SYSC 10.1A Insurance-based investment products3 – Conflicts of interest

1. (1)

   3For the purposes of identifying, in accordance with SYSC 10.1.3R and SYSC 10.1.8R, the types of conflicts of interest that arise in the course of carrying out any insurance distribution activities related to insurance-based investment products and which entail a risk of damage to the interests of a client, a firm must assess whether it, a relevant person or any person directly or indirectly linked to it by control, has an interest in the outcome of the insurance distribution activities, which meets the following criteria:

   1. (a)

      it is distinct from the client’s interest in the outcome of the insurance distribution activities;

   2. (b)

      it has the potential to influence the outcome of the insurance distribution activities to the detriment of the client.

2. (2)

   A firm must proceed in the same way for the purposes of identifying conflicts of interest between one client and another.

3. (3)

   For the purposes of the assessment in (1), a firm must take into account, by way of minimum criteria, the following situations:

   1. (a)

      the firm, a relevant person or any person directly or indirectly linked to it by control is likely to make a financial gain, or avoid a financial loss, to the potential detriment of the client;

   2. (b)

      the firm, a relevant person or any person directly or indirectly linked to it by control has a financial or other incentive to favour the interest of another client or group of clients over the interest of the client;

   3. (c)

      the firm, a relevant person or any person directly or indirectly linked by control to the firm is substantially involved in the management or development of insurance-based investment products, in particular where such a person has an influence on the pricing of those policies or their distribution costs.

[Note: article 3 of the IDD Regulation]

1. (1)

   3For the purposes of SYSC 10.1.3R, SYSC 10.1.7R and SYSC 10.1.7AR, in so far as those rules apply to insurance-based investment products, a firm must establish, implement and maintain an effective conflicts of interest policy set out in writing and appropriate to its size and organisation and the nature, scale and complexity of its business.

2. (2)

   Where the firm is a member of a group, the policy must also take into account any circumstances, of which the firm is or should be aware, which may give rise to a conflict of interest arising as a result of the structure and business activities of other members of the group.

[Note: article 4(1) of the IDD Regulation]

3The conflicts of interest policy required in SYSC 10.1A.3R must include the following content:

1. (1)

   with reference to the specific insurance distribution activities carried out, the circumstances which constitute or may give rise to a conflict of interest entailing a risk of damage to the interests of one or more clients;

2. (2)

   procedures to be followed and measures to be adopted in order to manage such conflicts and prevent them from damaging the interests of the client.

[Note: article 4(2) of the IDD Regulation]

1. (1)

   3The procedures and measures required in SYSC 10.1A.4R(2) must be appropriate to the size and activities of the firm and of the group to which it may belong, and to the risk of damage to the interests of the client.

2. (2)

   The procedures to be followed and measures required in SYSC 10.1A.4R(2) must include, where appropriate, the following:

   1. (a)

      effective procedures to prevent or control the exchange of information between relevant persons engaged in activities involving a risk of conflict of interest where the exchange of that information may damage the interests of one or more clients;

   2. (b)

      the separate supervision of relevant persons whose principal functions involve carrying out activities on behalf of, or providing services, to clients whose interests may conflict, or who otherwise represent different interests that may conflict, including those of the firm;

   3. (c)

      the removal of any direct link between payments, including remuneration, to relevant persons engaged in one activity and payments, including remuneration, to different relevant persons principally engaged in another activity, where a conflict of interest may arise in relation to those activities;

   4. (d)

      measures to prevent or limit any person from exercising inappropriate influence over the way in which insurance distribution activities are carried out by the firm or its managers or employees or any person directly or indirectly linked to it by control;

   5. (e)

      measures to prevent or control the simultaneous or sequential involvement of a relevant person in separate insurance distribution activities where such involvement may impair the proper management of conflicts of interest;

   6. (f)

      a gifts and benefits policy which determines clearly under which conditions gifts and benefits can be accepted or granted and which steps are to be taken when accepting and granting gifts and benefits.

3. (3)

   Where the firm can demonstrate that the measures and procedures referred to in (1) and (2) are not appropriate to ensure that the insurance distribution activities are carried out in accordance with the best interest of the client and are not biased due to conflicting interests of the firm, an insurance undertaking or another client, the firm must adopt adequate alternative measures and procedures for that purpose.

[Note: article 5 of the IDD Regulation]

1. (1)

   3A firm must avoid over-reliance on disclosure to ensure that disclosure to clients under SYSC 10.1.8R, in so far as those rules apply to insurance-based investment products, is a measure of last resort that can be used only where the effective organisational and administrative arrangements established by the firm to prevent or manage conflicts of interest in accordance with SYSC 10.1.3R, SYSC 10.1.7R and SYSC 10.1.7AR, in so far as those rules apply to insurance-based investment products are not sufficient to ensure, with reasonable confidence, that risks of damage to the interests of the client will be prevented.

2. (2)

   For the purposes of a disclosure of conflicts of interest a firm must:

   1. (a)

      provide a specific description of the conflict of interest in question;

   2. (b)

      explain the general nature and sources of the conflict of interest;

   3. (c)

      explain the risks to the client that arise as a result of the conflict of interest and the steps undertaken to mitigate those risks;

   4. (d)

      clearly state that the organisational and administrative arrangements established by the firm to prevent or manage the conflict of interest are not sufficient to ensure, with reasonable confidence, that risks of damage to the interests of the client will be prevented.

[Note: article 6 of the IDD Regulation]

3For the purposes of SYSC 10.1.3R, SYSC 10.1.7R and SYSC 10.1.7AR a firm must assess and periodically review, on an at least annual basis, the conflicts of interest policy established in accordance with SYSC 10.1A.3R and take all appropriate measures to address any deficiencies.

[Note: article 7(1) of the IDD Regulation]

1. (1)

   3A firm must keep and regularly update a record of the situations in which a conflict of interest entailing a risk of damage to the interests of a client has arisen or, in the case of an ongoing service or activity may arise.

2. (2)

   A firm must ensure its senior management receives on a frequent basis, and at least annually, written reports on the situations referred to in (1).

[Note: article 7(2) of the IDD Regulation]