In some jurisdictions other terminology such as “authorisation” or “registration”, are used in place of “licensing”. For the purposes of this ICP these terms are collectively referred to as “licensing”.

The supervisor may choose to license intermediaries at the entity level or the individual level, or both. In some jurisdictions insurance intermediation activities carried out by the insurer’s direct sales staff or its authorised representatives are covered by the insurer’s licence; in others these may require separate intermediary licensing.

Where licensing is at the entity level the supervisor may consider whether the entity has in place procedures to ensure that the individuals who conduct insurance intermediation under its responsibility meet appropriate standards of professionalism and competence. The supervisor may also wish to set its own requirements for approval of individuals, within an insurance intermediary, who conduct intermediary business.

Different types of insurance business involve different levels of complexity and risks and may require different levels of skill and experience in their intermediation. The supervisor may wish to specify in the licence the range of intermediation activities that it permits the insurance intermediary to undertake, taking into account, for example, the intermediary’s proposed business plan and areas of expertise.

• details of ownership, including all information necessary to provide a full understanding of the insurance intermediary’s ownership and control structure;
• a business plan, including details of proposed business and financial projections;
• the proposed sources and method of capitalisation;
• information on personnel, in particular on proposed holders of key functions;
• details of any significant third party service providers;
• details of the proposed auditor, where applicable;
• details of professional indemnity insurance cover, including amount and limitations, or comparable guarantee, where applicable;
• business continuity plans;
• if incorporated, relevant information on incorporation such as memorandum and articles of association and certificate of incorporation;
• details of policies, procedures and controls in key areas such as:
  • new business;
  • client money;
  • complaints;
  • conflicts of interest;
  • compliance;
  • combating financial crime (including AML/CFT and fraud); and
• a copy of the policy and supporting documents that govern the insurance intermediary’s conduct of business, or confirmation of agreement to conduct of business rules published by the supervisor.

The supervisor may set minimum financial resource requirements, for example, to discourage market entrants with insufficient financial resources and to help ensure that existing licensees have sufficient financial resources for business continuity purposes. Where this is the case, such requirements might take into account factors such as the nature of the business to be intermediated, whether the intermediary operates client accounts, the level of any professional indemnity insurance and the level of operating expenses, to ensure that an appropriately risk-based financial resource requirement is set.

The supervisor should only issue a licence if the applicant meets the initial licensing conditions.

In specific and limited circumstances, the supervisor may have the power  to make exceptions to certain licensing requirements. The supervisor should ensure that any such exceptions do not encourage regulatory arbitrage or increase the risk to consumers.

The supervisor should consider what licensing requirements are applicable to intermediaries operating on a cross-border basis from outside the jurisdiction. These requirements should be transparent to consumers, as well as to intermediaries, so that they can make an informed decision when choosing to deal with intermediaries from other jurisdictions.

The supervisor may consider the possibility of issuing periodically renewable licences. An advantage of doing so would be to ensure formal periodic reassessment of compliance with the regulatory licensing requirements.

The supervisor should require that initial licensing conditions, as applicable, are maintained subsequent to the licence being issued and that ongoing regulatory requirements are met. Where another authority is responsible for setting the licensing requirements, the supervisor should communicate, and cooperate where possible, with this authority.

The supervisor may choose to take a risk-based approach in reviewing on a targeted basis whether insurance intermediaries fulfil their licensing and conduct of business requirements on an ongoing basis. Under such an approach, supervisory review should take into account the differing size of intermediaries, their likely impact on the market and the riskiness and complexity of their business. 

In addition to monitoring ongoing compliance, the supervisor should require that any breaches in licensing conditions or other supervisory requirements are reported promptly.

Direct ongoing supervision may take various forms, both off-site monitoring and on-site inspection, as necessary, as well as other supervisory tools. Further information on this topic is available in ICP 9 Supervisory Review and Reporting, but may require adaptation to make it appropriate for the specific nature of intermediary business. The balance between off-site and on-site approaches will typically be influenced by the number and nature of intermediaries in the market, as well as the supervisor’s resources. The supervisor may take these factors into account when determining the balance between a proactive and reactive approach to ongoing supervision.

• financial statements, audited where applicable, or other certification of the financial soundness of the intermediary;
• auditor’s management letter, where applicable;
• confirmation of professional indemnity cover (including exclusions or limitations) or comparable guarantee;
• information on the sources of and placement of business;
• summary of movements on client money accounts, where applicable;
• changes in key functions and significant owners;
• financial links with insurers and other intermediaries (such as through related party structures or service contracts);
• types of products sold;
• business partners;
• staff compensation policy;
• incentive arrangements;
• claims data;
• complaints data; and
• details of advertising and marketing expenditure relating to particular types of products or distribution channels.

Where the intermediary is an employee of the insurer, the supervisor may determine that information provided by the insurer as part of the insurer’s regular reporting responsibilities is sufficient, without requiring separate reporting in respect of the intermediation activities conducted by the employee of the insurer.

The supervisor may also use regular formal meetings with intermediaries as a means of supplementing these off-site and on-site processes and procedures. Where appropriate, the supervisor may use other tools, such as “mystery shopping”, to evaluate whether the implementation of intermediaries’ internal policies and procedures is resulting in fair outcomes for customers. 

Where applicable, the supervisor should apply supervisory review processes and procedures to insurance intermediaries at the level at which licensing takes place (entity or individual level) or at the insurer level. Reporting requirements in respect of an insurer’s direct sales staff would be the responsibility of the insurer. 

• corporate governance and internal controls;
• procedures and controls for combating financial crime;
• review of client money accounts where applicable;
• review of customer files;
• review of complaints;
• review of disclosure to customers and terms of business agreements;
• review of documentation of advice given and the reasons for that advice; and
• other relevant elements such as the strategy, business activities and business models, the treatment of customers, and compliance with supervisory requirements. 

Analysis of complaints may be a valuable source of information for the supervisor, as well as for insurers and intermediaries, in identifying possible risks of poor conduct in the area of insurance intermediation. 

• Insurance intermediation includes the provision of advice;
• the nature of the business intermediated is more complex;
• customers are less sophisticated; and
• there is an increased likelihood of conflicts of interest.

In some jurisdictions intermediaries are supervised indirectly through the supervision of the insurers. The supervisor will need to take into account the extent to which such an approach achieves effective supervision. Regardless of the approach, it is ultimately the supervisor’s responsibility that intermediaries are effectively supervised.

An indirect approach may be more appropriate for agency intermediation rather than the broker model.

Indirect supervision can relate to circumstances where the insurer relies upon an intermediary to perform processes on its behalf. In such cases, written agreements could be checked by the supervisor to assess the respective responsibilities. For example, insurers are expected to obtain appropriate documentation regarding their customers to demonstrate that appropriate customer due diligence and/or fact-finding procedures have been carried out. Insurers will be assessed on the adequacy of the processes carried out and documentation obtained, including where the insurer relies upon intermediaries to perform this work and supply the documentation required.

Where the supervision of intermediaries is undertaken indirectly, the supervisor should assess the insurer’s processes to monitor the work undertaken by an intermediary on its behalf.

A self-regulatory organisation (SRO) can be described as a non-government organisation that has the power to create and enforce industry or professional regulations and standards. The self-regulatory functions of an SRO can contribute to the supervision of intermediaries through the requirements for, and enforcement of, professional standards for its members.

• has sufficient independence;
• has appropriate powers and resources to fulfil its mission and provide effective self-regulation;
• performs its self-regulatory functions adequately;
• establishes and maintains standards that are sufficiently robust; and
• takes appropriate action to deal with any shortcomings. 

An SRO’s regulations and standards may not address all the aspects of the supervision of insurance intermediaries for which the supervisor has responsibility. Therefore, whilst the supervisor may choose to place some reliance on the self-regulatory functions of an SRO, the supervisor should retain overall responsibility for supervision.

In addition to direct and indirect supervision of intermediaries, the supervisor may use the supervision of insurers to gather information on and, to some extent, monitor intermediaries’ activities. This may include, for example, identifying whether particular intermediaries or particular matters are the subject of regular or frequent complaints.

It is important that individuals carrying out the activity of insurance intermediation have adequate professional knowledge. Professional knowledge can be gained from experience, education and/or training. The attainment of relevant professional qualifications may demonstrate that a certain level of professional knowledge has been achieved.

The supervisor should require that individuals carrying out the activity of insurance intermediation have professional knowledge and experience appropriate for the business which they intermediate. More complex products or customer needs may require higher or more specialised knowledge and experience. The knowledge and experience of individuals should also be appropriate for the type of business being intermediated. Once professional qualifications have been achieved, it is important that individuals who continue to carry out the activity of insurance intermediation keep their professional knowledge up to date. In some jurisdictions, there are supervisory or statutory requirements that individuals carrying out the activity of insurance intermediation should spend a specified minimum amount of time on continuous professional development. In some jurisdictions, professional bodies impose such a requirement on their members.

The supervisor may consider recognising the qualifications of specified professional bodies. Where a jurisdiction has no such professional body, consideration could be given to encouraging or recognising qualifications obtained through professional bodies in other jurisdictions. The supervisor may also consider recognising such qualifications where these are considered to be equivalent to, or exceed, the qualifications available within the jurisdiction.

Intermediaries should be knowledgeable regarding the status of the insurers whose products they sell. For example, they should be satisfied that the insurer is licensed to sell insurance in the relevant jurisdiction, as a branch or subsidiary, and should be aware of the financial status and credit rating of the insurer and the applicability of any policyholder protection schemes to that insurer’s products.

• being honest, trustworthy and open;
• being reliable, dependable and respectful;
• not taking unfair advantage;
• not accepting or offering gifts where this might imply an improper obligation.

The supervisor may require individuals carrying out the activity of insurance intermediation to be subject either to their organisation’s internal policies and processes, or to the ethical standards of professional bodies, that require integrity.

The supervisor may establish its own expectations on integrity through, for example, the publication of codes of conduct with which such individuals are required to comply. Codes of conduct should be complementary to the relevant legislation and may address any aspect of dealings between insurance intermediaries and their customers.

Intermediary organisations should have procedures to assess the integrity of those intermediating on their behalf. Such procedures should include pre-employment checks as well as ongoing requirements. Pre-employment checks should include, amongst other things, employment history, any civil liability, criminal convictions, administrative actions by regulatory agencies and self-regulatory organisations, or pending legal proceedings.

The supervisor should require individuals carrying out the activity of insurance intermediation to act only in respect of business for which they have the required competence. 

• observed interviews with customers;
• review of customer files;
• internal interviews; and/or
• coaching.

An on-site inspection may provide an opportunity for the supervisor to assess competence, such as through file reviews and interviews of selected staff.

• acting with high ethical standards and integrity;
• acting in the best interests of each client;
• providing a high standard of service; and
• treating customers fairly.

Members of an SRO or other professional body who are found to be in breach of its professional standards may be subject to disciplinary procedures such as suspension of, or exclusion from, membership.

In jurisdictions where there is reliance on the membership of a professional body, the supervisor may consider confirming that such a body has an effective disciplinary scheme in force. The supervisor may nevertheless decide not to depend on such professional processes entirely and deal with issues of an individual’s professional conduct directly.

An insurance intermediary’s governance framework may vary, depending upon the nature and scale of the intermediary and the complexity of its business, and may be subject to general company law. However, each intermediary’s governance framework should be sufficient to provide for sound and prudent management of the business and to support the fair treatment of customers.

In setting relevant governance requirements the supervisor should consider the application of such requirements to sole traders and small businesses operating as insurance intermediaries. Such requirements for sole traders and small businesses will differ from those for larger entities. Key areas where requirements may vary include internal controls, segregation of duties, and compliance functions. Regardless, the supervisor should be satisfied that a sound level of governance is achieved and that there are no unacceptable risks, with the overriding objective that customers are appropriately protected.

• ensuring that those responsible for the intermediary organisation’s governance have the competence and integrity to fulfil their respective roles;
• ensuring appropriate standards for conduct of business;
• ensuring there is regular monitoring of consumer outcomes;
• ensuring that the making of key decisions is subject to sufficient discussion at Board level or with key persons in control functions as appropriate;
• ensuring adequate human resources to conduct the business;
• ensuring an appropriate level of internal controls of the business;
• ensuring appropriate disciplinary policies and procedures for wrongdoing are in place;
• maintaining adequate files and records and ensuring their availability for inspection;
• maintaining appropriate controls over outsourced functions; and
• compliance with all relevant legislation, including non-insurance legislation such as in respect of anti-money laundering, fraud, etc.

Relevant to governance, intermediaries are required to establish and implement policies and processes on the fair treatment of customers that are an integral part of their business culture (see Standard 19.2).

The governance of an insurer’s direct sales staff is the responsibility of the insurer, and the governance of insurers is the subject of ICP 7 (Corporate Governance). Although ICP 7 is otherwise not directly applicable to intermediaries, it may be a useful source of information for intermediary supervisors.

In addition to disclosing matters relating to intermediaries themselves, intermediaries are required to disclose information on insurance products offered to customers (see Standards 19.5 and 19.6).

• the nature of different insurance products;
• the level of sophistication of different customers; and
• the way in which different types of insurance are transacted (for example, differences between commercial and personal (retail) lines).

• by whom they are licensed and supervised;
• the type of business for which they are licensed;
• whether they are independent or act on behalf of one or more insurers;
• information on the basis on which they are remunerated;
• the services provided, including whether they offer products from a full range of insurers, from a limited range or from a single insurer;
• charging arrangements for the intermediation services;
• cancellation rights in respect of the intermediation services;
• notification of complaints;
• client money arrangements, including treatment of interest;
• confidentiality of information provided; and
• the relevant law governing the agreement.

Insurance intermediaries should provide information on terms of business to customers and do so prior to an insurance contract being entered into. Where there is an ongoing business relationship between an intermediary and a customer, or once terms of business information has initially been provided in the case of policy renewals, the intermediary should review whether reiterating this information is necessary. Further information on terms of business might only be necessary where there are changes to the terms.

When insurance cover needs to be arranged immediately it may not be possible to provide documentation of terms of business at the point of arranging the contract. In such situations the information may be provided orally and followed up with written documentation within a reasonable period of time.

The supervisor may recommend, or require, that a copy of the terms of business, signed by the customer, is retained as part of the insurance intermediary’s records. Where insurance is intermediated over the internet, the customer may be required to acknowledge the terms of business before a policy can be proceeded with. Electronic records should also be retained by the intermediary.

An insurance intermediary’s status may provide information to a customer on the extent of products from which recommendations are made and provide an indication of potential conflicts of interest. Where the insurance intermediary is only able to select products from a single insurer or from a limited range, the customer may wish to carry out their own research to see whether they can obtain better terms or a more suitable product elsewhere in the market.

It is particularly important that insurance intermediaries provide customers with information on their relationship with the insurers with whom they deal, specifically whether they are independent or act for one or more insurance companies, and whether they are authorised to conclude insurance contracts on behalf of an insurer or not.

Potential conflicts of interest can arise for some intermediaries if the intermediary is part of a wider group or if the intermediary has a financial interest, such as a shareholding, in an insurer or insurance group. Such relationships should be disclosed to customers.

Information on the insurance intermediary’s status may be provided as part of a terms of business agreement or separately. Because of its importance, this information may also be highlighted verbally to the customer.

• fees paid directly by the customer;
• fees or commissions paid indirectly by the customer, by way of deduction from premiums or funds invested; or
• fees or commissions paid by the insurer.

Where insurers’ direct sales staff carry out insurance intermediation as employees of the insurer, they may be salaried as well as receive any applicable commission.

Information on charging structures may be important information to customers. For example, for insurance products with an investment element, information on any fees or other costs deducted from the initial amount invested, as well as on fees or commissions deducted from the investment thereafter will be important.

Information on charging may be provided as part of a terms of business agreement, or separately. As fees and commissions vary by product and between product providers, they may need to be provided separately for each product recommended, often by inclusion in product documentation. Given their significance to some types of product, this information may also be highlighted verbally to the customer.

The supervisor may also require that, upon a customer’s request to the intermediary, the customer is provided with further information on fees and commissions, including the level of fees and commissions. The intermediary should make the customer aware of his/her right to request information on fees and commissions. Communication should be clear and not misleading. In view of the impact of fees and commissions upon insurance products with an investment element, the supervisor may require that disclosure of fees and commissions is provided to customers prior to contracts being entered into in respect of all such products.

Some forms of remuneration of insurance intermediaries potentially lead to a conflict of interest. For example, an intermediary may be tempted to recommend a product which provides higher fees or commissions than another. Potential conflicts of interest for intermediaries may exist in a variety of circumstances (see ICP 19 Conduct of Business).

The supervisor should be satisfied that the intermediary has robust procedures in place to identify and avoid, or manage, conflicts of interest, and deliver outcomes aligned with customers’ best interests. Where they cannot be avoided, or managed satisfactorily, this would result in the intermediary declining to act. Conflicts of interest may be managed or avoided in different ways depending on the nature and severity of the conflict of interest (see Application Paper on Supervising the Conduct of Intermediaries).

Additionally, circumstances in which conflicts of interest may arise may be covered in the codes of conduct issued by SROs or other professional bodies.

• receive monies from a client for the payment of premiums to an insurer; and/or
• receive monies from an insurer in respect of claims or refunded premiums for onward payment to a client.

Some jurisdictions have specific legal requirements in respect of the cash flows where monies are transferred via an intermediary from the customer to the insurer, and vice versa, including in determining whether the customer or the insurer is at risk in respect of such funds.

Where funds are held at the risk of the client, they may be referred to as “client monies” or “client’s money”. The intermediary should have adequate policies and processes in place for the safeguarding of such funds in the interests of their customers.

In some jurisdictions, premiums are deemed to have been paid to the insurer as soon as the customer pays premiums to the intermediary. In these circumstances the insurer, rather than the customer, bears the risk of allowing intermediaries to collect premiums on its behalf.

• client accounts are separate and clearly distinguishable from the intermediary’s own bank accounts;
• client accounts are held with licensed banks within the jurisdiction, or specified other jurisdictions;
• disallowing monies other than client monies within the account, except in specific circumstances such as to achieve or maintain a minimum balance, to receive interest, or to receive commission due to the intermediary;
• monies are paid into the account promptly;
• adequate financial systems and controls are maintained, including authorisation of payments from the account;
• adequate books and records are maintained and subject to audit;
• reconciliations are performed on a regular basis and reviewed;
• discrepancies on the account are followed up promptly and resolved satisfactorily;
• for each client, payments from a client account are not made before sufficient monies paid into the account have cleared, thus ensuring that any balance held in respect of each client is not negative; and
• the treatment of interest.

In the interest of safeguarding clients’ money, it is important that client accounts cannot be used to reimburse creditors of the insurance intermediary.

Where insurance intermediaries operate client accounts, the supervisor may require that the terms and conditions of such accounts are disclosed to their customers, including whether funds held in such accounts are at the risk of clients or at the risk of the insurer.

The supervisor should initiate measures to prevent or respond to poor conduct or breaches of regulatory requirements by an intermediary, with a view to mitigating adverse outcomes for customers. Where necessary, the supervisor may use sanctions.

The supervisory framework should allow for the exercise of judgement and discretion, and provide flexibility in the use of preventive measures, corrective measure and sanctions.

In some instances, the supervisor may need to work with other relevant authorities or bodies in order to take or enforce supervisory measures or sanctions against an intermediary.

Where the supervisor assesses that there may be a material risk of an insurance intermediary breaching supervisory requirements or to consumer or policyholder interests in general, it should require insurance intermediaries to take appropriate measures to mitigate both market-wide risks as well as risks from specific entities or individuals.

In this regard, the supervisor may take proactive measures, such as publishing guidance on good practices or warnings to the industry or consumers.

• there is evidence of unfair treatment;
• required information is not provided to customers;
• policies and processes are inadequate (particularly where this results in inadequate due diligence work);
• internal controls, file keeping or documentation are inadequate;
• conflicts of interest are not adequately identified or managed; or
• there are concerns over business continuity.

• requiring the implementation of enhanced policies and processes;
• requiring further training;
• restricting business activities;
• suspending or barring specific individuals from engaging in intermediary business or being responsible for the corporate governance of an intermediary organisation; or
• suspending, revoking or not renewing the licence.

• imposing fines;
• barring individuals from acting in key roles or holding similar roles in the future; or
• requiring remediation, including compensation to policyholders where appropriate.

Sanctions imposed should be commensurate with the nature and severity of the shortcomings. Minor offences may be dealt with through oral or written communications with the intermediary’s management and then followed up, whereas more significant deficiencies may warrant immediate or more significant action.

Jurisdictions should provide due process for an intermediary to appeal supervisory measures.

The supervisor should review the results of measures that it has required of an intermediary and the effectiveness of the actions taken.

Supervisory measures should be escalated in line with the supervisor’s concern about the intermediary and the risk to consumers.

The supervisor should have in place mechanisms to identify when unlicensed insurance intermediation is being carried out. Examples of such mechanisms include monitoring media and advertising, review of consumer complaints and encouraging industry and other stakeholders to notify the supervisor of suspicious activity.

When unlicensed insurance intermediation is identified, the supervisor should act to address the issue. Examples include seeking court orders to require the unlicensed individual or entity to stop the activity, informing law enforcement authorities of criminal and/or civil concerns, and publicising the fact that the individual/entity is not licensed to conduct insurance intermediation.