ICOBS 1 Annex 1 Application (see ICOBS 1.1.2 R)

1

Third party processors

1.1

R

(1)

This rule applies where a firm (or its appointed representative) ("A") has outsourced insurance distribution activities7 to a third party processor.

(2)

Any rule in this sourcebook which requires the third party processor, when acting as such, to disclose its identity to a customer must be read as applying to the third party processor only to the extent that it applies to A and as requiring disclosure of A’s identity.

71.2

G

(1)

The disclosure required of the third party processor under ICOBS 4.3.-7R can be made without having to disclose the identity of the third party processor to the customer and therefore without breaching paragraph 1.1R(2) above.

2

Managing agents

2.1

R

(1)

References to an insurer7(including within the reference to insurance distributor) apply equally to a managing agent unless the context requires otherwise.

(2)

A managing agent must give effect to the policy that a consumer must, where required by this sourcebook, be offered cancellation rights.

(3)

References to managing agents in this sourcebook relate to their functions in managing the obligations of a member in his capacity as such.

3

Authorised professional firms

3.1

R

This sourcebook (except for ICOBS 4.6) does not apply to an authorisedprofessional firm with respect to its non-mainstream regulated activities except for:

(1)

the provisions on communications to clients and financial promotions (see ICOBS 2.2);

(2)

the e-commerce provisions (ICOBS 3.2);

(3)

general information7 disclosure requirements in relation to complaints procedures (see ICOBS 4.1); and

(4)

provisions implementing articles 1(4), 17, 18, 19, 20, 23, and 24 of the IDD7 (see ICOBS 2.2.2R (communication to customers and financial promotions), ICOBS 2.2.2AR (marketing communications), ICOBS 2.5.-1R (the customer’s best interests rule), ICOBS 2.6 (Distribution of connected contracts through exempt persons), ICOBS 4.1 (Information about the firm, its services and remuneration), ICOBS 4.1A (Means of communicating to customers), ICOBS 4.3 (remuneration disclosure), ICOBS 5.2 (Demands and needs), ICOBS 5.3.3R (Advice on the basis of a fair analysis), ICOBS 5.3.4R (Personalised explanation), ICOBS 6A.1.4R (Ensuring the customer can make an informed decision) and ICOBS 6A.3 (Cross-selling7)), except to the extent that the firm is subject to equivalent rules of its designated professional body approved by the FCA.

3.2

G

Compliance with provisions of the Distance Marketing Directive is dealt with in the Professional Firms sourcebook (see PROF 5.4).

4

Appointed representatives

4.1

R

(1)

An insurer must ensure that its appointed representative complies with this sourcebook as it applies to an insurance intermediary.

(2)

However, if the appointed representative is acting as the insurer'sthird party processor then:

(a)

this rule is subject to the third party processorsrule (see paragraph 1.1R); and

(b)

the insurer is not required to ensure that the appointed representative complies with the rules in this sourcebook on commission disclosure (see ICOBS 4.4)7.

4.2

G

The cancellation requirements in chapter 7 do not apply to a distance contract entered into by an appointed representative to provide distribution7 services. Regulations 9 (Right to cancel) to 13 (Payment for services provided before cancellation) of the Distance Marketing Regulations apply instead.

5

Service companies

5.1

R

This sourcebook does not apply to a service company, except for the provisions on communications to clients and financial promotions (see ICOBS 2.2).

6

Lloyd’s

6.1

R

The Society must ensure that no member carries on motor vehicle liability insurance business at Lloyd's unless a claims representative has been appointed to act for that member in each EEA State other than the United Kingdom, with responsibility for handling and settling a claim by an injured party. Otherwise, this sourcebook does not apply to the Society.

1

Reinsurance

1.1

R

This sourcebook does not apply to activities carried on in relation to a reinsurance contract.

[Note: recital 51 to the IDD]7

2

Contracts of large risks

2.1

R

Subject to Part 3 of this Annex:7

(1)

this sourcebook does not apply to a firm distributing a contract of large risks7 where the risk is located outside the European Economic Area;7

(2)

only ICOBS 2 (General matters) and ICOBS 6A.3 (Cross-selling) apply to a firm distributing a contract of large risks7 for a commercial customer where the risk is located within the European Economic Area; and7

(3)

the IPID requirement in ICOBS 6.1.10AR (How must IPID information be provided?) and ICOBS 6 Annex 3R (Providing product information by way of a standardised insurance information document) do not apply to a firm distributing a contract of large risks.7

[Note:article 22(1) of the IDD]

2.2

G

Principle 7 continues to apply so a firm should provide evidence of cover promptly after inception of a policy to its customer. In respect of a group policy, a firm should provide information to its customer to pass on to other policyholders and should tell the customer the information should be given7to each policyholder.

52.3

R

ICOBS 6.2.3 R does not apply to contracts of large risks7.

[Note: article 184(1) of the Solvency II Directive]

3

Pure protection contracts: election to apply COBS rules

3.1

R

(1)

This sourcebook (except for ICOBS 4.6)3 does not apply in relation to a pure protection contract to the extent that a firm has elected to comply with the Conduct of Business sourcebook (COBS) in respect of such business.

(2)

Within the scope of such an election, a firm must:

(a)

comply with the rest of the Handbook (except for COBS 6.1A, COBS 6.1B and COBS 6.1.9 R) treating the pure protection contract as a life policy and a designated investment, and not as a non-investment insurance contract; and3

(b)

if applicable, also comply with ICOBS 4.6.3

(3)

A firm must make, and retain indefinitely, a record in a durable medium of such an election (and any reversal or amendment). The record must include the effective date and a precise description of the part of the firm's business to which the election applies.

4

Chains of insurance intermediaries

4.1

R

Where there is a chain of insurance intermediaries between the insurer and the customer, this sourcebook, except ICOBS 27, applies to any7insurance intermediary in contact with the customer.

74.2

G

ICOBS 2 applies to all insurance intermediaries, including those within a chain who are not in contact with the customer.

1

EEA territorial scope rule: compatibility with European law

1.1

R

(1)

The territorial scope of this sourcebook is modified to the extent necessary to be compatible with European law (see Part 4 for guidance on this).

(2)

This rule overrides any other rule in this sourcebook.

1.2

R

In addition to the EEA territorial scope rule, the effect of the E-Commerce Directive on territorial scope is applied in the fields covered by the 'derogations' in the Annex to that Directive other than the 'insurance derogation' in the fourth indent (see paragraph 8 of Part 4 for guidance on this).

[Note: article 3(3) of, and Annex to, the E-Commerce Directive]

2

Exemption for insurers: business with non-EEA customers via non-UK intermediaries

2.1

R

This sourcebook does not apply to an insurer if:

(1)

the intermediary (whether or not an insurance intermediary) in contact with the customer is not established in the United Kingdom; and

(2)

the customer is not habitually resident in, and, if applicable, the State of the risk is outside, an EEA State.

3

Exemption for insurers: business with non-UK EEA customers

3.1

R

A rule in this sourcebook which goes beyond the minimum required by EU2 legislation does not apply to an insurer if the customer is habitually resident in (and, if applicable, the State of the risk is) an EEA State other than the United Kingdom, to the extent that the EEA State in question imposes measures of like effect.

Part 4: Guidance

1

The main extensions and restrictions to the general application rule

1.1

G

The general application rule is modified in Parts 1 to 3 of this Annex and in certain chapters of this sourcebook.

1.2

G

The provisions of the Single Market Directives and other directives also extensively modify the general application rule, particularly in relation to territorial scope. However, for the majority of circumstances, the general application rule is likely to apply.

2

The Single Market Directives and other directives

2.1

G

This guidance provides a general overview only and is not comprehensive.

2.2

G

When considering the impact of a directive on the territorial application of a rule, a firm will first need to consider whether the relevant situation involves a non-UK element. The EEA territorial scope rule is unlikely to apply if a UK firm is doing business from a UKestablishment for a client located in the United Kingdom in relation to a UK product. However, if there is a non-UK element, the firm should consider whether:

(1)

it is subject to the directive;

(2)

the business it is performing is subject to the directive; and

(3)

the particular rule is within the scope of the directive.

If the answer to all three questions is ‘yes’, the EEA territorial scope rule may change the effect of the general application rule.

2.3

G

When considering a particular situation, a firm should also consider whether two or more directives apply.

3

Insurance Distribution Directive7: effect on territorial scope

3.1

G

The IDD’s7 scope covers most firms carrying on most types of insurance distribution.7

3.2

G

The rules in this sourcebook within the Directive’s scope are those implementing the minimum requirements in articles 1(4), 17, 18, 19, 20, 23 and 24(1) to (3) and (6) of the IDD set out in:7

(1)

ICOBS 2.2.2R (communication to customers and financial promotions), ICOBS 2.2.2AR (marketing communications), ICOBS 2.5.-1R (the customer’s best interests rule), ICOBS 2.6 (Distribution of connected contracts through exempt persons);7

(2)

ICOBS 4.1 (General requirements for insurance intermediaries and insurers), ICOBS 4.1A (Means of communicating to customers), ICOBS 4.3 (Remuneration disclosure);7

(3)

ICOBS 5.2 (Demands and needs), ICOBS 5.3.4R (Personalised explanation), ICOBS 5.3.3R (Advice on the basis of a fair analysis); and7

(4)

ICOBS 6.1 (Providing product information to customers: general) and ICOBS 6 Annex 3R (Providing product information by way of a standardised insurance information document); and7

(5)

ICOBS 6A.1.4R (Ensuring the customer can make an informed decision) and ICOBS 6A.3 (Cross-selling).7

3.2A

G

A Member State is entitled to impose additional requirements within the Directive’s scope in the ‘general good’. (See recital 52 to, and article 22 of, the IDD)."

3.2B

G

The additional requirements within the scope of the IDD and found in this sourcebook are those that:7

(1)

deal with communication to customers and financial promotions, the customer’s best interests rule and additional responsibilities of insurance distributors (see ICOBS 2.2.2R, ICOBS 2.2.2AR, ICOBS 2.5.-1R and ICOBS 2.6); and7

(2)

require the provision of pre-contract information or the provision of advice on the basis of a fair and personal analysis (see ICOBS 4 (Information about the firm, its services and remuneration), ICOBS 5.2 (Demands and needs), ICOBS 5.3.3R (Advice on the basis of a fair analysis), ICOBS 6.1A.5R (Responsibility for producing the standardised insurance product information document), ICOBS 6.1 (Providing product information to customers: general); ICOBS 6A.1.4R (Ensuring the customer can make an informed decision) and ICOBS 6A.3 (Cross-selling)).7

3.3

G

The IDD places responsibility for requirements in this sourcebook within the Directive’s scope (both minimum and additional requirements) on the Home State, except in relation to business conducted through a branch, in which case the responsibility rests with the EEA State in which the branch is located (this is sometimes referred to as a ‘country of origin’ or ‘country of establishment’ basis) (see recital 22 to, and article 7(2) of, the IDD). Accordingly the general rules on territorial scope are not modified by the IDD except:7

(1)

for an EEA firm providing passported activities under the Directive in the United Kingdom, additional rules within the Directive’s scope have their unmodified territorial scope unless the Home State imposes measures of like effect; and7

(2)

for insurance distribution business carried on by insurers:7

(a)

minimum and additional requirements apply to a UK firm unless responsibility for any matter it covers is reserved by the Solvency II Directive to the firm’s Host State regulator; and7

(b)

paragraph (1), and 3.3AG, below, apply in the same way unless the responsibility for any matter it covers is reserved by the Solvency II Directive to the firm’s Home State regulator7

7

73.3A

G

An EEA firm acting as the principal of an appointed representative carrying on insurance distribution activities from an establishment in the United Kingdom is required to ensure that its appointed representative complies with this sourcebook.

4

Solvency II Directive non-life business:5 effect on territorial scope

4.1

G

The Solvency II Directive's5 scope covers insurers authorised under that Directive5 conducting general insurance business.

4.2

G

The rules in this sourcebook within the Solvency II Directive’s7 scope are those requiring the provision of pre-contract information or information during the term of the contract concerning the insurer or the insurance contract (see ICOBS 2.2 (Communications to clients and financial promotions),7ICOBS 6A.1.4R (Ensuring the customer can make an informed decision) 6 and ICOBS 8 (Claims handling) except those parts of5ICOBS 8.2 (Motor vehicle liability insurers)implementing the Consolidated Motor Insurance Directive.5

4.3

G

The Solvency II Directive7 specifies minimum information requirements and permits5EEA States to adopt additional mandatory rules. (See articles 178, 180, 183, 184 of the Solvency II Directive.)7

4.4

G

If the State of the risk is an EEA State, the Solvency II Directive provides7 that the applicable information rules shall be determined by that state. Accordingly, if the State of the risk is the United Kingdom, the relevant rules in this sourcebook apply. Those rules do not apply if the State of the risk is another EEA State. The territorial scope of other rules, in particular the financial promotion rules, is not affected since the Solvency II Directive7 explicitly permits EEA States to apply rules, including advertising rules, in the 'general good'. (See articles 156 and 180 of the Solvency II Directive.)5

5

Solvency II Directive life business:5 effect on territorial scope

5.1

G

The Solvency II Directive's5 scope covers long-term insurers which are Solvency II firms5 conducting long-term insurance business.

5.2

G

The rules in this sourcebook within the Directive's scope are the cancellation rules (see ICOBS 7) and those rules requiring the provision of pre-contract information or information during the term of the contract concerning the insurer or the contract of insurance (see ICOBS 2.2 (Communications to clients and financial promotions),7ICOBS 6 (Product information) and ICOBS 8 (Claims handling) except ICOBS 8.2 (Motor vehicle liability insurers)).

5.3

G

The Directive specifies minimum information and cancellation requirements and permits EEA States to adopt additional information requirements that are necessary for a proper understanding by the policyholder of the essential elements of the commitment.

5.4

G

If the State of the commitment is an EEA State, the Directive provides that the applicable information rules and cancellation rules shall be laid down5 by that state. Accordingly, if the State of the commitment is the United Kingdom, the relevant rules in this sourcebook apply. Those rules do not apply if the State of the commitment is another EEA State. The territorial scope of other rules, in particular the financial promotion rules,1 is not affected since the Directive explicitly permits EEA States to apply rules, including advertising rules, in the 'general good'. (See articles 156, 180, 185 and 186 of the Solvency II Directive.)7

6

Motor Insurance Directives: effect on territorial scope

6.1

G

The scope of the Consolidated Motor Insurance Directive4 covers insurers conducting motor vehicle liability insurance business. The rules in this sourcebook within the Directive's4 scope are those regarding the appointment of claims representatives and handling of claims by injured parties (see ICOBS 8.2).

6.2

G

The Directive requires4 a motor vehicle liability insurer to appoint a claims representative in each EEA State other than its Home State. It specifies4 minimum requirements regarding function and powers of claims representatives in handling claims and regarding the settlement of claims by injured parties.

6.3

G

The Directive's4 provisions apply to motor vehicle liability insurers for which the United Kingdom is the Home State. (See articles 21 and 22 of the Consolidated Motor Insurance Directive).4

7

Distance Marketing Directive: effect on territorial scope

7.1

G

In broad terms, a firm is within the Distance Marketing Directive's scope when conducting an activity relating to a distance contract with a consumer. The rules in this sourcebook within the Directive's scope are those requiring the provision of pre-contract information (see ICOBS 2.27(Communications to clients and financial promotions), ICOBS 4 (Information about the firm, its services and remuneration), 6ICOBS 6 (Product information), and ICOBS 6A.1.4R (Ensuring the customer can make an informed decision)),6 the cancellation rules (see ICOBS 7) and the other specific rules implementing the Directive (see ICOBS 3.1.)7

7.2

G

In the FCA's view, the Directive places responsibility for requirements within the Directive's scope on the Home State except in relation to business conducted through a branch, in which case the responsibility rests with the EEA State in which the branch is located (this is sometimes referred to as a 'country of origin' or ‘country of establishment’ basis). (See article 16 of the Distance Marketing Directive.7)

7.3

G

This means that relevant rules in this sourcebook will, in general, apply to a firm conducting business within the Directive's scope from an establishment in the United Kingdom (whether the firm is a national of the United Kingdom or of any other EEA State or non-EEA state).

7.4

G

Conversely, the territorial scope of the relevant rules in this sourcebook is modified as necessary so that they do not apply to a firm conducting business within the Directive's scope from an establishment in another EEA State if the firm is a national of the United Kingdom or of any other EEA State.

7.5

G

In the FCA's view:

(1)

the ‘country of origin’ basis of the Directive is in line with that of the E-Commerce Directive and the IDD; (See7 recital 6 to the Distance Marketing Directive.7)

(2)

for business within the scope of both the Distance Marketing Directive and theSolvency II Directive,5 the territorial application of the Distance Marketing Directive takes precedence; in other words, the rules requiring pre-contract information and cancellation rules derived from the Solvency II Directive5 apply on a ‘country of origin’ basis rather than being based on the State of the commitment (See7 articles 4(1) and 16 of the Distance Marketing Directive.

7

8

Electronic Commerce Directive: effect on territorial scope

8.1

G

The E-Commerce Directive's scope covers every firm carrying on an electronic commerce activity. Every rule in this sourcebook is within the Directive's scope.

8.2

G

A key element of the Directive is the ability of a person from one EEA State to carry on an electronic commerce activity freely into another EEA State. Accordingly, the territorial application of the rules in this sourcebook is modified so that they apply at least to a firm carrying on an electronic commerce activity from an establishment in the United Kingdom with or for a person in the United Kingdom or another EEA State.

8.3

G

Conversely, a firm that is a national of the United Kingdom or another EEA State, carrying on an electronic commerce activity from an establishment in another EEA State with or for a person in the United Kingdom, need not comply with the rules in this sourcebook. (See article 3(1) and (2) of the E-Commerce Directive.7)

8.4

G

The effect of the Directive on this sourcebook is subject to the 'insurance derogation', which is the only ‘derogation’ in the Directive that the FCA has adopted for this sourcebook. The derogation applies to an insurer that is authorised under, and carrying on an electronic commerce activity within, the scope of the Solvency II Directive5 and permits EEA States to continue to apply their advertising rules in the 'general good'.

8.5

G

Where the derogation applies, the rules on financial promotion continue to apply for incoming electronic commerce activities (unless the firm's 'country of origin' applies rules of like effect), but do not apply for outgoing electronic commerce activities. (See article 3(3) and Annex, fourth indent of the E-Commerce Directive; Annex to European Commission Discussion Paper MARKT/2541/03.7)

8.6

G

In the FCA's view, the Directive's effect on the territorial scope of this sourcebook (including the use of the 'insurance derogation'):

(1)

is in line with the Distance Marketing Directive and the IDD7;

(2)

overrides that of any other Directive discussed in this Annex to the extent that it is incompatible.

8.7

G

The 'derogations' in the Directive may enable other EEA States to adopt a different approach to the United Kingdom in certain fields. (See recital 52 to the IDD7, recital 6 to the Distance Marketing Directive, article 3 of, and the Annex to, the E-Commerce Directive.7)