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Compliance Portal
July 18, 2023
The FCA has written to Principal firms by e-mail in relation to their PII cover, setting out its requirements for the inclusion of a Principal firm’s Appointed Representatives within the PII contract terms. The FCA confirms that it has increased its engagement with Principal firms and is using the data received to direct its supervisory work. This is an indicator of how the FCA will use data to choose where to apply its supervision resource. The e-mail indicated that the FCA had not conducted a detailed review of the recipient firms’ PII policies, but that the Regulator expects firm to ensure their PII policies are fully compliant with FCA rules.
The letter appears to be directed al Principal firms from all sectors, not specifically insurance. It indicated that the FCA had not conducted a detailed review of the recipient firms’ PII policies, but that the Regulator expects firm to ensure their PII policies are fully compliant with FCA rules.
The FCA has analysed the data it holds in relation to Principal firms’ PII, the analysis showing that:
- a small number of Principal firms, which are required to hold PII under FCA rules, do not hold policies which cover the activities of their current and former ARs;
- some PII policies did not appear to comply with other aspects of the PII rules.
The Rule for insurance intermediaries at MIPRU 3.2.4 states that an insurance intermediary firm’s PI contract “…must incorporate terms which make provision for: (1) cover in respect of claims for which a firm may be liable as a result of the conduct of itself, its employees and its appointed representatives (acting within the scope of their appointment)…”.
The FCA expects Principal firms to consider if their PII policy contains any significant exclusions and whether these conflict with the requirement to hold full cover in relation to their own activities and those of their of their current and former ARs. The FCA stated that, for the avoidance of doubt, it is not sufficient for ARs alone to hold PII policies. The responsibility to hold a compliant PII policy which covers the regulated activities of its ARs, if required by our rules, lies with the Principal firm.
SUP 12 states that Principal firms have accepted responsibility for the acts or omissions of their ARs (acting in the scope of the AR agreement). The FCA reminds all Principal firms of its guidance published in FG20/1, published in June 2020, which emphasises the requirement for Principal firms to hold adequate financial resources taking into account the activities of their ARs.
Principal firms should review the relevant rules and guidance to ensure they are meeting FCA requirements and, If you do not hold an adequate PII policy, you should immediately take steps to rectify this. The FCA would consider a breach of its PII rules a ‘notifiable event’ and would expect firms to submit a SUP 15 notification to make the FCA aware of this matter.
In addition, the FCA has published a reminder to Principal firms in an updated web page in relation to including their ARs under their PII policies. It reminds firms that “…If you are a Principal firm with Appointed Representatives (ARs) you must hold compliant PII to cover the activities of your current and former ARs (including Introducer Appointed Representatives) where required to do so by our rules.”
