The Financial Conduct Authority (FCA) has sent a ‘Dear CEO’ letter to intermediaries (including Managing General Agents) that operate in the Lloyd’s and London Market. The FCA has recently started to group firms into separate portfolios. Lloyd’s and London Market intermediaries (LLMI) fall into one such group of FCA supervised firms.
The FCA writes that firms’ business models should remain financially resilience during this difficult economic period and should continue to meet the regulatory prudential requirements and threshold conditions. The FCA expects firms to take into account the Wholesale Insurance Broker Market Study (published in February 2020) and take suitable steps to ensure that concerns raised in the study are addressed. Areas raised in this study include conflicts of interest emanating from remuneration practices and the need to modernise the market. Firms need to innovate to create healthy competition, efficient distribution chains, good claims services and better use of data. Of equal important is a healthy market culture in which non-financial misconduct is reduced and diversity and inclusion improved.
In the letter the FCA identifies four common themes it wishes to prioritise. These are explored in more detail in the body of the letter. The themes are:
- Financial resilience and orderly wind-down
- Ineffective governance and oversight of businesses
- Culture and non-financial misconduct
- Business models which provide poor oversight of distribution chains
Other areas of risk include the hardening insurance market, exposure to cyber risks and the end of the Brexit transition period.