Finalised Guidance - FG 19/5 The GI distribution chain

In November 2019 the Financial Conduct Authority (FCA) published its finalised guidance after issuing its draft guidance for consultation in April this year.


The underlying requirements aren’t new but the guidance clarifies the FCA’s expectations following its thematic work and the Insurance Distribution Directive coming into force.

The guidance itself hasn’t changed significantly. It was accompanied by a summary of feedback, which outlines the main changes. These were for:

  • Clarification of the application of the guidance to all GI products (including Private Medical Insurance and Legal Expenses Insurance) and pure protection products that are in scope of the underlying rules;
  • The meaning of product value;
  • Manufacturers oversight of distribution arrangements; including information that should be obtained; and
  • Distributors’ obligations to provide relevant sales information when requested by manufacturers.

Product value = Interaction between the overall costs to the end customer and the quality of the product and services. Includes compatibility with the objectives, interests and characteristics of the target market, as well as the cost and charges of the product itself.
Product quality can include a range of benefits like the level of cover, how claims are handled or other services as part of the provision of the product (without separate charging arrangements).




Product Approval Process

Considering value for the target market and how the distribution chain affects overall value including:

  • Compatibility with objectives, interests and characteristics of target market (and benefits intended);
  • Consistency of distribution strategy with identified target market; and
  • Compliance with the customer’s best interests rule.

Evidencing appropriately considerations and conclusions.

Making changes to the product or distribution strategy to prevent harm.

Distribution Strategy and Remuneration

Ensuring remuneration does not conflict with the customer’s best interest rule.

Monitoring products offered and distribution arrangements on an ongoing basis. Identifying signs of customer harm due to value through:

  • Direct interactions with customers;
  • Assessments of a customer’s demands and needs;
  • FCA value measures data; and
  • Analysis of claims or complaints.

Informing the manufacturer of any customer harm identified.

Amending the way a product is distributed where necessary e.g. stopping using a certain distribution method, reducing remuneration or ceasing to distribute.

Providing the manufacturer with sales information when requested, including information on regular reviews of product distribution arrangements.

Product Design Process

Using data and information available to assess product value:

  • Internally – customer research, claims and complaints; and
  • Externally – analysis of competitor products and FCA values measures data.

Looking at the difference in risk premium and the end price as an indication of value. Where distributor remuneration appears disproportionate for their benefits/services further information should be obtained. This applies if the differential results from a single firm or multiple firms in the distribution arrangement.


Having awareness of the broad definition covering commission, profit share, fees and all other economic or non-economic benefits, whether included in total premium or paid separately by the customer.

Identifying conflicts where:

  • Remuneration appears disproportionate to costs or workload for product distribution;
  • Remuneration is significant but there is little or no benefit provided beyond what the customer ordinarily receives with the product;
  • Remuneration incentivises offering or recommending a product which does not need the customer’s needs or do not meet them as well as another product; or
  • The Distributor receives the net rate and sets its own remuneration by determining the final selling price.

These points apply where offering a single product, or a range of products, from a single provider where it could be better for the customer not to buy a product offered.

Considering fees payable after customer is tied into a contract (admin fees for mid-term adjustments).

Ensuring the method for determining different levels of fees to customers is fair.

Demonstrating or evidencing how fees charged can be explained or rationalised.

Amending remuneration arrangements if there is a conflict with the customer’s best interests rule. The FCA emphasised that disclosure cannot be relied upon.

Product Distribution Strategy

Considering consistency with the identified target market and the role of each party in the distribution chain.

Ensuring obligations are met when activities are delegated by having adequate systems and controls; including, Management Information (MI) and processes to monitor value.

Product Review Process

Using sufficient good quality MI to consider value and the impact of the distribution chain.

Responding appropriately when there is an indication of customer harm.

Having processes for corrective action where customer detriment is identified, for example by:

  • Mitigation and remediation;
  • Changes to: product, target market, distribution strategy/method or remuneration structure; or
  • Withdrawing the product from the market.

Distribution Process

Ensuring the product manufacturer’s assessment of product value is understood.

Regularly reviewing the distribution process to ensure it is in line with intended target market and not adversely affecting customers.

Using sufficient, good quality MI to understand value provided by the distribution process.

Considering whether distribution processes risk customer harm e.g. by reaching customers outside of the target market.

Ensuring obligations are met when activities are delegated by having adequate systems and controls; including, MI and processes to monitor value.


  • Familiarise yourself with the guidance and the applicable Handbook provisions that sit behind it.
  • Apply the applicable expectations and considerations to your firm to identify any gaps or weaknesses that need to be addressed:
    • Document and implement product design, approval and review policies and procedures in accordance with the guidance;
    • Document and implement remuneration and distribution strategies, policies and procedures in accordance with the guidance;
    • Identify activities delegated and ensure adequate systems and controls are in place allow you to meet your regulatory obligations;
    • Ensure your MI enables you to monitor product value; and
    • Identify any areas of customer harm and take appropriate action.
  • Appropriately demonstrate or evidence the work you have completed and any decisions made.

Get in Touch

Our Regulatory Compliance team can address any questions or queries you may have, so please feel free to get in touch.

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