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SYSC 19F.2 IDD remuneration incentives


SYSC 19F.2.1R

1This section applies to insurance distributors carrying on insurance distribution activities from an establishment maintained by it, or its appointed representative, in the United Kingdom.

[Note: article 7(2) of the IDD]

SYSC 19F.2.1AR

2This section does not apply to an authorised professional firm with respect to its non-mainstream regulated activities if:

  1. (1)

    the firm’s designated professional body has made rules which implemented3 article 17(3) of the IDD;

  2. (2)

    those rules have been approved by the FCA under section 332(5) of the Act; and

  3. (3)

    the firm is subject to the rules in the form in which they were approved.

Remuneration and the customer’s best interests

SYSC 19F.2.2R
  1. (1)

    1Insurance distributors must not:

    1. (a)

      be remunerated; or

    2. (b)

      remunerate or assess the performance of their employees,

    in a way that conflicts with their duty to comply with the customer’s best interests rules (ICOBS 2.5.-1R, in relation to a non-investment insurance contract, or COBS 2.1.1R, in relation to a life policy).

  2. (2)

    In particular, an insurance distributor must not make any arrangements by way of remuneration, sales target or otherwise that could provide an incentive to itself or its employees to recommend a particular contract of insurance to a customer in contact with the firm5 when the insurance distributor could offer a different insurance contract which would better meet the customer’s needs.

[Note: article 17(3) of the IDD]

  1. (3)

    5In relation to a non-investment insurance contract, an insurance distributor must not make any arrangements by way of remuneration or incentive to any person, including itself, its employees or any third party, that could lead:

    1. (a)

      the firm or its employees to arrange a particular contract of insurance; or

    2. (b)

      the customer to take out a particular insurance contract,

    where that would not be consistent with the interests of all customers of the policy, including prospective or actual policyholders or policy stakeholders including leaseholders (as the case may be).

SYSC 19F.2.2AG
  1. (1)

    5When assessing whether it complies with SYSC 19F.2.2R, an insurance distributor should consider all of the remuneration it receives in connection with a non-investment insurance contract, whether or not it intends to retain that remuneration or make payments out of that amount to another person. A firm should consider whether the gross amount of any sum it receives by way of remuneration, whether in the form of commission or of any other type, is consistent with ICOBS 2.5.-1R, rather than the net amount that the firm intends to retain.

  2. (2)

    5Where a firm has arrangements to provide incentives, including partial premium refunds or commission-like payments, to third parties (including the customer taking out the policy), this may encourage those persons to use the services of the firm. Where that is the case, those arrangements would be expected to lead to the firm receiving a financial or non-financial benefit or other incentive in respect of the insurance distribution activities to which it relates and so would be remuneration to which SYSC 19F.2.2R(1) applies.

Retail premium finance

SYSC 19F.2.3R

4The requirement in SYSC 19F.2.2R applies to remuneration an insurance distributor receives in relation to retail premium finance.

SYSC 19F.2.4G

4ICOBS 6A.5 includes further guidance on remuneration in relation to retail premium finance.