Recent coverage of our discussions with the industry on block transfers may have unintentionally served to confuse matters. It would be helpful in the interests of clarity if I were to set out our position with regard to our rules and guidance in this area.
The rule in question is ICOB 4.7.1R, which implements a requirement of the Distance Marketing Directive (DMD). This is a directive requirement, so we cannot simply give firms a waiver from the rule, even for a transitional period. We have worked with the industry to find a pragmatic approach to complying with this rule.
The rule requires firms to have a "prior request" from a customer before supplying the customer with a service that requires payment. This rule does not apply where a contract is renewed tacitly with the same insurer. But where the insurer changes, such as under a block transfer arrangement, firms will need to get the customer's prior agreement to this.
With block transfers there are two issues for firms to consider:
For new customer relationships where the policy may be subject to a block transfer at a future date, the firm should be able to get the customer's agreement to this at the point they sell the policy. They must ensure any such arrangement is clearly drawn to the attention of any potential new customer and that any such term is given suitable prominence in agreements with customers going forward.
For existing customers, the requirement to obtain prior request may be met by including in a terms of business agreement, sent to a customer, a clause to the effect that:
We would expect any documentation issued to customers to be clear, fair and not misleading with regard to the prior request, its consequences and the option to revoke it. Firms would not have to rely on getting a response from the customer to this new clause in order to meet their obligations under the rule. We consider that this solution offers the industry a simple and pragmatic way to comply with our rules, while not damaging competition and choice for consumers.
Head of policy and technical standards
FSA high street firms division