Cyber and IT Resilience Outlook 2017

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Conduct and culture within the insurance sector

Regulatory Outlook 2017

Compared to international peers, European financial services firms have faced a more challenging set of circumstances with regard to changing laws and legislation. Despite the uncertainty that characterizes 2017, one fact is clear: financial services firms will not be able to wait out the current period of difficulty without taking decisive and, in some cases, bold actions in response. A whole array of frameworks will be introduced to manage conduct risk, install cultural change and improve product governance standards in 2017. Firms will also work to embed conduct risk appetite into their processes at all levels of their organisation. In addition, conduct risk will be increasingly monitored by prudential regulators as part of ICAAP assessments and stress tests.

Improving conduct and culture in financial services

Improving conduct in financial services firms remains a top priority for supervisors. The potential for consequences of misconduct (in the form of fines, redress payments and erosion of franchise) to create systematic risks has been prominently highlighted, particularly by the FSB. Firms accross jurisdictions must reinforce efforts to tackle poor culture, lack of accountability and misaligned incentive policies, or face further invention. Initiatives to improve conduct and culture have grown globally and greater convergence of approaches may occur.

The 2017 workplans of the FSB and IOSCO will introduce measures to maintain the momentum in terms of establishing cultural change and better aligned incentive structures. EIOPA has signalled that a European supervisory culture that promotes consumer protection and enhances stability will be important in the coming years, and the EBA has revised guidelines on internal governance, placing more emphasis on conduct, culture and conflicts of interest. 

Firms need to continue to step up efforts in terms of establishing their overall conduct frameworks. To drive change, they should articulate conduct risk appetite more clearly and embed it into their processes, management information (MI) and decision making, providing sufficient granularity for staff to understand its application.

Efforts to design methods that adequately address conduct and culture in firms will continue, and prudential supervisors will increasingly hold firms accountable for the risk of conduct failures. In particular, supervisors will not let up on their pressure on boards to promote an appropriate culture through setting the right tone and example ‘from the top’.

Financial Markets Regulatory Outlook 2017

Insurance distribution directive

Sales practices will remain high on EU supervisor's agendas. Firms will need to prepare for the implementation of the Insurance Distribution Directive (IDD) standards on product governance, disclosures and conflicts of interest. One of the main goals of IDD is that consumers should benefit from the same level of protection despite the differences between distribution channels. In order to guarantee that the same level of protection applies and that the consumer can benefit from comparable standards, in particular in the area of the disclosure of information, a true level playing field between all types of persons or institutions that distribute insurance products is essential. Hence, IDD broadens the scope of the Directive relative to IMD I to include distribution by (re)insurance undertakings and certain activities of price comparison websites, and changes the rules on ancillary intermediaries.

EIOPA is bolstering its efforts on consumer protection and has made this a strategic priority for 2017. This will mean senior management taking responsibility for ensuring adequate product oversight and governance arrangements throughout the life of a product.

In the Netherlands, the IDD will be implemented in the WFT (Act on the Financial Supervision) and insurers need to comply with the new law as of the 23rd of February 2018.

More information?

If you have any questions about conduct and culture within the insurance sector, please do not hesitate to get in touch with Peter Engering via +31(0)88 2886502 or via PEngering@deloitte.nl or with Remon Houweling via +31(0)88 2880125 or via REHouweling@deloitte.nl.

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