Get ready for IMD2. Yes, the EU Commission is reviewing the Intermediaries Directive and it is now reaching full consultation stage.
The industry needs to engage now in this process and pay particular attention to signs of what position the FSA will adopt. Last time we ended up with a gold-plated system of regulation - we need to ensure we don't go down this path again.
So, there are two lobbying points. First on what is actually in IMD2 and second what that means in practice for the UK.
In early 2010, the EU Commission asked the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) for advice on reviewing the IMD. The Commission is concerned about a range of issues but here are some of the highlights - implementation of the IMD has varied state by state and "gold-plating" (their words) has created undesirable obstacles to giving financial advice; consumer protection is insufficiently transparent on commission disclosure; should there be a level playing field between insurance sold by IFAs and direct sales, and what might this mean in practice?
How can cross-border provision of insurance be encouraged; what level of harmonisation of IFA qualifications across member states should there be so that IFAs can move from one state to another; should there be a level playing field between life investment products and the rest, for example, protection insurance?
CEIOPS published their response on 10 November. In their view, direct sales forces should not be registered under IMD2. It should be the responsibility of the employer to check the qualification and good repute of its employees.
They also support a revised definition of insurance intermediation; removing ‘introducing' from the definition of ‘insurance intermediation' but having clearer definition of insurance intermediation or exempt activities; support for a common basic principle of knowledge and ability, but that Member States should retain freedom to set their own rules according to the activity pursued or type of intermediary. That said, they also support the right of IFAs to move from one country to another and for their qualifications to be recognised whichever county they operate in.
On the same day the FSA said that direct sales should be in scope of IMD2 but that the ‘conduct of business' requirements should be tailored according to the activities being carried out and that this should create a level playing field for brokers and insurers who are all targeting the same customers. On the long standing issue of mandatory commission disclosure, the FSA said that the general direction of travel, especially in Europe, is to deliver greater transparency for customers. On training, the FSA's objective is to ensure proportionate and relevant requirements are applied to insurers (direct sales) and brokers alike. This is a potential divergence from the CEIOPS position.
In December, the Commission is hosting an open session on IMD2 and there will be an ongoing process towards publication of a draft Directive. As for gold-plating, it seems to me that the FSA requirement for insurers to disclose the total premiums of a protection insurance product on the assumption that no claim is made is a classic example of the kind of thing that should be tackled under the Commission's stated aims for IMD2. The FSA could be invited to look at it as a case study of assessing benefits and objectives against costs and transparency - and in the meantime postpone its introduction in the UK market.
Richard Walsh is a director and fellow of SAMI Consulting www.samiconsulting.co.uk
