Greg Kilminster
Head of Product - Content
FCA thematic review outlines insurance firms' PROD compliance failures
The Financial Conduct Authority (FCA) has released the findings of its thematic review (TR)24/2 on general insurance and pure protection product oversight and governance under PROD 4. The FCA has simultaneously issued its general insurance value measures data 2023.
Some context
Under PROD 4, firms are responsible for ensuring that customers consistently receive fair value and good outcomes from the products and services they manufacture and distribute.
As part of the review, the FCA assessed insurance manufacturers' and distributors' product oversight and governance arrangements against the requirements by analysing information from 28 manufacturers and 39 distributors covering ten different general insurance and pure protection products. The assessment focused on whether firms had appropriately implemented the rule, assessed and could clearly demonstrate fair value, established effective systems and controls, and taken appropriate action where issues were identified.
Key takeaways
The FCA expressed disappointment in the report, noting that many firms, both manufacturers and distributors, are failing to fully meet their regulatory obligations under PROD despite extensive previous work and set expectations.
The report found that many manufacturers are not adequately assessing and evidencing that their products deliver fair value and good outcomes, leading to instances where products are not meeting customers' fair value expectations. Distributors were also found to be failing to consistently meet their obligations under PROD 4.3, as they do not receive sufficient information from manufacturers, lack a full understanding of distribution strategies, and often do not consider the impact of their remuneration on the product's value.
Next steps
The FCA is considering appropriate supervisory and regulatory actions to address these issues urgently and will provide feedback to firms involved in the review.
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PCAOB updates audit standards and contributory liability rule
The Securities and Exchange Commission (SEC) has approved a series of updates to the Public Company Accounting Oversight Board's (PCAOB) audit standards and rules. These changes aim to modernise the auditing profession, improve the quality of audits, and enhance investor protection.
Some context
The PCAOB is a quasi-governmental body responsible for overseeing the audits of public companies in the United States. Its standards and rules govern the conduct of auditors and the quality of their work. The SEC, as the primary regulator of the US securities markets, has the authority to approve or disapprove PCAOB proposals.
The changes are significant and will have a lasting impact on the auditing profession. They are expected to improve the quality of audits, enhance investor protection, and strengthen the integrity of the US capital markets.
Key takeaways
- General responsibilities of the auditor: The PCAOB has introduced a new standard, AS 1000, which consolidates and modernises the general principles and responsibilities of auditors. This includes reaffirming the auditor's duty to protect investors, exercising due professional care, and complying with ethics and independence rules.
- Technology-assisted analysis: The PCAOB has amended AS 1105 and AS 2301 to address the use of technology-assisted data analysis in audit procedures. These amendments clarify auditors' responsibilities when using such tools and ensure that they are used effectively and appropriately.
- Contributory liability rule: The PCAOB has amended Rule 3502 to revise the standard for an associated person's contributory liability from recklessness to negligence. This means that associated persons can be held liable for contributing to a firm's violations of PCAOB standards if they were negligent, even if they did not act recklessly.
Next steps
The amendments to Rule 3502 will become effective in 60 days. The amendments to AS 1000 and other related standards will take effect for audits of financial statements for fiscal years beginning on or after 15 December 2024. The amendments to AS 1105 and AS 2301 will take effect for audits of financial statements for fiscal years beginning on or after 15 December 2025.
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ASIC publishes new corporate plan
The Australian Securities and Investments Commission (ASIC) has published its Corporate Plan for 2024–2028, outlining its planned initiatives to meet its statutory objectives.
The strategic focus areas for this period include:
- Improving consumer outcomes: Emphasis will be placed on improving the design and distribution of financial products, addressing predatory sales and lending practices, providing financial hardship assistance, enhancing insurance claims handling, and improving dispute resolution processes.
- Addressing financial system climate change risk: This will involve concentrating on climate-related disclosures, addressing greenwashing, promoting integrity and fairness in energy and carbon credit markets, and enhancing insurer claims and complaints handling in the aftermath of severe weather events.
- Better retirement outcomes and member services: Efforts will centre on providing improved services for superannuation fund members, driving industry progress towards better retirement outcomes, ensuring compliance by superannuation trustees and providers of managed investments and financial advice.
- Advancing digital and data resilience and safety: The focus will be on addressing technology-enabled scams and misconduct, and mitigating the misuse of artificial intelligence (AI) in business, cyber, and operational resilience.
- Driving consistency and transparency across markets and products (a new strategic priority): This will involve focusing on outcomes in public and private markets, as well as monitoring existing and emerging financial products and services, including new market participants.
Other key initiatives for 2024–28 include:
- Implementation of the Financial Accountability Regime (FAR)
- Implementing the Compensation Scheme of Last Resort (CSLR)
- Contributing to the development of the beneficial ownership regime
- Focus on better outcomes from reports from registered liquidators and addressing poor behaviours
- Contributing to the development of licensing regimes for payments and buy now, pay later providers
- Collaborating with the Australian Government to introduce the Regulatory Initiatives Grid (RIG).
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HKMA shares climate risk governance good practices
The Hong Kong Monetary Authority (HKMA) has issued a letter outlining good practices and key observations on authorised institutions’ (AIs) governance of climate-related risks.
These recommendations are based on findings from HKMA's supervisory activities, including thematic examinations and consultative sessions, focusing on participating AIs’ governance practices for climate-related risks against relevant supervisory expectations.
Key takeaways
The good practices and key observations are categorised into three main areas:
- Fostering and overseeing the effective development and implementation of climate strategy
- Exercising appropriate oversight of climate risk management
- Cultivating a strong organisational climate risk culture
As climate risk management is an evolving area, HKMA encourages AIs to refer to these good practices as they continue to enhance their climate-related risk governance frameworks and relevant measures.
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APRA consolidates prudential framework definitions
The Australian Prudential Regulation Authority (APRA) has finalised the new cross-industry Prudential Standard CPS 001 Defined Terms (CPS 001). This standard merges the five existing standards on definitions for authorised deposit-taking institutions and general, life, and private health insurers into one comprehensive standard.
CPS 001 will be effective from 1 October 2024.
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OFAC's modernisation drive: a step forward in sanctions compliance
A helpful article by Lisa M Palluconi, Acting Director, Office of Foreign Assets Control (OFAC) outlines the significant transformation OFAC is undergoing to enhance its engagement with stakeholders and ensure sanctions are easily understood and enforced. As the agency responsible for administering and enforcing US economic sanctions, OFAC's modernisation efforts are crucial in maintaining the effectiveness of these tools in achieving foreign policy objectives.
One of the key initiatives undertaken by OFAC has been to improve its communication and engagement with the public. This includes regular meetings with companies, organisations, and civil society groups to gather feedback on the implementation challenges they face and their best practices for sanctions compliance. This input has been invaluable in shaping OFAC's recent initiatives aimed at simplifying the understanding and application of sanctions.
Key modernisation efforts undertaken by OFAC include:
- Updated FAQs: To ensure its guidance remains current and relevant, OFAC has been updating its frequently asked questions (FAQs) on general sanctions issues. This includes guidance on topics such as blocked property and verifying the authenticity of OFAC documents.
- Enhanced website: OFAC has revamped its website to make it more user-friendly, with features such as an improved FAQ search function and an FAQ archive.
- Compliance hotline: To address the increased demand for sanctions guidance, OFAC has launched a new online platform to streamline the way the public submits queries.
- OFAC Reporting System (ORS): To enhance processing speed and reduce reporting burden, OFAC has introduced ORS, a secure electronic platform for submitting reports related to blocked property and rejected transactions.
- Sanctions List Service (SLS): SLS provides users with easy access to the most up-to-date and complete sanctions lists and sanctions list data.
- Production submission standards and enforcement information: To reflect current technological standards, OFAC has updated its data delivery standards and the table of Civil Penalties and Enforcement Information.
- Licensing portal: The Licensing Portal has been updated to provide greater transparency about the license application process.
These modernisation efforts are a significant step forward in making OFAC's sanctions regime more accessible and easier to comply with. By improving communication, streamlining processes, and providing more user-friendly tools, OFAC is helping to ensure that businesses and individuals can effectively navigate the complexities of sanctions compliance.
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