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What were the relevant regulatory rules and codes?

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Financial Conduct Authority (FCA) and Financial Services Authority (FSA) (from 2005)

The regulator's Principles apply to all authorised firms dealing with retail customers. Of particular relevance to the disputes we see are:

Principle 1 (integrity)

"A firm must conduct its business with integrity."

Principle 6 (customers' interests)

"A firm must pay due regard to the interests of its customers and treat them fairly."

Principle 7 (communications with clients)
"A firm must pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading."

Principle 8 (conflicts of interest)

"A firm must manage conflicts of interest fairly, both between itself and its customers and between a customer and another client."

Principle 9 (customers: relationships of trust)

"A firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgment."

In addition, it is relevant to take into account the more detailed rules set out in ICOB (the regulator's insurance conduct-of-business rules) - especially the provisions of ICOB 4.3 (suitability), ICOB 4.4 (statements of demands and needs), and ICOB 5.3 (provision of information to retail customers).

In particular, ICOB 4.3.1R requires that:

An insurance intermediary must take reasonable steps to ensure that, if in the course of insurance mediation activities it makes any personal recommendation to a customer to buy or sell a non-investment insurance contract, the personal recommendation is suitable for the customer's demands and needs at the time the personal recommendation is made.

For sales from 6 January 2008 onwards, the regulator's new conduct-of-business rules (ICOBS) apply.

General Insurance Standards Council (GISC) (from 2001)

The General Insurance Standards Council (GISC) promised in its Code that its members would:

  • act fairly and reasonably when we deal with you [the customer];
  • make sure that all our general insurance services satisfy the requirements of this Private Customer Code;
  • make sure all the information we give you is clear, fair and not misleading;
  • avoid conflicts of interest or, if we cannot avoid this, explain the position fully to you;
  • give you enough information and help so you can make an informed decision before you make a final commitment to buy your insurance policy.

The GISC Code provisions included:

[3.0] We will give you enough information and help so you can make an informed decision before you make a final commitment to buy your insurance policy.

[3.2] We will make sure, as far as possible, that the products and services we offer you will match your requirements:

  • If it is practical, we will identify your needs by getting relevant information from you.
  • We will offer you products and services to meet your needs, and match any requirements you have.
  • If we cannot match your requirements, we will explain the differences in the product or service that we can offer you.
  • If it is not practical to match all your requirements, we will give you enough information so you can make an informed decision about your insurance.

[3.3] We will explain all the main features of the products and services that we offer, including:

  • any significant or unusual restrictions or exclusions;
  • any significant conditions or obligations which you must meet.

[3.4] We will give you full details of the costs of your insurance.

[3.5] If we give you any advice or recommendations, we will:

  • only discuss or advise on matters that we have knowledge of;
  • make sure that any advice we give you or recommendations we make are aimed at meeting your interests; and
  • not make any misleading claims for the products or services we offer or make any unfair criticisms about products and services that are offered by anyone else.

Association of British Insurers (ABI) The Association of British Insurers (ABI)

The Association of British Insurers (ABI) codes (which pre-dated GISC) also set out relevant requirements. For example, the ABI General Insurance Business Code of Practice for all Intermediaries (1989) (the ABI Code) said that it:

shall be an overriding obligation of an intermediary at all times to conduct business with utmost good faith and integrity.

The ABI Code stated as one of its general sales principles that the intermediary:

shall ensure as far as possible that the policy proposed is suitable to the needs of the prospective policyholder.

The ABI Code also included requirements about "explanation of the contract". And it said the intermediary should:

Explain all the essential provisions of the cover afforded by the policy or policies he is recommending so as to ensure as far as is possible that the prospective policyholder understands what he is buying; [and] draw attention to any restrictions and exclusions applying to the policy. 

Application

The ombudsman has noted that there is much in common between the present statutory regulatory regime and the non-statutory provisions that preceded it (and, indeed, the position at law). The non-statutory provisions no longer apply as specific requirements on those selling insurance. But the ombudsman considers they still represent a helpful guide to good industry practice.

Other Litigation

The ombudsman decides cases on the basis of what is fair and reasonable - and when doing so, we are required to take into account relevant law (among other things).

In the case of Plevin v Paragon Personal Finance [2014] UKSC 61, the Supreme Court indicated that an undisclosed commission in some circumstances could result in an unfair relationship between the lender and consumer under the Consumer Credit Act 1974. The unfair relationship provisions of the Consumer Credit Act apply only to credit agreements taken out on or after 6 April 2007 - as well as agreements taken out before 6 April 2007 if they were still ongoing as at 6 April 2008 (or there was money still owing).

As a result, the unfair relationship provisions in the Consumer Credit Act - and the recent Plevin judgment - are potentially relevant considerations in some of the PPI cases referred to us.

In May 2015 The Financial Conduct Authority (FCA) confirmed that it was considering whether additional rules and/or guidance were required to deal with the impact of the Plevin decision on complaints about PPI.

And in October 2015 the FCA said that it had decided to consult on a PPI complaints deadline and on proposed rules and guidance for handling PPI complaints in the light of the Supreme Court decision in Plevin. The consultation paper - setting out the proposed rules and guidance - was published in November 2015. And it published a second consultation paper - setting out a few changes to the proposed rules and guidance - in August 2016.

In March 2017, the FCA announced the final version new rules for businesses to follow - and these will come into effect on 29 August 2017.