
Publication
Securities regulators amend investment limits for offering memorandum exemption
Canadian securities regulators have made changes to give investors greater access to exempt markets.
Global | Publication | November 7, 2014
In this update we summarise the key issues arising from the recast Insurance Mediation Directive, now known as the Insurance Distribution Directive. EIOPA has launched a consultation on guidelines for product oversight and governance for consumer products. The guidelines follow the approach the UK’s FCA has taken to product design, target market and oversight arrangements. A recent case in the High Court considered the jurisdiction of the FOS to consider a complaint brought by an insured person under a D&O policy for protection against liability in their role as a director. Finally, we report on recent developments in the Italian insurance market including new measures allowing insurers to grant financing.
Since May 2014 there have been published six compromise texts of the directive to revise the regulation of insurance mediation – now called the Insurance Distribution Directive (IDD).
The directive is expected to be adopted by Spring 2015 with transposition within two years meaning that the revised rules for the distribution of insurance products may be in effect in early 2017.
Set out below are key issues relating to the proposals in the IDD.
For further information please contact Laura Hodgson.
EIOPA has decided to follow the FCA and develop guidelines for Member State competent authorities on product oversight and governance for consumer products. This represents the developing move away from consumer protection measures at point of sale (i.e. status disclosure and product information) towards a more intrusive and pre-emptive regulatory approach. Clearly, like the FCA, EIOPA will expect firms to have in place advanced systems in order to ensure that products are not sold to the wrong markets.
This consultation follows a mandate given by the Joint Committee of the European Supervisory Authorities (ESAs) after it published a Joint Position of the ESAs on Manufacturers’ Product and Oversight & Governance Processes (November 2013). EIOPA sees its mandate to issue guidelines in the light of Article 41(1) of Solvency II: ‘Member States shall require all insurance and reinsurance undertakings to have in place an effective system of governance which provides for sound and prudent management of the business’.
Among the implications of the guidelines is that firms will need to take a much more robust approach to product testing. This may include undertaking stress-tests which take into account changes in the financial strength of the firm as well as reviews of how policy terms and conditions may impact the target audience and whether products may be affected by changing tax environments.
For the general insurance market, EIOPA suggests that an assessment of a product may include a review of the expected claims ratio and claims payment policy. This would require firms to review products should the claims ratio be higher or lower than expected. Firms would also have to take into account whether products overlap with coverage already provided to customers. Terms and conditions should be reviewed to see if they meet the needs of the target audience and reviewed to ensure that that audience understands the policy terms and limitations.
For the investment market, product testing should consider what would happen to the risk and reward profile of the product following changes to the value and liquidity of the underlying assets, how the risk-reward profile of the product is balanced and how might the tax environment change the product outcomes.
EIOPA is seeking feedback on the following 12 guidelines:
Responses are due by January 23, 2015.
For our insight into product governance please refer to our briefing Beyond law: understanding the scope of conduct regulation.
For further information:
EIOPA Guidelines on product oversight and governance arrangements by insurance undertakings
R (on the application of Bluefin Insurance Services Ltd) v Financial Ombudsman Service Ltd [2014] EWHC 3413 (Admin)
The High Court gave judgment in a judicial review claim brought by Bluefin Insurance Services (claimant), an insurance broker, challenging a decision made by the Financial Ombudsman Service (FOS) to accept jurisdiction over a complaint made against the claimant.
The claimant originally acted as a broker for a Directors and Officers (D&O) insurance policy taken out by Betbroker Ltd. Mr Lochner, founder, CEO and shareholder of Betbroker, benefitted from the D&O policy as an ‘insured person’. A claim was brought against Mr Lochner for allegedly dishonest misrepresentations made in the course of fund-raising on behalf of the Betbroker group. Litigation commenced in 2011 and Mr Lochner sought the protection of the D&O policy. The insurer rejected his claim contenting that it had not received any notice of a claim or circumstance likely to give rise to a claim pursuant to the policy terms.
Mr Lochner claimed to have notified the claimant (the broker) of the potential claim before the policy expired but the claimant failed to pass that information on to the insurer. Consequently, Mr Lochner brought a complaint to the FOS against the claimant.
In its decision of May 3, 2013, the FOS found that it did have jurisdiction to investigate Mr Lochner’s complaint and he was an ‘eligible complainant’, in this case ‘a consumer’, for the purposes of the Dispute Resolution: Complaints (DISP) section of the Financial Services Handbook. The FOS reasoned that the claim under the D&O policy related to a legal action against Mr Lochner personally and that his complaint concerned a loss of policy benefits that would go to him as an individual rather than his former company. The FOS decided that Mr Lochner was complaining on his own behalf and was, therefore, acting outside his trade, business, or profession. As such, Mr Lochner satisfied the DISP definition of a consumer.
The High Court ruled that ‘this was a case where the FOS decision was one of precedent fact and, upon its being challenged in judicial review proceedings, it is a decision which the court has to take, rather than being limited to review the decision of FOS on conventional judicial review grounds’. In giving judgment, Wilkie J then went on to consider whether the FOS was wrong to conclude that Mr Lochner was ‘a consumer’ and found in favour of the claimant concluding that, as an issue of precedent fact, Mr Lochner did not fall within the compulsory jurisdiction of the FOS as he was not an eligible complainant.
This is an important case for a number of reasons. It determines that it is for the courts to determine whether eligibility is a question of precedent fact. Furthermore, the case reviews case law on who is a consumer and draws boundaries around the eligibility of natural persons seeking redress from the FOS in relation to D&O policies taken out for protection against liability in their role as directors.
For further information:
R (on the application of Bluefin Insurance Services Ltd) v FOS [2014] EWHC 3413 (Admin)
On October 22, IVASS, the Italian insurance regulator, issued a new measure (the Provision) aimed at implementing the provisions of Law Decree no. 91 of 24 June 2014, converted with amendments into Law no. 116 of 11 August 2014 (Competitiveness Decree).
The Competitiveness Decree allows Italian insurance companies to grant financing directly to borrowers (other than individuals and micro-enterprises) for the purpose of widening the range of potential lenders and boosting access to credit.
Insurers shall adopt a ‘financing plan’, to be submitted to IVASS for evaluation, and they are allowed to consider such financings as investments covering their technical provisions, up to certain thresholds which have been set by the Provision.
Insurers must be assisted by a bank or financial intermediary in the activity of selecting borrowers, and such bank or financial intermediary shall retain an interest in each transaction, until the expiration of the transaction (but such interest is transferable to other banks or financial intermediaries). Alternatively, insurers may seek an authorisation from IVASS to directly carry out the activity of selecting borrowers.
Further implementation measures are expected to regulate access by insurers to the credit risk database kept by the Bank of Italy and periodic reporting to the Bank of Italy in respect of such financing business.
This development is consistent with wider efforts to encourage investment by insurers in the European economy.
For further information please contact Nicolò Juvara.
In September 2014, IVASS commenced a public consultation regarding a new draft Regulation aimed at updating rules concerning:
This will change the documentation that insurers are required to provide to IVASS during the procedure of registration to the public register of insurance companies incorporated in Italy. Insurers will now be required to provide:
Finally, the rules concerning authorisation to conduct insurance activities have been formalised in a draft Regulation which introduces many changes that can improve transparency in the insurance market.
For further information please contact Nicolò Juvara.
Publication
Canadian securities regulators have made changes to give investors greater access to exempt markets.
Publication
Another compliance deadline is approaching under the federal Pay Equity Act – federally regulated employers are required to file an annual statement with the Office of the Pay Equity Commissioner on or before June 30, 2025, if they posted a pay equity plan in the previous year.
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