Brokers Ireland Members Summer CPD Seminar

26th June 2019

Compliance UpdateElizabeth Smith Wright

Items Covered

• Update from Central Bank bi-meeting • Funding Levy• Insurance Distribution Regulation (IDR) • Updated Compliance Manual & AML/CTF Guidance • Non- Life Insurance (Provision of Information)

Regulation 2018

Central Bank Bi-Annual Meeting

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• Took place on the 17th June.

• Agenda Items

➢ CP116 response – Update➢ Brexit ➢ Financial soundness of insurers➢ AML/CTF➢ Recent communications to members in relation to IIA authorisations

CP 116 – Update

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• Response is going though the last stages of signoff at present.

• Aim is to publish it mid July

• 6 month lead in

• The response will require changes in the behaviour of Brokers when dealing with clients.

• Response did take into account of comments made in the Brokers Ireland submission.

Brexit

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• The use of UK wholesale brokers to place risks into the UK market is not permissible under the IDR.

• The use of UK wholesale brokers to sell products of an EU insurer to EU brokers is only permitted if the UK broker registers in the EU in line with the requirements of the IDR.

• Key point: All entities in the chain must be authorised to do business in the EU – i.e. Broker/MGA/Insurer

• Central Bank advised that only a few UK based MGA’s have sought approval in Ireland to date

Brexit

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• Brokers Ireland highlighted members concerns in relation to the availability of cover for certain commercial risks i.e. Hospitality, activity center, certain forms of Professional Indemnity.

• CB acknowledged these concerns but are unfortunately limited to what they can do in this regard.

• European guidelines are clear – all entities in the chain must be authorized in a European country.

Financial Soundness of Insurers

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• Brokers Ireland raised concerns about recent comments made by Deputy Governor Sibley where he indicated that Brokers intermediating between some (non-Irish authorised) EU firms and Irish consumers should “take more responsibility for assessing the financial soundness and resilience of the underlying insurer”

• Central Bank accepted that the role of the regulator is to assess the strength of Insurers.

• Acknowledged difference between MGA’s and the traditional Broker.

• Would expect that all Brokers when dealing with non Irish authorised insurers carry out certain amount of due diligence.

• Letter to follow – Brokers Ireland to issue further guidance once this is received.

AML/CFT

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• Short Survey will be issued to Brokers to determine what type of business they undertake.

• Aim is to determine what proportion of Brokers are handling premiums and advising on investments - higher risk.

• Central Bank have no plans for AML/CFT inspections in 2019.

• Main issues encountered at inspections:

➢ Lack of documentation to support AML/CFT procedures and due diligence requirements

➢ Lack of understanding of AML/CFT requirements➢ Insufficient training

AML/CFT

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• The final Anti-Money Laundering and Countering the Financing of terrorism guidelines for the financial sector due to be published end of quarter 3/start of quarter 4

• Once available, Brokers Ireland will issue communication to members on the guidelines.

Recent Communications on IIA authorisation

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• 114 firms received communication in respect of their IIA authorisation advising that they may revoke the authorisation where the firm failed to operate as an investment business firm for a period of 6 months.

• BI highlighted concerns about member been forced to revoke their authorisations

• CB confirmed that if a firm hasn’t been using their authorisation, they could still retain it by detailing how they intend to use the authorisation going forward.

• Evidence that these product providers are assessed as part of product research.

Recent Communications on IIA authorisation

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• 2nd communication in respect of IIA authorisation and requested information from firms who are advising on transferable securities

• Communication was sent to approximately 200 firms.

• Firms were selected on the basis of the agencies they held, e.g. Agencies with Wealth Options/BCP etc.

• Central Bank are looking at the selling of these products and whether they are regulated or not.

Funding Levy

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• Central Bank moving to an arrears method of collecting the levy which will be in respect of the actual budget rather than estimated budget which it has been to date.

• In 2018, the actual budget was higher than the estimated budget, this was due to increased costs in the Conduct area and also in respect of Brexit.

• Committed to moving to 100% funding by 2023.

• Levy notices for 2019 will be issued in early quarter 3 in 2020

Funding Levy

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70% - 2019 (levy noticed issued 2020)75% -2020 (levy noticed issued 2021)80% - 2021 (levy noticed issued 2022)90% - 2022 (levy noticed issued 2023)100% 2023 (levy noticed issued 2024)

• Banks will have moved to 100% funding by 2020.

• Slower rate for intermediaries to acknowledge the feedback that CB havereceived from Brokers Ireland.

Insurance Distribution Regulation

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• Came into effect on 1st of October 2018

• The term 'insurance policies’ was removed from the scope of the IIA.

• Introduced the requirement to prepare (Manufacturer) and provide (Broker) customers with an insurance product information document (IPID).

• Disclosure Requirements

Insurance Distribution Regulation

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Remuneration disclosure requirements for insurance intermediaries include disclosure of:

• the nature of remuneration received in relation to an insurance contract;

• the basis of the remuneration – that is, whether it is in the form of a fee paid by the customer, a commission included in the insurance premium, an economic benefit of any kind offered or given in connection with the insurance contract, or a combination of these. Where the fee is payable directly by the customer, intermediaries must disclose the amount of the fee or, where this is not possible, the method for calculating it;

• if any payments, other than ongoing premiums and scheduled payments, are made by the customer under the insurance contract after its conclusion, the insurance intermediary is obliged to make the disclosures after each of these payments.

Insurance Distribution Regulation

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IBIPS – Insurance Based Investment Products

Requirements prior to the conclusion of the sale:

• advise whether they will be providing a periodic assessment of the suitability of the recommended IBIP • provide the warnings of the risks associated with the IBIP • include information relating to the distribution of the IBIP including the cost of advice, the cost of the IBIP, and how the customer may pay for it (this includes any third-party payments).

Insurance Distribution Regulation

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IBIPS – Insurance Based Investment Products

Independence

Brokers must assess a sufficiently large number of insurance products available on the market which are sufficiently diverse with regard to the type of products on offer, and with regard to the range of product providers, to ensure that Brokers customer’s objectives can be suitably met and cannot be limited to insurance products issued or provided by entities having close links with the firm.

Insurance Distribution Regulation

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IBIPS – Insurance Based Investment Products

Independence

Brokers must return to customers or offset against fees to be paid by customers, any fees, commissions or non-monetary benefits paid or provided by any third party (or person acting on behalf of a third party) in relation to the services provided to that customer as soon as reasonably possible after receipt.

Insurance Distribution Regulation

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IBIPS – Insurance Based Investment Products

Independence

Brokers must also implement a policy to ensure that any fees, commission or non-monetary benefits paid or provided by any third party, (or a person acting on behalf of a third party), in relation to the provision of independent advice (IPIBs only) are allocated and transferred to each individual customer.

If the firm is providing services on a mixed basis, i.e. some services on an independent basis and some on a non-independent basis, it must be made clear to the client on what basis they are providing their services.

Insurance Distribution Regulation

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Referrals

The activity of “referring” or “introducing” in respect of an insurance product is not contained within the IDR and therefore does not fall with the definition of regulated activities. This means, provision 3.25 of the Consumer Protection Code 2012 does not apply.

= a fee, commission, other reward or remuneration may be paid for referrals/introductions.

HOWEVER, THIS REFERS TO INSURANCE PRODUCTS ONLY AND NOT INVESTMENT OR MORTGAGE INTRODUCTIONS OR REFERRALS, WHICH CONTINUE TO BE SUBJECT TO THE REQUIREMENTS OF THE CODE.

4th AML Directive

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The Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Act, 2018What does this mean?

• Came into force on the 26th of November 2018

Key amendments in the 2018 Act include:

• Introduction of Business Risk Assessments• Simplified and Enhanced Due diligence changes• Internal Policies and procedures

4th AML Directive

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Business Risk Assessment

• Identify and assess risks to the firm; assess the level of risk of money laundering/terrorist financing involved in carrying out your business activities.

• Various specified risk factors must be taken into account: the type of customer, products and services, countries or geographical areas, type of transactions, delivery channels.

• The Business Risk Assessment must be documented

4th AML Directive

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Business Risk Assessment

• Reviewed and managed by a designated person at regular, predefined intervals and it must be approved by senior management.

• It is an offence to fail to comply with these requirements.

• A template Business Risk Assessment is available in compliance section of the Brokers Ireland members website.

4th AML Directive

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Customer Due Diligence

• CDD must be executed at any time, including situations where the relevant circumstances of a customer have changed, where the risk of money laundering/terrorist financing warrants its application.

• Where a person purports to act on behalf of a customer, you must verify • the identity of that person, and • that they are authorised to so act.

4th AML Directive

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Customer Due Diligence

• Simplified Due Diligence• Low Risk

• Enhanced Due Diligence• High Risk Third Country

• Relationship/transaction presents a higher risk

• Politically Exposed Persons - now also apply to PEPs resident in Ireland.

• Standard Due Diligence – applies to all other clients.

4th AML Directive

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Life Assurance Policies/PEPs

• Additional requirements are imposed where the PEP is a beneficiary of a life assurance policy.

• Where you know or have suspicions that a beneficiary/beneficial owner is a politically exposed person, or an immediate family member or a close associate of a politically exposed person, you must:

(a) inform senior management before pay-out of policy proceeds and(b) conduct enhanced scrutiny of the business relationship with the policyholder

• Due diligence measures that previously applied only to PEPs resident outside of Ireland now also apply to PEPs resident in Ireland.

4th AML Directive

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Internal Policies, Controls and Procedures• Policies, controls and procedures must be approved by senior management and shall keep

these policies, controls and procedures under review in particular when there are changes to the business profile or risk profile of your firm.

• Sole traders - must note that policies have been reviewed.

• Firms must ensure that persons involved in the conduct of the business (includes directors, other officers and employees) receive instruction and training in respect of the law and on how to identify transactions or other activity that may relate to money laundering or terrorist financing (suspicious transactions) and how to proceed once identified.

• Clear from CB feedback from inspections – importance of documentation!

Updated AML/CFT Guidance/ Compliance Manual

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• A new section entitled Anti-Money Laundering and Counter Financingof Terrorism has been created in the compliance support section ofthe Brokers Ireland website.

• Contains updated AML/CFT Guidance notes and template documents.

• This section also contains the Brokers Ireland AML/CFT TemplatePresentation 2019

Updated AML/CFT Guidance/ Compliance Manual

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• Updated Compliance manual to be launches in July.

• Manual has been updated to reflect changes with respect to IDR andchange of processes by Central Bank (e.g. Authorisation process).

• Time to review procedures/templates to ensure that they arecompliant.

Non-Life Insurance (Provision of Information)(Renewal of Policy of Insurance)(Amendment) Regulation 2018

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• Will come into effect on the 1st November 2019

• The enhanced measures are:a) Insurers will be required to provide the total premium for each policy option available for

the customer in renewal notices (i.e. comprehensive; third party, fire and theft cover; third party only, if it is offered by the insurer);

b) Extension of the renewal notification period from 15 working days to 20 working days for motor insurance and all other non-life insurance classes covered under S.I. No.74; and

c) Insurers will be required to provide the amount of the insurance premium paid in the previous year for private motor insurance renewals or, where any mid-term adjustments were made to the policy during the year, an annualised premium figure.

• Brokers Ireland will be issuing more information on this closer to November 2019.

Any Questions?