Minimising the impact of operational disruption
The FCA reported that it has recently seen incidences of a lack of operational resilience within firms to the detriment of customers and the wider market.
It added that it is "particularly concerned" with the level of governance, oversight and contingency planning on outsourced services where, if a problem occurs, customers suffer harm.
The authority advised that it is good practice for firms to have credible plans in place to manage and recover from operational problems, take remedial action where necessary and notify the regulators promptly as appropriate.
It gave particular mention to the risks of cyber attacks and the need to ensure adequate controls in place where information is held by third parties.
Improving oversight of appointed representatives
The FCA stated that many firms in the insurance market operate as principals with ARs to bring benefits such as supporting innovation.
Therefore, it will be testing that firms are properly embedding its new rules across the AR regime and increasing and improving its engagement with principal firms and other stakeholders.
It added that it expects principal firms to ensure high standards both within their firm, and at their ARs.
Additionally, the FCA stated that principals need to take steps to ensure their ARs operate within those high standards and to take assertive action with those ARs that fall below the principal firm’s standards.
This follows the introduction of the FCA's strengthened rules, which came into force on 8 December 2022, which gave principals more responsibility for ensuring ARs are fit and proper.
Action
The FCA concluded by reminding firms to take all necessary steps to ensure consumer duty requirements are met.
It added that a “significant” part of its activity over the next two years will be to test firms against its priorities and expectations.
It will also continue to use data to identify outliers and, where firms are not meeting the rules and expectations, take action.
Additionally, the FCA announced that it would be specifically engaging with smaller firms to understand how they are meeting consumer duty requirements and delivering good customer outcomes in a sustainable way.
tom.dunstan@ft.com
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