the Government will ensure that external members of the Financial Policy Committee (FPC) are able to offer insights from direct experience as financial market practitioners, not only in banking but also other sectors such as insurance and investment banking.

In its report, the Committee also discussed the suggestion that the Prudential Regulation Authority (PRA) will focus on what it considers to be medium and high-impact firms and its concern about an implicit acceptance that any failure of a high-impact firm should be avoided. The Government states that although the PRA will focus with great intensity on firms whose failure could cause the greatest risk to the financial sector it accepts that the failure of smaller firms can cause disruption and cost to regulated firms, customers and taxpayers. The Government also indicates its agreement that no firm should be too important to fail and states that it is committed to embedding this approach in the legislation. For example, the PRA will be under a duty to ensure that the cost and disruption arising from a potential firm failure is minimal. This objective makes clear that, to strengthen market discipline and avoid moral hazard, the regulatory system should allow firms to fail.

The Government notes the Committee's concerns about the description of the Financial Conduct Authority (FCA) as a "consumer champion". The Government stresses, however, that the term "consumer champion" should be viewed in the context of the FCA's role as a focused and proactive conduct regulator that is entirely independent and impartial. The distinct objectives of the PRA and FCA should reduce the risk of overlap and the Government discusses the need to coordinate so that both regulators can focus on their core remit.

The Committee discussed the need for the UK to secure appropriate representation on the EU regulatory bodies. The Government is in agreement and explains that the three European Supervisory Authorities (ESAs) will each have a voting member from the UK. The PRA will represent the UK in the ESAs for banking and insurance, whilst the FCA will be a member of the securities authority. The PRA and FCA will work together to ensure that the other regulator and any other relevant authorities are kept fully informed of any matters due to be discussed that fall within their sphere of responsibility. When another body has an interest, the relevant UK member may bring along a non-voting representative of that national body. The Government is proposing legislation which will put the regulators under a duty to coordinate and they will be required to agree a memorandum of understanding which will state how they will manage their engagement with foreign regulatory bodies.

Article by David Whear

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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This article is part of a series: Click Insurance focus - Part I for the previous article.
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In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.