General insurance: Vertically integrated business models – managing conflicts of interest

Our expectations

We assess business models through our supervisory work and market analysis. We’ll act where we identify poor governance, weak controls or evidence of customer harm.
If your firm operates with vertically integrated or closely connected arrangements, we expect you to review your:

• business models
• governance arrangements
• systems and controls
• conflict management frameworks

Managing conflicts of interest

A conflict doesn’t automatically make your business model unacceptable. However, you must:

• Identify, prevent or manage conflicts appropriately.
• Ensure conflicts do not become embedded within customer journeys or commercial incentives.
• Show that your controls support good customer outcomes.

You should meet your obligations under PRIN, SYSC 10, SYSC 19.2F, PROD 4 and the Consumer Duty.

Evidence effective controls

Your firm should review its processes and be able to provide evidence, on request, that your controls are operating effectively. This applies wherever your firm sits in the vertical chain.

Depending on the model, this may include: 

• Conflict of interest management including placement decisions, panel design and product recommendations.
• Customer communications.
• Appropriate remuneration and incentive design.
• Clear allocation of responsibilities across legal entities.
• Robust product governance, including fair value assessments.
• Monitoring and MI, and active senior management oversight.

You should assess the risks before making changes that may increase conflicts of interest or complexity, such as new ownership structures, investment arrangements, debt financing or intragroup arrangements.

Customer communications and disclosures

Review your customer-facing communications and disclosures to ensure they are clear, fair and not misleading and support customer understanding.

Customers should be able to understand:

• your firm’s role in the manufacture and distribution of products
• any commercial links that may affect their decision-making
• If you present yourself as independent or acting in a particular capacity, make sure this accurately reflects how you operate.

Don’t rely on disclosure alone to manage conflicts of interest. Giving customers information doesn’t remove the need for effective governance, systems and controls.

Enabling effective supervision

Assess whether your group structures, governance arrangements and intragroup relationships allow you to continue being effectively supervised under COND 2.3.1A.

If your business model is overly complex, consider simplifying it. You should be able to explain clearly to us how these factors work in practice:

• accountability
• decision-making
• control

You should tell us promptly of material changes to your business model, including actions that may increase:

• actual or perceived conflicts of interest
• business model complexity
• close links within groups
• potential barriers to effective FCA supervision

Also tell us promptly of material changes that may reduce your organisational transparency.

Engage with us openly and promptly, and be ready to show how you identify, govern, monitor and reduce conflicts.

We’ll take appropriate supervisory or enforcement action where we identify behaviour that may:

• harm consumers
• weaken competition
• obscure accountability