The Isle of Man Financial Service Authority’s (IoMFSA) long-awaited commission disclosure rules fully came into effect on 1 July 2019, after years of delays.
The Insurance (Conduct of Business) (Long Term Business) Code 2018 requires firms to issue key information documents (Kids) and a summary information document (Sid) about commission to clients.
It comes after the code was half-launched in January 2019.
Smooth transition
Simon Barwell, director of marketing at RL360, told International Adviser: “This is the second and final phase of CoB – phase one came on 1 January.
“We have been operating in a conduct of business environment at RL360 for quite some time, and launched new products in January which were designed to help businesses transition to this new world.
“There is bound to be a transition period but hopefully, with the brokers we deal with, we have made the path as smooth as possible.”
Barwell said that, as part of a targeted education and awareness campaign, RL360 organised for the Isle of Man Department for Enterprise to deliver a presentation to key advisers as part of a visit to the Isle of Man earlier this year.
“We have also been out in the field, meeting with and talking to advisers, so we have really prepped the ground. We have been as thorough as we can be.”
Client benefit
The code requires insurers on the Isle of Man and their branches around the world to provide bespoke information to clients about exactly how much commission they pay for insurance products.
It standardises the Kid requirements and includes mandatory information, also detailing how the documents must be presented to clients.
With regard to regular premium policies where ongoing remuneration is paid to an intermediary, the code provides a template for disclosing the fees and commission on a Kid.
Peter Kenny, chief executive of Old Mutual International, said to IA: “The FSA’s new rules will lead to an improvement in transparency levels and the suitability of asset choices for customers choosing Isle of Man life policies.
“This is good news for consumers and will support those advisers who focus on delivering good customer outcomes.
“The new FSA rules are very much in line with regulatory developments elsewhere in the world and will provide a further catalyst for advisers to strengthen their business models.
“The advisers who add value to their clients will ultimately thrive and fuel the growth of the industry.
“We have contacted advisers this morning with our process to determine when a policy-specific key information document describing the nature and main features of the product they’re investing in is required,” said Kenny, who was recently appointed chair of the Manx Insurance Authority (MIA).
Outcomes
Barwell added: “There are certain countries and certain adviser groups that Conduct of Business leads you away from. There is a reason for that, it is to benefit the end client.
“It is about providing more professionalism, and providing an environment for solid business. We have had to make some adjustments, but in many areas we were already operating in the way that CoB requires. For instance, we had already taken the decision a number of years ago not to deal with certain adviser groups around the world.
“In addition, we introduced cancellation notices for customers some years ago.
“So, while we have made some changes to the way we operate as a direct result of COB – for instance the introduction of the KID document – it has not been as big a change as it could have been.”
Exemptions
In November, IA reported that eight jurisdictions have been given exemptions from providing Kids.
It included carve-outs for the United Arab Emirates and Singapore, alongside Argentina, South Africa and Qatar.
“We don’t actually write business in a lot of the countries that they have given exemption,” Barwell added. “The rules gave some exemptions to places like the UAE, but it’s the Insurance Authority that actually got the exemption because they were bringing in circular 12.”
The UAE regulation will look to cap the commission on the sale of lump sum portfolio bonds and offshore bonds at 4.5%. It will also restrict indemnified commission to 50% of annual premium in the first year, with the rest drip-fed over the term of the product.
“We don’t write business, we are not authorised under the Authority. It generally doesn’t impact on what we are doing at the moment,” Barwell said.
Global alignment
He continued: “The industry is going through a big period of change, not only the conduct of business that has come into today, but also Malta and other territories are bring in new regulation.
“The Malta pension regulations come into force today as well.
“There is more of a move towards regulation and transparency, which hopefully leads to better client outcomes.
“It is about making sure all of the jurisdictions will roughly transition at the same moment in time.”
Support
Neil Jones, Wealth and Tax Specialist at Canada Life, also told IA: “The Isle of Man is sending a clear statement of intent – we are at an international standard when it comes to transparency and customer protection.
“For Canada Life, there isn’t a huge impact because as a UK-focused provider so we are already compliant through the legislation mentioned. For other providers it will mean some turbulence as they react to the more level playing field this creates.
“We are supportive of these changes. Some advisers may need to change the way they operate, potentially moving more towards an ‘ongoing fees’ model, that will pay dividends in terms of demonstrating the value of advice, improving cash flow and even make their business more attractive if it comes to selling.
“For customers it will clearly create a straightforward picture of exactly what they are getting, for how much as well as making it even clearer which assets are suitable for customers to hold in life policies.”
