ICOBS 6A.5 Retail premium finance: disclosure and remuneration

1This section does not affect the application of other requirements in the FCA Handbook applying to firms in relation to a regulated credit agreement.

For the purposes of ICOBS 6A.2.1R, providing the customer with the choice between paying monthly or annually will not be sufficient to show the customer has made an active election to obtain the retail premium finance.

1. (1)

   Firms are reminded of their obligations elsewhere in the FCA Handbook including:

   1. (a)

      Principles 1 and 6 to act with integrity and treat customers fairly;

   2. (b)

      Principle 8 to manage conflicts of interest fairly, both between itself and its customers and between a customer and another client. This principle extends to the remuneration a firm receives including soliciting or accepting inducements where this would conflict with a firm’s duties to its customers;

   3. (c)

      conflicts of interest requirements in SYSC 3.3 (for insurers) or SYSC 10 (for insurance intermediaries);

   4. (d)

      the customer’s best interests rule, and SYSC 19F.2 to ensure remuneration arrangements do not conflict with their duty to comply with the customer’s best interests rule.

2. (2)

   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.

1. (1)

   Firms should consider, at inception and then on a regular basis, their arrangements with providers or distributors of retail premium finance and whether they could give an incentive to act in a way that is inconsistent with the customer’s best interests rule or otherwise could risk breaching any of the provisions referred to in ICOBS 6A.5.6G above. For example, a firm’s remuneration arrangements should not provide an incentive to offer retail premium finance having greater costs to the customer (including a higher APR) where another retail premium finance arrangement, better aligned with the customer’s interests, is available to the firm in the market.

2. (2)

   For the purposes of (1) a firm would be considering its arrangements with providers or distributors of retail premium finance on a regular basis where these arrangements are assessed as part of the firm’s compliance with PROD 4.2.35AR (for a manufacturer) or PROD 4.3.6AR (for a distributor) to consider if these arrangements are consistent with providing fair value.

3. (3)

   When considering its arrangements with providers or distributors of retail premium finance, both before entering into any arrangement and on a regular basis, a firm should be able to demonstrate:

   1. (a)

      how the arrangements provide a fair outcome for the customer; and

   2. (b)

      why that arrangement was selected.

   For example, where the firm receives a greater level of remuneration, whether through a higher commission rate or otherwise, compared to other arrangements available to it, including any monthly payment arrangement where the price to the customer is not greater than where the policy is sold on a standalone basis, it will need to demonstrate how this selection was consistent with the customer’s best interests rule.

4. (4)

   Where the remuneration firms receive in relation to retail premium finance conflicts with the duty to comply with the customer’s best interests rule they will need to take appropriate actions to address the situation including, where necessary, changing retail premium finance providers.