ICOBS 1 Annex 1 Application (see ICOBS 1.1.2 R)

1

Third party processors

1.1

R

(1)

This rule applies where a firm (or its appointed representative) ("A") has outsourced insurance mediation activities to a third party processor.

(2)

2

Managing agents

2.1

R

(1)

References to an insurer apply equally to a managing agent unless the context requires otherwise.

(2)

A managing agent must give effect to the policy that a consumer must, where required by this sourcebook, be offered cancellation rights.

(3)

References to managing agents in this sourcebook relate to their functions in managing the obligations of a member in his capacity as such.

3

Authorised professional firms

3.1

R

This sourcebook (except for ICOBS 4.6) does not apply to an authorisedprofessional firm with respect to its non-mainstream regulated activities except for:

(1)

the provisions on communications to clients and financial promotions (see ICOBS 2.2);

(2)

the e-commerce provisions (ICOBS 3.2);

(3)

status disclosure requirements in relation to complaints procedures (see ICOBS 4.1); and

(4)

provisions implementing articles 12 and 13 of the Insurance Mediation Directive (see ICOBS 4.1, ICOBS 5.2 and ICOBS 5.3.3 R), except to the extent that the firm is subject to equivalent rules of its designated professional body approved by the FCA.

3.2

G

Compliance with provisions of the Distance Marketing Directive is dealt with in the Professional Firms sourcebook (see PROF 5.4).

4

Appointed representatives

4.1

R

(1)

An insurer must ensure that its appointed representative complies with this sourcebook as it applies to an insurance intermediary.

(2)

However, if the appointed representative is acting as the insurer'sthird party processor then:

(a)

this rule is subject to the third party processorsrule (see paragraph 1.1R); and

(b)

the insurer is not required to ensure that the appointed representative complies with the rules in this sourcebook on commission disclosure (see ICOBS 4.4) or, unless they apply to an insurer, the rules on statements of demands and needs (see ICOBS 5.2).

4.2

G

The cancellation requirements in chapter 7 do not apply to a distance contract entered into by an appointed representative to provide mediation services. Regulations 9 (Right to cancel) to 13 (Payment for services provided before cancellation) of the Distance Marketing Regulations apply instead.

5

Service companies

5.1

R

This sourcebook does not apply to a service company, except for the provisions on communications to clients and financial promotions (see ICOBS 2.2).

6

Lloyd’s

6.1

R

The Society must ensure that no member carries on motor vehicle liability insurance business at Lloyd's unless a claims representative has been appointed to act for that member in each EEA State other than the United Kingdom, with responsibility for handling and settling a claim by an injured party. Otherwise, this sourcebook does not apply to the Society.

1

Reinsurance

1.1

R

This sourcebook does not apply to activities carried on in relation to a reinsurance contract.

[Note: article 12(4) of the Insurance Mediation Directive]

2

Contracts of large risks

2.1

R

Subject to Part 3 of this Annex, this sourcebook does not apply to an insurance intermediary mediating a contract of large risks:

(1)

where the risk is located outside the European Economic Area; or

(2)

for a commercial customer where the risk is located within the European Economic Area.

[Note: article 12(4) of the Insurance Mediation Directive]

2.2

G

Principle 7 continues to apply so a firm should provide evidence of cover promptly after inception of a policy to its customer. In respect of a group policy, a firm should provide information to its customer to pass on to other policyholders and should tell the customer that he should give the information to each policyholder.

3

Pure protection contracts: election to apply COBS rules

3.1

R

(1)

This sourcebook (except for ICOBS 4.6)3 does not apply in relation to a pure protection contract to the extent that a firm has elected to comply with the Conduct of Business sourcebook (COBS) in respect of such business.

(2)

Within the scope of such an election, a firm must:

(a)

comply with the rest of the Handbook (except for COBS 6.1A, COBS 6.1B and COBS 6.1.9 R) treating the pure protection contract as a life policy and a designated investment, and not as a non-investment insurance contract; and3

(b)

if applicable, also comply with ICOBS 4.6.3

(3)

A firm must make, and retain indefinitely, a record in a durable medium of such an election (and any reversal or amendment). The record must include the effective date and a precise description of the part of the firm's business to which the election applies.

4

Chains of insurance intermediaries

4.1

R

Where there is a chain of insurance intermediaries between the insurer and the customer, this sourcebook applies only to the insurance intermediary in contact with the customer.

1

EEA territorial scope rule: compatibility with European law

1.1

R

(1)

The territorial scope of this sourcebook is modified to the extent necessary to be compatible with European law (see Part 4 for guidance on this).

(2)

This rule overrides any other rule in this sourcebook.

1.2

R

In addition to the EEA territorial scope rule, the effect of the E-Commerce Directive on territorial scope is applied in the fields covered by the 'derogations' in the Annex to that Directive other than the 'insurance derogation' in the fourth indent (see paragraph 8 of Part 4 for guidance on this).

[Note: article 3(3) of, and Annex to, the E-Commerce Directive]

2

Exemption for insurers: business with non-EEA customers via non-UK intermediaries

2.1

R

This sourcebook does not apply to an insurer if:

(1)

the intermediary (whether or not an insurance intermediary) in contact with the customer is not established in the United Kingdom; and

(2)

the customer is not habitually resident in, and, if applicable, the State of the risk is outside, an EEA State.

3

Exemption for insurers: business with non-UK EEA customers

3.1

R

A rule in this sourcebook which goes beyond the minimum required by EU2 legislation does not apply to an insurer if the customer is habitually resident in (and, if applicable, the State of the risk is) an EEA State other than the United Kingdom, to the extent that the EEA State in question imposes measures of like effect.

Part 4: Guidance

1

The main extensions and restrictions to the general application rule

1.1

G

The general application rule is modified in Parts 1 to 3 of this Annex and in certain chapters of this sourcebook.

1.2

G

The provisions of the Single Market Directives and other directives also extensively modify the general application rule, particularly in relation to territorial scope. However, for the majority of circumstances, the general application rule is likely to apply.

2

The Single Market Directives and other directives

2.1

G

This guidance provides a general overview only and is not comprehensive.

2.2

G

When considering the impact of a directive on the territorial application of a rule, a firm will first need to consider whether the relevant situation involves a non-UK element. The EEA territorial scope rule is unlikely to apply if a UK firm is doing business from a UKestablishment for a client located in the United Kingdom in relation to a UK product. However, if there is a non-UK element, the firm should consider whether:

(1)

it is subject to the directive;

(2)

the business it is performing is subject to the directive; and

(3)

the particular rule is within the scope of the directive.

If the answer to all three questions is ‘yes’, the EEA territorial scope rule may change the effect of the general application rule.

2.3

G

When considering a particular situation, a firm should also consider whether two or more directives apply.

3

Insurance Mediation Directive: effect on territorial scope

3.1

G

The Insurance Mediation Directive's scope covers most firms carrying on most types of insurance mediation. The rules in this sourcebook within the Directive's scope are those that require the provision of pre-contract information or the provision of advice on the basis of a fair analysis (see ICOBS 4 (Information about the firm, its services and remuneration), ICOBS 5.2 (Statement of demands and needs), ICOBS 5.3.3 R (Advice on the basis of a fair analysis) and ICOBS 6 (Product information)).

3.2

G

The rules implementing the minimum information and other requirements in articles 12 and 13 of the Directive are set out in ICOBS 4.1 (General requirements for insurance intermediaries), ICOBS 5.2 (Statement of demands and needs) and ICOBS 5.3.3 R (Advice on the basis of a fair analysis).

3.3

G

In the FCA's view, the responsibility for these minimum requirements rests with the Home State, but a Host State is entitled to impose additional requirements within the Directive’s scope in the 'general good'. (See recital 19 to and article 12(5) of the Insurance Mediation Directive.) Accordingly, the general rules on territorial scope are modified so that:

(1)

for a UK firm providing passported activities through a branch in another EEA State under the Directive, the rules implementing the Directive's minimum requirements apply, but the territorial scope of the additional rules within the Directive's scope is not modified;

(2)

for an EEA firm providing passported activities under the Directive in the United Kingdom, the rules implementing the Directive's minimum requirements do not apply, but the additional rules within the Directive's scope have their unmodified territorial scope unless the Home State imposes measures of like effect; and

(3)

an EEA firm acting as the principal of an appointed representative is required to ensure that its appointed representative complies with this sourcebook as it applies to a UK firm that is an authorised person.

4

Non-Life Directives: effect on territorial scope

4.1

G

The Non-Life Directives' scope covers insurers authorised under those Directives conducting general insurance business.

4.2

G

The rules in this sourcebook within the Directives’scope are those requiring the provision of pre-contract information or information during the term of the contract concerning the insurer or the insurance contract (see ICOBS 2.2 (Communications to clients and financial promotions), ICOBS 4 (Information about the firm, its services and remuneration), ICOBS 6 (Product information) and ICOBS 8 (Claims handling) except ICOBS 8.2 (Motor vehicle liability insurers)).

4.3

G

The Directives specify minimum information requirements and permit EEA States to adopt additional mandatory rules. (See article 7 of the Second Non-Life Directive)

4.4

G

If the State of the risk is an EEA State, the Directives provide that the applicable information rules shall be determined by that state. Accordingly, if the State of the risk is the United Kingdom, the relevant rules in this sourcebook apply. Those rules do not apply if the State of the risk is another EEA State. The territorial scope of other rules, in particular the financial promotion rules, is not affected since the Directives explicitly permit EEA States to apply rules, including advertising rules, in the 'general good'. (See articles 28 and 41 of the Third Non-Life Directive)

5

Consolidated Life Directive: effect on territorial scope

5.1

G

The Consolidated Life Directive's scope covers long-term insurers authorised under that Directive conducting long-term insurance business.

5.2

G

The rules in this sourcebook within the Directive's scope are the cancellation rules (see ICOBS 7) and those rules requiring the provision of pre-contract information or information during the term of the contract concerning the insurer or the contract of insurance (see ICOBS 2.2 (Communications to clients and financial promotions), ICOBS 4 (Information about the firm, its services and remuneration), ICOBS 6 (Product information) and ICOBS 8 (Claims handling) except ICOBS 8.2 (Motor vehicle liability insurers)).

5.3

G

The Directive specifies minimum information and cancellation requirements and permits EEA States to adopt additional information requirements that are necessary for a proper understanding by the policyholder of the essential elements of the commitment.

5.4

G

If the State of the commitment is an EEA State, the Directive provides that the applicable information rules and cancellation rules shall be determined by that state. Accordingly, if the State of the commitment is the United Kingdom, the relevant rules in this sourcebook apply. Those rules do not apply if the State of the commitment is another EEA State. The territorial scope of other rules, in particular the financial promotion rules,1 is not affected since the Directive explicitly permits EEA States to apply rules, including advertising rules, in the 'general good'. (See articles 33, 35, 36 and 47 of the Consolidated Life Directive)

6

Motor Insurance Directives: effect on territorial scope

6.1

G

The scope of the Consolidated Motor Insurance Directive4 covers insurers conducting motor vehicle liability insurance business. The rules in this sourcebook within the Directive's4 scope are those regarding the appointment of claims representatives and handling of claims by injured parties (see ICOBS 8.2).

6.2

G

The Directive requires4 a motor vehicle liability insurer to appoint a claims representative in each EEA State other than its Home State. It specifies4 minimum requirements regarding function and powers of claims representatives in handling claims and regarding the settlement of claims by injured parties.

6.3

G

The Directive's4 provisions apply to motor vehicle liability insurers for which the United Kingdom is the Home State. (See articles 21 and 22 of the Consolidated Motor Insurance Directive).4

7

Distance Marketing Directive: effect on territorial scope

7.1

G

In broad terms, a firm is within the Distance Marketing Directive's scope when conducting an activity relating to a distance contract with a consumer. The rules in this sourcebook within the Directive's scope are those requiring the provision of pre-contract information (see ICOBS 2.2 ((Communications to clients and financial promotions), ICOBS 4 (Information about the firm, its services and remuneration) and ICOBS 6 (Product information)), the cancellation rules (see ICOBS 7) and the other specific rules implementing the Directive (see ICOBS 3.1).

7.2

G

In the FCA's view, the Directive places responsibility for requirements within the Directive's scope on the Home State except in relation to business conducted through a branch, in which case the responsibility rests with the EEA State in which the branch is located (this is sometimes referred to as a 'country of origin' or ‘country of establishment’ basis). (See article 16 of the Distance Marketing Directive)

7.3

G

This means that relevant rules in this sourcebook will, in general, apply to a firm conducting business within the Directive's scope from an establishment in the United Kingdom (whether the firm is a national of the United Kingdom or of any other EEA State or non-EEA state).

7.4

G

Conversely, the territorial scope of the relevant rules in this sourcebook is modified as necessary so that they do not apply to a firm conducting business within the Directive's scope from an establishment in another EEA State if the firm is a national of the United Kingdom or of any other EEA State.

7.5

G

In the FCA's view:

(1)

the ‘country of origin’ basis of the Directive is in line with that of the E-Commerce Directive; (see recital 6 to the Distance Marketing Directive)

(2)

for business within the scope of both the Distance Marketing Directive and theConsolidated Life Directive, the territorial application of the Distance Marketing Directive takes precedence; in other words, the rules requiring pre-contract information and cancellation rules derived from the Consolidated Life Directive apply on a ‘country of origin’ basis rather than being based on the State of the commitment; (see articles 4(1) and 16 of the Distance Marketing Directive noting that the Distance Marketing Directive was adopted after the Consolidated Life Directive)

(3)

for business within the scope of both the Distance Marketing Directive and the Insurance Mediation Directive, the minimum information and other requirements in the Insurance Mediation Directive continue to be those applied by the Home State, but the minimum requirements in the Distance Marketing Directive and any additional pre-contract information requirements are applied on a ‘country of origin’ basis. (The basis for this is that the Insurance Mediation Directive was adopted after the Distance Marketing Directive and is not expressed to be subject to it.)

8

Electronic Commerce Directive: effect on territorial scope

8.1

G

The E-Commerce Directive's scope covers every firm carrying on an electronic commerce activity. Every rule in this sourcebook is within the Directive's scope.

8.2

G

A key element of the Directive is the ability of a person from one EEA State to carry on an electronic commerce activity freely into another EEA State. Accordingly, the territorial application of the rules in this sourcebook is modified so that they apply at least to a firm carrying on an electronic commerce activity from an establishment in the United Kingdom with or for a person in the United Kingdom or another EEA State.

8.3

G

Conversely, a firm that is a national of the United Kingdom or another EEA State, carrying on an electronic commerce activity from an establishment in another EEA State with or for a person in the United Kingdom, need not comply with the rules in this sourcebook. (See article 3(1) and (2) of the E-Commerce Directive)

8.4

G

The effect of the Directive on this sourcebook is subject to the 'insurance derogation', which is the only ‘derogation’ in the Directive that the FCA has adopted for this sourcebook. The derogation applies to an insurer that is authorised under, and carrying on an electronic commerce activity within, the scope of the Insurance Directives and permits EEA States to continue to apply their advertising rules in the 'general good'.

8.5

G

Where the derogation applies, the rules on financial promotion continue to apply for incoming electronic commerce activities (unless the firm's 'country of origin' applies rules of like effect), but do not apply for outgoing electronic commerce activities. (See article 3(3) and Annex, fourth indent of the E-Commerce Directive; Annex to European Commission Discussion Paper MARKT/2541/03)

8.6

G

In the FCA's view, the Directive's effect on the territorial scope of this sourcebook (including the use of the 'insurance derogation'):

(1)

is in line with the Distance Marketing Directive;

(2)

overrides that of any other Directive discussed in this Annex to the extent that it is incompatible.

8.7

G

The 'derogations' in the Directive may enable other EEA States to adopt a different approach to the United Kingdom in certain fields. (See recital 19 to the Insurance Mediation Directive, recital 6 to the Distance Marketing Directive, article 3 of, and the Annex to, the E-Commerce Directive)