REG Reviews
4th November 2024
Last month, experts dispute FCA concerns over brokers’ compliance with fair value, whilst the regulator tightens focus on premium financing firms, banks are warning customers about “quishing” scams, scientists achieved a breakthrough in DNA data storage, the FCA reveals ongoing issues of workplace misconduct in the London insurance market, emphasising the need for cultural change…
Read these articles and many more as we bring you all the important news and views in the insurance and financial services world…
The Financial Conduct Authority’s (FCA) discovery that brokers continue to face challenges in proving that their compensation aligns with fair value regulations has stirred mixed responses within the industry.
In its latest Thematic Review on product oversight and governance, published on August 21st, the regulator acknowledged improvements in the insurance industry but expressed disappointment that many firms are still not fully meeting their governance obligations.
While compliance experts admitted more work is needed, they also felt the FCA was downplaying the progress made and the substantial investments insurers and brokers have made to improve their processes.
According to David Sparkes, Regulation Director at the British Insurance Brokers’ Association (BIBA), the FCA’s review has only examined 39 distributor companies and argued that the fairness of the FCA’s conclusions are determined by which companies were examined. He also noted that businesses might be acting properly in practice but lack the written documentation to prove it.
Branko Bjelobaba, Founder of compliance consultancy, Branko Limited, says; “Due to a lack of clarity on the rules, the industry has found it difficult to interpret what the FCA actually wants to see and what the essential parts of fair value are.”
On the contrary, David Nichols, Head of Retail at Zurich, doesn’t think the insurance sector has lagged in terms of following Consumer Duty and Fair Value regulations.
To ensure that their compensation is fair, brokers must demonstrate that the prices customers pay align with the value of the products and services provided, which involves reviewing insurer products, maintaining up-to-date value assessments, and evaluating their own role and commissions in the distribution chain.
Paul Trainor, Executive Director, at broker, James Hallam, noted that brokers lacked clear guidance when the FCA’s rules were introduced, leading them to interpret the requirements themselves.
While some brokers went to great lengths to comply, others did less. Sparkes added that brokers turned to BIBA for guidance on meeting the new regulatory standards.
Moreover, Pricing and Fair Value Practice Lead at Sicsic Advisory, Sue Mallender, noted that brokers face challenges in assessing fair value, especially with large insurer portfolios and potential conflicts over commission levels.
She advised regular communication across the distribution chain and a focus on analysing business models. Also, Trainor emphasised the need for expert guidance, sharing that his firm has reviewed products, pricing, and target markets, though collecting evidence has been a major task.
Finally, while brokers must carefully account for costs and demonstrate reasonable margins, there is concern that strict fair value rules may unintentionally limit market options and reduce access to essential coverage for vulnerable consumers.
Banks and regulators are sounding the alarm on a new form of phishing scam, known as “quishing,” where cybercriminals use QR codes to bypass traditional cyber defences and deceive customers. Institutions like HSBC, Santander, and TSB, along with the UK’s National Cyber Security Centre and the US Federal Trade Commission (FTC), have reported a surge in fraudulent QR codes embedded in emails, particularly PDFs, to mislead consumers into sharing sensitive financial information.
These “quishing” scams often evade standard security filters, which are designed to detect malicious links but not images in attachments. Chester Wisniewski from cybersecurity firm Sophos explained; “The appeal for criminals is that it’s bypassing all of the (cyber security) training and it’s also bypassing our products.”
Victims scan these QR codes, typically unaware of the dangerous URLs embedded within, as visual indicators on QR codes are often unclear or even masked.
Data from IBM highlights the financial implications, revealing a 10% rise in the average cost of phishing-related data breaches, reaching $4.9 million globally in 2024. QR code scams, on the rise since the Covid-19 pandemic, have reportedly doubled in the UK, as per Action Fraud, with cases spanning from fake parking payment links to fraudulent QR codes at EV charging points and train stations.
The FTC warns that these scams can redirect users to unsafe sites or even install malware. Steph Harrison from TSB notes; “It’s definitely a growing trend in terms of the number of reports we’re seeing.”
The trend puts pressure on cybersecurity companies to adapt email defences, but as Wisniewski states, such updates could increase costs and slow email delivery.
For consumers, the best protection is vigilance – avoid scanning QR codes from unverified sources and pay close attention to URL previews on smartphones.
Scientists have taken a groundbreaking step in data storage, using DNA to encode vast amounts of digital information in a compact, sustainable, and potentially cost-effective way. This advancement could revolutionise storage in data-driven economies by reducing reliance on energy-intensive digital storage solutions.
As reported by the Financial Times, Researchers from the US, China, and Germany have now leveraged a chemical process called methylation, which mimics binary data systems, to store information faster and with greater accuracy than previous methods.
DNA’s natural stability and density make it an attractive medium for long-term data preservation. Just a gram could theoretically store 10 million hours of high-definition video. This new technique, outlined in Nature, is said to encode data at speeds up to 10,000 times faster than existing DNA storage methods while being far more economical.
Dr. Long Qian, from Peking University’s Center for Quantitative Biology, emphasised that DNA storage could offer a long-term solution that outperforms conventional storage, particularly for data preservation over 50 years.
The approach aligns with global sustainability efforts by reducing the reliance on electricity-intensive data centres, which currently power the demands of AI and cloud services provided by tech giants.
While promising, the technology still faces challenges in terms of cost and long-term data stability. As Nick Goldman from the European Bioinformatics Institute notes, more research is essential to scale up this innovation. However, this leap in DNA data storage could signal the beginning of a sustainable, compact, and durable solution for managing the ever-growing volume of global data.
In October, the FCA published its culture and non-financial misconduct survey findings which studied how companies determine and handle non-financial misconduct incidents in the insurance and financial sectors.
The findings show that the number of reported non-financial misconduct cases has increased from 2021 to 2023.
Overall, the survey’s findings demonstrate that harassment and bullying represent 26%, discrimination accounts for 23% and 41% of answers are in the “other” category.
In the London market particularly, 16% of respondents said they had experienced sexual harassment from intermediaries.
When compared to other areas of the financial services industry, London market intermediaries—which include managing general agents and Lloyd’s and London market insurance intermediaries—had the greatest relative percentage of recorded incidences of violence or intimidation.
According to a previous 2023 study carried out by the University of Nottingham and law firm Browne Jacobson, alcohol abuse is a strong enabler of sexism, racism, and sexual harassment in the insurance industry, which supports the FCA’s survey findings.
According to the FCA; “A corporate culture that tolerates sexual harassment or other non-financial misconduct is unlikely to be one in which people feel able to speak up and challenge decisions, or one in which they will have faith that concerns will be independently and fairly assessed.”
The watchdog also adds that it expects regulated businesses to have effective internal systems to determine and mitigate all risks; otherwise, it will take investigative action.
Chris Croft, CEO of the London and International Insurance Brokers’ Association reported that Liiba has been taking action and has hosted events to support HR teams in understanding how to deal with non-financial misconduct making sure they follow the FCA’s advice and direction.
Additionally, Sheila Cameron, CEO of the Lloyd’s Market Association, responded by saying; “The LMA supports the constructive work of the FCA on its recent culture and non-financial misconduct survey, which is a valuable snapshot of how financial service companies are dealing with critical issues around culture, diversity, equity and inclusion.”
The FCA’s non-financial misconduct survey is a stepping stone in matters that concern diversity, equity, and inclusion and is aimed at sending a message to the financial services and insurance sectors so they can step up and act appropriately by taking DEI initiatives more seriously.
However, are these rising misconduct reports an indication of employee empowerment or a culture of silence? That’s what the FCA is questioning and it’s urging firms to assess their reporting practices and workplace cultures to effectively address misconduct.
The Financial Conduct Authority (FCA) is investigating the premium finance market with concerns that it may not offer fair value to consumers. This move comes after the FCA previously intervened in the Gap insurance sector for similar reasons.
The FCA is focusing on whether customers in the motor and home insurance markets, who use premium finance to spread payments in instalments, are getting competitive deals. With over 20 million people opting to pay for insurance this way, and 79% of financially struggling adults using it, the regulator is particularly concerned about interest rates, which average between 20% and 30% annually.
As part of its review, the FCA will assess if these products offer fair value, whether consumers are well-informed about their options, and if any barriers to competition exist within the sector.
Graeme Reynolds, the FCA’s Director of Competition, stated; “We want to ensure that competition works well and make it easier for consumers to find the best deals.”
This follows earlier FCA action in the Gap insurance market, where 80% of providers halted sales due to failing to meet Consumer Duty standards. Several companies have since resumed sales, but the FCA continues to press insurers to ensure their products deliver fair value and good outcomes.
Matt Brewis, FCA Director of Insurance, added; “Progress is being made, but we are still seeing too many examples of poor governance. We will continue to take action to ensure consumers receive fair value when purchasing insurance products.”
This review signals that the FCA remains vigilant in ensuring that consumers are protected and receive good value across the insurance market.
At the recent Delegated Authority Reviewers’ Association (DARA) Conference, Victoria Slade, Head of Sales at REG Technologies, led an insightful session on streamlining counterparty risk management and compliance for MGAs and brokers. Her presentation, titled “Powering MGAs & Brokers to Operate Faster, Smarter, Safer,” tackled the challenges insurance firms face in meeting counterparty risk requirements, particularly under the scrutiny of auditors and regulators.
The audience, primarily auditors in the delegated authority space, was introduced to REG’s innovative platform, designed to streamline compliance processes while accelerating onboarding.
Victoria highlighted the pressures that traditional onboarding and oversight processes place on firms, with many facing slow, manual workflows that hamper efficiency and compliance.
By leveraging REG’s platform, insurance businesses gain a “one-stop shop” for managing B2B trading, legal, and compliance processes. This centralised approach allows firms to handle partner onboarding and ongoing oversight efficiently, minimising compliance risks while maintaining operational speed and accuracy.
“It is always a pleasure to be invited to speak at events to educate the market on what we do,” Victoria noted, underscoring REG’s commitment to industry advancement.
A brief demonstration showcased how REG’s automated, data-driven onboarding process can reduce a typically lengthy task from weeks to mere hours. By enabling real-time data sharing and streamlined oversight, the platform ensures that firms can stay on top of regulatory demands while freeing up resources to focus on strategic initiatives.
For auditors, this provided valuable insights into how technology can ease the auditing process by ensuring that companies under review are compliant and well-managed from the outset.
The session underscored the importance of adopting RegTech solutions, which are reshaping the insurance industry’s approach to compliance. REG’s technology empowers MGAs and brokers to operate at a faster pace, with greater safety and compliance, ensuring robust governance and reducing the regulatory burden.
As the insurance sector evolves, REG Technologies remains at the forefront, offering scalable solutions that meet regulatory demands and enhance operational efficiency for lasting, compliant growth.
“It is always a pleasure to be invited to speak at events to educate the market on what we do. Last month I presented at the DARA conference, which is a small association made up of auditors in the delegated authority space who will regularly go out and audit coverholders both in the UK and overseas. In the session, I spoke about the key issues around counterparty risk management and how tools such as REG can alleviate the heavy lifting for the companies they are auditing. A short demo of how easy it is to onboard a company proved to be particularly insightful and we hope that in turn they are able to suggest alternative ways to manage an otherwise manual process. I’d like to thank DARA for the invite to present and to attendees who joined the session.”
Is it well-known that the insurance industry is slow-moving and prefers incremental development rather than sudden unexpected changes. The rise of cyber threats and the increase in demand for cyber insurance is only putting pressure on insurers to come up with solutions, fast.
With 2024 being a year that suffered major cyberattacks, the insurance sector is going above and beyond to respond to the need for stronger cyber insurance policies.
This year’s cyberattacks range from:
Financial data, medical history, and personal details including names, dates of birth, and addresses are some of the sensitive information that cybercriminals want to uncover and sell illegally on the dark web which increases the risk of identity theft.
According to the insurer QBE’s data, the amount of intrusive and damaging global cyberattacks occurring yearly will increase by 105% by the end of 2024. This further urges insurers to find resilient and long-lasting solutions to cover any unforeseeable cyber damages.
Not to mention that technology consultancy Cybersecurity Ventures discovered that approximately £6 trillion was compromised globally due to cyberattacks in 2023.
While Bloomberg Intelligence found that insurer Beazley is anticipating 18% compound annual growth for cyber insurance between 2024 and 2030, the demand for cyber cover might always surpass the supply, which according to the Insurance Times can significantly affect premium prices.
So how will the insurance market strike the balance between robust cyber insurance policies and affordability moving forward?
The recent Hurricane Helene has significantly disturbed Florida’s already frail insurance market, potentially leading to a financial loss of $34 billion, according to Moody’s.
These struggles bring great disappointment and hardship to insurers and their clients, which could increase the request for attorneys.
Florida’s struggling insurance market isn’t a new occurrence, but a battle that’s been going on for years, and Hurricane Helene has only exacerbated the issues according to Gregory Eisinger, a Partner at Florida-based boutique, Eisinger Law.
He adds that many customers renounce making claims out of fear of being removed from their insurance or having to pay more in premiums.
Also, Eisinger works with homeowners associations and condos, where rising insurance costs are pushing them toward more foreclosures in Florida.
The unstable nature of storms and hurricanes makes it difficult to predict whether Florida’s insurance market will stabilise or go downhill, which worries policyholders even more.
Fred Karlinsky, Chair of Greenberg Traurig’s global insurance practice, also confirms that while Hurricane Helene has caused a lot of damage and has impacted the local insurance market, this impact isn’t as prominent as a lot may presume.
He says; “Worldwide, we’ve had, this year, more billion-dollar storms and more billion-dollar losses than we ever have in the history of the world. Not any one of those will really move the needle, but all of them together may have an impact. That said, I think the market, nationally and internationally, is getting healthier. I think in Florida, we’re getting way healthier.”
While Karlinsky expects claims to be paid, it’s more the economic conditions and the cost of living crisis in Florida that is concerning.
Even if insurance premium increases slightly, it could impact the majority of policy holders in the state as attorney Jason Giller stated in a PropertyCasualty360 analysis.
Giller concludes his clients are under economic pressure as rising insurance premiums, higher worker compensation costs, and increased financing expenses strain developers’ budgets, anticipating that new legislation may be needed to restore stability.
Without a doubt, many in the insurance market have constant questions about how to successfully abide by the Fair Value and Consumer Duty laws the FCA released last year.
However, the complex nature of the FCA’s rules makes it harder for insurers and financial institutions to comply and stay competitive simultaneously.
Graeme Reynolds, Director of Competition at the FCA told the CII: Shaping the Future of Insurance Conference’s attendees that lowering the FCA rulebook’s complexity “could lower cost to firms, encourage innovation and help support the risk appetite needed to support growth.”
He also adds that it’ll eventually strengthen the economy and global competitiveness in the long run. Most importantly, he reassured the audience that the FCA would continue to provide step-by-step guidance in manageable bits to avoid confusion.
Reynolds also emphasised the need to balance flexibility with clear guidance in Consumer Duty rules to help firms meet expectations and drive innovation.
He says; “When I meet with firms, I often hear calls for more specific guidance or templates under the Duty so that firms know exactly what is required now, in part, to respond to this challenge, and importantly, to ensure we are in the best possible position to harness the potential of the Duty to drive innovation and improve competitiveness.”
To help businesses, the FCA released a review calling for the financial services market to pinpoint alleged complex rules that could be withdrawn without affecting the Duty and ensuring the watchdog’s regulations are clearly understood.
Reynolds urged insurance firms to adopt a holistic approach to Consumer Duty, focusing on key customer segments to identify risks and ensure good outcomes, especially for vulnerable groups.
Finally, he highlighted that lasting cultural change, driven by strong leadership, is crucial for Consumer Duty to go beyond compliance, becoming an ongoing commitment to improving customer outcomes.
In the first half of the year, criminals stole around £571 million through card fraud, according to new figures from UK Finance. While there has been a slight drop of 1.5% compared to the same period in 2023, authorised push payment (APP) fraud remains a significant concern, with 72% of such scams originating on social media platforms.
APP fraud occurs when customers are tricked into making payments to fraudsters through various schemes, such as investment or romance scams. Despite the decline in APP fraud, UK Finance has called on social media, technology, and telecommunications companies to enhance their efforts to prevent these crimes.
The UK government is also stepping up its response by introducing measures that allow banks to delay suspicious payments by 72 hours, giving them more time to investigate potential fraud. Additionally, new rules make payment providers liable for losses up to £85,000 in cases of APP fraud.
While APP fraud has seen a reduction, unauthorised card payment fraud—where payments are made without the account holder’s consent—has increased by 5% year-on-year, totalling £358 million in losses. Criminals are reportedly using more sophisticated techniques to deceive victims into sharing their one-time passcodes, which are then used to complete fraudulent transactions.
Banks managed to prevent £711 million in unauthorised fraud in the first half of the year, thanks to ongoing collaboration and investment in fraud prevention. However, experts warn that complacency is not an option, as fraudsters continue to adapt their methods across various channels.
On the 22nd of October, the Financial Conduct Authority (FCA) started an investigation against 20 social media influencers, also referred to as “finfluencers”, who are being questioned under caution for presumably promoting financial products online illegally.
This is part of the watchdog’s continuous efforts to regulate the financial market and prevent suspicious activity on social media.
Additionally, the FCA issued 38 alerts against social media accounts run by “finfluencers” which may comprise unlawful advertising.
According to the regulator, almost two-thirds (62%) of 18 to 29-year-olds follow social media influencers on Instagram and TikTok. Among those, 74% reported they trusted their advice and 9 in 10 young followers have been encouraged to change their financial behaviour.
Steve Smart, joint Executive Director of enforcement and market oversight at the FCA adds that; “Finfluencers are trusted by the people who follow them, often young and potentially vulnerable people attracted to the lifestyle they flaunt.”
“Finfluencers need to check the products they promote to ensure they are not breaking the law and putting their followers’ livelihoods and life savings at risk.”
The regulator constantly issues warning lists and urges consumers to check before deciding on how they would invest their money.
Despite the FCA’s efforts to control the number of illegal activities occurring on social platforms, many of those who follow these “finfluencers” trust their judgments because they’re famous which puts the most vulnerable individuals at more risk of losing their savings.
AJ Bell, Director of Personal Finance., Laura Suter, reported that; “Too many people blindly trust anything they see on social media, but throw in a well-known celeb or a reality TV star endorsing a product and people are even more likely to trust a post. This is not a huge problem if you buy some dodgy beauty products or sign up to a duff subscription, but if you put your life savings into an investment because someone from the TV said they made impressive returns, that could be life changing.”
So how many FCA warnings will it take for consumers to stop blindly trusting “finfluencers” with their investment choices? And what consequences are these “finfluencers” facing?
What we know so far is that the accused will have to go on trial which is taking place in 2027 at Southwark Crown Court and they could be charged with up to two years in prison if proven guilty.
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Last month, The FCA and the UK Government invited feedback on three proposals designed to improve individuals' decision-making regarding investments and pensions, The IMF suggested that almost half of jobs will be impacted by artificial intelligence and the FCA has highlighted the importance of reporting cases of non-financial misconduct, even if individuals have signed non-disclosure agreements. Read these articles and many more, as we bring you all the important news from the insurance and financial services world...
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