Complying with the ICOB rules means documenting and justifying every recommendation, says Colin Rawlings

Despite the fact that your application for authorisation is safely deposited in Canary Wharf, sadly you can't take a compliance holiday. By applying for authorisation, you are committing yourself to make your firm fully compliant by 15 January 2005 - you may even be planning to achieve 'compliance' earlier than this to allow yourselves some time for testing.

The FSA's Insurance: Conduct of Business (ICOB) requirements are perhaps the most difficult for the compliance department. This is because brokers and other sales staff may have to change behaviour to ensure compliance - and changing behaviour is always a challenge.

The following are some of the issues presented by the ICOB rules:

  • Customers are categorised as either retail or commercial, with the requirements generally more onerous for retail. It is not always easy to differentiate between the two

  • Brokers must recommend policies that are "suitable", not just the ones they know will make them the most commission

  • Brokers must also be in a position to justify why a particular recommendation was made to a client and be able to properly demonstrate this if challenged

  • Adverts will need to be reviewed as "compliant" with internal controls to ensure that these are "signed off" by the relevant person or committee. This may be a manageable task for new adverts, but a process will need to be designed for those already in circulation

  • Commercial customers must be provided with details of the brokers' remuneration if they request it

  • Where an overrider is in place, you must be able to demonstrate to clients and the FSA that the recommendation was not impacted by this overrider

  • Managing the claims process if the intermediary is acting under a binding authority from the insurer, as well as supposedly acting for their client, could present a potential conflict of interests, which the FSA expects the intermediary to resolve

  • Brokers must make the disclosures and obtain the required information before, during and after sale, as well as having the documentation to demonstrate that these procedures have been followed if challenged.

    • None of the issues raised above is insurmountable, providing that careful planning is undertaken, and the requisite controls and documentation are produced.

    There is, sadly, no substitute for working your way through the rules, identifying all those relevant to your business and whether you currently comply with them.

    Procedures are required to ensure the ICOB rules are being met. For example, the justification of an advised placement might take into account the following:

  • Existing insurance cover elsewhere

  • Whether the insurance is suitable for the risk

  • Exclusions, excesses, limitations, conditions

  • Quality of service

  • Quality of the underwriter

  • Cost.

    • Internal discussion and justification in this area should not be difficult providing it is undertaken sufficiently early. Firms should be able to demonstrate why they made the placement recommendation within the categories above, and justify their recommendation to the FSA and the client, who should be provided with a demands and needs statement.

    It is no use just doing things appropriately; you need to be able to prove it too.

  • Colin Rawlings is a partner at Deloitte

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