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IMD II - key challenges for firms

As identified by the Commission, the minimum harmonisation nature of the IMD has led to a ‘patchwork’ of national regulations related to insurance sales across Member States. Therefore, the impact of IMD II may vary across Member States depending on existing national regulations.

For instance, the UK and Italian regulators have already read across certain aspects of MIFID to insurance investment products, in the case of the UK, and to certain categories of life insurance products, in the case of Italy.

Finland has relatively strict rules relating to insurance sales and has gone further than other Member States by banning brokers from receiving commission.

In Belgium, the conduct of business regulator, FSMA, is consulting on setting out “MIFID-like” rules to “independent financial planners” in relation to their “asset advice” including advice on certain types of insurance and pension products.

Nevertheless, the proposals will have a significant impact on firms whose activities have been brought into scope or where increased requirements represent a shift from current practices.

A need to assess business models?

Activities in scope

Insurance undertakings, particularly where the majority of their sales are conducted through intermediaries, may see an advantage in concentrating on intermediated sales to avoid complying with the Directive.

Likewise, the removal of the term ‘introducing’ from the definition of insurance intermediation may prove important for business strategy.

Depending on final transposition of the Directive into national rules, certain firms, particularly those which sell insurance ancillary to the provision of other services, may see an advantage in ‘introducing’ consumers to intermediaries, rather than comply with relevant requirements under IMD II.

Aggregator websites will need to assess the impact of the conduct of business requirements, in particular conflicts of interest disclosures, on their business models. They will need to ensure that they have appropriate controls, processes and due diligence in place.

Remuneration transparency

The significance that consumers will place on the remuneration costs associated with a product, when compared to the total cost of the product, and how this might impact buying decisions, is unclear.

The Commission’s aim in increasing remuneration transparency is to ensure that the consumer is more aware of potential conflicts of interest. In this regard, it is likely that the increased transparency will put pressure on sales remuneration, fees and commission.

Remuneration structures across sales channels differ and it is likely that direct writers will be at an advantage to intermediaries as they may find it more straightforward to internalise distribution costs.

Firms are likely to consider forms of remuneration that may lessen the impact of the rules. For instance, there may be a trend towards more fixed rather than variable remuneration i.e. salaries as opposed to bonuses, although there will need to be a balance struck between keeping disclosed costs low and incentivising employees and distributors.

Calculating the fees or commission which should be disclosed will be less than straightforward for intermediaries. We will have to wait for Level 2 for further clarity on this rule.


There is also likely to be pressure on costs and charges relating to components sold in a ‘package’. As these become more transparent to the consumer, they are more likely to assess the value they place on each additional component and may conclude that they do not require additional components or decide to buy these elsewhere.

In particular, this may be felt hardest in highly competitive markets where margins are already squeezed and where firms have pursued cross-selling as a strategy to boost revenue. These disclosures may mean firms having to re-think these strategies.

This focus by the Commission on insurance product cross-selling and transparency could also indicate the direction to come with regards to other non-MIFID products such as bank accounts, where the Commission identified issues of transparency and comparability in bank account fees in its March 2012 Consultation.

Additional requirements for retail investment products

The proposed changes with regard to insurance investment products aim to harmonise requirements across investment products and, as such, have been widely anticipated. Nevertheless, they represent a large shake-up in insurance investment selling practices, the impact of which will vary across Member States depending on the extent to which national regulators have already gone further than the IMD in their rules.

Firms which are already subject to current MIFID sales rules in parts of their business, such as larger banks, may find the new rules less challenging to implement than, for example, smaller insurance intermediaries. They may also find that there are benefits arising from a more harmonised selling regime, allowing streamlining of training and practices and increased centralisation of functions, for example compliance functions.

In the UK, the proposals regarding advice follow a similar direction to requirements under the Retail Distribution Review, which will come into effect at the end of this year. However, any differences in requirements, for instance as regards the definition of independent advice or products caught, may pose challenges firstly to the Financial Services Authority and then to firms.

Requiring the appropriateness test for all insurance investment products places a greater regulatory burden on the sale of insurance investment products as compared to non-complex investment products. This may put insurance investment product sales at a disadvantage. As the MIFID II and IMD II rules are negotiated, any inconsistencies in investment selling practices that emerge between the two Directives are also likely to pose additional challenges.

Operational requirements and training

In addition to strategic challenges, firms will face operational challenges in complying with the proposed rules. In particular, employees will need to be trained on the new rules and face increased professionalism requirements, including CPD.


  • Vincent Gouverneur
    Partner - EMEA Investment Management Leader
  • Jérôme Lecoq
    Partner - Audit
  • Thierry Flamand
    Partner - Insurance Leader
  • Joël Vanoverschelde
    Partner - Technology & Enterprise Application Leader
  • Marc Noirhomme
    Directeur - Regulatory Consulting



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