The final draft of the Isle of Man Conduct of Business Code was published on Friday and included revisions following industry feedback.
Under the Code, broad commission disclosure will come into force worldwide for IoM-based life companies on 1 January 2018 and policyholder specific commission levels a year later.
Insurers will have until 30 June 2018 to bring their existing terms of business with brokers into line with the Code’s requirements.
Peter Kenny, managing director of Old Mutual International, said: “The Conduct of Business Code, as now drafted, is broadly consistent with our expectations, and we are pleased the regulatory changes remain on track.
“The Code includes more non-binding guidance set out in the appendices. Some of this guidance has appeared in various guises in the previous publications but some is new, and we are working through the detail. In broad terms, we remain supportive of the direction of travel,” he said.
Key information
The Isle of Man Financial Services Authority (IoMFSA) amended the latest draft of the Code to mean insurers would only have to issue a policyholder-specific key information document (Kid) when a sale is made.
However, they would have to provide a standard Kid before the point of sale, outlining the maximum commission payable for each product.
The change was made in response to industry feedback that details around commissions may only be finalised at the point of sale when terms are agreed, rather than earlier in discussions with policyholders.
IoMFSA agreed that it would be “most practicable” if the policyholder-specific Kid was issued and acknowledged at the point of sale.
“A duplicate policyholder-specific Kid could also be issued with the post-sale cancellation notice, thereby allowing the client to withdraw from the product if dissatisfied or not fully aware of the terms agreed,” the regulator said.
‘What does it cost?’
Key information documents (Kids) must in future include details of how intermediaries are paid.
The standard proposed in the latest draft is that life companies must state the maximum amount or the rate of commission customers will pay.
Written in bold text, the key information document must inform clients of the following: “Although the intermediary firm that has advised you may not charge directly for the advice received, if you take up this policy it will receive a payment from [regulated entity name] on the commencement of your policy.
“The maximum rate of this payment is [% commission rate, showing up to three decimal places] of the [single/annual (as applicable)] premium paid, the cost of which will be met by the charges you pay for the policy.”
For single premium policies, where ongoing remuneration is paid to an intermediary, further details must be provided.
The Kid must also state: “In addition, after commencement of your policy, the intermediary firm that has advised you will receive ongoing remuneration from [regulated entity name] of a maximum of [% annual rate of ongoing remuneration, showing up to three decimal places] of your policy value each year for [duration of ongoing remuneration].
“The costs of these payments will be met by the charges you pay for your policy.”
Similar information much be provided for regular premium policies.
Exemptions
The IoMFSA has recognised that some of the requirements outlined in the Code are similar to other jurisdictions and has, therefore, proposed some exemptions.
Some jurisdictions, including South Africa and Singapore, have already been flagged as potentially equivalent but no Middle East country has been highlighted for an exemption.
The regulator previously identified products distributed in Hong Kong as exempt from providing Kids if an ‘Important Facts Statement’ and a ‘Key Facts Statement’ have been produced and issued to the policyholder in accordance with requirements from Hong Kong’s Office of the Commissioner of Insurance and Federation of Insurers.
Products sold through an entity regulated by the UK Financial Conduct Authority are also exempt, as are those that fall under the EU’s Priips regulation.
Terms of business
The draft Code also outlines the steps an insurer must take to ensure its distribution channels are appropriate.
Such an assessment must include consideration of whether:
- persons distributing products have the appropriate skills, knowledge and experience to properly distribute each product to the market and, where considered necessary for the product and characteristics of the target market, to provide appropriate advice to policyholders;
- persons distributing products are able to provide appropriate information to policyholders, as required; and
- persons distributing products hold the necessary regulatory permissions, authorisations, licences or other forms of consent required for the distribution and, if necessary advisory, activity concerned.
Non-binding guidance
The regulator noted that, in certain areas, it will be necessary to supplement the binding requirements in the Code with further non-binding guidance setting out the IoMFSA’s view on how insurers might meet the requirements of the Code.
A number of guidance notes were attached to the latest consultation paper.
“This guidance is, by its nature, not law, however it is persuasive,” the regulator said. “Where a person follows guidance, this would tend to indicate compliance with the legislative provisions, and vice versa.”
Consultation
The regulator has set a deadline of 16 June 2017 for general feedback to the latest draft.
