Financial advisers, life insurance company executives and spokesmen for intermediary organisations said new rules governing the sale insurance-based investment products by Isle of Man providers, outlined in a draft version of a planned Conduct of Business Code last week by the Isle of Man Financial Services Authority would, if and when enacted, affect product providers as well as advisers in myriad – and not always easy-to-adjust to – ways.
Privately, some financial advisers who cater to expatriates in overseas markets told International Investment that, while no doubt good news for consumers and possibly long overdue, the new regulations would almost certainly make it more difficult for them to use Isle of Man insurance product providers for their clients.
They said this would be the case in certain jurisdictions in particular, due, for example, to the code’s emphasis on dealing with licensed intermediaries in markets that regulate them, and its call for greater responsibility on the part of insurers for seeing to it that those selling their products are doing things correctly.
Already, they say, the number of insurance companies willing to do business in Asia, South America and Africa has shrunk significantly over the past two years, as providers seek to limit their risks and boost profitability.
As reported here on Friday, the Isle of Man’s FSA published an outline of some of the key elements of its previously-announced Conduct of Business Code last week, along with responses to a consultation on the subject it carried out last year.
Once it has been finalised and made law, the proposed IoM Conduct of Business Code will set out how Isle of Man insurance companies are expected to handle business they receive from intermediaries.
Major life company hub
The Isle of Man is home to a number of major life company insurance businesses, including RL360°, Hansard, Canada Life International, Friends Provident International, AXA, Old Mutual International and Zurich International Life. Of these, Canada Life and AXA sell their products into the UK market only, while the others sell internationally as well, or instead.
Not in all overseas markets, though: because the Isle of Man isn’t considered to be in Europe, companies located there aren’t officially permitted to “passport” financial services and products across borders into the EU, the way that companies based in, for example, Dublin or Luxembourg are able to, although they are able to sell into the UK market. Their ability to sell into other overseas markets, meanwhile, depends on the jurisdiction, and the company.
Nevertheless, observers say, a new business conduct code for Isle of Man insurers could have major implications for certain areas of the industry, particularly in the international space.
Separately, the IoM FSA on Thursday issued a fresh consultation on proposals to require the disclosure of all commission payments and other remuneration provided by insurers to the intermediaries who supply them with business, citing the importance of such disclosure for consumers, particularly “where insurers operate on a cross border basis”.
The results of this latest consultation, entitled Managing Conflicts of Interest in the Insurance Sales Process (Long-term business), or CP16-03, will be included in a draft version of the Conduct of Business Code, on which there will be a final consultation before it is implemented. The deadline for comments is 2 September.
David Kneeshaw, chief executive of RL360, echoes others in the industry by seeing the IoM FSA’s new code for insurers as an inevitable step along a one-way path down which insurance companies and their intermediary clients across the globe are moving.
“The direction of regulatory travel worldwide is clear, and ultimately all reputable jurisdictions that have any hope of surviving in the future will have to look after clients’ interests and conform in similar vein,” he said.
“Those which don’t will very quickly be branded as ‘dodgy’.
“In short, the draft regulations encourage life companies to work with professional, well-structured adviser firms, who are accountable for their advice, are wary of non-retail funds, and happy for their clients to understand the adviser’s remuneration. Many of the firms with which RL360 works will want to be seen in this light.
Paul Stanfield, chief executive of the Federation of European International Financial Advisers, shares Kneeshaw’s view that the IoM’s proposed Conduct of Business Code is part of an unstoppable evolution. He says he’s been advising his trade association members for the past three years or more on efforts by an organisation called the International Association of Insurance Supervisors to bring into global use what the IAIS calls its “Insurance Core Principles”, which are similar in concept to the proposed Isle of Man Conduct of Business Code. (He thinks, in fact, that the proposed IoM Code will have drawn on the IAIS’s work in this area.)
FEIFA is a non-profit trade organisation representing English-speaking advisory businesses active in Europe.
While some advisers may grumble about the added paperwork and not-always-welcome transparency of the new rules, Stanford adds, in his opinion “[the new IoM code] actually represents a fantastic opportunity for progressive IFA companies that plan ahead, and embrace the new environment that will result”.
“This may sound a little trite, but we are already seeing some evidence of this in markets that have recently made major regulatory changes,” he adds.
For example, since the introduction of the RDR in the UK at the end of 2012, those businesses that “embraced [the proposed changes], and started planning sooner, are the ones that are finding the new world far more amenable”, he says.
RL360 CEO Kneeshaw also sees the industry’s “early adopters” as the ones with their “eye to the future”.
“Some see it as a chance to move forward into the new era and become stronger, as happened in the UK,” he says.
“In any event, there will almost certainly be a decent period of time for the consultation process to finish, and then more time before implementation.
“Advisers will have plenty of time to prepare, and the good ones will. For those that do these proposals are an opportunity, not a threat.”
New provider ‘choosiness’ seen
Bob Parker, chief executive of the Holborn Group, a Dubai-based international advisory business with operations as well in the UK, Africa and Spain, believes that “without doubt” the two most significant outcomes of the proposed IoM regulations will be that IoM product providers will be choosing their distribution partners more carefully going forward – “i.e., removing many small brokers from their books” – and that “hard commission disclosure” will become the new standard.
Parker says his own business began planning five years ago for the day when commission disclosure would be the new normal in a growing number of jurisdictions, by building up “very significant levels of trail” to ensure an alternative revenue stream. For the many advisory businesses that currently make use of Isle of Man insurance companies’ products but which have not yet begun to plan for commission disclosure, he adds, particularly some of the smaller ones, the need to begin disclosing commission going forward “will be a death knell”.
“This is not going to be an RDR lookalike, more [like] a 1997 UK disclosure regime, when we moved from illustrations showing commissions by [percentages] to actual cash earned,” he continues.
“It certainly spells the end of certain high-commissioning-paying products, and good news for the clients.”
He adds that the IoM regulator should now open a discussion on “IoM-regulated funds, such as the failed Premier New Earth Fund, and the role trustees [should] play [with respect to their] responsibility to clients, especially in the SIPP and QROPS [self-invested personal pension and qualifying recognised overseas pension scheme] space”.
In the meantime, he cautions against complacency, noting that in the UK, “post RDR, [some] are now suggesting there is a case for [re-introducing] commissions” in certain situations.