On 23 July 2026, the Financial Conduct Authority’s (FCA) new Director of Insurance, Chris Knight, set out the regulator’s expectations in relation to the management of conflicts of interest in vertically integrated insurance business models. This was accompanied by the FCA’s publication of new guidance for firms.
“Vertically integrated business model” refers to a model which brings together multiple parts of the insurance chain in a single group e.g. where different entities in the same group are involved in underwriting, distribution, intermediary activity and other related services in respect of the same product. The FCA is also concerned about conflicts of interest arising through models where firms are connected through ownership or financing relationships which may or may not be publicly disclosed.
The FCA acknowledges that vertically integrated business models can make commercial sense and provide efficiencies and acknowledges that the existence of the potential for conflicts of interest, in and of themselves, is not prohibited but has emphasised that firms must take steps to actively manage them and to prevent them affecting good customer outcomes.
The FCA expects firms operating vertically integrated or closely connected arrangements to actively identify, manage and be able to evidence effective control of any conflicts of interest. The guidance is clear that simply disclosing the existence of a conflict of interest to customers will not be enough without effective management of that conflict also being in place.
The FCA has indicated that it intends to monitor firms’ business models and practices and to seek evidence that firms’ systems and controls for managing conflicts of interest allow them to deliver good outcomes. Where the FCA identifies issues or customer harm it intends to act swiftly.
Meeting the FCA’s expectations will involve a review of:
- Business models, governance arrangements, and systems and controls and conflicts management frameworks.
- Relevant processes including conflict of interest management, including placement decisions, product and panel design and recommendations, customer communications (including ensuring that these are genuinely transparent), appropriate remuneration and incentive design, clear allocation of responsibilities across legal entities, robust product governance, including fair value assessments and monitoring and management information, and active senior management oversight.
- Proposed changes to the business model (for example new ownership structures or intragroup arrangements) that may increase the complexity of the model or the risk of conflicts of interest before making the changes.
- Whether group structures, governance arrangements and intragroup relationships enable effective supervision under by the FCA under the Threshold Conditions (COND) 2.3.1A.
Firms are expected to inform the FCA promptly of material changes to the business model and to ensure they are meeting their obligations under the Principles for Businesses, Senior Management Arrangements, Systems and Controls (SYSC) 10 (conflicts of interest), SYSC 19 F.2 (Insurance Distribution Directive (IDD) remuneration incentives), Product Intervention and Product Governance Sourcebook4 (Product governance: IDD and pathway investments) and the Consumer Duty. Moreover, the FCA has indicated that where business models are overly complex or difficult to supervise, it expects firms to give serious consideration to simplification.
The FCA has said that it has written to a number of firms where it believes their business models may be creating a heightened risk of conflicts of interest and that other firms may receive ad hoc information requests as the FCA continues to monitor this issue.