Conduct risk and premium finance

We asked UKGI’s compliance experts to give us their thoughts on what FCA activity in relation to premium finances might mean for brokers. This is what they told us:

“It’s fair to say until recently there was wasn’t a great deal of regulatory focus on this aspect of a broker’s business outside the existing Consumer Credit sourcebook requirements. But in the last few months we have seen something of a shift:

  • January brought in more commission disclosure rules around credit – including premium finance. 
  • Consultation paper (CP20/19) on general insurance pricing practices:
    • specifically identifies premium finance as being within the proposed beefed up product governance rules; and
    • captures premium finance arrangements in the new reporting requirements.

A broker’s premium finance arrangements should be viewed from a conduct risk perspective every bit as much as any other product (or service) you provide.  If, as it seems may be the case, the Regulator is casting a more critical eye over credit financing arrangements then now is the time to consider what your business is doing. 

A couple of things to think about are:

  • If there is an interest free option from an insurer, do you make sure the customer is prominently and fully aware of this?  If not, how is your firm meeting Principle 6 (treating customers fairly) and if you’re the Senior Manager with responsibility for this area of your business how are you personally complying  with COCON 2.1.4 (due regard to the interests of customers and treat them fairly).
  • Think about what uplift rates you are adding to the base interest rate from the lender.  Are these in line with the market? Do you have an awareness of the overall impact of your commission and any premium finance uplift on what a customer is paying? Can you reasonably justify your fees – especially when added to your brokerage?

It’s better to be thinking about these issues now, so you know where the business stands from a conduct risk perspective and to give yourself time if you need to make changes. Having said this, some of the proposed new rules in CP20/19 come into effect in September and some from the end of this year, so we’d encourage you to not to delay."

If your business needs support for compliance, you can get in touch with the experts at UKGI:

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