FCA second consultation (CP17/23) on IDD implementation – (1)


Scope and Overview

This consultation applies to re/insurance firms and intermediaries. Certain aspects of the consultation will be of interest to ancillary insurance intermediaries.

This consultation covers:

1. Changes to the Handbook regarding life insurance business, which includes information provision requirements and additional requirements related to the distribution of insurance-based investment products (“IBIPs”):

  • firms' general obligations;
  • information disclosure to customers;
  • inducements;
  • suitability; and
  • appropriateness.

2. Changes to the Handbook to implement requirements applicable to life and non-life insurance business, which includes:

  • conflicts of interest;
  • product oversight and governance (“POG”);
  • organisational requirements relating to the protection of customers' money; and
  • professional requirements relating to the good repute of employees of insurance distributors.

3. Other Handbook changes relating only to non-investment insurance business (including product information).

4. Consequential amendments to other parts of the Handbook.

Changes to COBS

The FCA proposes to implement rules in COBS that largely mirror the proposed changes to ICOBS. The FCA recommends reading CP17/7 (which contains a greater level of detail) alongside these proposals on COBS.

IDD General Principles (Article 17 IDD)

The FCA intends to extend the following to all clients: client best interests rule; communications must be fair, clear and not misleading; marketing materials must be clearly identifiable.

Remuneration disclosure

The FCA proposes to add new rules to COB that cover disclosure by insurance intermediaries of the ‘nature and basis’ of remuneration they receive and by insurers of the ‘nature’ of remuneration paid to their employees. See our earlier report here, which covers the definitions of ‘nature and basis’ of remuneration.

Standards for advised and non-advised sales

New rules are to be added to COBS 7.3 (for non-advised sales), COBS 9A (for advised sale of IBIPs) and COBS 9 (for advised sale of other life policies).

  • Firms must identify and specify the customer’s demands and needs, on the basis of information obtained from the customer. In addition, all insurance contracts proposed, including those sold on a non-advised basis, must be consistent with the customer’s insurance demands and needs.
  • Firms must provide (where advice is given) a personalised recommendation explaining why a particular product best meets the customer’s needs.
  • Where firms provide a personal recommendation, these requirements have been built into the requirements on suitability (see below).

Where firms provide a personal recommendation based on a fair and personal analysis of the market, this must be based on a sufficiently large number of products. The FCA will introduce this requirement within COBS 6.1ZA.

Cross selling

Similar rules to those in ICOBS are to be introduced in COBS 6.1ZA:

  • Where insurance is a primary product sold with a non-insurance ancillary product, the firm must inform the customer whether the ancillary product is optional. If it is, they must give an adequate description of the products (including costs).
  • Where insurance is sold ancillary to non-insurance primary products it must be optional.

Distribution via exempt ancillary insurance intermediaries

The FCA proposes to add new rules[1] in COBS 7.3 for firms using exempt ancillary insurance intermediaries to distribute their products. It is the responsibility of the authorised insurer/intermediary to ensure that sales on their behalf through exempted firms adhere to the IDD conduct standards.

Miscellaneous changes

  • COBS 7.2.6R rules will be replaced by new rules that specify the way in which information is to be provided (on paper and free of charge when requested by the customer).
  • COBS 7.2.1R rules will be amended and moved to COBS 6.1ZA. This relates to general pre-contract disclosures concerning the firm’s identity; scope of service; complaints procedure; and the obligations on insurers that distribute products directly to customers.
  • COBS 7.2.1R (1) to (2) rules will be amended and moved to COBS 6.1ZA. This relates to disclosures required of intermediaries concerning transparency and links between the firm and insurers with which they place business.

Information and product disclosure and IBIPs

Connection with MiFID II

As part of the work undertaken to implement MiFID II[2], the FCA has introduced similar requirements to those required by IDD in COBS 2.2A, COBS 6.1ZA, COBS 8A and COBS 16A.

The FCA proposes to retain the non-IBIP life insurance business rules and amend where necessary to reflect IDD.

Disclosure requirements

The requirements apply to all in relation to all customers purchasing or receiving advice on an IBIP, including professional clients and eligible counterparties.

The FCA proposes the following amendments:

  • COBS 2.2 and COBS 2.2A - The information requirements of Article 29(1)[3] IDD will be implemented in COBS2.2A. The existing requirements for life policies will be moved into the new COBS 2.2A to consolidate rules while retaining existing standards.
  • COBS 6.1ZA – The costs and charges for IBIPs requirements (Article 29(1)(c)[4]) will be implemented in this section.
  • COBS 8 and COBS 8A – The requirement to establish and keep a record of documents agreed between the firm and customer setting out rights and obligations (Article 30(4)) will be implemented in this section.
  • COBS 16A – The requirement for firms to provide adequate reports on the service provided in a durable medium to customers (Article 30(5)) will be implemented in this section.


The FCA intends to

  • apply the high level inducement rule in COBS 2.3A to firms doing insurance distribution activities in relation to IBIPS, and include new requirements to implement the Article 29(2)[5] requirement (and for this business the FCA will disapply COBS 2.3);
  • retain the existing requirements in COBS 2.3 for other life policies without changes; and
  • continue to apply the RDR rules[6] in COBS 6. The FCA has also consulted on extending the application of these rules, from 3 January 2018, to all retail clients generally (not just personal recommendation). Providers will be unable to provide any benefits to advisory firms apart from permitted ‘minor non-monetary benefits.

Alignment with MiFID II

The FCA thinks it is likely that the requirements in MiFID II delegated acts will be applied to IBIPs. The MiFID II requirements add additional detail regarding sales involving more than one distributor firm, record keeping and that firms must make ongoing assessments that inducements enhance the quality of services.

The FCA is considering whether MiFID II delegated act requirements regarding inducements and investment research should be applied to IBIPs.

The FCA emphasises that in the absence of any specific provisions in the IDD delegated acts, the ability to assume professional client knowledge and experience for the purposes of the suitability test (as is the case under MiFID II) would not apply to IBIPs.


The FCA proposes to integrate the IDD requirements of Article 30[7] into the new COBS 9A for IBIPs. The existing suitability rules in COBS 9 will continue to apply to other life policies.

The ‘demands and needs’ requirements for advised sales will be implemented in COBS 9A for IBIPs and COBS 9 for other life policies. The FCA proposes that these requirements should apply to insurers and intermediaries.

The FCA plans to relocate the current minimum five-year record retention period requirements of COBS 9 to SYSC 9 for intermediaries and SYSC 3 for insurers.

Firms advising professional clients in relation to IBIPs do not have to provide a suitability statement. However, a 'demands and needs' statement will still be required for professional clients. The requirement to tell customers whether a periodic assessment of suitability[8] will take place applies to all clients (professional clients included).


For non-advised sales, the customer’s investment knowledge and experience should be assessed to determine whether the IBIP provided is appropriate for them (Article 30 (2) IDD). IDD permits Member States to derogate from this rule where there is an execution-only sale.[9]

The FCA proposes to implement the IDD appropriateness requirements in COBS 10A, which would only be applicable to IBIPs.

The FCA intends to exercise the derogation to allow non-complex IBIPs[10] to be sold execution-only; the execution-only requirements will be implemented in COBS 10A. Rules regarding demands and needs and customers’ best interests still apply in cases of execution-only sales.

Record-keeping requirements, including a minimum retention period of five years, will be implemented into SYSC 9 for intermediaries and SYSC 3 for insurers.

Next steps

The deadline for responses is 20 October 2017. An FCA policy statement is expected to follow in December 2017.

The FCA intends to publish a third consultation paper in September 2017 (this will cover the approach to the Level 2 delegated materials).

[1] FCA draft Insurance Distribution Directive (Conduct of Business for Life Policies, Non-Investment Insurance Product Information, Product Oversight, Organisation and Other Requirements) Instrument 2017 states “Where an insurance distributor is distributing through a person relying on the connected contracts exemption in article 72B of the Regulated Activities Order the insurance distributor must ensure that the requirements in (2) are met. See the Annex for further detail.

[2] IBIPs and pensions that are in scope under IDD are regarded as “often substitutable for MiFID II investment products” [FCA CP17/23 para 3.8].

[3] See the Annex for further detail.

[4] See the Annex for further detail.

[5] See the Annex for further detail.

[6] The rules require that advisers providing advice to retail clients in the UK on retail investment products are remunerated by adviser charges agreed with, and paid by, clients (rather than through commissions or other types of monetary or non‑monetary benefit) and that provider firms may not offer or pay inducements to adviser firms.

[7] See the Annex for further detail.

[8] See the Annex for further detail.

[9] Article 30(3) IDD.

[10] Article 30(3) IDD defines non-complex products as “contracts which only provide investment exposure to the financial instruments deemed non-complex under Directive 2014/65/EU and do not incorporate a structure which makes it difficult for the customer to understand the risks involved”. Further work on complex/non-complex products is in Level 2.