Presented by:

Rory Gallagher- Head of Compliance

Seamus O’Neill- Upstream Compliance & Regulatory Relations

Michael Gordon- Head of Marketing

09:30am Wednesday 19th September 2018

Insurance Distribution Directive (IDD)

Brokers Webinar

Legislative Overview

Local Codes Ireland

Local Legislation Ireland

01 October 2018

EU Delegation Regulations 2017-2018

EU- IDD DIRECTIVE

(EU) 2016/972016

• Revised CBI CPC 2012- Q4 2018• MCC 2017- January 2018• CP116- Inducements-Proposals

EU Delegated Regulation on:• Product oversight and

governance• Conduct of business rules on

insurance based investment products (IBIP)

• Insurance product information document (IPID)

• Professional Indemnity Insurance (PII)- Draft

EU Insurance Distribution RegulationsS.I. 229 of 2018

Organisational Requirements

Key Internal Policies/Registers

Pre-Sale Information Disclosures and Commission changes

Point of Sale

Post Sale

IDD- The Customer Journey

Product Distribution Arrangements

Consumer Protection

Organisational Requirements

What are the Regulations trying to achieve?

Many of the requirements under IDD are already covered in existing legislation. The regulators are aiming to protect the consumer interest.

• Level of Professionalism and Competency • Registration and Supervision• Sufficient Levels of Professional Indemnity

What did the Survey Tell us?

Registration: a high number of respondents were not aware thatcertain intermediaries will be required to re-register before 30th

September 2018.

However, we believe this requirements has limited application.

Next steps

Firms should consider their current registration status with the CBI.

Firms should be aware of the proposed changes to levels of PII required.

Firms should be aware of changes to MCC (Jan 2018): must maintain a register of all relevant employees and conduct ongoing monitoring to ensure they up to date with relevant CPD hours.

22.43%

77.57%

Did you know certain intermediaries will be required to re-register with the CBI

Yes No

Key Internal Polices and Registers

What are the Regulations trying to achieve?

Again, many of the requirements under IDD are already covered inexisting Irish legislation. The regulators aim is to protect theconsumer.

Firms must have identified the types of conflicts that can arise in theirbusiness and take appropriate steps to manage and mitigate theserisks.

What did the Survey Tell us?

A high number of respondents have yet to review their COIpolicies to ensure full alignment with IDD.

We recommend that firms review their current policy toconsider and take account of the criteria set out in appendix3 (focusing on the distribution of Insurance Basedinvestment Products - IBIPs).

Next Steps

Review your Conflict of Interest and Gifts & Entertainment policy toreflect the criteria set out in IDD (See Appendix 3).

A COI /Gift register should be in place to record all or potentialconflicts of interest that might arise and gift/entertainment receivedor provided.

.

9.35%8.41%

82.24%

Have you updated your Firms Conflicts of Interest Policy?

Yes Underway Yet to Sart

Product Distribution Arrangements

New Requirements:

Obligations for the Manufacturer: before launching anewproduct, must provide Distributors with all necessaryinformation on the insurance product, including the productapproval process, identified target market and the suggesteddistribution strategy.

Product Distribution Arrangement- must have writtenproduct distribution arrangements in place includingmeasures to obtain information from the Insurancemanufacturers -this should cover distribution strategy and aprocess to inform or provide feedback to Insurancemanufacturers on distribution activity.

What are the Regulations trying to Achieve?

The regulations aim to ensure insurance distributorshave arrangements in place to fully understand theproducts they intend to distribute including targetmarket -ensuring Distributors carry out their activitiesin accordance with the best interest of theircostumers.

What did the Survey Tell us? Next Steps

Document your product distribution arrangement forthe products you distribute. This document mustinclude all the relevant criteria outlined in theregulations . See Appendix 1.0.93%

11.21%

87.85%

Have you put in place a written document outlining ‘product distribution arrangements’

Yes Underway Yet to Sart

Organisational Requirements

Key Internal Policies/Registers

Pre-Sale Information Disclosures and Commission changes

Point of Sale

Post Sale

IDD- The Customer Journey

Product Distribution Arrangements

Consumer Protection

Pre-Sale Information Disclosures

What are the Regulations trying to Achieve?

These measures aim to ensure that consumers obtain allrelevant information before buying an insurance product(including the description of the nature of the service andremuneration received in the terms of business).

IDD include additional requirements and safeguards forInsurance Based Investment Products -IBIP.

Firms providing independent advice on IBIPs are required toreturn to customers, or offset against fees paid, anycommission received from the Manufacturer.

What did the Survey Tell us?

A high proportion of respondents have yet to review their terms of business. to ensure that they are fully aligned with IDD. However the changes required may not be significant, unless an advisor is providing independent advice in respect of IBIPs.

Next Steps?

Review your current terms of business to ensure that theinformation contained in this document is aligned with IDD .

If an advisor describes themselves as independent in relationto the sale of IBIPs, there are new requirements in relationto commission payment that need to be carefully considered.

14.68%

28.44%56.88%

Updated your terms of business to reflect the

requirements of IDD?

Yes Underway Yet to Sart

Point of Sale Requirements

What are the Regulations trying to Achieve?

The Regulations aim to prevent cases of mis-selling byensuring all sales of insurance products are accompanied bya demands an needs test with additional requirements forthe sale of IBIPS - this includes requirements for the advisorto tell the customer if the product is one that requires aperiodic assessment. Where this is required this must becarried out annually under IDD.

What did the Survey Tell us?

Next Steps

Firms must ensure that their advice process is aligned to IDDand that they have considered additional requirements forIBIPs including periodic assessments and complexity.

57.80%

42.20%

Do you provide the customer with periodic ongoing advice?

Yes No

17.43%

18.35%64.22%

Have you reviewed your suitability statements and advice process?

Yes Underway Yet to Sart

Key considerations

Provision of Information online/Durable medium- Customers mustconsent to receiving all pre and point of sale information via a durablemedium.

Complaints- The SI transposing the IDD requires that all complaintsare responded to in writing.

What are the Regulations trying to Achieve?

While many of the requirements are currently captured underexisting local legislation there are some additional requirements.

In particular relating to the provision of information online.This is to ensure that that customers are able to accessimportant information in a means that is suitable to them andthat customers have provided appropriate consent.

What did the Survey Tell us? Next Steps?

Consider consent requirements for customers if providingpre/post sale information online or any other durablemedium that is not paper.

Be aware of the provision in the SI/local legislation thatrequires all complaints to be acknowledged in writing.

Post Sale Requirements

18.35%

50.46%

31.19%

Consent that is required where you provide information online or via your website?

Yes No Don’t Know

What else lies ahead?

• Changes to the CBI Consumer Protection Code– Amendments to take account of IDD regulations are expected in Late September 2018

• CBI report following the consultation on Inducement to Intermediaries (CP116)– CBI Consultation Paper (CP116) was published in November 2017 and ran until March 2018. A final

report on the consultation is due in Q4 2018.

– While the CBI is not calling for a ban on the receipt of inducements, inducement arrangements must be structured to encourage responsible business conduct, fair treatment of consumers and to avoid conflicts of interest.

• EIOPA proposed changes to level of PII– EIOPA proposing changes that the amount of EUR 1,250,000 is increased to EUR 1,300,380 and the

amount of EUR 1,850,000 is increased to EUR 1,924,560.

Checklist

•Registration: firm authorised under IIA may need to re-register by 30th September 2018

•Changes to PII- Be aware - EIOPA proposing increased levels of cover required.

•MCC Requirement- Ensure your employee register is kept up to date and CPD is monitored.

Organisational Requirements

•Conflicts of Interest Policy: Review your written Conflict of Interest and Gifts & Entertainmentpolicy ensuring aligned to IDD and maintain relevant registers. Ensure that, as part of thisprocess, the risk factors outlined in IDD have been considered for IBIP ( see appendix 3).Remember –additional requirements for IBIPs.

Key Policies/Registers

•Product Distribution Arrangement- Ensure written document in place outlining productdistribution arrangement for the products your firm currently distribute. Must contain criterianoted in appendix. Remember to obtain relevant information from Manufacture for newproducts.

Product Distribution Arrangements

Pre-sale Requirements

Point of Sale Requirements

Post-Sale Requirements

• Terms of Business: Review your terms of business to ensure that it is aligned to IDD. Note: the new definition of Remuneration is b road. Terms of business needs to include a description of services provided and nature of remuneration received.

• Independent/Commission disclosure- Independent advisers will need to implement a policy to offset any remuneration /commission received in line with IDD.

• Periodic Advice- new requirement in the statement of suitability for IBIPS - tell the customerwhether the product is one that requires a periodic review of their arrangement. Note that additionalinformation may need to be gathered if the product is deemed complex.

• Provision of Information online/Durable medium- Customers must consent to receiving all pre and point of sale information via a durable medium..

• Complaints- The SI transposing the IDD requires that all complaints are acknowledged in writing.

Appendix 1- Product Distribution Arrangement

Insurance Brokers must have a written Product distribution Arrangement in Place. This arrangement shall:

(a) aim to prevent and mitigate customer detriment; (b) support a proper management of conflicts of interest; (c) ensure that the objectives, interests and characteristics of customers are duly taken into account.

The document shall ensure distributors have documented arrangements to:• Obtain the all relevant product information from the manufacturer including:

o the identified target marketo the suggested distribution strategyo the level of complexity of the product(s)o the main features and characteristics of the insurance productso the risks related to the product(s)o he costs related to the product (including implicit costs)o any circumstances which might cause a conflict of interest to the detriment of the customer

• Product Distribution Arrangement Review- Insurance distributors shall regularly review their product distribution arrangements to ensure that those arrangements are still valid and up to date

• Informing the manufacturer- Insurance Brokers must provide feedback to the manufacturer when becoming aware that an insurance product is not in line with the interests, objectives and characteristics of its identified target market or becoming aware of other product-related circumstances that may adversely affect the customer

Appendix 2- Providing information in a Durable Medium

Pre and Post Sale information may be provided to customers by way of durable medium(online, email, website) only if the following conditions have been met:

(a) The provision of that information by means of a website is appropriate in the context of the business conducted between the insurance distributor and the customer;

(b) The customer has consented to the provision of that information by means of a website;

(c) The customer has been notified electronically of the address of the website, and the place on the website where that information can be accessed;

(d) It is ensured that that information remains accessible on the website for such period of time as the customer may reasonably need to consult it.

Appendix 3- Criteria for assessing the potential for conflicts of interests and remuneration arrangements

Conflicts of Interest: Distributors shall take into account, by way of minimum criteria, the following situations:

• The Firm or any person linked to them by control is likely to make a financial gain, or avoid a financial loss, to the potential detriment of the customer;

• The Firm or any person linked to them by control has a financial or other incentive to favour the interest of another customer or group of customers over the interest of the customer;

• The Firm or a relevant person or any person linked by control is substantially involved in the management or development of insurance-based investment products, in particular where such a person has an influence on the pricing of those products or their distribution costs.

Remuneration: Factors to assess which increase or decrease the risk of detrimental impact on the quality of the relevant service to the customer.

• Encourages the intermediary to offer or recommend a product or service to a customer when the insurance intermediary or insurance undertaking could, from the outset, propose a different available product or service which would better meet the customer’s needs

• Solely or predominantly based on quantitative commercial criteria and does not take into account appropriate qualitative criteria

• Value of the inducement is disproportionate when considered against the value of the product and the services provided in relation to the product

• Inducement is entirely or mainly paid upfront when the product is sold without any appropriate refunding mechanism

• inducement scheme entails any form of variable or contingent threshold or any other kind of value accelerator which is unlocked by attaining a sales target based on volume or value of sales.