Remuneration Code (SYSC 19F2) | FCA Handbook

A new rule for Insurance Intermediaries/Distributors introduced by the IDD

This new rule is introduced to ensure that remuneration arrangements do not conflict with a firm’s duty to act in the customer’s best interests. This reinforces the new “customer’s best interests rule” in ICOBS 2.5.1.

“A firm must act honestly, fairly and professionally in accordance with the best interests of its customer.”

Insurance intermediaries/distributors must not:

(a) be remunerated; or
(b) remunerate or assess the performance of their employees;
in a way that conflicts with their duty to comply with the customer’s best interests rule.

In particular, an insurance distributor must not make any arrangements by way of remuneration, sales target or otherwise that could provide an incentive to itself or its employees to recommend a particular contract of insurance to a customer when the insurance distributor could offer a different insurance contract which would better meet the customer’s needs.

This only reinforces existing rules and guidance requiring firms to:

a) Manage conflicts of interests fairly (Principle 8)
b) Take all reasonable steps to prevent conflicts of interest from constituting or giving rise to a material risk of damage to the interests of its clients (SYSC 10.1.7 R)
c) Avoid unfair Inducements (ICOBS 2.3.1 G)

but remuneration, sales targets and performance appraisal arrangements, should be reviewed, at all levels, to ensure there are:
1. No potential conflicts with the customer’s best interests rule.
2. No incentives to recommend a particular contract of insurance when a different contract which would better meet the customer’s needs could be offered instead.