When it’s made, the Insurance Distribution Directive (IMD2 *) will almost certainly include four particular articles about conflicts of interest. These articles can be paraphrased in this way:
- Article 13(a) (Scope): here are some extra rules that intermediaries and insurers must comply with when they sell insurance-based investment products;
- Article 13b (Prevention of conflicts of interest): the intermediary or insurer must take all reasonable steps to prevent conflicts of interest adversely affecting their customers;
- Article 13c (Conflicts of interests): they must also take all appropriate steps to identify conflicts of interest between themselves and their customers; or between one customer and another. If a conflict is identified, and it can’t be managed in a way that ensures that customer interests will not be damaged, the conflict must be clearly disclosed. The European Commission can adopt delegated acts, to flesh these rules and principles out;
- Article 13d (General principles and information to customers): the intermediary or insurer must act honestly, fairly and professionally in accordance with the best interests of its customers. All of the information it addresses to actual and potential customers must be fair, clear and not misleading. And marketing communications must be clearly identifiable as such. Each Member State can choose to ban fees, commissions and other monetary benefits that might otherwise have been paid to the intermediary or insurer by a third-party
From a UK perspective, this may not look especially interesting, or onerous because it seems to repeat what the FCA already requires in almost identical terms. But it may be about to get a whole lot more interesting and demanding than we might otherwise have expected. I say that because EIOPA has just published its Technical Advice to the Commission, so the Commission can develop its delegated acts.
- Makes some assumptions about when a conflict of interest can be assumed to exist;
- Assumes that intermediaries and insurers will have a written conflict of interest policy, that meets minimum EIOPA and Commission specified criteria – these policies may therefore be longer and more granular in the future than the policies that are in use today.
EIOPA effectively reserves its position on the payment of fees, commissions and other monetary benefits, noting that the Council and the Parliament are “addressing the revision of the IMD in its entirety“. EIOPA therefore restricts itself to making some “provisional recommendations on addressing conflicts of interest arising from third party payments“, before offering to look at these issues again later on. It is, however, clear from what EIOPA says that it would like to see a more harmonised and EEA-consistent approach to the identification, management and disclosure of the conflicts of interest that are likely to arise if a third-party pays a fee, or commission or provides another monetary benefit to an intermediary or insurer in connection with the sale of an insurance policy to a customer. We should probably therefore expect further developments in this area (at least).
(* The Insurance Distribution Directive is often referred to as IMD2, because it will repeal and replace the first / current Insurance Mediation Directive, IMD1.)