This article gives guidance on indemnity insurance distribution, the rights an regulations involved and how to be compliant for the jurisdiction of England and Wales

Overview

Solicitors and licensed conveyancers may, in certain circumstances, carry out insurance distribution activities in connection with the legal services they provide, including activities relating to title indemnity insurance.

Insurance distribution activities are regulated activities under the Financial Services and Markets Act 2000 ("FSMA"). A firm carrying on such activities must either:

• Be authorised by the Financial Conduct Authority (FCA), or
• Where the relevant conditions are met, rely on the professional firm exemption under section 327 FSMA. 

The section 327 exemption allows eligible professional firms to carry on certain regulated financial services activities without separate FCA authorisation, provided the statutory conditions and applicable professional body requirements are satisfied.

Where an exempt professional firm carries on insurance distribution activities, it must be included on the FCA's Financial Services Register.

What is an Insurance Distribution Activity?

Insurance distribution can include:

• Advising on insurance contracts
• Proposing or arranging insurance
• Assisting in the administration and performance of insurance contracts
• Introducing clients to insurers or insurance providers where the activity falls within the regulatory definition. 

Examples in legal practice include:

• Arranging indemnity title insurance
• Advising on insurance options connected with a legal transaction
• Assisting clients with insurance documentation

Whether a particular activity constitutes insurance distribution will depend on the nature of the activity being undertaken. 

Section 327 FSMA Exemption

The section 327 exemption may be available to eligible professional firms regulated by a designated professional body, including firms regulated by the SRA or CLC.

The exemption is subject to statutory conditions and the rules of the relevant professional body. In particular:

• The regulated activity must arise out of, or be complementary to, the provision of a particular professional service to a particular client; and
• The manner in which the regulated activity is provided must be incidental to the provision of professional services.

The FCA considers that regulated activities cannot be a major part of the firm's practice and will consider factors including the scale of the regulated activity, whether it is held out as a separate service and how it is presented to clients.

A firm should ensure that its insurance distribution activities remain ancillary to, and connected with, its professional services rather than operating as a separate insurance business.

The firm must also account to the client for certain remuneration or other advantages received from a third party in connection with the regulated activity, as required by section 327 FSMA.

Requirements for SRA Regulated Firms

SRA regulated firms may only carry on insurance distribution activities as an ancillary insurance intermediary and must comply SRA's Financial Services (Scope) Rules and Financial Services (Conduct of Business) Rules.

A firm carrying on insurance distribution activities must:

• Be registered on the FCA Financial Services Register
• Appoint an insurance distribution officer responsible for overseeing the firm's insurance distribution activities
• Notify the SRA of its insurance distribution activities in accordance with the applicable notification requirements, including notifying the SRA of relevant changes. 

The SRA's requirements also include specific conduct and client information requirements relating to insurance distribution.

Firms should ensure that their activities remain within the scope permitted by the SRA's rules. Activities falling outside the scope of the exemption may require FCA authorisation.

Requirements for CLC Regulated Firms

CLC-regulated firms carrying on insurance distribution activities must comply with the CLC's applicable requirements, including the Acting as Ancillary Insurance Intermediaries Code.

The CLC's requirements include registration on the FCA Financial Services Register and specific requirements relating to client information, disclosures, demands and needs, remuneration and complaints.

CLC-regulated firms should ensure that they comply with the CLC's current notification and registration requirements and that their information on the FCA Financial Services Register remains accurate and up to date.

FCA Financial Services Register

An exempt professional firm carrying on insurance distribution activities must be included on the FCA Financial Services Register. 

Registration on the Financial Services Register does not mean that the firm is authorised by the FCA. 

Firms relying on the professional firm exemption should therefore not describe themselves as FCA authorised.

Firms should ensure that their details on the Financial Services Register remain accurate and up to date.

Client Disclosure

Firms carrying on insurance distribution activities must comply with the applicable client information and disclosure requirements under their professional body's rules.

At a minimum, clients should be clearly informed where applicable that:

• The firm is not authorised by the FCA
• The firm is included on the FCA Financial Services Register so that it may carry out insurance distribution activities
• The insurance distribution activity is regulated by the firm's professional body rather than by the FCA.

Additional information may be required depending on the circumstances, including information about the firm's role, whether it is providing a personal recommendation, the insurer(s) with which it conducts business and the remuneration it receives.

Firms should ensure that the required information is incorporated into their relevant client documentation and insurance processes.

Summary

A firm undertaking insurance distribution activities in connection with its legal work should:-

• Determine whether the activity falls within the relevant FSMA exemption, including the Section 327 exemption where applicable;
• Ensure it complies with the applicable SRA/CLC financial services requirements;
• Where eligible, ensure it is included on the FCA’s Exempt Professional Firms Register; and
• Provide clients with clear, accurate and up-to-date information and disclosures as required.