UK: Anti-Bribery and Corruption in Commercial Insurance Broking

On 13 May 2010, the FSA published a report discussing how commercial insurance broker firms in the UK are addressing the risks of becoming involved in corrupt practices such as bribery. In particular, the report sets out the findings of the FSA's recent review of standards in managing the risk of illicit payments or inducements to, or on behalf of, third parties to obtain or retain business.

In its report base the FSA identifies a number of common concerns. These include:

  • Weak governance of anti-bribery and corruption efforts and a poor understanding of bribery and corruption risk among senior managers;
  • Failure to implement a risk-based approach to anti-bribery and corruption in practice;
  • Very weak due diligence on, and monitoring of, third party relationships and payments with a worrying lack of documentary evidence of due diligence taking place;
  • Very little or no specific training was provided on anti-bribery and corruption, even for staff in higher risk positions;
  • Although payment authorisation controls appeared generally adequate, virtually no firms took steps to identify unusual payments to third parties; and
  • Some firms awarded their brokers large bonuses directly related to the income or profit they generated. This could increase the risk of bribery and corruption, particularly where brokers use third parties to win business.

The FSA concludes by saying that broker firms have approached higher risk business involving third parties far too informally and many firms are still not operating at acceptable standards. The FSA believes that the serious weaknesses it has identified in some broker firms' systems and controls will lead to a significant risk of illicit payments or inducements being made to, or on behalf of, third parties to win business.

The FSA also believes that many firms are not in a position to demonstrate adequate procedures to prevent bribery - a defence to the new criminal offence in the Bribery Act 2010 of 'failing to prevent bribery'.

The FSA states that the report does not constitute nor should be treated as formal guidance but that it expects firms to consider the report's findings, to translate them into more effective assessment of this risk, and to implement and maintain more effective appropriate controls where necessary.

A copy of the report can be found at:

FSA Speech on Key Priorities in Regulation: Outlining the FSA's strategy

19 May 2010

The FSA has published a speech by Ken Hogg, director of the FSA Insurance Sector. The speech outlines the FSA's key strategic priorities in regulating the insurance sector:

Intensive and Integrated Supervision

  • The FSA is taking a more intensive supervisory approach in all areas of its work: challenging firms' judgements more critically; monitoring markets more closely and intervening earlier when it identifies risks.
  • The FSA is also focusing on the sustainability of firms' business models, taking an in-depth look at things like business strategies and consumer value propositions, profitability and capital and investment returns and risk appetite.

Protecting Consumers

  • The FSA has launched a new conduct strategy that seeks to understand how firms make money and whether, in doing so, they pose any risk to consumers.
  • To achieve this, the FSA is developing and delivering a regulatory approach that looks more deeply into the value chain and the product life cycle, into product scrutiny around governance, design and oversight by provider firms.
  • The FSA will test what outcomes consumers experience from products sold and is keen to identify products which appear to be sold for the benefit of the firm rather than the consumer.

Shaping European and International Financial Regulation

  • The FSA has supported the development of a modern EU regulatory standard for insurance from the very beginning. From a capital perspective, the aim of Solvency II is not to seek excessive prudence; rather it is to ensure that firms' hold the right amount of capital.
  • There is a fifth Quantitative Impact Study (QIS) in August. This is the final QIS before Solvency II goes live and will incorporate both quantitative and qualitative elements, and at both the solo and group level. QIS5 represents the last significant opportunity to test the likely impact of the proposed requirements on firms.

A copy of the speech can be found at:

Client Money and Asset Report Letter – follow up

20 May 2010

The FSA published a 'Dear CEO' letter on the 19 January 2010 concerning firms' handling of client money and assets, highlighting FSA principle 10 that 'a firm must arrange adequate protection for clients' assets when it is responsible for them'. A client money & asset report was enclosed with the letter and the FSA urged firms to consider the report and confirm that they were in compliance with their obligations regarding the protection of client money and assets.

On 20 May 2010, the FSA published a follow up letter. Firms are asked to confirm the following to the FSA by email:

  • That they have properly considered the content of the letter dated 19 January 2010 and its accompanying report;
  • That the firm is in compliance with its obligations in respect of client money and assets; and
  • The name and contact details of the person in the firm who has overall responsibility for the firm's compliance with the FSA's client money and assets requirements in CASS.

If firms fail to respond by 30 June 2010, they may be subject to follow-up action by the FSA, including enforcement action against both the firm and individuals.

The follow-up letter can be accessed via the following hyperlink:

FSA Temporary Rule giving Recent PPI Complainants Longer to Refer Complaints to the Financial Ombudsman Service

28 May 2010

The FSA has announced a temporary rule to give customers who recently made a complaint about their Payment Protection Insurance (PPI) policy more time in which to refer their complaint to the Financial Ombudsman Service (Ombudsman). The temporary rule runs from 28 May 2010 until 27 October 2010 and applies to complainants who have already been sent a final response from a firm between 28 November 2009 and 28 April 2010.

A copy of the press release can be found at:

FSA Consolidated Policy Statement (PS 10/7) on fee-raising arrangements and regulatory fees and levies 2010/11 including feedback on CP10/5

28 May 2010

On 28 May 2010, the FSA published Policy Statement PS 10/7, following two phases of an annual consultation on fees. This Policy Statement reports on the main issues arising from CP10/5, which gave consultation proposals on FSA and FOS fees and levies, and CP09/26, which covered proposed policy changes to the fee and levy regimes.

The Policy Statement:

  • Summarises the FSA's policy on its fee-raising powers under the Financial Services and Markets Act 2000 (FSMA);
  • Gives an overview of its fees rules;
  • Details the final 2010/11 FSA periodic fees;
  • Reports on the FOS general levy consulted on in CP10/5 Regulatory fees and levies – Rates proposals 2010/11 (February 2010); and
  • Feeds back on further responses to the strategic review proposals contained in Part 1 of CP09/26 Regulatory fees and levies – policy proposals 2010/11(November 2010) not already reported on through CP10/5 above.

The FSA finalises the two main proposals it consulted on in CP09/26 into its fee rates calculation for 2010/11. These are for most 'A' fee-block firms:

  • Introducing a new minimum fee for firms, which is aimed at recovering minimum specified regulatory costs; and
  • Moving to a straight line recovery of costs allocated to fee-blocks to calculate variable periodic fees that most firms pay above the minimum fee.

The impact on the 2010/11 fees for firms in the 14 subsets of the 'A' fee-block, compared to 2009/10 may be substantial. Overall, 40% of firms will see an increase and 60% will see a decrease in their fees. These fees account for over 90% of the FSA's annual funding requirements. These firms will also be affected by the final changes to the FOS levies. Firms in other fee-blocks must note the final 2010/11 fee changes that will also concern them.

Fee payers will be invoiced from June 2010 for their 2010/11 periodic fees.

A copy of the Policy Statement can be viewed at:


European Commission

Getting implementation of Solvency II right by Michel Barnier

4 May 2010

On 4 May 2010, Michel Barnier, the European Commissioner responsible for the internal market and services, delivered the opening address at the public hearing on Solvency II in Brussels. The purpose of the conference was to invite input from industry on the implementation of Solvency II. In his speech, Barnier outlined the overall aim of Solvency II as well as its core objectives.

A transcript of the speech can be found at:

Payment Protection Insurance: Competition Commission confirms case for point-of-sale prohibition

14 May 2010

The Competition Commission has issued a press release stating that it has provisionally decided that consumers will benefit from the introduction of a point-of-sale prohibition for all forms of payment protection insurance (PPI), with the exception of retail PPI.

The point-of-sale prohibition would stop the completion of sales of PPI during the sale of the associated credit product such as a personal loan. It was one of a package of measures the Competition Commission planned to introduce following its investigation into PPI, which concluded that businesses that offer PPI alongside credit face little or no competition when selling PPI to their credit customers. Following detailed analysis by the Competition Commission of the likely effects of such a prohibition, the Competition Commission has concluded that the benefits of a prohibition outweigh the disadvantages.

The exception is retail PPI, where it is not clear whether the advantages of introducing the prohibition alongside other measures would outweigh the disadvantages. The Competition Commission is inviting comments on whether alternative remedies would be more effective or would deliver equivalent benefits at less cost.

Comments on the draft decision are invited by 4 June 2010. The full text of the press release can be found at:


CEIOPS Annual Report for 2009 and Work Programme for 2010

27 May 2010

The Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) has published its Annual Report 2009 and Work Programme for 2010.

The document provides a comprehensive overview of CEIOPS achievements in 2009, including its work with the other Level 3 committees, and provides an outline of CEIOPS objectives for the current year.

A copy of the Report can be viewed at:

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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