11.2 Conduct of Business, Financial Promotions and Enforcement

ICOBS — The Insurance Conduct of Business Sourcebook

The Insurance Conduct of Business Sourcebook (ICOBS) is the principal FCA Handbook sourcebook for the conduct of general insurance business. It applies to insurers, intermediaries (brokers) and appointed representatives involved in insurance distribution — that is, the design, sale, administration and claims handling of general insurance contracts. (Life insurance conduct sits in a separate sourcebook, COBS, for the most part.) ICOBS translates the high-level Principles and the Consumer Duty into detailed, enforceable rules for the insurance market.

Status Disclosure

At the outset of any dealings with a customer, an intermediary must give a status disclosure explaining who the intermediary is acting for. The disclosure must state whether the intermediary is:

• acting as the agent of the insurer (a tied agent or appointed representative selling on behalf of one or more named insurers); or
• acting as the agent of the customer (an independent broker acting on the client's behalf); or
• acting on a non-advised basis with no agency relationship for either side in some limited circumstances.

The status disclosure matters because it determines whom the customer can hold responsible and what level of service they are receiving. It must be given in good time before the customer commits to the contract.

Demands-and-Needs and Suitability

ICOBS distinguishes between advised and non-advised sales, and imposes different documentation requirements:

Trap for candidates: A demands-and-needs statement is for non-advised sales; a suitability statement is for advised sales. Mixing them up is a common exam error. The distinction matters because advice attracts a higher standard — the firm must be able to show the recommendation was suitable, not merely that it recorded what the customer asked for.

Product Information and Cancellation Rights

ICOBS requires firms to give customers adequate product information in good time before the contract is concluded, including the significant features and benefits, the premium, any significant exclusions or limitations, and the identity of the insurer. This dovetails with the Consumer Duty's consumer understanding outcome.

For general insurance sold at a distance (online, telephone or other distance medium), the customer has a statutory cancellation right — the 14-day cooling-off period. The customer may cancel within 14 days of either the start of the policy or the day on which the customer received the full contractual and pre-contractual information, whichever is later. For most general insurance the cancellation must be honoured with a pro-rata refund of premium, less any reasonable administrative charge. Some specialised commercial insurances and very short-duration policies are excluded or modified.

Premium Handling

ICOBS (and the FCA's Client Assets sourcebook — CASS 5) set rules for premium handling by intermediaries. Where an intermediary collects premiums, the money is generally held as client money in a segregated client bank account and is not the intermediary's own money. The intermediary must account to the insurer for premiums received and must pay claims only with insurer authority. The client money rules protect customers and insurers if the intermediary fails — the client money is ring-fenced and is not available to the intermediary's creditors in insolvency.

Financial Promotions under FSMA s.21

A financial promotion is any communication that invites or induces a person to engage in investment activity — for example, an advertisement for an insurance product, a website landing page, a social media post, a cold call, or a brochure. Section 21 of the Financial Services and Markets Act 2000 (FSMA 2000) makes the communication of a financial promotion a controlled activity: it is a criminal offence to communicate an invitation or inducement to engage in investment activity unless the communication is made by, or approved by, an authorised person.

The FCA's financial promotions rules (in ICOBS 2 and the broader Handbook) add detailed requirements: promotions must be clear, fair and not misleading, must identify the promoter, must not omit material information, and must include appropriate risk warnings. An authorised firm that approves a promotion issued by an unauthorised person takes responsibility for that promotion and is liable for any breach. Breaches attract FCA enforcement and can also render related agreements unenforceable.

Quick rule: Any advertisement, website or other communication inviting someone to buy insurance is a financial promotion under FSMA s.21 and must be issued or approved by an authorised person. Unauthorised communicators (including appointed representatives who do not have their own approval permissions) must have their promotions approved by their authorised principal.

Enforcement and Consequences of Non-Compliance

The FCA has a wide range of enforcement powers for breaches of its rules, of FSMA, or of the regulatory principles. The principal powers include:

The Senior Managers and Certification Regime (SM&CR)

The Senior Managers and Certification Regime (SM&CR) is the FCA's accountability framework for individuals in authorised firms. It was extended to insurers (and to all solo-regulated firms) in stages, replacing the previous approved persons regime. Under SM&CR:

• Senior managers hold a Statement of Responsibilities describing the areas they are personally accountable for, and must be approved by the FCA before taking up their role.
• Certified staff are senior risk-takers and other key staff certified by the firm as fit and proper.
• Conduct rules apply to all staff, with enhanced rules for senior managers and certified staff.
• A senior manager can be held personally liable — including by FCA fines and public censure — for failings in the areas they are responsible for.

SM&CR aligns with the Consumer Duty's governance requirements (PRIN 2A.8): boards and governing bodies must oversee the Duty, and an individual senior manager is accountable for the firm's compliance.

Key Takeaways

• ICOBS sets the conduct rules for general insurance distribution: status disclosure (who the intermediary acts for), demands-and-needs statements for non-advised sales, suitability statements for advised sales, product information, cancellation rights and premium handling (client money under CASS 5).
• General insurance sold at a distance carries a 14-day cooling-off cancellation right; the customer can cancel within 14 days of the policy starting or of receiving the full documentation, whichever is later.
• Under FSMA 2000 s.21, a financial promotion inviting investment is a controlled activity that must be issued or approved by an authorised person, and must be clear, fair and not misleading.
• FCA enforcement powers include withdrawing authorisation, public censure, financial penalties, restitution and own-initiative variation of permission.
• The SM&CR, extended to insurers and all solo-regulated firms, assigns personal accountability to senior managers for the areas they oversee, supporting the Consumer Duty's governance requirements.