GIGI 1
Introduction to Part III
GIGI 1.1
Using this Guide
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GIGI 1.1.1
See Notes
The Guide to the FSA Handbook for Small Mortgage and Insurance Intermediaries (the Guide) is in three parts:
(1) Part I covers all the parts of the Handbook that apply to mortgage and insurance intermediaries other than rules on conduct of business, training and competence and client money. Chapter 2 of Part I explains the structure of the Handbook, what parts apply to small insurance and mortgage intermediaries and how to interpret the provisions of the Handbook.
(2) Part II covers the conduct of business and training and competence rules for mortgage intermediaries.
(3) Part III (this Part) covers the client money, conduct of business and training and competence rules for insurance intermediaries.
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GIGI 1.2
Part III
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GIGI 1.2.1
See Notes
From 14 January 2005, we (the FSA) will be responsible for regulating insurance intermediaries. This Part of the Guide (together with Part I) is primarily for small intermediaries doing insurance mediation activities in relation to general insurance or pure protection contracts (except long term care insurance), collectively known as 'non-investment insurance contracts', from a permanent place of business in the UK. Insurance companies should be aware that, as this Guide is primarily for intermediary firms, it does not cover all of the obligations that apply to insurance companies in respect of non-investment insurance contracts.
GIGI 1.2.2
See Notes
This Part of the Guide (together with Part I) will help small insurance intermediaries we authorise already, or who have decided to seek authorisation, to find the rules in the FSA Handbook of rules and guidance (the Handbook) that apply to them. Part II will only be relevant to insurance intermediaries if they also deal with mortgages.
GIGI 1.2.3
See Notes
The rules explained in this Part are in:
(1) Chapter 5 of the Client Assets sourcebook (CASS 5) (see Chapter 2);
(2) Insurance: Conduct of Business sourcebook (ICOB) (see Chapter 3); and
(3) Training and Competence sourcebook (TC) (see Chapter 4).
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GIGI 1.2.4
See Notes
The client money rules and the conduct of business rules do not apply to reinsurance business although if you do reinsurance mediation you will need authorisation and the rules in Part I and the training and competence rules (see Chapter 4) will apply. You can choose to comply with the client money rules for your reinsurance business if you wish.
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GIGI 1.2.5
See Notes
Do not forget that this Guide is only a tool to help you navigate and understand the Handbook and to find the rules that are relevant to your firm. It is not a substitute for the rules themselves and is not a comprehensive statement of your firm's obligations under our rules. You should use it to help guide you through the most relevant aspects of our regulatory regime.
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GIGI 1.2.6
See Notes
This Guide is not formal guidance and does not have the status of guidance in the Handbook. You cannot use this Guide to counter a charge of breaking our rules. In the event of any conflict between this Guide and the Handbook, the Handbook takes precedence.
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GIGI 1.2.7
See Notes
This Guide is current as at 31 March 2004. This Guide does not remove the need for firms to keep up to date with regulatory developments and to consider the potential impact on business of proposed changes. We will regularly update this Guide but we will not update it each time the Handbook changes.
GIGI 1.3
Key terms
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GIGI 1.3.1
See Notes
This Guide uses terms consistent with those defined in the Handbook Glossary. These terms are in italics in the Handbook (though not in this Guide). To help you, Appendix A to Part I contains brief definitions of some of the terms that we use throughout the Guide. Appendix A to Part III explains the key terms used in this Part. In each case firms should consult the Handbook Glossary for the full definitions.
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Export chapter as
GIGI 2
Client Money (CASS 5)
GIGI 2.1
Introduction
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GIGI 2.1.1
See Notes
This chapter explains the rules in CASS 5 which apply to insurance intermediary firms that handle their customers' money. These rules are designed to protect customers if the firm fails or is unable to transfer:
(1) an insurance premium paid by the customer to the insurance company; or
(2) claims monies or returned premiums to the customer.
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GIGI 2.1.2
See Notes
If your firm handles customers' money you have the following options:
(1) it can hold the money as agent of the relevant insurance company (otherwise known as 'risk transfer'); or
(2) it can hold the money on trust in a segregated bank account that cannot be used to reimburse other creditors in the event of its insolvency.
GIGI 2.2
Holding money as agent of an insurance company
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What does holding money as agent mean?
GIGI 2.2.1
See Notes
When a firm acts as agent for an insurance company (to receive and handle premiums, claims money or premium refunds) the insurance company bears the risk for any losses that may arise from the failure of the firm to make a transfer of these funds. Such failure could occur, for example, because the money is misappropriated by the firm (or by a third party the firm passed the money to) or it is lost through either party's insolvency. When the insurance company bears the risk of such losses, the industry often refers to this as 'risk transfer'. Money held as agent for an insurance company is not client money under our rules, so the firm must not hold it in a segregated client money bank account (but see paragraph 2.2.5 below).
GIGI 2.2.2
See Notes
Rules and guidance dealing with holding money as agent of an insurance company are in Chapter 5.2 of CASS.
What requirements are there for a firm who is holding money as agent of an insurance company?
GIGI 2.2.3
See Notes
If your firm holds money as agent for an insurance company, it must enter into a written agreement with the insurance company stating that premiums, and if the insurer so wishes claims and premiums refunds, are held as its agent (see paragraphs 2.2.7 to 2.2.9 for details on written agreements). Your firm must keep a copy of any such agreement for a minimum of six years following the date it is terminated.
GIGI 2.2.4
See Notes
In addition, where your firm holds money as agent of an insurance company it must notify any clients through its terms of business if their money is to be held as agent.
GIGI 2.2.5
See Notes
Your firm might hold some of its customers' funds as agent for an insurance company, while in its dealings with other customers it might not act as agent for an insurance company. In these circumstances it would have to hold money received from the second group of customers as client money in a segregated bank account. We are aware that this is changed practice for most firms who up to now will have held most of their receipts (from all sources) in an "IBA account". When your firm is holding money as agent of an insurance company, the insurance company may specify in the terms of the agency agreement the required banking arrangements. However, provided the insurance company does not specify banking arrangements to the contrary, until 14 January 2006, we will temporarily allow your firm to hold money received as agent of an insurance company in the segregated client money bank account.
GIGI 2.2.6
See Notes
For further details on receiving and holding client money, see paragraph 2.3.1.
Written agreements when holding money as agent
GIGI 2.2.7
See Notes
A firm will often have contractual authority to commit an insurance company to risk, i.e. the firm is authorised by the insurance company to enter into an insurance contract on the insurance company's behalf. Such an agreement is often referred to as a "binding authority agreement". Our rules require that binding authorities of this kind state that the firm acts as the agent of the insurance company for the purposes of:
(1) receiving and holding premiums (if the firm has authority to commit the insurance company to risk);
(2) claims money (if the firm has authority to settle claims on behalf of the insurance company); and
(3) premium refunds (if the firm has authority to make refunds of premiums on behalf of the insurance company).
GIGI 2.2.8
See Notes
It is also possible that other kinds of agency agreements that do not give a firm authority to commit an insurance company to risk may nevertheless result in them holding premiums or handling claims and refunds of premiums as an insurance company's agent. If, for example, the terms of such an agency agreement make the firm the agent of the insurance company to collect and receive premiums, the agreement will result in a transfer of risk in relation to the premium to the insurance company
GIGI 2.2.9
See Notes
Some agency agreements between a firm and an insurance company may do no more than facilitate the introduction of business to an insurance company. These types of agreement are unlikely to result in the firm holding money as agent of the insurance company. If your firm is in any doubt as to whether it is holding money as agent it should consult the terms of its written agreements or terms of business with insurance companies and, if necessary, seek clarification with the relevant insurance companies.
Sub-delegation
GIGI 2.2.10
See Notes
A firm may extend or sub-delegate its authority to hold money as agent of an insurance company to another directly authorised firm or an Appointed Representative. This is provided it has the insurance company's written agreement to do so and that this written agreement names the firm acting as sub-agent.
GIGI 2.3
Receiving and holding client money
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GIGI 2.3.1
See Notes
Client money is money of any currency that, in the course of carrying on insurance mediation, a firm receives and holds on behalf of a client. Money received and held as agent for an insurance company is not client money and must not be held in a client bank account other than in the circumstances outlined in paragraph 2.2.5. In addition, a firm's own money is not client money and must not be held in a client bank account (unless it does so in accordance with CASS 5.5.10 or CASS 5.5.16).
What should your firm do if it holds client money?
GIGI 2.3.2
See Notes
What are the main differences between the statutory and non-statutory trusts?
GIGI 2.3.3
See Notes
Both the statutory and non-statutory trust bank accounts are for:
(1) holding premiums received from clients until they are paid directly - or via a third party firm - to an insurance company; and
(2) holding claims monies and premium refunds received from insurance companies or third party firms until they are paid to clients.
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GIGI 2.3.4
See Notes
The main difference between the two types of trust is that, unlike the statutory trust, the firm acting as trustee may use the non-statutory trust to make advances of credit, to enable a client's premium obligation to be met before the firm receives the premium from the client. Similarly, firms can pay claims and premium refunds to a client from a non-statutory trust before they receive those monies from the insurance company. Neither is permitted under the statutory trust
What are the conditions for operating a non-statutory trust?
GIGI 2.3.5
See Notes
Your firm may only operate a non-statutory trust if it can meet these conditions (see CASS 5.4.4 R (1) to CASS 5.4.4 R (5):
(1) Your firm must have and maintain systems and controls that are adequate to ensure it is able to monitor and manage any credit risk resulting from having made credit advances from the trust account.
(2) Your firm must obtain, and keep current, written confirmation from its auditor that it has in place systems and controls that are adequate to meet the requirements in (1).
(3) Your firm must designate a manager with responsibility for overseeing day to day compliance with the systems and controls requirements in (1).
(4) Your firm will be subject to a minimum capital resources requirement of £50,000 where it wishes to pay client money relating to transactions with retail customers into the non-statutory trust account.
(5) Your firm must take reasonable steps to:
(a) ensure that its terms of business adequately explain to the client that his money will be held in a non-statutory trust; and
(b) obtain the client's informed consent to the holding of his money in a non-statutory trust account.
GIGI 2.3.6
See Notes
In relation to point (4) above, this capital resources requirement only applies to your firm if it holds client money that relates to transactions with retail customers in the non-statutory trust bank account. The capital resources requirement for all other intermediaries who hold client money (be it in the statutory or the non-statutory trust) is the higher of £10,000 or 5% of annual income from regulated activity (see Part I, paragraph 7.2.5).
How does a firm set up either a statutory or non-statutory trust client bank account?
GIGI 2.3.7
See Notes
With both trust types, no special bank account is required, and a conventional deposit or current account is suitable. When your firm opens a client bank account you must give written notice to the bank, requesting the bank to acknowledge in writing that:
(1) all money standing to the credit of the account is held by the intermediary as trustee (or if relevant in Scotland, as agent) and that the bank is not entitled to combine the account with any other or to exercise any right of set-off or counterclaim against that money for any sum owed to it on any other account of your firm; and
(2) the title of the account sufficiently distinguishes it from any account containing money belonging to your firm and is in the form you have requested e.g. it could be titled 'XYZ insurance brokers statutory trust client account' or 'XYZ insurance brokers non-statutory trust client account'.
Legal formalities for setting up a statutory and a non-statutory trust
GIGI 2.3.8
See Notes
In the case of the statutory trust its status as a trust arises automatically under our rules. A non-statutory trust, on the other hand, has to be created by the firm executing a formal trust deed in line with CASS 5.4.7 and CASS 5.4.8. This is a legal document which must declare that client money will be held for the purpose of, and in line with, the rules in the CASS 5.4 to CASS 5.6.
GIGI 2.3.9
See Notes
Where a firm wishes to make advances of credit on the basis set out in paragraph 2.3.4, the deed must also state that it may do so. We understand that trade associations are preparing some standard trust deeds for this purpose.
A firm's selection of a bank
GIGI 2.3.10
See Notes
A firm must place client money with an approved bank (see CASS 5.5.38 R). In the case of small firms who hold relatively modest amounts of client money this requirement will most likely be satisfied if the firm places client money with an authorised UK clearing bank, for example.
GIGI 2.4
Payments into and withdrawals from the client money account
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Payments into the statutory and non-statutory trusts
GIGI 2.4.1
See Notes
When a firm receives money from a client this must be paid into either the statutory or non-statutory trust account as soon as practical, and in most circumstances, by not later than the next business day following receipt.
GIGI 2.4.2
See Notes
When a firm receives money for a client, for example in the settlement of a claim, this must either be paid into the statutory or non-statutory trust account or paid directly to the client as soon as possible and no later than one business day after it becomes due.
Mixed remittances
GIGI 2.4.3
See Notes
From time to time a firm may pay its own money into the client account in error. It may also receive mixed remittances (comprising client money and its own money) into the client account. When this happens the firm must withdraw non-client money from the client bank account as soon as reasonably practical and in any event within 25 business days of it clearing.
What are the rules governing the withdrawal of commission from the client bank account?
GIGI 2.4.4
See Notes
CASS 5.5.16 and CASS 5.5.17 contains our rules and guidance on withdrawal of commissions. CASS 5.5.16 prohibits a firm from removing commission from the client bank account until the client or a premium finance firm has paid the premium to it (such an account is said to be operated on a 'received' as opposed to an 'earned' basis). Further, commission may only be withdrawn from the client bank account at the point at which it is due to the firm for its own account. Until that point, commission will remain client money.
GIGI 2.4.5
See Notes
The terms of business of the insurance company to whom the premium is to be paid may set out when the commission element of the premium will become due (e.g. it may state that commission will be due immediately on receipt of the premium from the customer or after, say, 25 days or 30 days). Where this is the case, commission may only be withdrawn from the client bank account if and when this is consistent with the terms of business of the insurance company to whom the premium is payable. Commission may be withdrawn before payment of the premium to the insurance company, provided the firm has received the premium from the client or a premium finance firm and provided the terms of business with the relevant insurance company permit this.
GIGI 2.4.6
See Notes
In the event that commission becomes due immediately on receipt of the premium from the client then, for the purpose of our rules, the premium must be treated as a mixed remittance (i.e. part client money and part other money). The commission element of the premium must then be paid out of the client bank account as soon as reasonably practical and in any event within 25 business days of the payment clearing the client bank account.
GIGI 2.4.7
See Notes
Often, the terms of business of the insurance company to whom the premium is to be paid may not specify when the commission element of the premium will become due. In these cases, for the purposes of our rules, a firm may assume that commission will become immediately due on receipt of the premium from the client.
GIGI 2.4.8
See Notes
Where commission becomes due some time after receipt of the premium from the client or premium finance firm (e.g. 25 days or 30 days), it must be identified as no longer being client money at the point the regular client account calculation is undertaken (see paragraph 2.5 below), in line with CASS 5.5.63(1). The commission should be withdrawn from the client bank account by close of business on the day on which the calculation is performed, unless the firm determines on reasonable grounds in line with CASS 5.5.63(2)(b), that it is prudent to maintain a positive margin in the account.
When a client pays a premium to a firm in instalments, how must commission be withdrawn from the client bank account?
GIGI 2.4.9
See Notes
CASS 5.5.17(3) explains that where a client makes payments of a premium to a firm in instalments, the commission payable on each instalment may only be drawn down when it is due to the firm.
Transfer of client money from a firm to a third party (e.g. another intermediary firm)
GIGI 2.4.10
See Notes
A firm may pass a premium to a second firm provided, in accordance with CASS 5.5.34:
(1) it does so for the purposes of effecting the client's transaction; and
(2) if the client is a retail customer, the client has been notified in the first firm's terms of business that his money may be transferred in this manner.
CASS 5.5.7 explains that in such a case the second firm will treat the first as its client (if it is also a FSA regulated firm) and will in turn be required to segregate the premium it receives into a statutory or non-statutory trust.GIGI 2.4.11
See Notes
CASS 5.5.33 explains that when a firm transfers a premium to a third party, it will not automatically discharge its duties to its client as trustee, albeit that the premium will be shown in the firm's client ledgers as having been paid to the third party. So if your firm pays a premium to a third party firm, the premium will remain client money of your firm until it reaches the insurance company (matched by the right to have the third party account for the sum). Similarly, the premium will be client money of the third party firm held on behalf of its client, your firm, until it reaches the insurance company. That is unless during its transit to the insurance company the money is held, at any time, by a firm who is authorised to hold that insurance company's money as agent, at which point that premium becomes the insurance company's money.
GIGI 2.4.12
See Notes
Firms are reminded in CASS 5.5.81(3) that they should also exercise appropriate skill, care and judgment in their selection of third parties to whom they transfer client money.
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GIGI 2.4.13
See Notes
In the settlement of a claim or the return of a premium, money passed from an insurance company to your firm may subsequently be transferred to a third party firm before payment to the policyholder. In these circumstances the claim or premium refund will remain client money of your firm only until it reaches your client (the third party firm).
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GIGI 2.5
The client money calculation
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What is the client money calculation?
GIGI 2.5.1
See Notes
CASS 5.5.62 G explains that the purpose of the client money calculation is to verify that the amount of client money segregated into the client bank account(s) (and the value of any segregated designated investments held under the non-statutory trust in accordance with CASS 5.5.14 R) together with the value of client money held by third parties, is sufficient to meet the firm's obligations to its clients.
GIGI 2.5.2
See Notes
In performing the client money calculation the firm must use its own internal records to determine the client money resource and the client money requirement and then compare them. Having done so:
(1) if the client money requirement is greater than the client money resource the firm you must top up the resource - i.e. pay money into the client bank account; and
(2) if the client money requirement is less than the client money resource the firm must normally withdraw the excess from the client bank account.
GIGI 2.5.3
See Notes
The calculation (client money requirement and client money resource) is to be undertaken as often as is necessary to ensure the accuracy of the firm's records and at least at intervals of not more than 25 business days. Any top ups to/withdrawals from the firm's client money bank account(s) need to be made by close of business on the day on which the calculations are performed.
GIGI 2.5.4
See Notes
In order that an accurate balance of client money held at third parties can be included in the client money calculation, firms will need to await notification that client money they pass to third party firms - most commonly premiums - has subsequently reached the insurance company or en route to the insurance company was received by a firm authorised to hold that insurance company's money as its agent. Unless a firm receives confirmation that the transaction is complete through receipt of the money by the insurance company or one of its agents, they must assume that the relevant money is still with the third party firm to whom they passed it and an account of that money in the client money calculation.
How do you calculate the client money resource?
GIGI 2.5.5
See Notes
There are two methods permitted for the client money calculation, a cash-based method and an accruals method.
Any designated investments must be valued on a prudent and consistent basis. Any designated investments must be valued on a prudent and consistent basis.
(1) For the cash-based method, the client money resource should be calculated as the total of:
(a) the balances of the firm's client bank accounts, as at close of business on the previous business day; plus
(b) the value of client money held at third parties; plus
(c) designated investments to the extent they are permitted to be held under the terms of the non-statutory trust.
Any designated investments must be valued on a prudent and consistent basis. Any designated investments must be valued on a prudent and consistent basis.
(2) For the accruals based method, the client money resource must also include:
The client money resource should be calculated and then compared to the client money requirement.(a) to the extent that client money is held in the statutory trust, insurance debtors (which in this case cannot include pre-funded items); and
(b) to the extent that client money is held in line with the non-statutory trust, insurance debtors (which in this case may include pre-funded items whether in respect of credit advances of premiums, claims or premium refunds).
How do you calculate the client money requirement?
GIGI 2.5.7
See Notes
For the cash-based method the client money requirement can be found by calculating the individual client money balance for each client and then adding these together for a total client money requirement figure. CASS 5.5.66R makes clear that the individual client-balance for each client may not include any uncleared client funds. CASS 5.5.67R explains that the balance should be calculated as:
(1) the amount paid by a client to the firm (to include all premiums); plus
(2) the amount due to the client (to include all claims and premium refunds); plus
(3) the amount of any interest or investment returns due to the client; less
(4) the amount paid to insurance companies (or third party firms) for the benefit of the client (to include all premiums) or due to itself (i.e. commissions that are due but have not yet been removed from the client account); less
(5) the amount paid by the firm to the client (to include all claims and premium refunds).
How do you calculate the client money requirement?
GIGI 2.5.8
See Notes
For the accruals based method, CASS 5.5.68 makes clear that the client money requirement can be found by determining the sum of:
(1) the sum of all insurance creditors shown in the firm's business ledgers as amounts due to insurance companies, third party intermediaries and clients; plus
(2) unearned commission or brokerage being the amount of commission shown as accrued but not yet earned and payable.
Examples of the client money calculation
GIGI 2.5.9
See Notes
Example 1 - client pays £100 premium to a firm on day one, £10 of which will be earned by it as commission. The insurer's terms of business do not specify when the commission element of the premium will become due to the firm.
Examples of the client money calculation
GIGI 2.5.10
See Notes
In these circumstances, it may be assumed the commission will become immediately due (see paragraph 2.4.7 for explanation). Paragraph 2.4.6 explains that the receipt of the premium must be treated as a mixed remittance (i.e. £90 client money and £10 the firm's own money earned as commission). CASS 5.5.16R(2) requires that money that is not client money (i.e. the commission in this case) is paid out of the client bank account as soon as reasonably practical and in any event no later than 25 business days after the payment cleared the client bank account. So the firm settles £90 with the insurance company on day two and transfers £10 commission to its office account on the same day. It carries out the client money calculation on day 25.
GIGI 2.5.11
See Notes
Example 1 on a cash basis (for formula see paragraph 2.5.7):
| Day | Client money resource | Client money requirement found by CASS 5.5.67R: ((1) + (2) + (3)) - ((4) + (5)) | Client bank a/c balance | Office a/c balance |
| 1* | £100 | ((£100) +(0) + (0)) - ((10) + (0)) = £90 | £100 inc £10 commission due | 0 |
| 25 | £0 | ((£100) +(0) + (0)) - ((£100) + (0)) = 0 | £0 | £10 transferred on day two |
GIGI 2.5.12
See Notes
Example 1 on an accruals basis (for formula see paragraph 2.5.8):
* The client money resource is £100 and the client money requirement is £90, resulting in a surplus of £10 representing the commission due to the firm. This surplus is not client money and should be removed from the client account (see paragraph 2.4.6 above).
** As the commission is due immediately, it cannot be included in the client money requirement calculated on an accruals basis as unearned brokerage. Therefore, the unearned brokerage figure is 0.
| Day | Client money resource | Client money requirement found by CASS 5.5.68R: insurance creditors + unearned brokerage | Client bank a/c balance | Office a/c balance |
| 1* | £100 | £90 + £0 = £90 ** | £100 inc £10 commission due | £0 |
| 25 | £0 | £0 + £0 = £0 ** | £0 | £10 transferred on day two |
** As the commission is due immediately, it cannot be included in the client money requirement calculated on an accruals basis as unearned brokerage. Therefore, the unearned brokerage figure is 0.
GIGI 2.5.13
See Notes
Example two - the insurer's terms of business state that commission will become due 25 business days after receipt of the premium from the customer. The firm settles £90 with the insurance company on day 25. It then calculates the client money requirement on day 25 and identifies a £10 surplus (i.e. £10 earned by it as commission). Paragraph 2.4.8 explains that the £10 surplus must be withdrawn from the client bank account and transferred to the firm's office account in line with CASS 5.5.63(2)(b).* The client money resource is £100 and the client money requirement is £90, resulting in a surplus of £10 representing the commission due to the firm. This surplus is not client money and should be removed from the client bank account (see paragraph 2.4.5 above).
** As the commission is due to the firm immediately, it cannot be included in the client money requirement on an accruals basis as unearned brokerage. Therefore, the unearned brokerage figure is £0.
** As the commission is due to the firm immediately, it cannot be included in the client money requirement on an accruals basis as unearned brokerage. Therefore, the unearned brokerage figure is £0.
GIGI 2.5.14
See Notes
Example 2 on a cash basis (for formula see paragraph 2.5.7):
* As the commission is not due to the firm it is client money and is therefore included in the client money requirement (i.e. £10 commission is not deducted as in example 1 above).** The commission becomes due on day 25. At this point it is no longer client money and can not be included in the client money requirement. It is therefore deducted from the client money requirement, as is the premium which has been paid to the insurer. As such, the client money requirement is £0 whilst the client money resource shows a £10 surplus, representing the commission due to the firm, which must be removed by close of business (see paragraph 2.4.8).
| Day | Client money resource | Client money requirement found by CASS 5.5.67R: ((1) + (2) + (3)) - ((4) + (5)) | Client bank a/c balance | Office a/c balance |
| 1* | £100 | ((£100) + (0) + (0)) - ((0) + (0)) = £100 | £100 inc £10 | £0 |
| - 12 - | commission not due | |||
| 25** | £10 | ((£100) +(0) + (0)) - ((£100) + (0)) = £0 | £10 to transfer to office account by cob | £0 |
GIGI 2.5.15
See Notes
Example 2 on an accruals basis (for formula see paragraph 2.5.8):
* As the commission is not due to the firm, it is client money and is therefore included in the client money requirement as unearned brokerage.
** The commission becomes due on day 25. At this point it is no longer client money and cannot be included in the client money requirement as unearned brokerage which should now show £0. The insurance creditors figure is also £0 as the premium has been paid to the insurer. The client account therefore shows a £10 surplus, representing the commission due to the firm, which must be removed by close of business (see paragraph 2.4.8).
** The commission becomes due on day 25. At this point it is no longer client money and cannot be included in the client money requirement as unearned brokerage which should now show £0. The insurance creditors figure is also £0 as the premium has been paid to the insurer. The client account therefore shows a £10 surplus, representing the commission due to the firm, which must be removed by close of business (see paragraph 2.4.8).
Verification of banking records
GIGI 2.5.16
See Notes
Having performed the client money calculation, a firm must also carry out a verification of its banking records. It must compare the balance on its internal client records with the balance on that account as set out on the statement issued by the bank(s) with which the client bank account is held.
GIGI 3
Insurance:
Conduct of Business sourcebook (ICOB)
GIGI 3.1
Introduction
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What does ICOB cover?
GIGI 3.1.1
See Notes
This chapter provides a guide to the
rules in the Insurance: Conduct of Business sourcebook (ICOB). These rules
govern a firm's relationship with its customers before, during and after the
sale of a non-investment insurance contract. They aim to ensure that firms
treat customers fairly.
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GIGI 3.1.2
See Notes
The table below summarises the content
of each chapter of ICOB.
Not all of ICOB will
be relevant to you and not all the content of any given chapter will be relevant
- it will depend on the business you do. For example, some of our rules will
apply only when you deal with a retail customer and others will apply only
when you deal with a commercial customer. Some rules apply to insurance companies
in their capacity as product providers and these are generally not covered
in this Guide. At the beginning of each chapter of ICOB you will find a section titled 'Application'.
This will tell you if all or part of that chapter applies to you.
- 01/12/2004
GIGI 3.1.3
See Notes
This Guide does not cover the rules on
distance non-investment mediation contracts in ICOB 8 as we think these contracts rarely exist. You should check the
guidance at ICOB 1.7.3 G (4) to see if
you provide distance non-investment mediation contracts.
- 01/12/2004
GIGI 3.1.4
See Notes
Summary of
the content of ICOB
| Chapter | Title | Does it apply to you? | What does it include? |
| ICOB 1 | Application and purpose | Yes | •Sets
out the scope of ICOB,
including to which firms the rules apply, to what activities
and where the rules apply •A summary of which parts of the ICOB rules apply to firms •Guidance on other parts of the Handbook |
| ICOB 2 | General rules including unfair inducements | Yes | •General
requirements that apply throughout ICOB •Communications to customers must be clear, fair and not misleading •Rules on inducements |
| ICOB 3 | Financial promotion | Yes | •Requirement
for financial promotions to be clear, fair and not misleading •Rules on comparative advertising •Rules on the approval of promotions |
| ICOB 4 | Advising and selling standards | Yes | •Information
on the status of the firm •Suitability of advice •Provision of a demands and needs statement •Prohibition on excessive charges for retail customers •Provision of commission information for commercial customers •Restrictions on unsolicited services (including tacit renewals) |
| ICOB 5 | Product disclosure | Yes - partially | •Responsibilities
of insurance companies and intermediaries •Content of product information and when it must be provided |
| ICOB 6 | Cancellation | No - although the rules will be of interest to insurance intermediaries (see paragraph 3.5.2) | •Cancellation rights for retail customers in relation to non-investment insurance contracts |
| ICOB 7 | Claims handling | Yes - partially | •Obligations
on insurance companies •Obligations on intermediaries to act with due care, skill and diligence and to avoid conflicts of interest |
| ICOB 8 | Distance non-investment mediation contracts | Yes - if you arrange these contracts | •Information
to be given to customers •Restrictions on unsolicited services (including tacit renewals) •Cancellation requirements |
What activities does ICOB apply to?
GIGI 3.1.5
See Notes
ICOB applies only to intermediaries who sell and administer 'non-investment insurance contracts' or who communicate and approve 'non-investment financial promotions'. The terms 'non-investment insurance contract' and 'non-investment financial promotion' have a special meaning in the rules - see Appendix A. The defined term 'insurance intermediary' (see Appendix A) includes an insurance company when selling directly, but, as explained in Chapter 1, this Guide does not cover the application of the rules to insurance companies. Where there is a chain of intermediaries between the insurance company and the customer, ICOB applies only to the intermediary in contact with the customer (ICOB 1.2.3 R (2)).
Which customers does ICOB apply to?
GIGI 3.1.6
See Notes
ICOB uses the defined terms 'retail customer'
and 'commercial customer' (these terms have a special meaning in the rules
- see Appendix A for details).
GIGI 3.1.7
See Notes
If it is not clear whether your customer
is a retail or commercial one, he should be treated as a retail customer (ICOB
1.2.6 R). Guidance on when a customer is a retail customer
or a commercial customer is given in ICOB 1.7.3 G (1). Where a customer who is an individual buys a policy that covers
him in both a private capacity and for his business, he must be treated as
a retail customer (ICOB 1.2.6A R). For example,
a driving instructor taking out motor insurance to cover both his business
and private use of the vehicle should be treated as a retail customer.
How does ICOB apply to group policies?
GIGI 3.1.8
See Notes
ICOB contains separate provisions for
'group policies' (see ICOB 1.2.15 R), which are defined as non-investment insurance contracts that
someone enters into as legal holder of the policy on his own behalf and
for other persons who are, or will become, policyholders (group policy is
a defined term - see the Handbook Glossary for the full definition). A policyholder
includes anyone who could expect to have a claim, made by him directly to the insurance
company,
accepted by the insurance company (ICOB 1.2.16 G (2)). ICOB applies
in full in respect of the legal holder of the policy, but only the following
requirements must be met by intermediaries as regards the other persons who
are, or will become, policyholders:
(1) if one of these persons receives a personal recommendation from
an intermediary about joining a group scheme, the intermediary must ensure
that the recommendation is suitable and give the person a demands and needs
statement (see paragraphs 3.3.15to 3.3.22of this Guide);
and
(2) a commercial customer who is the legal holder of the policy must be given product
information to pass on to the other persons (
ICOB 5.4.8 R to ICOB 5.4.9 G).
General requirements
GIGI 3.1.9
See Notes
There are several general rules that
apply in ICOB (set out in ICOB 2)
covering:
(1) clear, fair and not misleading communication (ICOB 2.2.3 R);
(2) unfair inducements (ICOB 2.3);
(3) when you can rely on information provided to you by another person
(ICOB
2.4);
(4) preventing you from avoiding or limiting any duty or liability
you have to a customer under regulation (ICOB 2.5);
(5) general requirements related to distance contracts (ICOB 2.7); and
(6) general requirements on record keeping (ICOB 2.8).
Key Facts logo
GIGI 3.1.10
See Notes
The key facts logo is a logo that has been developed by us following consumer research to highlight
key information that customers should read. The ICOB rules say that it can
be used on the initial disclosure document (IDD) and that it must be used
on the combined initial disclosure document (CIDD) and policy summary (see
paragraphs 3.3.7 to 3.3.11 and 3.4.16 respectively).
You will find the logo on our website at: www.fsa.gov.uk/pubs/other/keyfacts_logo. We also require the logo to be used on certain documents required
by our rules in the investment and mortgage markets. The ICOB rules also prevent
firms using the key facts logo on other documents (ICOB 2.2.2 R and ICOB 3.8.1 R (3)).
GIGI 3.2
Financial promotion (ICOB 3)
- 01/12/2004
Introduction
GIGI 3.2.1
See Notes
Financial promotions include but are
not limited to advertisements. A financial promotion is an invitation or inducement
to engage in an investment activity (which includes insurance). They can be
solicited or unsolicited and can take a variety of forms, such as mailshots
and newspaper or TV advertisements. The financial promotion rules relating
to non-investment insurance contracts (which we call 'non-investment financial
promotions') are in ICOB 3.
- 01/12/2004
What is the scope of the financial promotion rules?
GIGI 3.2.2
See Notes
Financial promotions are prohibited unless they are communicated by an authorised person; or an authorised person has approved the content of the promotion; or an exemption applies. There is a wide range of exemptions from the financial promotion rules. The scope of the rules, including a full list of the exemptions, is set out in ICOB 3.1 to ICOB 3.6.
GIGI 3.2.3
See Notes
Even if the rules in ICOB 3 do not apply, because your promotion falls within an exemption,
other rules in ICOB still apply. For example, you would still need to comply
with ICOB
2.2.3 R, which says that communications must be clear,
fair and not misleading. You may also need to give the information required
by ICOB
4 (advising and selling standards) and ICOB 5 (product information) as part of the promotion e.g. if that is
the only way to ensure that the customer receives this information before
the conclusion of the contract.
What rules apply to regulated non-investment financial promotions?
GIGI 3.2.4
See Notes
Where ICOB 3 applies,
you must be able to show that you have taken reasonable steps to ensure that
the non-investment financial promotion is clear, fair and not misleading (ICOB
3.8.1 R). ICOB 3.8.2 E contains
a 'checklist' of matters you should bear in mind when communicating or approving
a non-investment financial promotion.
What rules apply to regulated non-investment financial promotions?
GIGI 3.2.5
See Notes
In addition, ICOB 3.8.3 G contains guidance on the clear, fair and non-misleading obligation
which includes the following points:
(1) if a promotion is directed at a particular group of recipients
who are expected to have particular knowledge of the contract being promoted,
this should be clear;
(2) any quotations of opinion should be a fair representation and
it should be made clear if there is a connection between the person expressing
the opinion and the firm;
(3) price quotations, if they are not precise, should be representative,
and it should be stated clearly if a quote is an estimate only; and
(4) if the promotion says that you can reduce a premium, give the
cheapest premium or reduce other costs, the promotion should give equal prominence
to explaining how this will be achieved, and should explain with equal prominence
any significant limitations on the availability of the savings offered.
GIGI 3.3
Advising and Selling Standards (ICOB 4)
- 01/12/2004
Introduction
GIGI 3.3.1
See Notes
This section of the Guide explains the
advising and selling rules in ICOB 4.
The rules in ICOB 4 cover:
(1) information on the status of your firm (ICOB 4.2);
(2) suitability of advice (ICOB 4.3);
(3) statement of demands and needs (ICOB 4.4);
(4) excessive charges to retail customers (ICOB 4.5);
(5) telling commercial customers about your commission (ICOB 4.6);
(6) unsolicited services (ICOB 4.7);
and
(7) the language in which information should be provided (ICOB
4.8).
None of these
rules apply when you are dealing with a commercial customer insuring a 'large
risk' (a contract of large risks has a special meaning in the rules - see
Appendix A).
What information do you need to give customers about your firm and the services you provide?
GIGI 3.3.2
See Notes
Summarised below is the information
you need to disclose to your retail and commercial customers unless you are
introducing (ICOB 4.2.8 R provides a more
detailed explanation):
(1) Name and address of your firm.
(2) Your firm's statutory status, using the appropriate wording required
by the General Provisions sourcebook (see GEN 4 Annex 1),
for example, that you are authorised and regulated by the Financial Services
Authority.
(3) That (1) and (2) can be checked on the FSA's Register.
(4) Any holdings you have in an insurance company and that an insurance company or its parent has in your firm
that represent more than 10 per cent of the voting rights or the capital of
the insurance company or your firm.
(5) The range of insurance companies you are selecting products from
in a sale to a particular customer. This can be from a wide range of insurance
companies (which is referred to in the rules as providing a service on the
basis of a 'fair analysis' of the market), or from just one or a limited number
of insurance companies. You must also tell the customer that he can request
a list of the insurance companies you deal with, unless the service you provide
is on the basis of a 'fair analysis' of the market.
(6) How the customer can complain to you and that complaints may subsequently
be referred to the Financial Ombudsman Service (FOS).
(7) That the customer may be entitled to compensation from the Financial
Services Compensation Scheme (FSCS) if you are unable to meet your liabilities.
When do you have to give this information?
GIGI 3.3.3
See Notes
You must provide the information above before conclusion of the non-investment
insurance contract in
a durable medium unless one of the following situations, set out in ICOB
4.2.2 R, applies:
(1) the customer asks for the information to be provided orally;
(2) immediate cover is required; or
(3) the contract is concluded by telephone and the customer agrees to receiving more limited
information.
GIGI 3.3.4
See Notes
Where immediate cover is required or
the customer requests information orally, the information
at paragraph 3.3.2 must be given orally before the conclusion of the non-investment insurance contract.
However, if the contract is concluded over the telephone, in line with ICOB 4.2.2 R (3), the customer can agree to
the limited information listed below being provided:
(1) the name of your firm;
(2) if you initiated contact, the purpose of the contact;
(3) the name of the person in contact with the customer and his link
with your firm; and
(4) that other information is available on request, and the nature
of the information.
GIGI 3.3.5
See Notes
In these cases, you must give the customer all the information required in a durable medium immediately after conclusion
of the contract.
GIGI 3.3.6
See Notes
The information above does not need to
be given when contracts are renewed if the information given out at inception
of the contract remains up-to-date. If certain elements have changed then
you must update the customer on these particular elements but you do not need
to send out a whole new set of information (ICOB 4.2.20 R).
- 01/12/2004
Do you have to use the template documents in the rules when giving information about your status?
GIGI 3.3.7
See Notes
We have included two template documents
in Annexes 1 and 2 to ICOB 4 that
you can use to give the status information in paragraph 3.3.2 to your customers.
We call these the initial disclosure document (IDD) and the combined initial
disclosure document (CIDD). These documents have been developed by us and
tested using consumer research. Use of these
documents is optional; you can choose to present the information in a different format if
you wish.
GIGI 3.3.8
See Notes
Where you are selling just non-investment
insurance contracts, you can use the IDD to provide the status information
above. You can use all or part of the IDD, but in all cases you must ensure
that all the status information required by the rules is given to the customer.
However, if you choose not to use the full IDD then you must not include the
key facts logo or the heading and text in Section 1 of the IDD.
- 01/12/2004
GIGI 3.3.9
See Notes
Where you use the full IDD, there
are certain rules on the use of the key facts logo, for example, on its size,
prominence and positioning (ICOB 4.2.6 R).
GIGI 3.3.10
See Notes
Where you are arranging mortgages and/or
packaged products and also non-investment insurance contracts, you can give
the customer a CIDD. This means you can describe the service you are providing
in relation to all these products in one document. If you choose to use the
CIDD, you must use the document in full and make no changes to the text other
than those allowed by the notes that accompany the form. Also, unlike the
insurance rules, the rules in the Mortgage: Conduct of Business sourcebook
(MCOB) and Conduct of Business sourcebook (COB) require you to give the IDD
or CIDD on initial contact with the customer.
- 01/12/2004
GIGI 3.3.11
See Notes
There are examples of completed IDDs
and CIDDs on our website:
www.fsa.gov.uk/mgi.
What do you have to disclose about your firm when you are only introducing?
GIGI 3.3.12
See Notes
Where you are only introducing a customer
to another intermediary (or to an insurance company) you are not required
to give the information at paragraph 3.3.2. Instead you must give the customer
the following information in good time before the introduction is made (see ICOB
4.2.9 R):
(1) the name and address of your firm;
(2) your statutory status using the appropriate wording required by
the General Provisions sourcebook (see GEN 4 Annex 1);
(3) details of any fees you will charge for the introduction; and
(4) whether you and the firm you are introducing to are members of
the same group.
When can you tell the customer that you are providing a service on a fair analysis basis?
GIGI 3.3.13
See Notes
As noted above, one of the options is
that you provide a service on a fair analysis basis. You cannot state that
you offer a fair analysis service - that is, that you consider a representative
sample of the market when selecting products - unless you have considered
a sufficiently large number of insurance contracts in the relevant sector
for that particular customer and that consideration is based on adequate knowledge
of that sector. There is guidance on how this requirement can be satisfied,
including the selection and use of panels and the frequency with which panel
arrangements should be reviewed, in ICOB 4.2.12 G to
ICOB 4.2.13.
What information do you have to give on fees?
GIGI 3.3.14
See Notes
You must disclose any fees (actual fees
or, where actual fees cannot be given, the basis for calculating fees) you
charge to retail and commercial customers for mediation services (ICOB
4.2.15 R to ICOB 4.2.18 G).
The information must be given to the customer before they become liable to
pay the fee, or before conclusion of the contract, whichever is earlier. So,
for example, fees that will be charged for mid-term adjustments must be disclosed
before conclusion of the contract. The information can be provided in any
medium before conclusion of the contract, and must be given in a durable medium
immediately after conclusion of the contract. Fees do not include premiums
or commission that forms part of premium.
What are the requirements for advised sales?
GIGI 3.3.15
See Notes
The rules on advised sales are in ICOB
4.3 (Suitability). These rules apply when you make
a 'personal recommendation' (this term has a special meaning - see Appendix
A for further details) to a customer to buy or sell a non-investment insurance
contract. The personal recommendation must be based on the scope of the service
you provide (selection of insurance contracts on a fair analysis basis or
from one or a limited number of insurance companies).
GIGI 3.3.16
See Notes
A personal recommendation has three elements:
(1) you must give advice describing the merits of buying or selling
the insurance contract;
(2) the advice must relate to a specific contract e.g. "I recommend
ABC's contents insurance"; and
(3) the advice must be to a specific person or specific group of people.
GIGI 3.3.17
See Notes
There is guidance on the regulated activity
of 'advising on contracts of insurance' in the perimeter guidance in the Authorisation
manual (see AUTH App 5.8).
GIGI 3.3.18
See Notes
If your sale involves a personal recommendation,
you must ensure that the contract is suitable for the customer's demands and
needs. To do this you should first assess the customer's demands and needs
and then assess the suitability of the contract against these.
What is the statement of demands and needs and when do you have to give it to the customer?
GIGI 3.3.19
See Notes
You must give all your customers a demands
and needs statement when you sell them a non-investment insurance contract,
including at renewal (ICOB 4.4.1 R).
The statement must contain:
(1) details of your customer's demands and needs;
(2) a statement of whether a personal recommendation has, or has not,
been provided; and
(3) where a personal recommendation is made the reasons for making
the recommendation.
GIGI 3.3.20
See Notes
The statement must also reflect the complexity of the contract. ICOB 4.4.3 G to ICOB 4.4.6 G includes guidance on the style and presentation of the demands and needs statement. If the contract is straightforward, and you have not made a personal recommendation, this guidance says that you may be able to satisfy the rule by including a generic statement in your product information, for example.
(3)
GIGI 3.3.21
See Notes
The demands and needs statement must
be given before conclusion of the contract, unless the contract is concluded
over the telephone. For telephone sales it must be provided immediately after
the conclusion of the contract in a durable medium.
GIGI 3.3.22
See Notes
The demands and needs statement can be
provided orally if the customer requests it or if immediate cover is necessary,
but in both cases it must be provided in a durable medium immediately after
contract conclusion.
Do you need to keep records of the advice you give?
GIGI 3.3.23
See Notes
Where a personal recommendation is made
and the customer acts on that recommendation by buying from you the contract
you recommended, you must keep a copy of the demands and needs statement.
You must keep this for at least three years from the date on which you made
the personal recommendation (see ICOB 4.4.7 R).
You do not need to keep a copy if the customer does not act on your recommendation.
What do the rules say on excessive charges and when do they apply?
GIGI 3.3.24
See Notes
You need to ensure that your charges
to retail customers for insurance mediation services are not excessive (see ICOB
4.5). In determining whether or not your charges are
excessive you should consider:
(1) the level of your charges compared to charges for similar services
or products in the market;
(2) the degree to which the charges are an abuse of the trust put
in you by your retail customer; and
(3) the nature and extent of information provided to your customer
on charges.
Do you need to disclose the commission you receive?
GIGI 3.3.25
See Notes
ICOB 4.6 requires
you to disclose commission to commercial customers on request. If asked, you
must disclose any commission earned by you plus any commission earned by any
associate. The commission has to be disclosed in cash terms, in a durable
medium.
GIGI 3.3.26
See Notes
By associate, we mean any company in
the same group, any appointed representative of your firm or a firm in the
same group or any other person or firm connected to your firm. You do not
need to give information on the commission earned throughout the distribution
chain.
GIGI 3.3.27
See Notes
There are no rules requiring you to tell
retail customers about your commission although normal agency law requirements
apply.
What do the rules on unsolicited services mean?
GIGI 3.3.28
See Notes
ICOB 4.7.1 R prevents
you from providing services to retail customers in connection with non-investment
insurance contracts, where this involves a request for immediate or deferred
payment, unless you have obtained the customer's prior consent. This includes
entering into or renewing these contracts. For example, this means that the
common practice of rolling forward insurance contracts at renewal and continuing
to take direct debit payments cannot continue unless you have the customer's
prior consent to this. This rule only applies to distance contracts.
GIGI 3.3.29
See Notes
The rule does not apply to cases where
you have a right to renew a contract without the prior request of the customer
(ICOB
4.7.2 R). Where you do not have this right, you will
need to obtain the prior consent of the customer before supplying the contract.
Such consent will need to be express. So you cannot assume that, because a
customer has not responded to your request, he has given his consent to the
supply of the insurance.
GIGI 3.4
Product disclosure (ICOB 5)
- 01/12/2004
Introduction
GIGI 3.4.1
See Notes
This section explains the rules on product
information which are in
ICOB 5.
GIGI 3.4.2
See Notes
The rules differentiate between the information
to be provided to commercial customers and to retail customers. The rules
cover:
(1) the responsibilities of insurance companies and intermediaries
in terms of producing and delivering product information (ICOB 5.2);
(3) the form and content of the information provided (ICOB 5.5);
(4) white labelling (ICOB 5.6);
and
(5) record keeping (ICOB 5.7).
- 01/12/2004
What are the responsibilities of insurance companies and intermediaries?
GIGI 3.4.3
See Notes
If both the insurance company and intermediary
are authorised and are operating from a permanent place of business in the
UK, the insurance company will normally produce most of the product information
and the intermediary will be required to give it to the customer (ICOB
5.2.2 R). However, if the insurance company whose contract
you are selling does not operate from a permanent place of business in the
UK, you will be responsible for producing the information and giving it to
the customer.
- 01/12/2004
GIGI 3.4.4
See Notes
An insurance company we regulate must
enable you to comply with our rules (e.g. to provide information before the conclusion
of the contract) by giving you the information that it prepares in good time
to allow you to meet those standards (ICOB 5.2.12 R).
What information do you have to give retail customers when selling insurance?
GIGI 3.4.5
See Notes
ICOB 5.3 sets
out the information that you have to give to a retail customer before and
after conclusion of a contract, mid-term and on renewal. This includes information
about the terms of the contract, price, cancellation rights and claims handling. ICOB
5.3 needs to be read with ICOB 5.5, which gives more details about the content of such information,
in particular the policy summary and price information.
- 01/12/2004
GIGI 3.4.6
See Notes
We distinguish between different types of sale. The information that needs to be given in each case is shown in the table below. The types of sale are:
(1) non-distance sales - where there is some face-to-face contact between you and the customer, even if some of the negotiations take place by telephone, fax etc (see ICOB 5.3.1 R to ICOB 5.3.5 G);
(2) distance sales where you are able to provide information to the customer in a durable medium before the contract is concluded, for example, post and e-mail (see ICOB 5.3.6 R (1)); and
(3) distance sales where you are unable to provide information to the customer in a durable medium before the contract is concluded, for example, by telephone (see ICOB 5.3.6 R (2) to ICOB 5.3.8 R).
- 01/12/2004
GIGI 3.4.7
See Notes
Product information
requirements for different mediums of sale with retail customers:
What information do you have to give a retail customer on renewal of his policy?
GIGI 3.4.8
See Notes
Before a policy is due for renewal, unless
you have a good reason to believe that your retail customer will not want
to renew the policy, you must give the retail customer information about changes
to the policy, information on price and cancellation and tell him that he
can ask for a new policy document if he wishes.
This information has to be given to the customer 21 days before his policy expires, or you must tell the customer 21 days before expiry that you no longer deal with the insurance company or it is not willing to renew. Examples of situations when you could assume the customer would not want to renew are short term travel policies and creditor insurance tied to a loan, where the insurance ends at the same time as the loan. The rules on renewals for retail customers are covered in ICOB 5.3.15 R to ICOB 5.3.23 G.
This information has to be given to the customer 21 days before his policy expires, or you must tell the customer 21 days before expiry that you no longer deal with the insurance company or it is not willing to renew. Examples of situations when you could assume the customer would not want to renew are short term travel policies and creditor insurance tied to a loan, where the insurance ends at the same time as the loan. The rules on renewals for retail customers are covered in ICOB 5.3.15 R to ICOB 5.3.23 G.
What do you have to do if there is a mid-term change?
GIGI 3.4.9
See Notes
A retail customer must be told about
changes to any term or condition of the contract before the change takes effect,
and you must explain to him the implications of any change. This includes
changes to the premium, unless the change is in line with previously agreed
terms of the contract, for example, a periodic percentage increase. The information
must usually be given to the retail customer in a durable medium before the
changes takes effect, but if the change has been requested by the retail customer
himself, you can if necessary just explain the implications orally and give
him the information in a durable medium promptly afterwards. These rules are
in ICOB
5.3.24 R and ICOB 5.3.28 G.
What information do you have to give commercial customers when selling insurance?
GIGI 3.4.10
See Notes
You must always give your commercial
customer information about a contract before the conclusion of that contract,
unless the contract relates to a large risk. The amount of detail given can
vary depending on the customer's knowledge, experience and ability - the rules
simply say that it must be sufficient to allow the customer to make an informed
decision. In addition, you must tell your commercial customer the amount of
the premium and any fees and certain additional information required under
various European directives (ICOB 5.4.1 R).
GIGI 3.4.11
See Notes
After the contract is concluded you must
give the commercial customer the policy document promptly (ICOB 5.4.5 R) (as previously mentioned, the rules require insurance companies
to give you documents in time for you to comply with rules such as this one).
The requirement to give the commercial customer a policy document promptly
after conclusion also applies (unlike the pre-conclusion requirements) to
commercial customers insuring large risks.
GIGI 3.4.12
See Notes
These rules are set out in ICOB 5.4.1 R to ICOB 5.4.7 G.
What happens with group policies sold to commercial customers?
GIGI 3.4.13
See Notes
If you sell a group policy to a commercial
customer and members of the group have a direct right to claim under that
policy, you must give the commercial customer a policy summary once the contract
is concluded, and tell him that he should pass that information to those people
with a direct right to claim under the policy (ICOB 5.4.8 R to ICOB 5.4.9 G). The information
can be given in any form which is in writing - examples include a booklet
or an employer's intranet.
What do you have to do when renewing a commercial customer's policy?
GIGI 3.4.14
See Notes
A commercial customer must be given renewal
terms 'in good time' before expiry of his policy, or be told that you no longer
deal with the insurance company or it is not willing to renew, unless you
have reason to believe that the customer does not want to renew the policy
(ICOB
5.4.10 R to ICOB 5.4.14 R).
As explained in ICOB 5.2.13 G, we consider
'in good time' to mean that the customer should receive the information early
enough to be useful to him.
What does the policy summary have to contain and who do you have to give it to?
GIGI 3.4.15
See Notes
You will need to give a policy summary
to all retail customers and also to a commercial customer who takes out a
group policy. The policy summary will usually be produced by the insurance
company. The policy summary contains key information a retail customer should
read before deciding whether or not to take out a policy, so it needs to be
a separate document or (if it is part of another document) clearly visible
as important information for the customer. It must also include the key facts
logo (ICOB
5.5.5 R).
GIGI 3.4.16
See Notes
The policy summary can only include the
information set out in our rules. This includes the key facts logo, the main
features of the policy, and significant and unusual exclusions or limitations.
It also has to include signposting from the significant and unusual exclusions
or limitations to the policy document, in case the customer wants more information.
These rules are in ICOB 5.5.1 R to ICOB 5.5.13 G.
What directive information do you have to give to retail and commercial customers?
GIGI 3.4.17
See Notes
The information that you must give the
customer as required under various European directives is summarised in ICOB
5.5.20 R. This sometimes duplicates information you
have to give customers under other rules in ICOB 5 or in ICOB 4 (Advising and selling standards). ICOB 5.5.17 G explains
that you do not have to give information twice unless this is required by
a specific rule.
What does the policy document consist of?
GIGI 3.4.18
See Notes
The policy document is all the contract
terms and conditions, including the terms specific to a particular customer.
As explained in ICOB 5.5.27 R to ICOB
5.5.28 G, the terms and conditions can be set out in
more than one document, but must be given to the customer at the same time.
GIGI 3.4.19
See Notes
You may want to make your own brand
the main one on documents you give the customer, and to have prominence over
the insurance company's name. This is known as white labelling. ICOB 5.6 gives guidance on what is acceptable under our rules.
GIGI 3.4.20
See Notes
Our rules do not allow you to give the
customer only your firm's name and not that of the insurance company. ICOB
4.2 (status information) and the product information
rules in ICOB 5 require the customer
to be told of the identity of both the insurance company and the intermediary,
and the policy summary must give only the name of the insurance company, and
not your firm's name. However, as long as you comply with the rules on financial
promotions (ICOB 3) and the general rule
that communications with customers must be clear, fair and not misleading
(ICOB
2.2.3 R), the way that information is presented to
the customer is not regulated.
GIGI 3.5
Cancellation (ICOB 6)
- 01/12/2004
Introduction
GIGI 3.5.1
See Notes
This section briefly sets out the cancellation
rights that an insurance company must offer retail customers when they purchase
or renew certain non-investment insurance contracts. The requirements do not
apply to contracts with commercial customers.
- 01/12/2004
GIGI 3.5.2
See Notes
The cancellation rules do not apply to
insurance intermediaries directly. As such, this Guide does not set out the
detail of the cancellation rules, which are in ICOB 6. However, you will find it useful to understand the rules because:
(1) under the product information rules in ICOB 5, you, as an insurance intermediary, must provide information to
retail customers about cancellation rights; and
(2) the cancellation rules might affect the arrangements you have
in place with the insurance company for payment of commission.
- 01/12/2004
Which contracts do cancellation rights apply to?
GIGI 3.5.3
See Notes
In general, cancellation rights apply to non-investment insurance contracts taken out by retail customers. There are, however, a number of exemptions, which are set out in ICOB 6.1.5 R to ICOB 6.1.10 G.
- 01/12/2004
What must you tell the customer about cancellation?
GIGI 3.5.4
See Notes
Before conclusion of the contract, you
must inform your retail customers of their cancellation rights. These requirements
are in ICOB
5.3.12 R. See also Chapter 3.4 above.
- 01/12/2004
How long does the customer have to cancel the contract?
GIGI 3.5.5
See Notes
For general insurance contracts insurance companies
must give a cancellation period of 14 days and for pure protection contracts
the cancellation period must be 30 days. For mixed contracts which include
both pure protection and general insurance policies, the cancellation period
is 30 days (ICOB
6.2.1 R to ICOB
6.2.4 R).
GIGI 3.5.6
See Notes
For pure protection contracts, the cancellation
period starts on the day on which the customer is informed that the contract
has been concluded, or the day he receives the terms and conditions,
whichever is the later. For general insurance contracts, the period starts
on the day on which the contract is concluded or the day the customer receives
the terms and conditions, whichever is the later (ICOB
6.2.5 R).
What happens to attached insurance contracts when the financial services contracts to which they are attached are cancelled?
GIGI 3.5.7
See Notes
The Financial Services (Distance Marketing)
Regulations 2004 require that when a distance financial services contract
is cancelled, any attached contracts are automatically cancelled. This is referred to in guidance at ICOB
6.4.2 G. Broadly an attached contract is one which is subsidiary to the
main contract. For example, creditor insurance taken out to protect a loan
would be an attached contract and the loan would be the main contract. This
means that if the loan (the main contract) is cancelled, then the creditor
insurance (the attached contract) would also be cancelled automatically. The
reverse, however, does not apply - i.e. the loan (the main contract) would
not be automatically cancelled if the creditor insurance (the attached contract)
was cancelled.
Can an insurance company make a charge for contracts that are cancelled?
GIGI 3.5.8
See Notes
Where a customer cancels a contract,
an insurance company must return to the customer any sums paid to it without
delay, and no later than 30 days from the date of cancellation, though it
may charge for any costs incurred in connection with a general insurance contract
(ICOB
6.4.3 R). This might include administrative costs for
intermediaries and/or a time on risk charge for insurance companies. The charge
for costs incurred must not exceed an amount that is in proportion to the
service provided and must not be capable of being construed as a penalty.
So the insurance company must not profit from cancellation by a customer and
may only retain an amount that accurately reflects its costs. An insurance
company is not permitted to make a charge to a retail customer for a cancelled
pure protection contract.
- 01/12/2004
GIGI 3.5.9
See Notes
As well as returning any sums paid to
the insurance company by the customer, the customer must return any sums and
property the customer received from the insurance company (such as a motor
insurance certificate) within 30 days of cancellation (ICOB 6.4.3 R (4)).
- 01/12/2004
GIGI 3.5.10
See Notes
Under ICOB 6.4.9 R, where the insurance company has made a charge, the sums and property returned by the customer under ICOB 6.4.3 R (4) must not include any claims money that it paid out in the cancellation period. This does not mean, however, that if the insurance company chooses not to charge, that it has the right to refuse claims made during the cancellation period if cover commenced during the cancellation period.
Can an intermediary charge for its selling costs if the contract is cancelled?
GIGI 3.5.11
See Notes
As mentioned above, the insurance company
can recover the administrative costs that intermediaries incur in the charges
it makes for cancelled general insurance contracts. In addition, where you
charge the customer a separate fee for the mediation service you have provided
this is unaffected by the cancellation rules in ICOB 6 (although the cancellation rules in ICOB 8 may apply if you have a distance mediation contract and this will
affect what fees you can recover.
If you charge a fee you will need to disclose it to the customer (see paragraph 3.3.14) and you should
make clear that it will not be refundable if the non-investment contract is
cancelled if this is the case.
GIGI 3.5.12
See Notes
If you charge a fee and also receive
commission, then the insurance company is restricted in the amount of commission
it can recover from the retail customer when a general insurance contract
is cancelled to an amount which, when added to your fee, is sufficient to
cover your costs (see ICOB 6.4.5 G(3)).
- 01/12/2004
GIGI 3.6
Claims handling (ICOB 7)
- 01/12/2004
GIGI 3.6.1
See Notes
- 01/12/2004
What are an intermediary's obligations in relation to a claim?
GIGI 3.6.2
See Notes
Most of the obligations relating to claims
handling fall on insurance companies and if you act on behalf of an insurance
company in relation to a claim (e.g. you have delegated authority for claims
handling) then the insurance company is responsible for ensuring that the
rules are complied with. But if you act for the customer in relation to a
claim, there are certain rules that you must comply with. These rules are
set out in ICOB 7.4. In particular, you
must:
(1) act with due care, skill and diligence when acting for a customer
in relation to a claim; and
(2) avoid conflicts of interest.
- 01/12/2004
GIGI 3.6.3
See Notes
You could have a conflict of interest
if, for example, you were acting for both a customer and an insurance company
in relation to a claim; or you were acting for two customers that were parties
to a dispute over liability. If you face a potential conflict of interest,
you must tell the customer(s) of the conflict and ask their consent to continue
to act for them. However, if it is not possible to manage the conflict by
disclosing it the customer(s), you will need to withdraw from acting for one
or both parties.
- 01/12/2004
GIGI 3.6.4
See Notes
You may have arranged a policy for a
customer, but when it comes to a claim, you act for the insurance company
and not for the customer. In these cases, you must tell the customer that
you are acting for the insurance company and not for him in relation to the
claim.
- 01/12/2004
GIGI 3.6.5
See Notes
If you are notified of a claim by a customer,
but do not have the insurance company's authority to handle the claim, you
must tell
the customer immediately or, if able to do so, forward the notification to the insurance
company promptly.
Information for commercial customers
- 01/12/2004
GIGI 4
Training and Competence sourcebook (TC)
GIGI 4.1
Training and competence
- 01/12/2004
Introduction
GIGI 4.1.1
See Notes
This chapter of the Guide summarises the training and competence requirements that apply to insurance intermediaries, which are in the Training and Competence sourcebook (TC).
- 01/12/2004
What are the training and competence requirements?
GIGI 4.1.2
See Notes
- 01/12/2004
GIGI 4.1.3
See Notes
TC 1 contains the Commitments. These provide guidance to Principle 3 (management and control) of the Principles for Businesses (see Part 1 Chapter 3). Under the Commitments it is your responsibility to ensure that individuals:
(1) are (and remain) competent for the work that they do;
(2) are appropriately supervised;
(3) have their competence regularly reviewed; and
(4) have a level of competence appropriate for the nature of their business.
- 01/12/2004
GIGI 4.1.4
See Notes
TC 2 contains more detailed rules and guidance about recruitment, training, attaining and maintaining competence, supervising and record keeping. There is no requirement for insurance intermediaries dealing with non-investment insurance contracts to pass an approved examination.
GIGI 4.1.5
See Notes
Our rules do not specify the level of competence required. It is a matter for firms to decide what competence is necessary for their employees to perform their role effectively and comply with the relevant regulatory requirements.
- 01/12/2004
GIGI App
Appendix A: brief description of key terms in Part III
GIGI App 1
Appendix A: brief description of key terms in Part III
- 01/12/2004
GIGI App 1.1
See Notes
| Defined term | Meaning |
| Client money | Money that a firm holds on behalf of a client in the course of carrying on insurance mediation activities. This includes money that a firm treats as client money in line with the FSA client money rules in CASS. |
| Contracts of large risks | A contract that covers certain types of large risks. These include ships or aircraft (and related liability), railway rolling stock, goods in transit, credit and suretyship. |
| Customer | In ICOB, a 'customer' is a policyholder or potential policyholder. This can include a member of a group policy who has direct rights under the contract of insurance, e.g. to claim. In CASS, a 'customer' is the same as a 'client' who is any person with or for whom a firm conducts or intends to conduct designated investment business, insurance mediation or any other regulated activity. |
| Distance contract | A contract concluded without any face-to-face contact with the customer (e.g. telephone, internet, e-mail or post). |
| Durable medium | In a form that a customer can keep and refer to as needed. It can include paper, disk, and e-mail. |
| Insurance intermediary | A firm carrying on insurance mediation activities. So as well as a broker it may be a bank, IFA or a retailer or an insurance company selling directly to the customer. For the purposes of this Guide we use it to mean a small insurance broker. |
| Insurance mediation activities | Any of the following regulated activities: (1) dealing as agent in contracts of insurance; (2) arranging (bringing about) deals in contracts of insurance; (3) making arrangements with a view to transactions in contracts of insurance; (4) assisting in the administration and performance of contracts of insurance; (5) advising on contracts of insurance; (6) agreeing to carry on any of the above activities. |
| Non-investment financial promotion | A financial promotion relating to a non-investment insurance contract that is not made in the course of a personal visit, telephone call or other interactive manner. |
| Non-investment insurance contract | A contract of insurance that is a general insurance contract or a pure protection contract but which is not a long-term care insurance contract. |
| Personal recommendation | A recommendation to a specific person (or group of people) on a non-investment insurance contract. |
| Retail and commercial customer | (1) A 'retail customer' is a customer who is an individual acting outside his trade business or profession. (2) A 'commercial customer' is a customer who is not a 'retail customer'. |