Legal - IMD2: Mediation directive is up for grabs

Anyone who cares to cast their mind back to the implementation of the Insurance Mediation Directive would agree that some changes are in order and that those changes should go well beyond the changes seen in the UK so far.

For example, there was the replacement of the original ICOB conduct of business rules by the more concise ICOBS and the exemption of freight forwarders from its scope.

The European Union's work on revising the Insurance Mediation Directive has been going on for a couple of years now and the latest development is the publication by the Committee of European Insurance and Occupational Pensions on Armistice Day of its advice to the EU Commission on the planned new legislation, known as "IMD2".

This advice is important as it represents the combined views of the insurance regulators in each member state and the EU Commission relies on CEIOPS for technical input. It should lead to the publication of the draft legislation in mid 2011.

In all, CEIOPS has made 39 recommendations. And there is some good news in there, such as general agreement that introducing can be exempted from the activities caught by the current directive (although the scope of the exemption does not seem wide enough to remove entirely the need for Introducer Appointed Representatives in the UK).

Also, the recommendations on professionalism requirements will not require registration of individuals. There may also be greater freedom for offering of insurance on web sites without FSA authorisation being needed and the passporting process for an authorised firm to provide services in other member states is to be simplified.

The two main changes for UK firms are likely to be a duty to disclose on request commission and other remuneration on retail general insurance sales, in a similar way to existing requirements for sales of general insurance to businesses, and a tightening up of the existing regime on conflicts based on the rules in MiFID for sales of investments. These will both have a material effect on insurance distribution arrangements.

On the technical side, CEIOPS recommend that IMD2, is a single directive, providing for minimum harmonisation. CEIOPS also suggest that IMD2 does not follow the Lamfalussy process. This should reduce the scope for CEIOPS, soon to become the European Insurance & Occupational Pensions Authority, to ensure uniform implementation by Member States, which may be a good or bad thing.

IMD2 is due to be adopted in 2012, and then implemented in the UK two years later. The advantage of a completely new directive is that everything about the current regime is up for grabs. These chances do not come round very often but the time to make views known is now.