FCA opens consultation to move IDD level 2 measures for insurance firms into its Handbook

The FCA has opened a consultation (CP23/19) on moving a tranche of retained EU 'delegated regulations' - linked to the Insurance Distribution Directive (IDD) - into its Handbook. The changes follow steps taken by the Treasury, as part of its Future Regulatory Framework, to repeal the applicable level 2 legislation (which was automatically onshored when the UK exited the EU). 

Whereas most aspects of the IDD were implemented via changes to FCA rules in 2018, the following delegated regulations have been directly applicable in the UK:

• the IPID Regulation - setting out the format of the insurance product information document (IPID);
• the IDD POG Regulation - containing product oversight and governance requirements for insurers and distributors;
• the IDD IBIPs Regulation - describing the information requirements and conduct of business rules for distributing insurance-based investment products (IBIPs - e.g. unit-linked and with-profits life insurance);
• the IDD PII Regulation - amending the IDD and laying down the base euro amounts for professional indemnity insurance and for the financial capacity of insurance and reinsurance intermediaries.

Requirements contained in the first three of these delegated regulations are expected to be folded into the following parts of the FCA Handbook: ICOBS (for the IPID Regulation); COBS (for the IDD IBIPs Regulation); PROD (for the IDD POG Regulation); and SYSC (for the IDD IBIPs Regulation). The relevant provisions of the IDD PII Regulation on minimum levels of PII cover are already set out in the Handbook.

While the FCA has eschewed making any substantive changes to the rules as part of this exercise, it has indicated that more material changes may be required in due course. In particular, the consultation paper highlights:

• concerns about how certain rules apply to London Market business. The FCA's aim is to balance appropriate levels of consumer protection and market integrity with proportionate application of the requirements for the London Market;
• the parallel review of MiFID II-derived rules being carried out by the FCA, and that it will consider how corresponding IBIP rules should function for what it considers to be "substitutable" products. 

In the meantime, for the most part, the FCA proposals simply replace the relevant provisions of the delegated regulations with Handbook rules and guidance. However, it has taken the opportunity to propose minor clarificatory changes and in some cases, for example, split out provisions contained in the delegated regulations into separate rules and guidance for greater coherency.

The consultation will close on 9 October 2023. The FCA is then expected to publish its final rules in line with the government's timetable for repealing the relevant regulations. According to the Treasury's "Building a Smarter Financial Services Regulatory Framework" delivery plan, it intends to carry out a full repeal of the relevant legislation later this year.