REG Reviews
2nd April 2024
Last month, the FCA urged financial advisors to review retirement income advice processes, whilst raising concerns within the motor sector regarding fair value, Lloyd’s predicted generative AI to increase cyber threat risks, the UK Parliament released its much anticipated ‘Sexism in the City’ report, and REG launched its new Partnerships Programme.
Read these articles and many more as we bring you all the important news and views in the insurance and financial services world…
Following a thematic review of retirement income advice, on 20th March, the FCA sent a letter to CEOs of financial advice firms, asking them to review their retirement income advice processes to align with its expectations.
Even though the review identified examples of good practice; including firms designing their advice models in accordance with customer needs and good outcomes, the FCA uncovered some firms failed to put their customers’ needs first.
Companies were identified to not be considering sustainable levels of income to support retirement, as well as some instances where firms were not providing the correct information to consumers.
These processes were noted to have resulted in a small number of consumers losing guarantees or incurring unnecessary charges.
The letter also referred to the pension reforms in 2015, which was introduced to provide more flexibility about how and when consumers could draw defined contribution pensions.
Given the evolving nature of risk around this subject, the FCA reiterated how firms need to support consumer considerations of savings access, income withdrawals in line with short and long term needs and underlying investments.
The review forms part of the FCA’s ‘Consumer Investments Strategy’ and ‘Preparing for the Future of Consumer Investments’, with the overall vision to ensure consumers can obtain timely and affordable assistance, invest confidently with risk and regulatory protections understanding, access suitable investments matching risk tolerance and circumstances and enhance protection against scams.
Detailing areas for improvement, the FCA mentioned income withdrawals, risk profiling, advice suitability, periodic review of suitability and control frameworks as areas for firms to address to ensure standards are raised and good outcomes for customers are delivered.
At the time of the review, the Consumer Duty was not in effect, however the letter referred to the fact that firms would be failing to comply with some requirements of the Duty if the identified concerns around retirement income advice were not addressed.
Sarah Pritchard, Executive Director of Markets and International, at the FCA shared; “Financial advisers have a vital role in helping consumers to make the right decisions now to support them long into the future. Decisions for consumers approaching retirement are complex, with the potential for risk. We want to support a sector that can help consumers access pension benefits, invest with confidence and have a sustainable income when they retire.”
‘Some firms are getting this right and making a real difference to their customers. However, others are not even getting the basics right and putting their customers’ futures at risk. We urge all firms to take on board our findings and review their own processes. Where they do not, we will act.”
A Retirements Income Advice Assessment Tool has been created by the FCA to demonstrate the assessment process of advice files and how firms can ensure compliance with the FCA’s rules, including Consumer Duty. Additional the FCA urged firms to view its Cash Flow Monitoring article to help modelling processes.
“Retirement income advice remains a focus for us. We will be following up on these findings with firms involved in the retirement income advice market. We will also be carrying out further supervisory work in this area to explore the scale of the issues identified and tackle any harms,” finalised the FCA.
A new report from Lloyd’s has highlighted the risks of the growing emergence of Generative Artificial Intelligence (AI) and Large Language Models (LLMs) in today’s society and its potential impacts on the cyber threat landscape.
The report titled ‘Generative AI: Transforming the Cyber Landscape’ explores the growing concerns and probability of this technology being used for nefarious means by cyber professionals and how Lloyd’s will work together with relevant stakeholders to ensure protection against potential risks.
“Generative AI is not the first, and won’t be the last, disruptive technology to impact the cyber threat landscape, so it is critical that business improve their risk mitigation, security and defence technologies, as well as seek appropriate risk transfer today, more than ever before,” shared Dr Kirsten Mitchell-Wallace, Director of Portfolio Risk Management at Lloyd’s.
The report recognises that the prevalence of crimes attributed to LLMs have been low, but with the growing emergence of publicly available models, the governance around these platforms are growing in weakness.
Lloyd’s detailed 4 key emerging risks:
When commenting on the considered risks for business and insurance, Lloyd’s warned on the emergence of a new threat landscape where barrier to entry lowers and threat actor capability strengthens.
Cyber catastrophes were cautioned to become more frequent, but on a lower scale due to generative AI allowing for effective targeted and lower profile campaigns.
Lloyd’s also recognised that although AI has the potential to improve state sponsored hostile activity in terms of espionage and sabotage, it is still unclear whether this will increase the risk of major catastrophes due to the human factor.
Lloyd’s assured it will continue working with stakeholders to support the development of AI and evaluate potential threats to safeguard the market.
By building awareness through Lloyd’s Futureset, partnering with the government, regulators and technology companies, engaging with policymakers to collaborate on guidelines and supporting sustainable innovations through Lloyd’s Lab, Lloyd’s assured it will ensure a strong and defensive position in its response to growing threats and ensure the market is best poised to navigate these challenges effectively.
On 8th March, the UK Parliament published its much anticipated ‘Sexism in the City’ report and noted that “not much” has changed since the predecessor committee 2018 report.
Barriers noted in 2018 were identified to be just as prevalent today, with the overarching theme being companies viewing diversity and inclusion as a “tick box” exercise.
The average proportion of women holding senior management roles was 35% in 2022, up from 27% when the Charter was introduced in 2016.
Recruitment and promotion decisions were also noted to still be biased against women due to the ‘old boys club’ culture embedded into the market.
Baroness Helena Morrissey, Chair of the Professional Membership Association shared; “There are big pockets of no progress whatsoever. [ … ] Still only 12% of named fund managers—people running an account and having their name on it—are women today. That has hardly changed in the whole 36 years since I have been in the City.”
In financial services, the gender pay gap was reported to be 23.7%, higher than the 11.7% average across other industries, and much larger when considering bonuses. With this in mind, the report predicted that it may take another 70 years to close the gap.
Worryingly, the Committee was shocked to hear of the number of NDAs used to cover up sexual harassment and bullying, as well as stating its frustration regarding inadequate whistleblower procedures. A concerning “fear factor” around reporting harassment was found to be more pervasive in the financial services industry, with victims being silenced through weak governance.
Various barriers were reported to hinder gender equality in the workplace. Maternity leave was reported to often disproportionately impacts women’s career progression, although notion towards some companies introducing shared paternal leave was noted to be beneficial. Flexible working arrangements were also found to have created a “mummy trap,” where women face pressure to return to work following encouraged offcie return, potentially hindering their career advancement.
Moreover, a misunderstanding surrounding menopause in the workplace was noted to be affecting women’s progression.
Although the report commented on the progressive government initiatives – gender pay reporting regulations in 2017 and Women in Finance Charter in 2016, it was disappointed to note the lack of adequate change since.
Mark Freed also highlighted male ignorance as a negative factor when combatting change, citing “blindness” and “accidental sexism” as common factors influencing the sexist workplace culture.
The report therefore called upon the FCA to introduced more stringent controls and tighter governance around the diversity and inclusion movement, whilst also asking them to address their current frameworks and initiatives.
In the FCA’s response, it declared it shared the Committee’s view and will “prioritise proposals that tighten expectations on firms to tackle misconduct such as bullying and sexual harassment”, as well as consider whistleblowing and NDA recommendations, whilst reflecting on views received on proposals that firms should set their own D&I strategy.
“Changing the culture in financial services is a significant challenge that will inevitably take time. Although there is no silver bullet, we hope that the recommendations in this report help increase the pace of change towards a diverse and inclusive financial services sector where the widest range of people can prosper and thrive” the report concluded.
A recent review by the FCA has uncovered concerning evidence suggesting that certain insurance firms may be offering their customers less than the true value of their written-off or stolen vehicles.
In some instances, it was found that these offers were only adjusted after customers raised complaints, indicating potential unfair practices.
This revelation sparked concerns given the FCA’s previous warnings to insurers against undervaluing cars or other insured items when settling claims.
In its previous warning, the FCA outlined firms requirements:
Sheldon Mills, Executive Director of Consumers and Competition at the FCA, emphasised the importance of providing adequate support to customers during stressful situations such as vehicle write-offs or thefts.
“Having your vehicle written off or stolen can be intensely stressful and we expect firms to offer the right support to help their customers,” shared Mills.
Under FCA regulations, insurers are required to handle claims promptly and fairly, ensuring that customers receive appropriate compensation for their losses.
Moreover, with the introduction of the Consumer Duty in July 2023, firms are now mandated to prioritise consumer interests and strive to deliver positive outcomes for them in all aspects of their business operations.
For customers who suspect that their insurance claims have been undervalued, avenues for recourse are available. They are encouraged to lodge a complaint with their insurer and escalate the matter to the Financial Ombudsman Service if a satisfactory resolution is not reached.
This mechanism provides an essential safeguard for consumers to challenge unfair treatment and seek redress for any perceived injustices in the claims settlement process.
As part of its ongoing efforts to uphold consumer rights and fair treatment, the regulator is actively engaging with the firms identified in its review to ensure they take necessary steps to rectify the issues highlighted.
In a significant shift, the FCA announced that it would permit the listing of certain bitcoin-linked securities on the stock market.
This marks a departure from its previous stringent stance on digital assets, reflecting the growing global interest in funds directly invested in cryptocurrencies.
On 11th March, the FCA stated that it would “not object” to the creation of bitcoin and ethereum-backed exchange-traded notes (ETNs) specifically tailored for professional investors.
This decision opens the door for issuers to seek approval to list notes linked to bitcoin and ethereum on the London Stock Exchange starting from April.
ETNs are debt securities that track the performance of an underlying asset, such as bitcoin or ethereum, but are traded and settled through a centralised market entity, like a stock exchange and securities depository.
The announcement had an immediate impact on cryptocurrency prices, with bitcoin reaching a milestone of $72,000 and ethereum hitting $4,000 for the first time since December 2021.
The UK had previously been among the few major markets that resisted the trading of crypto-related securities. However, despite the FCA’s cautious approach, the government has been positioning the country as a potential hub for digital asset markets.
The FCA’s decision comes after its ban on crypto-related derivatives in 2021, which included exchange-traded products. This ban was implemented due to concerns over the high level of leverage offered to consumers by some operators, with leverage ratios reaching as high as 100 times the value of bitcoin.
However, critics within the crypto industry argue that the UK cannot fully establish itself as a leading market for digital assets unless retail investors are provided with regulated and accessible avenues to invest in popular cryptocurrencies like bitcoin.
While the FCA’s move aligns with the trend of regulators in other major markets becoming more comfortable with investors buying crypto-linked securities, the ban on the sale of ETNs to retail consumers remains in place.
The FCA emphasised its belief that crypto derivatives are not suitable for retail consumers due to the risks they pose.
In light of the FCA’s decision, the London Stock Exchange clarified that the securities behind the ETNs could not be leveraged and must be securely stored offline by custodians subject to anti-money laundering regulations in multiple jurisdictions.
On 25th March, REG launched its new Partnerships Programme, crafted to meet the rising demand in the market for a cohesive strategy concerning compliance, regulatory, and AML preventive measures.
As organisations seek to transition from outdated paper-based checks to digital automated monitoring solutions, there’s never been a more opportune moment to explore expanding your product and service portfolio. Partnering with REG opens doors not only to providing your customers with a comprehensive ‘one-stop shop’ solution but also diversifying your company’s revenue streams through additional offerings.
At REG, we recognise that every organisation operates uniquely. That’s why we’ve created a variety of partnership models tailored to suit your specific needs, with different partnership models including Referral, Channel and Technology partnerships.
Heading up the programme is REG’s newly appointed Head of Partnerships, Mark Atkins, who joins REG with extensive experience and expertise in forging valuable and long lasting partnership relationships.
“Partnerships lie at the core of successful businesses, and over the past 11 years, I’ve spearheaded an immensely successful partnership programme within the technology sector. This programme has enabled customers to expand their offerings, penetrate new markets, and diversify revenue streams,” he shared.
“Partnership models are meticulously crafted to enhance the ecosystems in which we operate. Recognising that no single entity can master every aspect of the industry, collaborations empower companies to leverage each other’s strengths, resources, and expertise. By joining forces with complementary entities, businesses not only alleviate the pressures of growth and resource constraints but also gain access to untapped opportunities within their existing customer base,” continued Mark.
Learn more about the programme here or contact our Head of Partnerships, Mark Atkins: mark.atkins@reg.uk.com
“At REG Technologies, we’re committed to fostering a collaborative approach to the market. We recognise that partnerships are the cornerstone of long-term success, and we’re invested in being a part of your journey towards achieving it. Let us equip you with the information and resources needed to tackle risk management and compliance issues with confidence. Together, we’ll build a faster, smarter, and safer ecosystem.”
Financial regulators are tightening their grip on social media promotions, with FCA releasing new guidance tailored to social media influencers endorsing financial products and services.
The FCA’s latest guidance doesn’t introduce new obligations for financial firms but seeks to provide clarity on how promotions of financial products should be conveyed across social media platforms.
The regulator is adamant about enforcing advertising rules, emphasising that non-compliance can lead to severe consequences, including criminal charges punishable by imprisonment and hefty fines.
Key principles outlined by the FCA include ensuring that promotions present a balanced view of both benefits and risks associated with financial products, using clear and understandable language that resonates with consumers.
Moreover, the FCA warns that promoting regulated financial products without proper approval could land social media influencers in legal trouble, urging firms to carefully assess whether complex products are suitable for promotion on such platforms.
Lucy Castledine, Director of Consumer Investments at the FCA, reiterated; “Any marketing for financial products must be fair, clear and not misleading so consumers can invest, save or borrow with confidence. Promotions aren’t just about the likes, they’re about the law. We will take action against those touting financial products illegally.”
The move has garnered support from industry figures, with UK Finance acknowledging the detrimental impact of misleading promotions on consumers and welcoming the FCA’s initiative to combat fraudulent advertising.
Jonathan Cavill, a financial regulation expert at Pinsent Masons, underscores the delicate balance companies must strike between effective promotion and adherence to regulatory standards. stressing the importance of aligning marketing efforts with consumer protection guidelines.
The FCA’s guidance comes following a surge in social media’s influence on investment decisions, particularly among younger demographics. With over half of new investors aged 18 to 34 turning to social media for investment research, and a significant portion relying on influencers, the need for clear and transparent communication becomes paramount.
However, alongside the rise in social media usage for financial advice comes an increase in risks, as evidenced by the FCA’s removal of thousands of misleading adverts last year alone.
This trend isn’t unique to the UK, as regulators worldwide are stepping up efforts to hold financial influencers accountable. The International Organisation of Securities Commissions (IOSCO) has also published measures for member countries to consider when formulating new rules on retail distribution and digitalisation, reflecting the global concern surrounding social media-based financial promotions.
Global Insurance Law Connect (GILC) has launched its inaugural report delving into the integration of artificial intelligence (AI) within the insurance sector, presenting insights from 18 countries.
The report navigates the transformative impact of AI, highlighting its role in enhancing efficiency and fostering innovation across various insurance operations.
However, it also sheds light on associated challenges, including potential biases in AI algorithms, privacy concerns, and increased cyber incident risks.
Gillian Davidson, Chair of GILC and Partner at Sparke Helmore Lawyers, underscored AI’s pivotal role in reshaping the insurance landscape. She emphasised AI’s multitude of benefits, such as expedited claims processing, enhanced underwriting capabilities, innovative insurance product development, streamlined administrative processes, and more efficient chatbots.
Notably, the report highlights AI’s capacity to swiftly process and analyse vast datasets, proving invaluable for risk prediction and assessment.
AI’s analytic capabilities offer insurers a means to penetrate markets with complex risk profiles, particularly in data-scarce environments, such as cyber insurance.
This enhanced risk analysis facilitates the provision of tailored coverage options, ultimately benefiting consumers with more relevant insurance offerings.
Moreover, the report examines the evolving regulatory landscape surrounding AI, with particular focus on impending regulations like the EU’s AI Act. The insurance sector remains attentive to emerging liabilities and risks associated with AI adoption, including privacy and cybersecurity concerns.
The digital transformation within insurance distribution models is also explored, accelerated by the COVID-19 pandemic. This shift towards online and digital platforms is expected to persist, particularly benefiting markets with traditionally low insurance penetration rates.
However, the report does not overlook AI-related challenges, particularly those concerning data privacy. Insurers are urged to establish robust compliance mechanisms to mitigate risks associated with data breaches and effectively manage potential incidents.
Davidson notes that while insurance solutions tailored to AI-related risks are in nascent stages, advancements in technology coupled with regulatory scrutiny are likely to spur the development of AI-targeted risk solutions in the future.
“Currently, insurance solutions tailored to the risks associated with artificial intelligence are still in the early stages of development. However, as the technology advances and becomes more prevalent, and regulatory bodies sharpen their focus, we can expect an increase in AI-targeted risk solutions,” she continued.
As AI becomes increasingly prevalent, the industry must remain proactive in addressing associated challenges while leveraging its transformative potential to better serve consumers
The Head of Germany’s Federal Office for Information Security (BSI), Claudia Plattner, issued a stark warning on 1st April, highlighting the nation’s lack of readiness for a potential large-scale cyberattack due to the absence of a functional crisis management system.
While Germany has thus far avoided significant cyber assaults on critical infrastructure despite escalating international tensions and hybrid threats from Russia, Plattner cautioned that the country is ill-equipped to effectively counter such an attack.
Plattner urged the German government to prioritise cybersecurity and stressed the need to address vulnerabilities before a major incident occurs, such as widespread ATM failures.
She lamented the recurring pattern of learning from mistakes rather than proactive preparation, urging proactive measures to safeguard against cyber threats.
One major concern highlighted by Plattner is the absence of structured cooperation mechanisms between Germany’s 16 states and federal authorities in the event of a cyber crisis, undermining the nation’s response capabilities. This deficiency poses a significant risk to Germany’s ability to manage and mitigate the impact of potential cyberattacks.
Recent warnings from the German government regarding Russia’s hybrid warfare tactics, particularly in light of upcoming elections, underscore the seriousness of the threat landscape.
Interior Minister, Nancy Faeser, commented on the escalating aggression from Russia in the realm of cyber warfare, and stressed the need for vigilance and preparedness.
While previous Russian efforts have primarily involved disinformation campaigns and espionage, Plattner revealed concerns about potential cyber intrusions targeting politicians’ accounts to tarnish their reputations.
The BSI has identified disinformation campaigns and hacking activities as key focus areas, aiming to counteract threats to electoral integrity and public trust.
The BSI’s recent report reinforces the escalating danger posed by cybercriminals, who are exploiting vulnerabilities in software and leveraging digitalisation to launch sophisticated attacks.
Despite the heightened risk exacerbated by the conflict in Ukraine, pro-Russian groups have yet to inflict significant damage, but the potential for future disruption remains a pressing concern.
The latest survey conducted by the Chartered Insurance Institute (CII) on Corporate Chartered equality, diversity, and inclusion (EDI) reveals the enhanced value of integrating EDI initiatives within business practices.
The findings report how businesses have witnessed tangible improvements by going beyond mere compliance in EDI training, actively recruiting talent from marginalised groups, and diligently collecting diversity-related data.
The survey, which invited all 784 Chartered companies to participate, aimed to gauge the adoption level of EDI practices among Corporate Chartered firms and their impact on business performance, with respondents providing insights into their organisation’s EDI strategies.
Participants in the survey reported notable advancements in their creative and innovative capabilities, coupled with increased employee engagement, which were all deemed to be attributed to the implementation of EDI practices.
This research builds upon a preliminary study conducted in 2021, which focused on Chartered firms’ adoption of EDI across various domains. The updated results demonstrate a noticeable growth in companies recognising the impact of EDI policies in creating a workforce and executive team that more accurately reflects societal diversity.
Since mandating an EDI policy for Corporate Chartered status in 2019, the CII has been dedicated to tracking the effectiveness of these policies and guiding best practices in EDI. The survey found that the most embraced EDI initiatives include ‘family and carer-friendly policies,’ with an 87% implementation rate, indicating an increase from 2021.
Other significant practices include leadership fostering an inclusive culture and senior-level accountability for EDI.
The study observed significant gains in better representation and narrowed salary gaps as outcomes of these EDI policies since 2021. However, areas like systematic diversity data collection, measuring progress towards diversity goals, and the establishment of People Networks for business insights were less commonly adopted.
Vivine Cameron, CII’s EDI Manager, highlighted the positive benefits that firms can derive from prioritising the incorporation of EDI practices, noting; “These data clearly show the positive benefits that firms can enjoy from prioritising the incorporation of EDI practices. The CII encourages and champions the adoption of equality, diversity, and inclusion across the insurance and financial sectors. Creating a safe space for all will drive our profession forwards, allowing businesses to thrive and reap the many benefits associated with having a diverse workforce.”
We are delighted to announce our Marketing Manager, Zoë Parsons, has joined the MGAA Next Gen Committee!
As proud members of the Managing General Agents’ Association (MGAA), we are pleased to support Zoë and the Next Gen in powering young professionals in the MGA market.
The MGAA Next Gen group represents the future of the MGA community. It comprises a group of forward thinking, socially conscious and highly knowledgeable professionals, motivated to pave the way for future leaders in the industry.
The Next Gen’s objectives are:
Commenting on joining the Committee, Zoë shared; “I’m thrilled to join the MGAA Next Gen Committee as Social Media Co-Lead, and eager to turn my passion for empowering young professionals into action. By embodying the ethos of ‘modern minds for modern consumers’, I’m dedicated to help amplify the voices of youth within the MGA sphere through enhancing representation across social platforms and creating pathways for professional growth. I look forward to working with the amazing team to help build a community centred on support, inclusivity, and empowerment. I’m excited to contribute to an association dedicated to paving the way for future leaders and make a difference in the MGA market and beyond.”
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