Shortcomings in the payment protection insurance market may limit the extent to which lighter-touch regulation can be incorporated into the insurance conduct of business regime, suggests the Financial Services Authority.
Speaking at a conference on the future of PPI and MPPI, Stuart King, head of market intelligence and retail themes at the FSA, says the regulator has been looking seriously at whether and how it could make the ICOB regime more risk-based.
He states: “In reviewing our rules, we will focus on the obligations that flow from the principles for businesses that encourage senior management to take responsibility for enabling their customers to make an informed decision.”
But King says this light-touch approach may be limited by the failures witnessed during the PPI sales process and specific rules may therefore be required.
He says: “In the light of some of the specific shortcomings in this market we have also been looking at setting some specific requirements in respect of the selling practices for higher risk products.”
These specific requirements could include ensuring all the key information required for a customer to make an informed decision is given in the oral disclosure during the sales process and making eligibility checks mandatory for non-advised PPI sales.
King adds: “PPI is a complex product where consumer understanding is significantly lower in contrast to products such as motor insurance where consumers have much more experience of shopping around and indeed of making a claim. As a secondary or even tertiary product PPI is rarely the focus of the consumer’s attention. In our thinking about the risk of different products in general insurance, PPI is clearly among the higher-risk products.”
The FSA will shortly be carrying out more firm visits, including visits to over 100 new small firms and 10 to 20 medium and large firms, as well as a mystery shopping exercise.
It will publish an interim report on its ICOB review in the next couple of weeks and will consult on rule changes in the second quarter of 2007.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Emily Perryman on 020 7034 2680 or email [email protected].IFAonline
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