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General insurance firms reported 662 individuals for breach of conduct rules

Nindy Mellett


PRESS RELEASE: General Insurance firms reported only 662 employees – including just three senior managers – for breach of conduct rules to the Financial Conduct Authority last year, new information released by the FCA in response to a freedom of information (FOI) request by financial services risk and regulation firm Sicsic Advisory reveals.

Over 5,300 general insurance firms are required to inform the FCA of conduct rule breaches. The FCA has required intermediaries and brokers to train all staff on conduct rule and report breaches annually since March 2021, while the SM&CR rules have applied to dual-regulated insurers since December 2018.

The data shows a higher reporting rate amongst insurers, with 13.5% of personal and commercial lines insurers reporting conduct rule breaches, compared to just 2.5% of personal and commercial lines intermediaries in the year to 31 August 2021, the most recent figures available.

Nindy Mellett, Sicsic Advisory Senior Consultant, comments: “Given the size of the general insurance market, 662 reports seem on the low side. This raises questions around whether firms are training, identifying, and recording breach of conduct rules in line with regulatory requirements. The regime was introduced to improve standards, as such we would expect to see a higher number of breaches in the early years of implementation as firms respond to the higher standards.”

The three notifications related to Senior Manager Function (SMF) holders from personal and commercial lines intermediaries – but there were no notifications from Lloyd’s and London Market Brokers or from any insurers.

Nindy Mellett adds:

“We would expect a lower number of breaches from those in more senior positions. These individuals have a higher potential to cause customer harm, as such, are subject to an extensive fit and proper person assessment. Nonetheless it is unexpected to see no senior manager conduct rule breaches for any Senior Manager in Insurance Firms or in the in the Lloyd’s market. This could be due a time lag in formally reporting incidents which can be complex to fully investigate, however it may be worthwhile for firms to ensure their breach identification and reporting process is as robust as it should be.”

Many of the latest reports included multiple breaches of the five conduct rules that everyone working in financial services must adhere to. Failure to act with integrity was the most common conduct rule breach, with 351 breaches, followed by 331 instances of failure to act with due skill, care and diligence.

The request also revealed that 71 of the 437 (16%) Lloyd’s and London Market brokers captured by the regime failed to return the required annual report of conduct rule breaches, as had 24 of the 150 personal and commercial lines insurers (16%).

Nindy Mellett comments: “It is surprising that a sizeable minority of firms are still not submitting a regulatory return. This raises wider questions around whether these firms have fully implemented SM&CR. Those who are not yet submitting the annual form must work on their process at pace. We are expecting the FCA to compare responses and speak to the outliers on both sides. Those who haven’t recorded any breaches should be able to demonstrate a functional reporting system that convinces the clean sheet reflects reality.”

You can download the press release containing the FCA’s answers to our questions from here.