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IDD- News about guarantees on insurance investment products

  • Italy
  • General

30-09-2020

Consob - with resolution no. 21466 of 29 July 2020 - has fully replaced Book IX of Regulation no. 20307/2018 (Intermediaries Regulation), containing, inter alia, the rules of conduct for the distribution of insurance investment products (so-called IBIPs)[1].

At the same time, the IVASS published the new Regulation No. 45 of August 4 2020, containing provisions on governance and control requirements for insurance products, and - with order No. 97 of 4 August 2020 – it also defined the amendments and additions to, among others, its Regulation No. 40/2018 on insurance and reinsurance distribution activity.

The new regulatory provisions have implemented Directive (EU) no. 2016/97 (so-called IDD Directive) on insurance distribution and will enter into force on 31 March 2021.

 * * *

As a matter of interest for the market – which also represents a break with the past – the discipline of distribution of insurance products is currently provided under Article 55, paragraph 2, of IVASS Regulation No. 40/2018, which states as follows: "At any rate it shall be prohibited for distributors to directly or indirectly become, even through group relations, own business relations or relations of the companies of the group, at the same time beneficiary or lien-holder of insurance benefits and distributor of the relevant individual or collective contract. The prohibition does not apply to the insurance products of non-life classes related to leasing operations, without prejudice to the application of article 119-bis (6 and 7) of the Code”.

In particular, for the purposes hereof, in the context of a public consultation, the Supervisory Authority stated that the prohibition mentioned in Regulation no. 40/2018 should have been applied, without distinction, to all the intermediaries and any type of contracts and that the new regulation was not aimed at restraining the intermediation activity carried out by banks and financial intermediaries, but it only required to choose either to continue the insurance intermediary activity that may rise a conflict of interest, or maintaining the status of beneficiary/lien holder of insurance benefits.

Therefore, the wide scope of the Regulation had led to a general and abstract prohibition on all distributors of insurance products - including distributor banks [2] - to assume, directly or indirectly, at the same time, the status of beneficiary or lien holder of insurance benefits and of distributor in relation to the same contract[3].

The amendment to the Intermediaries Regulation allows banking institutions - subject to Consob regulations - to apply the new rules on conflicts of interest provided under Art. 135-vicies quinquies, paragraph 3, of the Intermediaries Regulation, in accordance with the principles of MIFID II. In particular, the regulation states as follows: "In order to avoid that conflicts of interest negatively affect the interests of the clients, authorized distributors shall establish specifically for each contract, if the simultaneous qualification as beneficiary or lien holder of the insurance services and as distributor of the related contract negatively affects the interests of the client, assessing in particular the context of the contractual operation and the financial situation of the client".

Therefore, the abovementioned rule outlines a different and, in some ways, a more open approach also in consideration of the clients’ necessities - than the one shared by IVASS with regard to the simultaneous qualification as distributor and beneficiary or lien holder of insurance benefits, without prejudice to certain profiles of clients’ protection. In fact, as highlighted by Consob in its response to the consultation document: "Since the rules on conflicts of interest contained in the Intermediaries Regulation, with reference to the provision of investment services, represent a discipline construed on a general principles basis and does not identify specific hypothesis of conflicts, and the same perspective is also adopted by the European legislation on insurance services, in order to achieve a certain 'uniformity' with the secondary legislation enacted by IVASS, paragraph 3, focuses the attention of the subjects entitled to insurance distribution on the need to identify the cases in which the simultaneous status of beneficiary or lien holder of insurance benefits and that of distributor of the relevant contract would negatively affect the interest of the policyholder”.

Therefore, the potential conflict of interest relating to the simultaneous qualification mentioned above will not be simply prohibited tout court. It shall be rather assessed by the bank on a case-by-case basis, taking into consideration different aspects in order to avoid  the conflict to negatively affect the interest of the clients, especially with regard to the contextuality of the contractual transaction - not necessarily be intended as a purely chronological order, but rather as connection link between the policy and the credit contract, having a logical or functional meaning[4] - and the financial situation of the client.

Regarding the general principle – provided under MIFID II and implemented into local legislation - according to which a conflict must be "managed" through the estabilishment of organisational and administrative rules setting up all reasonable measures, banking institutions may identify those situations in which a conflict may arise following the simultaneous qualification as distributor and beneficiary and assess the potential risk for the client[5].

Should the organisational and administrative measures adopted not be sufficient to ensure, with reasonable certainty, that the risk of damage of the clients' interests is prevented, the banks will clearly inform the clients, before acting on their behalf, of the general nature and/or sources of conflicts and the measures taken to reduce the related risks.

Therefore the most sensitive issue will be to clearly identify the possible conflicts and take all the needed measures in this respect.

The new provisions of the Intermediaries Regulation will not apply to “traditional” intermediaries and companies, which will continue to be subject to the IVASS regulation of Regulation no. 40/2018.



[1] It is hereby intended those insurance products with a maturity or surrender value in which such maturity or surrender value is exposed in whole or in part, either directly or indirectly, to market fluctuations, such as unit/index-linked and multi-branch policies.

[2] Registered as insurance distributors in the section D of the Register of Insurance Intermediaries.

[3] This has also a significant impact on the so-called lombard financings, common in the private banking sector, according to which a financing is secured by a pledge in favor of the bank and not only by the insurance policies in favor of the creditor covering the value of the asset secured or the CPI-Cost Protection Insurance/PPI-Payment Protection Insurance (insurance or guarantees intended to ensure the total or partial repayment of the credit or otherwise protect the creditor's rights).

[4] Please note that “contextuality” is different from tying, which concerns the distribution of an IBIP together with another investment product or service or ancillary as part of the same package or as a condition for obtaining such agreement or package. Please note that, in this respect, in 2012 IVASS (formerly Isvap) stated that was not relevant for the applicability of the rule if the policy was issued at the same time as the loan was granted.

[5] In the writer's opinion, it should be evaluated in relation to the product governance and not to the adequacy of the same for the clients.

This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full terms and conditions on our website.

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