FSA Regulation & Compliance (Important Changes)

 

So…What’s Happened?

 

The Treasury decided last year that sales of all UK travel insurance must be fully overseen and regulated by the Financial Services Authority (FSA) from 1st January 2009. Previously, those companies that were selling insurance alongside holidays or other travel arrangements (known as Connected Travel Insurance or CTI), were exempt from the regulations affecting the general insurance industry.

 

Timetable

 

01/01/09 Regulation of CTI commenced

31/12/09 End of Transitional Arrangements for IARs and Interim Authorisation

So…What Do I as a Travel Organiser Have to Do?

If you have not already, you need to make a decision on how you want to operate in the new environment. Only those who are authorised by the FSA in some manner can directly sell travel insurance to their clients. In light of the rules presented by the FSA (more information available from the FSA website at http://www.fsa.gov.uk/pages/Doing/small_firms/travel/faqs/index.shtml ) there are four options available to a CTI firm.

 

As of 1st January 2009, no travel agent should be offering travel insurance outside of the following options.

 

Options:

 

1. Be Authorised by the FSA

2. Be an Appointed Representative (AR)

3. Be an Introducer Appointed Representative (IAR)

4. Be an Unregulated Introducer

 

Additional Information:

 

Treating Customers Fairly (TCF)

 

 

So… What Help Can Citybond Provide?

 

Citybond Suretravel wants to make sure that the recent introduction of full travel insurance regulation is not the significant burden that it might seem at first, to show that it does not mean that you have to lose out on existing revenue streams and to ensure that travellers are not inconvenienced by a reduction in insurance provision, thereby leading to increased risks of travelling uninsured.

 

For further details of working with us in this arena, you should contact the Agency Sales team in the first instance at:

 

  • Email          :         sales@citybond.co.uk
  • Telephone  :         0845 618 0333
  • Fax             :         0845 618 0334

 

1. Direct Authorisation

 

This involves a direct application to the FSA to be supervised as a regulated firm in your own right. You will receive a set of permissions that will allow you to undertake regulated activities such as arranging and advising on contracts of insurance.

 

Your application to the FSA would be expected to give a full overview of the nature, scale and practices of your insurance operations, as well as being able to show you have the necessary systems and controls in place to appropriately monitor your activities and meet your responsibilities under the regulations. These include details on organisational structure, continuity plans, client money controls, financial position and resources, procedure manuals for sales and compliance and complaints management.

What are the costs?

 

·         To process your application, the FSA charge a fee of £1,500

·         You will also need to pay annual fees to the FSA, the level of which is dependent on your insurance income;

·         Development of compliant documentation;

·         Potentially employ a compliance consultant to assist in the application and in developing compliant processes, procedures and literature (approx £1,500 - £3,000) and then to provide on-going compliance services, for a fee each month, usually for a minimum of 2 years.

 

Becoming directly authorised would enable you to broaden your options regarding insurance and financial services in general if you wished, in that you could move from selling just CTI to standalone travel insurance or even into other insurance areas of benefit to your clients.

 

You will be considered as a ‘secondary intermediary’, meaning that it is recognised that insurance is not the mainstay of your business and thereby modifies the expectations that the FSA will have on your firm (e.g. only one approved person is needed rather than every director being registered with the FSA).

 

Advantages:

·         Increased control over insurance sales;

·         Right to appoint your own representatives and introducers;

·         Having defined procedures that show a well-run and ordered business;

·         Future expansion of financial service capabilities;

·         Direct contact and dialogue with the FSA.

 

Summary

 

The impact of direct authorisation is quite far-reaching and would have a very significant impact on the behaviour and operations of a travel firm.

 

Your ongoing responsibilities to the FSA mean you will be expected to continuously monitor your own activities to ensure they run in line with FSA expectations as well as notify them of any serious breaches, whilst also working to rectify areas that any reviews might highlight as being problematic. You will need to submit reports every year on your regulated activities - frequency of reporting being determined by the level of income derived from such business. Co-operation with any investigation or request for information is also a cornerstone of the FSA’s supervisory regime.

 

2. Appointed Representative (AR)

An AR is exempt from direct regulation and is instead responsible to an FSA-regulated Principal, whose commercial relationship with the firm is probably stronger than any regulator. This provides a good starting point for a growth or variation in this relationship as well as potentially easing the strains of regulatory transition. As an AR, you are able to undertake the kinds of regulated activities that the Principal may itself perform and the Principal is fully responsible for monitoring and controlling these.

 

Requirements

·         You will need to sign an agreement with your Principal (Citybond) detailing what you can and cannot do

·         You will need to put in place certain systems including:

o              sales scripts;

o              operational manuals;

o              training plans for all staff involved in dealing with insurance;

o              handling received insurance monies in a certain way;

o              being subject to regular internal and possible external audits from your insurance supplier;

o              maintain a complaints system.

·         A Director or Partner of the business will need to become an Approved Person (details of whom must be submitted to the FSA for checking).

·         Where an AR has more than one Principal, all Principals must enter into a Multi-Principal Agreement to ensure their respective responsibilities for the AR’s actions are clear.

·         You may well be charged by your Principal for the responsibilities he is taking on, on your behalf.

 

Advantages of AR status include:

 

  • Able to benefit from a close relationship with your Principal;
  • No direct application or ongoing authorisation fees;
  • Ultimate regulatory responsibility is held by another;
  • Ability to increase potential sales by offering a full range of travel insurance products, including annual multi-trip policies.

 

Summary

 

Principals must ensure that any AR they have approved complies fully with FSA rules. Any failure by the AR will mean that the Principal is in breach and can have action taken against it. This means the Principal (Citybond) may wish to monitor the insurance activities more closely in order to show that the Principal is maintaining its regulatory responsibilities for control of the sales process.

 

To assist with the ongoing AR requirements, Citybond has created a Sales and Compliance team that will guide you through the initial processes and ensure that both parties can evidence our regulatory requirements as smoothly as possible. Once a CTI firm has been appointed as an AR, after the necessary due diligence and registration, the day-to-day operational responsibility for compliance and monitoring will lie with the CTI firm with any compliance issues, including approval of financial promotions and the like, expected to be passed to the Principal for guidance and sign-off. Similarly, a Principal will seek to ensure the same rights of access to the firm as would be expected by the FSA.

 

In respect of the training and competence, Citybond has launched an online training and competence management system (Citybond Academy) that will provide training on FSA and travel insurance product modules and maintain a record for all staff that can be administered by the AR firm. Further details and a test login can be made available upon application.

 

3. Introducer Appointed Representative (IAR)

 

The Principal (Citybond) will be responsible for the activities of the IAR and must enter into a contract with them, confirming its limited status. Similar to an AR, an IAR also has a relationship with an insurance provider who agrees to supply a product but the degree of responsibility between the firm and its client, with respect to insurance, is far less. The IAR is exempt from regulation, other than having to be included on the FSA’s register as associated with another, regulated, company.

Under this option all you can do is:

  • Distribute financial promotions such as advertisements, proposal forms (or the web-equivalent) about travel insurance - you are not allowed to discuss, advise, arrange or assist in any way in completing sale of this product.
  • Pass client information to the Principal (Citybond). An IAR may pass customer information onto its Principal (with the client's permission) but may not otherwise get involved in the administration of the application process or collection of premium.

Advantages:

  • Virtually no set up costs involved.
  • If you have a website, we can now provide a selection of sample adverts in various formats that will enable you to promote our travel insurance.
  • We can also co-brand our website to promote your brand through the insurance sales process. All we will need from you is your web address and samples of your branding in a suitable format.
  • You will receive commission on travel insurance income generated by your Principal from your introduction.

 

Summary

 

Although a simpler arrangement than becoming an AR, with no approved person required by the FSA and the actual sales transaction taking place without strain on the firm’s existing resources, the IAR would need to make it clear to the customer that they are purely introducing business to another company and can in no way act for them in the transaction.

 

4. Unregulated Introducer

 

On an even more limited basis than being an IAR, you can opt for the unregulated introducer path where you only intend to give customers information or leaflets about CTI. However, this does mean that you cannot even pass the client’s details to your insurance provider by any means.

 

You can, though, have a dedicated communications point (e.g. phone line or internet terminal) that offers a link to an insurance provider so long as the client understands they are dealing with someone separate and no involvement on your part takes place. Because there is no form of supervisory input, adherence to the rules is down to you and responsibility for any breach of law will rest solely with you.

 

Not Offering CTI

 

If you have decided not to follow any of the above options, then you should have stopped offering CTI by 1st January 2009. Continuing to do so outside of some form of regulated environment may leave you exposed to legal action. You may feel that any benefit previously enjoyed from CTI sales is outweighed by regulatory restrictions in any form. In these circumstances, your firm will still be able to offer generic information about the need to have travel insurance but would not be able to undertake any form of regulated activity.

 

It should, however, be noted that this option may not be available to all travel firms unless there is a change in legislation (Package Holiday Regulations) and/or to the Code of Conduct for ABTA members.

 

Treating Customers Fairly (TCF)

 

Regulated firms also carry a responsibility (either directly or as an extension of the Principal) for the FSA’s well-publicised TCF initiative. Firms and their ARs must be able to demonstrate committed behaviour and practices that can deliver fair outcomes for clients.

 

A set of six such outcomes have been drawn up which encapsulate the TCF’s initiative:

 

  1. The ideas of consumer confidence in fair treatment;
  2. Proper product design and marketing;
  3. Clear information provision;
  4. Suitability of advice;
  5. Acceptable service levels and product performance;
  6. The removal unreasonable barriers when claiming or complaining.

 

You and/or your Principal will have to show not only that such practices are in place but that there is sufficient ‘management information’ to appropriately monitor the commitment to these principles and take action if necessary.

 

By being able to embed such responsibilities into your firm’s culture, business behaviour and staff actions, you can be confident of both maintaining compliant operations and have peace of mind from showing that your customers are being well-cared for.