FCA sends Portfolio Letter to insurance intermediaries

May 2022

FCA sends Portfolio Letter to personal and commercial lines insurance intermediaries

The FCA has issued a Portfolio Letter to personal and commercial lines insurance brokers, in which the FCA’s headline expectation is for brokers to consider the extent of the identified risks in their businesses and to act where they identify harm.  This is a periodic, but important, letter from the FCA to the GI intermediary Portfolio, in which it is reminding brokers of what the FCA sees as key areas that can cause harm to customers.  We recommend that brokers read the letter and take the time to understand it.

All insurance brokers (unless they are in the Lloyd’s and London Market Intermediaries portfolio) should have received this letter.

In line with the structure of past Dear CEO and Portfolio Letters, the letter sets out the FCA’s view of the risks of harm (primarily to customers, but also to markets generally) posed by personal and commercial lines brokers, outlines the FCA’s expectations of firms and their senior management, and gives firms a comprehensive list of issues to consider (three of which are noted as key risks) in assessing whether any of the risks identified by the FCA are likely to arise.

The highlighted issues are:

Key risks:

Other issues:

Brokers should review the issues highlighted, decide whether the issues relate to their business (e.g., AR oversight will not relate to a firm that doesn’t have any ARs), and then decide if there is anything about the way they conduct their business that might lead to customer harms; if they identify any areas where harm might occur, brokers must address those issues to prevent harms arising, and document their review and its outcome.

These issues could be used to drive annual compliance plan work or compliance monitoring activity, and should prompt a review of firms’ risk registers.

Firms should document an internal response to each section of the FCA’s letter, to be able to explain the work undertaken in response to this letter should the FCA ask for such evidence.  As a result of the letter, some firms may decide that they need help with reviewing key governance and oversight processes (e.g., product governance, GI pricing, AR oversight, client money oversight).

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