Regulation and intermediaries
Regulation and intermediaries
This domain tests the UK regulatory framework for insurance distribution: who may advise or arrange cover, what conduct is required, and how firms are supervised. Questions often turn on authorisation status, disclosure, financial promotions and the consequences of getting distribution wrong.
Core rules
- Regulators. The Financial Services and Markets Act 2000 provides the statutory framework. The PRA prudentially regulates insurers; the FCA regulates conduct and generally authorises insurance intermediaries. Dual regulation does not mean every intermediary needs both regulators.
- Authorisation. A firm carrying on regulated insurance distribution activity by way of business generally needs FCA authorisation or must be an appointed representative of an authorised firm. Introducers must be carefully structured; merely receiving commission for a referral can still fall within regulated activity depending on what they do.
- IDD conduct. The Insurance Distribution Directive regime requires firms to act honestly, fairly and professionally, identify demands and needs, provide product and remuneration information, manage conflicts, and ensure staff are fit and proper and appropriately trained.
- Consumer Duty. For retail customers, firms must deliver good outcomes under the four outcomes: products and services, price and value, consumer understanding, and consumer support. The Duty is not a substitute for specific rules; it sits alongside them.
- Financial promotions. Communications must be fair, clear and not misleading. Approvals and record-keeping matter; misleading promotions can be a breach even if the underlying product is sound.
- Client money and complaints. Intermediaries holding client money must follow client-asset rules, maintain professional indemnity insurance where required, and operate internal complaint handling with referral to the Financial Ombudsman Service for eligible complainants.
Worked example
A garage introduces customers to an insurer for motor warranties and receives £40 per sale. Staff explain cover and complete the proposal form. That is not a mere referral: the garage is arranging contracts and likely needs authorisation or appointed-representative status. If it only displayed leaflets and took no part in arranging, the analysis could differ. It must also disclose its remuneration and manage the conflict created by the commission, and its promotion must be fair, clear and not misleading.
Traps
Do not assume the PRA authorises intermediaries. Do not treat appointed representatives as outside regulation. Do not assume a commission disclosure is unnecessary because the insurer pays it. Do not overlook the Consumer Duty for retail business. Do not confuse the FOS with the Financial Services Compensation Scheme: one resolves complaints, the other pays compensation on insurer failure.