One of the satisfying bits about this time of year – bookending the last twelve months and looking ahead to the next – is the abundance of best-and-worst-of and look-ahead lists*.
For insurance and pensions regulation, the myriad changes in 2022 have been dwarfed by the arrival of the Consumer Duty – TL;DR, it’s far more than a rebadging of TCF. But there’s a lot more going on across both sectors, and 2023 is shaping up to be a year of major regulatory change.
Here are our ten things to look out for in insurance and pensions regulation in 2023.
- A big bang for consumer protection
Where else to begin? On 31 July the Consumer Duty (PS22/9) will come into force for new and open products and services. For insurers, in many respects it echoes existing requirements (in particular, the PROD 4 requirements for end-to-end product design, approval, marketing and management). A good starting point is our dedicated webinar for insurers, in which Alastair Holt, Clare McMullen and I looked at the particular impacts on insurers - watch here.
- A transition from Solvency II to Solvency UK
In recent comments reported in the FT, City minister Andrew Griffith indicated that legislation to clear the path for Solvency II reform is expected to be “delivered essentially over the course of 2023”. HM Treasury's consultation response (published in November) confirmed that at the heart of the reform package, the risk margin will reduce for long-term life insurance and general insurance business by 65% and 30% respectively; the design and calibration of the fundamental spread will remain largely unchanged (while allowing for the use of notched ratings); and the matching adjustment eligibility criteria will be broadened. See our recent Insurance Update for more details.
- A new framework for commercial pension dashboards
The introduction of pension dashboards has been anything but a dash to the line, but there is now real momentum. FCA rules introduced in November (PS22/12) mean that by the end of August 2023, FCA-regulated pension providers must have completed connection of their DC schemes to MaPS' digital architecture and be ready to act on data requests. Summer 2023 is also expected to see the arrival of final rules (CP22/25) for the FCA's regulatory framework for the new pensions dashboard market - the FCA being the regulator charged with responsibility for regulating firms that will operate dashboard services.
- A revamp for non-workplace pensions
On 1 December 2023, new rules for providers of non-workplace pensions (including SIPPs) will be introduced (PS22/15). Under the package of measures - which are designed to improve outcomes for people with pension savings outside of employer-sponsored arrangements, and remedy the disconnect between low levels of consumer engagement and complex products - customers must be offered a ‘default’, standardised investment option, available alongside other investments. Savers with significant and sustained levels of cash must also be issues a 'cash warning' to highlight inflation risk.
- A new direction for IBIPs retail disclosure
Following on from the piecemeal changes to PRIIPs Regulation introduced post-Brexit, the Treasury has signaled its intention to revoke the regulation altogether and empower the FCA to establish a future disclosure regime. The new disclosure framework - further details of which are expected following the Treasury consultation and FCA discussion paper (DP22/6), both of which close in March 2023 - will see existing, heavily prescriptive disclosure requirements give way to increased flexibility, and a retreat from broad-based product comparability obligations.
A higher level of FSCS protection for pensions
The FCA has committed to reviewing the current FSCS compensation limits in 2023, with a particular focus on potentially raising the compensation limits for certain pension claims. Feedback received by the regulator, set out in its recent feedback statement (FS22/5) indicated that a high number of pension claims dealt with by the FSCS are not compensated in full - alternative limits suggested to the FCA include in-full / no-limit compensation, capping at the FOS maximum award limit (currently £375,000), or capping at the LTA of £1,073,100.
- A more empowered FCA and PRA
The anticipated passing into law of the Financial Services and Markets Bill in 2023 will lay down a new settlement for the regulation of financial services. Chief among the changes will be the delegation of more rule-making powers to the FCA and PRA, who will also be handed a secondary objective for growth and international competitiveness. See our summary of the Bill here.
- A shake-up to SMCR
An unusual inclusion in the 'Edinburgh Reforms' unveiled by the Chancellor was a review of the SMCR. Detail on the rationale for shaking up a relatively new and well-supported regime are sparse - the next step is expected to be a government call for evidence and FCA and PRA reviews, beginning in Q1 2023. See our summary of the proposals here.
- A closer eye on undervaluing claims
Towards the end of 2022, the FCA warned insurers that it has seen evidence of customers being offered settlements lower than the fair market value of insured items - in particular, motor vehicles. Offering prices lower than the fair market value of insured items is already contrary to FCA rules, and practices such as this are also likely to fall within the purview of the Consumer Duty. The FCA has made clear that will "act quickly" to prevent harms to consumers.
- A tougher line on pension transfer advice
Rounding off our list, the FCA's recent fine of £2.35m against a firm for unsuitable DB transfer advice given to consumers - most of whom were British Steel Pension Scheme members - lambasted the quality of advice as "woeful" (93% of consumers having been advised to give up their valuable DB pensions). Amid other ongoing work the FCA has been doing to establish a redress scheme for former BSPS members, there is a growing indication that the FCA is stepping up its supervision and enforcement activity in this area, as the fall-out out from historically poor practices continues to emerge.
*If any list suggests there was a better TV series than the Bear, or a better film than the Banshees of Inisherin, in 2022 - they might be wrong.