The purpose of ICOB 2.2.3 R is to restate, in slightly amended form, and as a separate rule, the part of Principle 7 (Communications with clients) that relates to communication of information. This enables a customer, who is a private person, to bring an action for damages under section 150 of the Act (Contravention of rules) to recover loss resulting from a firm referred to in ICOB 2.1.1 R communicating information in the course of regulated activities in a way that is not clear or fair or that is misleading.

When considering how to comply with the requirements of ICOB 2.2.3 R, a firm should have regard to the customer's knowledge of the contract of insurance to which the information relates.

ICOB 2.2.3 R covers all communications with customers, for example, any oral or written statements, telephone calls and any correspondence which is not a non-investment financial promotion to which ICOB 3 (Financial promotion) applies. In respect of non-investment financial promotions, firms should note the separate requirements of ICOB 3.

Prominence of relevant information can play a key role in ensuring that a communication is clear, fair and not misleading. Where this is the case, the FSA will assess prominence in the context of the communication as a whole. Use can be made of the positioning of text, background and text colour and type size to ensure that specified information meets the requirements of ICOB.

A firm should make every effort to ensure that information is presented clearly, fairly and in a way that does not mislead, whether it is to be viewed as a hard copy, as an electronic document on screen or presented on some other medium (such as audio-tape for visually-impaired customers). A firm should:

1. (1)

   use materials and design (including paper size, colour, font type and font size, tone and volume) to present the information legibly and accessibly, and in a balanced way;

2. (2)

   use emphasis sparingly; and

3. (3)

   not use differential font sizes or positioning so that the impact on a customer of some information (e.g. significant conditions, exclusions from the scope of cover or charges made to customers) is likely to be materially less than other provisions, parts or pages of the document.

1A firm which offers general insurance contracts, providing benefits for the customer's care in the event of the customer's disability or incapacity, should avoid using terms which state expressly or imply that the policy will be available for the customer to claim on in the long-term, that is, for any period beyond the expiry of the policy. So a general insurance contract should not be promoted as being capable of providing long-term care insurance for the customer in the long-term, and expressions such as "long-term care" and "lifetime care" should generally be avoided in relation to general insurance contracts. If a general insurance contract provides benefits over the long-term in the event of a claim being made, a firm should make clear that the long-term aspect relates only to the availability of benefits in the event of a claim, not to the duration of the policy itself.

Principles 1 and 6 require a firm to conduct its business with integrity, to pay due regard to the interests of its customers and to treat them fairly. The purpose of ICOB 2.3 is to ensure that a firm does not conduct business under arrangements that might give rise to a conflict with its duty to customers or to unfair treatment of them.

The purpose of ICOB 2.3.2 R(2) is to prevent the requirement in ICOB 2.3.2 R(1) being circumvented by an inducement being given or received by an unregulated associate. There may be instances where a firm is able to demonstrate that it could not reasonably have knowledge of an associate giving or receiving an inducement. It should not, however, direct business to another person on the instruction of an associate if this is likely to conflict with the interests of its customers.

An inducement is a benefit offered to a firm, or any person acting on its behalf, with a view to that firm, or that person, adopting a particular course of action. This can include, but is not limited to, cash, cash equivalents, commission, goods, hospitality or training programmes.

ICOB 2.3.2 R does not prevent a firm:

1. (1)

   assisting an insurance intermediary so that the quality of the insurance intermediary's service to customers is enhanced; or

2. (2)

   giving or receiving indirect benefits (such as gifts, hospitality or promotional competition prizes);

providing in either case this is not likely to give rise to a conflict with the duties that the recipient owes to the customer. In particular, such benefits should not be of a kind or value that is likely to impair the ability of a firm to act in compliance with any rule in ICOB, for example the suitability requirements in ICOB 4.3 (Suitability).

The inducement offered does not need to be related to the sales process itself. For example, an insurance intermediary has a duty to its customers to act with due care, skill and diligence, where it is acting for them at the claims stage.

1. (1)

   ICOB 2.3.2 R states that an inducement will only be considered unfair if it conflicts to a material extent with any duty that the firm owes to its customers. This means that the circumstances surrounding an inducement may determine whether or not it is unfair. It is a firm's responsibility to determine this.

2. (2)

   A firm that is offered an inducement should consider whether accepting that inducement might cause it, or any person acting on its behalf, to act in a way which conflicts with the duty that the firm owes to its customers.

1. (1)

   Inducements that operate at a distance from the sales process may not be unfair, if they do not have an effect on the sales person's selling of a particular product.

2. (2)

   Incentives offered to staff should not encourage sales staff to sell products unsuited to customers' needs.

A firm should have in place its own internal procedures for identifying unfair inducements. For example, it should be able to identify situations where the existence of an inducement has caused a course of action to be adopted, that conflicts to a material extent with any duty that the firm owes to its customers, and which would not have been taken in the absence of the inducement. It should also have in place a mechanism for remedying such situations should they occur.

Principle 2 requires a firm to conduct its business with due skill, care and diligence. ICOB 2.4 indicates the extent to which firms that carry on insurance mediation activities and that communicate or approve a non-investment financial promotion can meet this requirement by relying on others.

Principle 6 (Customers' interests) requires a firm to pay due regard to the interests of its customers and treat them fairly. A firm may not exclude the duties it owes or the liabilities it has to a customer under the regulatory system. It may exclude other duties and liabilities only if it is reasonable for it to do so.

GEN 2.2.14 R (References to writing) has the effect that electronic media may be used to make communications that are required by the Handbook to be "in writing" unless a contrary intention appears. In ICOB, the use of an electronic medium is restricted in certain circumstances to a durable medium as required by the Distance Marketing Directive1 and the Insurance Mediation Directive1.

For any electronic communication with a customer in relation to a non-investment insurance contract, a firm should:

1. (1)

   have in place appropriate arrangements, including contingency plans, to ensure the secure transmission and receipt of the communication; it should also be able to verify the authenticity and integrity of the communication, together with the date and time sent and received; the arrangements should be proportionate and take into account the different levels of risk in a firm's business;

2. (2)

   be able to demonstrate that the customer wishes to communicate using this medium; and

3. (3)

   if entering into an agreement, make it clear to the customer that a contractual relationship is created that has legal consequences.

A firm should note that GEN 2.2.14 R does not affect any other legal requirement that may apply in relation to the form or manner of executing a document or agreement.

General record-keeping standards, which continue to apply, can be found in SYSC 3.2.20 R. ICOB 2.8 provides further details of the standard expected of firms where there is an obligation in ICOB requiring firms to maintain adequate records to evidence compliance. An overall view of the record-keeping requirements in ICOB is in ICOB Sch 1.

A record would be "readily accessible" if it was available for inspection within two business days of the request being received.

Where a firm keeps standard, generic documents as records it should be able to identify which version, by date or reference number, was provided to the customer.

1. (1)

   A firm may arrange for records to be kept in such form as it chooses provided the record is readily accessible for inspection by the FSA.

2. (2)

   Where a firm chooses to maintain records in electronic form, it should take reasonable steps to ensure that:

   1. (a)

      the electronic record accurately records the original information; and

   2. (b)

      the electronic record cannot be subject to unauthorised or accidental alteration.

Each rule in ICOB that requires a record to be made and retained specifies that the record must be kept for a minimum period of three years. A firm should consider retaining records for longer periods in case customers complain or take legal action against the firm. A firm should, in particular, consider what constitutes an appropriate retention period for records which relate to non-investment insurance contracts which may give rise to claims some time after the inception of the contract (e.g. employers' liability insurance).

When determining whether a charge is excessive, an insurance intermediary should consider:

1. (1)

   the amount of its charges for the services or product in question, compared with charges for similar services or products in the market;

2. (2)

   whether the charges are an abuse of the trust that the retail customer has placed in the insurance intermediary; and

3. (3)

   the nature and extent of the disclosure of the charges to the retail customer.

In assessing whether an insurance intermediary's charges are excessive, the FSA will take account of the charges imposed by insurance intermediaries of similar size and that conduct a similar volume of business.

ICOB 2.10.1 R does not apply to premiums, but does cover fees (including any fees that an insurance intermediary charges where it receives no commission from an insurer in respect of the contract of insurance).