The regulator’s executive director for supervision says ‘it’s worrying that some firms may not be ready’ for 1 October deadline
The FCA has revealed its concerns that “many firms still have significant work to do to comply with the enhanced product governance rules coming into effect on 1 October 2021”, following its multi-firm review published today (25 August 2021).
The incoming product governance rules form part of the FCA’s package of measures being introduced from October to enhance fair value for customers and eliminate the practice of price walking within the home and motor insurance markets.
The multi-firm review explored how insurance firms designed, sold and reviewed their products to ensure insurance propositions meet the needs of customers.
However, upon conclusion of the review, the regulator believes that “too many firms are not fully meeting the FCA’s standards” and that “many firms are likely to be unprepared to meet new enhanced rules on product governance, which come into force on 1 October 2021”.
In particular, the review found:
- An insufficient focus on customers, outcomes and product value, including when considering value in the context of Covid-19.
- Shortcomings in governance and oversight of products.
For example, “it was not always clear [that] firms have adequate processes in place to assess whether intermediary remuneration (such as how much a broker is paid) bears reasonable relationship to the costs or workload to distribute the product as set out in previous guidance and required under the rules applicable from 1 October 2021”, the FCA explained.
Despite this, the review findings also “show that some firms had made good progress in meeting the FCA’s existing rules and guidance on product governance and value, issued in 2018 and 2019, as well as against temporary guidance on product value, issued in response to Covid-19 last year”.
‘Significant work’ left to do
Within its review, the FCA stated: “We are committed to reviewing the value consumers receive from insurance products. Our work has found that many firms [have] made material progress in this area since our last work. But we have also seen many firms where shortcomings remain.
“This is of concern, given the potential for consumer harm arising from such shortcomings.
“It also indicates that many firms still have significant work to do to comply with the enhanced product governance rules coming into effect on 1 October 2021 and their expanded scope.
“In some cases, arising from this review and other product value related supervisory work, we have intervened to ensure firms take action to amend products and improve the value they deliver to customers, including through reductions in remuneration and the provision of additional cover or benefits.
“This can involve requiring firms to withdraw products from sale while these amendments are made, or to pay refunds or redress where we see harm arising.
“We will consider all appropriate regulatory action where firms fail to meet their regulatory obligations, both for their historic product governance arrangements or under the new requirements from 1 October 2021.”
Speaking on the results of the review, Sheldon Mills, executive director for supervision, policy and competition at the FCA, said: “We know some firms are doing the right thing but with the deadline for implementing our enhanced rules less than two months away, it’s worrying that some firms may not be ready.
“Where firms are not consistently meeting existing requirements and expectations, it risks harm through poor value products or products being sold to the wrong customers.
“These firms have significant work to do urgently to be able to comply with the enhanced product governance rules. Firms that fail to do that work risk regulatory action.”