Featured Image - Employee Screening Implications Of The New Insurance Distribution Directive (IDD)

Employee Screening Implications Of The New Insurance Distribution Directive (IDD)

Date Published: November 26, 2018 | Last Updated: January 06, 2024 | By Georgina Wilson

What is the IDD?

The Insurance Distribution Directive (IDD) replaced the Insurance Mediation Directive (IMD) from 1st October 2018 and primarily affects those that distribute insurance and reinsurance products. At its core, it aims to ‘enhance consumer protection when buying insurance, and to support competition between insurance distributors by creating a level playing field.’

Mainly the IDD aims to ensure people selling insurance are of “good repute”.

Trust & Honesty Assessment

SYSC 28.3.4 of the FCA Handbook states that ‘in considering a person’s repute the firm must at a minimum ensure that the person:

(1)  Has a clean criminal record or any other national equivalent in relation to serious criminal offences linked to crimes against property or other crimes related to financial activities; and

(2)  Has not previously been declared bankrupt, unless they have been rehabilitated in accordance with national law.’

Firms must account for an individual’s honestly and ensure systems are in place to clearly consider the suitability of a person under the IDD criteria. Although criminal record and bankruptcy checks are expressly required, this should not limit a company’s scope in determining what other checks are appropriate, when assessing whether an individual is of ‘good repute.’ Insurance companies should seek advice from their current employment screening provider who can help to determine practices that may enhance the process.

International Records Must Not Be Excluded

SYSC 28.3.5 of the FCA Handbook states

‘references to serious criminal offences are not restricted to offences considered to have been committed in or under the law of the United Kingdom’.

This appears to suggest organisations should consider conducting equivalent levels of due diligence internationally, if individuals have lived or worked in locations outside the UK. Ensure your screening provider offers international screening so that this element of the IDD is not excluded or ignored.

Repeat Screening or Ongoing Monitoring Should Be Conducted As Standard

One of the primary issues with conducting criminal record checks and financial integrity checks as a one-off exercise, is that they only offer a snap shot in time of an individual’s suitability to perform a role. This strategy does not account for instances where a person commits a crime or is declared bankrupt while in post. This poses a considerable risk to firms as it may be the case that individuals.

Parallel to the IDD other accountability frameworks in the UK financial services sector (such as the Senior Managers Regime and the Senior Insurance Managers Regime) impose a requirement on firms to monitor an individual’s fitness and propriety on an ongoing basis.

If you need consultancy about how to ensure your business meets the IDD criteria, get in touch with us today.