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    2024-05-27

SYSC 3.3 Additional requirements for insurance distribution

Application

SYSC 3.3.1R

1SYSC 3.3 applies to an insurer in the course of it carrying on any insurance distribution activities.

SYSC 3.3.2G

[deleted]3

122
SYSC 3.3.3R

[deleted]3

SYSC 3.3.4G
1

[deleted]3

Identifying conflicts

SYSC 3.3.5R

1A firm must take all appropriate steps to identify conflicts of interest that arise between:

  1. (1)

    the firm, including its managers, employees and appointed representatives (or where applicable, tied agents), or any person directly or indirectly linked to it3 by control, and a client of the firm; or

  2. (2)

    one client of the firm and another client.

[Note: article 28(1) of the IDD]

SYSC 3.3.6R

3For the purposes of identifying, in accordance with SYSC 3.3.5R and SYSC 3.3.13R, the types of conflicts of interest that arise in the course of carrying out any insurance distribution activities related to policies and which entail a risk of damage to the interests of a client, a firm must assess whether it, a relevant person or any person directly or indirectly linked to it by control, has an interest in the outcome of the insurance distribution activities, which meets the following criteria:

  1. (1)

    3it is distinct from the client’s or potential client’s interest in the outcome of the insurance distribution activities;

  2. (2)

    3it has the potential to influence the outcome of the insurance distribution activities to the detriment of the client.

A firm must proceed in the same way for the purposes of identifying conflicts of interest between one client and another.3

SYSC 3.3.7R

3For the purposes of the assessment in SYSC 3.3.6R, a firm must take into account, by way of minimum criteria, the following situations:

  1. (1)

    3the firm, a relevant person or any person directly or indirectly linked to it by control is likely to make a financial gain, or avoid a financial loss, to the potential detriment of the client;

  2. (2)

    3the firm, a relevant person or any person directly or indirectly linked to it by control has a financial or other incentive to favour the interest of another client or group of clients over the interest of the client;

  3. (3)

    3the firm, a relevant person or any person directly or indirectly linked by control to the firm is substantially involved in the management or development of policies, in particular where such a person has an influence on the pricing of those policies or their distribution costs.

[Note: article 3 of the IDD Regulation]

Managing conflicts

SYSC 3.3.8R

1A firm must maintain and operate effective organisational and administrative arrangements with a view to taking all reasonable steps designed to prevent conflicts of interest identified under SYSC 3.3.5R from adversely affecting the interests of its clients.

[Note: article 27 of the IDD]

Proportionality

SYSC 3.3.9R

1The arrangements in SYSC 3.3.8R must be proportionate to the activities performed, the policies sold and the type of insurance distributor the firm is or uses.

[Note: article 27 of the IDD]

Conflicts policy

SYSC 3.3.10R
  1. (1)

    3For the purposes of SYSC 3.3.8R and SYSC 3.3.9R, a firm must establish, implement and maintain an effective conflicts of interest policy set out in writing and appropriate to its size and organisation and the nature, scale and complexity of its business.

  2. (2)

    3Where the firm is a member of a group, the policy must also take into account any circumstances, of which the firm is or should be aware, which may give rise to a conflict of interest arising as a result of the structure and business activities of other members of the group.

[Note: article 4(1) of the IDD Regulation]

Contents of policy

SYSC 3.3.11R

3The conflicts of interest policy required in SYSC 3.3.10R must include the following content:

  1. (1)

    3with reference to the specific insurance distribution activities carried out, the circumstances which constitute or may give rise to a conflict of interest entailing a risk of damage to the interests of one or more clients;

  2. (2)

    3procedures to be followed and measures to be adopted in order to manage such conflicts and prevent them from damaging the interests of the client.

[Note: article 4(2) of the IDD Regulation]

SYSC 3.3.12R
  1. (1)

    3The procedures and measures required in SYSC 3.3.11R(2) must be appropriate to the size and activities of the firm and of the group to which it may belong, and to the risk of damage to the interests of the client.

  2. (2)

    3The procedures to be followed and measures required in SYSC 3.3.11R(2) must include, where appropriate, the following:

    1. (a)

      effective procedures to prevent or control the exchange of information between relevant persons engaged in activities involving a risk of conflict of interest where the exchange of that information may damage the interests of one or more clients;

    2. (b)

      the separate supervision of relevant persons whose principal functions involve carrying out activities on behalf of, or providing services, to clients whose interests may conflict, or who otherwise represent different interests that may conflict, including those of the firm;

    3. (c)

      the removal of any direct link between payments, including remuneration, to relevant persons engaged in one activity and payments, including remuneration, to different relevant persons principally engaged in another activity, where a conflict of interest may arise in relation to those activities;

    4. (d)

      measures to prevent or limit any person from exercising inappropriate influence over the way in which insurance distribution activities are carried out by the firm or its managers or employees or any person directly or indirectly linked to it by control;

    5. (e)

      measures to prevent or control the simultaneous or sequential involvement of a relevant person in separate insurance distribution activities where such involvement may impair the proper management of conflicts of interest;

    6. (f)

      a gifts and benefits policy which determines clearly under which conditions gifts and benefits can be accepted or granted and which steps are to be taken when accepting and granting gifts and benefits.

  3. (3)

    3Where the firm can demonstrate that the measures and procedures referred to in (1) and (2) are not appropriate to ensure that the insurance distribution activities are carried out in accordance with the best interest of the client and are not biased due to conflicting interests of the firm, an insurance intermediary or another client, the firm must adopt adequate alternative measures and procedures for that purpose.

[Note: article 5 of the IDD Regulation]

Disclosure of conflicts

SYSC 3.3.13R
  1. (1)

    1If arrangements made under SYSC 3.3.8R are not sufficient to ensure, with reasonable confidence, that risks of damage to the interests of a client will be prevented, the firm must:

    1. (a)

      clearly disclose to the client the general nature or sources of the conflicts of interest (or both); and

    2. (b)

      include sufficient detail in the disclosure, taking into account the nature of the client, to enable that client to take an informed decision with respect to the insurance distribution activities in the context of which the conflict of interest arises.

  2. (2)

    The disclosure must be made:

    1. (a)

      in a durable medium; and

    2. (b)

      in good time before the conclusion of the contract of insurance.

[Note: article 28(2) and (3) of the IDD]

SYSC 3.3.14R
  1. (1)

    3A firm must avoid over-reliance on disclosure to ensure that disclosure to clients, under SYSC 3.3.13R is a measure of last resort that can be used only where the effective organisational and administrative arrangements established by the firm to prevent or manage conflicts of interest in accordance with SYSC 3.3.8R and SYSC 3.3.9R are not sufficient to ensure, with reasonable confidence, that risks of damage to the interests of the client will be prevented.

  2. (2)

    3For the purposes of a disclosure of conflicts of interest a firm must:

    1. (a)

      provide a specific description of the conflict of interest in question;

    2. (b)

      explain the general nature and sources of the conflict of interest;

    3. (c)

      explain the risks to the client that arise as a result of the conflict of interest and the steps undertaken to mitigate those risks;

    4. (d)

      clearly state that the organisational and administrative arrangements established by the firm to prevent or manage the conflict of interest are not sufficient to ensure, with reasonable confidence, that risks of damage to the interests of the client will be prevented.

[Note: article 6 of the IDD Regulation]

Review of conflicts policy

SYSC 3.3.15R

3For the purposes of SYSC 3.3.8R, a firm must assess and periodically review, on an at least annual basis, the conflicts of interest policy established in accordance with SYSC 3.3.10R and take all appropriate measures to address any deficiencies.

[Note: article 7(1) of the IDD Regulation]

Record keeping

SYSC 3.3.16R
  1. (1)

    3A firm must keep and regularly update a record of the situations in which a conflict of interest entailing a risk of damage to the interests of a client has arisen or, in the case of an ongoing service or activity may arise.

  2. (2)

    3A firm must ensure its senior management receives on a frequent basis, and at least annually, written reports on the situations referred to in (1).

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

SYSC 3.3.17R

1A firm carrying on insurance distribution activities in relation to insurance-based investment products must retain its records relating to:

  1. (1)

    suitability (COBS 9A); and

  2. (2)

    appropriateness (COBS 10A),

for a period of at least five years.

SYSC 3.3.18G
  1. (1)

    1COBS 9A.4 and COBS 10A.7 (record keeping and retention periods for suitability and appropriateness records) contain record keeping requirements that specify information which should be recorded by firms3 in relation to insurance-based investment products and for how long the records must be retained.

  2. (2)

    For the purposes of SYSC 3.3.17R, a firm will need to consider whether the requirement in COBS 9A.4.3R or COBS 10A.7.2AR3 means that a record needs to be retained for longer than five years.

    22
SYSC 3.3.19R
  1. (1)

    3The records required under COBS 9A.4 and COBS 10A.7 must be retained in a medium that allows the storage of information in a way accessible for future reference by the FCA.

  2. (2)

    3The FCA must be able to access the records in (1) readily, to reconstitute each element in a clear and accurate manner and to identify easily any changes, corrections or other amendments, and the contents of the records prior to such modifications.

[Note: article 19(4) of the IDD Regulation]