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    UK: Financial Conduct Authority Increases Scrutiny of the Insurance Sector

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    The UK’s Financial Conduct Authority (FCA) has indicated that it is likely to exercise its competition functions in the insurance sector in the next few months, including by examining retirement annuities and insurance add-ons.

    The FCA replaced the Financial Services Authority in April 2013, but unlike other sectoral regulators it was not immediately given explicit powers to enforce general competition law. Instead, it had a statutory objective and duty to promote competition.

    Following an amendment to the Enterprise and Regulatory Reform Bill in October 2013, from 1 April 2015 the FCA will have explicit powers (alongside the new Competition and Markets Authority) to enforce UK and EU competition law, and will be required to consider whether it would be more appropriate to use its competition powers before using its sector-specific regulatory powers. Although the FCA will have powers to fine firms for infringements of the Competition Act 1998, it has indicated that more general market studies, which it already has powers to carry out, will form the mainstay of how it gathers evidence of competition problems and identifies whether further intervention is necessary. Using its existing powers, following a market study the FCA can order firms to change their market practices, recommend changes to legislation or encourage voluntary action.

    At a recent conference, FCA officials (both of whom joined from the competition authorities) indicated that an examination of general insurance add-on products is due to report soon. That examination began in July 2013, looking into policies sold alongside goods and services, such as mobile phone and emergency home repairs insurance. The FCA is examining whether unnecessary market barriers are preventing new entry or expansion by smaller players in the market. The FCA is also expected soon to begin a market study into the retirement annuity market, following a year-long “thematic” review which is believed to have revealed that consumers are not being well served by competition, even when they do shop around.

    It appears that the trend is for increased scrutiny and intervention by the FCA on competition grounds in all areas of the financial sector, and the insurance markets will not escape.

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