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ICOBS 2.1 Client categorisation

Introduction

ICOBS 2.1.1 G

1Different provisions in this sourcebook may apply depending on the type of person with whom a firm is dealing:

  1. (1)

    A policyholder includes anyone who, upon the occurrence of the contingency insured against, is entitled to make a claim directly to the insurance undertaking.

  2. (2)

    Only a policyholder or a prospective policyholder who makes the arrangements preparatory to him concluding a contract of insurance (directly or through an agent) is a customer. In this sourcebook, customers are either consumers or commercial customers.

  3. (3)

    A consumer is any natural person who is acting for purposes which are outside his trade or profession.

  4. (4)

    A commercial customer is a customer who is not a consumer.

Customer to be treated as consumer when status uncertain

ICOBS 2.1.2 R

If it is not clear in a particular case whether a customer is a consumer or a commercial customer, a firm must treat the customer as a consumer.

Customer covered in both a private and business capacity

ICOBS 2.1.3 G
2
  1. (1)

    Except where paragraph (2) applies, if a customer is acting in the capacity of both a consumer and a commercial customer in relation to a particular contract of insurance, the customer is a commercial customer.

    2
  2. (2)

    For the purposes of ICOBS 5.1.4 G and ICOBS 8.1.2 R, if, in relation to a particular contract of insurance, the customer entered into it mainly for purposes unrelated to his trade or profession, the customer is a consumer.

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Customer classification examples

ICOBS 2.1.4 G

In practice, private individuals may act in a number of capacities. The following table sets out a number of examples of how an individual acting in certain capacities should, in the FCA's view, be categorised.

Customer classification examples

Capacity

Classification

Personal representatives, including executors, unless they are acting in a professional capacity, for example, a solicitor acting as executor.

Consumer

Private individuals acting in personal or other family circumstances, for example, as trustee of a family trust.

Consumer

Trustee of a trust such as a housing or NHS trust.

Commercial customer

Member of the governing body of a club or other unincorporated association such as a trade body and a student union.

Commercial customer

Pension trustee.

Commercial customer

Person taking out a policy covering property bought under a buy-to-let mortgage.

Commercial customer

Partner in a partnership when taking out insurance for purposes related to his profession.

Commercial customer

ICOBS 2.2 Communications to clients and financial promotions

Application

ICOBS 2.2.1 R

In addition to the general application rule for this sourcebook, this section applies to the communication, or approval for communication, to a person in the United Kingdom of a financial promotion of a non-investment insurance contract unless it can lawfully be communicated by an unauthorised communicator without approval.

Clear, fair and not misleading rule

ICOBS 2.2.2 R

When a firm communicates information, including a financial promotion, to a customer or other policyholder, it must take reasonable steps to communicate it in a way that is clear, fair and not misleading.

Approving financial promotions

ICOBS 2.2.3 R
  1. (1)

    Before a firmapproves a financial promotion it must take reasonable steps to ensure that the financial promotion is clear, fair and not misleading.

  2. (2)

    If, subsequently, a firm becomes aware that a financial promotion is not clear, fair and not misleading, it must withdraw its approval and notify any person that it knows to be relying on its approval as soon as reasonably practicable.

Pricing claims: guidance on the clear, fair and not misleading rule

ICOBS 2.2.4 G
  1. (1)

    This guidance applies in relation to a financial promotion that makes pricing claims, including financial promotions that indicate or imply that a firm can reduce the premium, provide the cheapest premium or reduce a customer's costs.

  2. (2)

    Such a financial promotion should:

    1. (a)

      be consistent with the result reasonably expected to be achieved by the majority of customers who respond, unless the proportion of those customers who are likely to achieve the pricing claims is stated prominently;

    2. (b)

      state prominently the basis for any claimed benefits and any significant limitations; and

    3. (c)

      comply with other relevant legislative requirements, including the Consumer Protection from Unfair Trading Regulations 2008 and the Business Protection from Misleading Marketing Regulations 2008.1

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ICOBS 2.3 Inducements

ICOBS 2.3.1 G
  1. (1)

    Principle 8 requires a firm to manage conflicts of interest fairly, both between itself and its customers and between a customer and another client. This principle extends to soliciting or accepting inducements where this would conflict with a firm's duties to its customers. A firm that offers such inducements should consider whether doing so conflicts with its obligations under Principles 1 and 6 to act with integrity and treat customers fairly.

  2. (2)

    An inducement is a benefit offered to a firm, or any person acting on its behalf, with a view to that firm, or that person, adopting a particular course of action. This can include, but is not limited to, cash, cash equivalents, commission, goods, hospitality or training programmes.

ICOBS 2.4 Record-keeping

ICOBS 2.4.1 G
  1. (1)

    The Senior Management Arrangements, Systems and Controls sourcebook contains high-level record-keeping requirements (see SYSC 3.2.20 R and SYSC 9.1.1 R).1

    1
  2. (2)

    This sourcebook does not generally have detailed record-keeping requirements: firms will need to decide what records they need to keep in line with the high-level record-keeping requirements and their own business needs.

  3. (3)

    Firms should bear in mind the need to deal with requests for information from the FCA as well as queries and complaints from customers which may require evidence of matters such as:

    1. (a)

      the reasons for personal recommendations;

    2. (b)

      what documentation has been provided to a customer; and

    3. (c)

      how claims have been settled and why.

ICOBS 2.5 Exclusion of liability, conditions and reliance on others1

Exclusion of liability and conditions

ICOBS 2.5.1 R
1
  1. (1)

    A firm must not seek to exclude or restrict, or rely on any exclusion or restriction of, any duty or liability it may have to a customer or other policyholder unless it is reasonable for it to do so and the duty or liability arises other than under the regulatory system.1

  2. (2)

    A Solvency II firm must ensure that general and special policy conditions do not include any conditions intended to meet, in an individual case, the particular circumstances of the risk to be covered.1

    [Note: article 187 of the Solvency II Directive]1

ICOBS 2.5.2 G

The general law, including the Unfair Terms Regulations (for contracts entered into before 1 October 2015) and the CRA, 2also limits the scope for a firm to exclude or restrict any duty or liability to a consumer.

Reliance on others

ICOBS 2.5.3 G
  1. (1)

    Where it is compatible with the nature of the obligation imposed by a particular rule and with the Principles, in particular Principles 1 (Integrity), 2 (Skill, care and diligence) and 3 (Management and control), firms may rely on third parties in order to comply with the rules in this sourcebook.

  2. (2)

    For example, where a rule requires a firm to take reasonable steps to achieve an outcome, it will generally be reasonable for a firm to rely on information provided to it in writing by an unconnected authorised person or a professional firm, unless it is aware or ought reasonably to be aware of any fact that would give reasonable grounds to question the accuracy of that information. However, a firm cannot delegate its responsibility under the regulatory system. For example, where a rule imposes an absolute obligation (such as the requirement for an insurer to handle claims promptly and fairly) although a firm could use outsourcing arrangements to fulfil its obligation, it retains regulatory responsibility for achieving the outcome required.