The retail industry is rapidly changing, and many businesses are now including insurance products with their merchandise. For retailers, understanding the regulations surrounding these offerings is essential. One key regulation is the connected contracts exclusion under Article 72B of the Financial Services and Markets Act 2000 (Regulatory Activities) Order 2001 ("RAO 2001"). This regulation clarifies when retailers can provide insurance without facing strict regulatory constraints.
Being aware of how Article 72B applies can help retailers stay compliant, protect themselves and better serve their customers.
What is Article 72B of FSMA RAO 2001?
Article 72B pertains to insurance closely tied to products sold by retailers, especially when warranty or insurance products are bundled with items. This regulation enables retailers to exclude certain insurance contracts from needing FCA authorisation, as long as certain criteria are met.
For instance, if a retailer sells a smartphone and offers insurance for accidental damage, this arrangement could be compliant with Article 72B as long as the insurance meets the specified requirements. Understanding this regulation allows retailers to incorporate valuable insurance options into their offerings without violating compliance rules.
Conditions for the Connected Contracts Exclusion
To take advantage of the connected contracts exclusion under Article 72B, retailers must meet specific conditions:
It is not a contract of long-term insurance;
Has an annual premium of €600 euro or less (calculated on a pro rata annual basis) or 200 euro for a 3-month or less service;
It covers the risk of breakdown, loss of, or damage to, the goods supplied by the provider;
It does not cover any liability risks; and
Is complementary to the goods being supplied by the provider.
Meeting these requirements allows retailers to offer insurance and minimise worries about regulatory compliance.
Benefits of Understanding the Exclusion
Being knowledgeable about the connected contracts exclusion offers several benefits for retailers. Companies harnessing this provision can introduce value-added services that enhance customer satisfaction.
It allows retailers to develop loyalty packages which may include insurance for their products, which can give peace of mind to the customer and of course increased repeat sales.
If applied correctly, the exclusion allows retailers to avoid applying for authorisation from the Financial Conduct Authority ("FCA").
Potential Risks and Compliance Considerations
Despite the significant opportunities, misunderstanding Article 72B can expose retailers to considerable risks. It is crucial for businesses to ensure that their insurance offerings do not inadvertently require FCA authorisation. In cases of non-compliance, retailers may face penalties or, in some instances, need to revise their entire product offerings.
Retailers should carefully weigh the advantages and risks associated with insurance offerings. Developing internal protocols and taking appropriate legal advice can help mitigate any potential issues while ensuring compliance.
Final Thoughts
The connected contracts exclusion under Article 72B of FSMA RAO 2001 isn't just legal language, it plays a vital role in shaping a retailer's product offerings. By fully grasping this exclusion, businesses can provide insurance solutions that not only fulfil customer needs but also stay within the boundaries of the law.
Dedicating time to learn and implement these regulations can safeguard your business while delivering peace of mind to your customers. Staying up-to-date on legislative issues such as Article 72B is essential for success.
At Andrew Swan Law we advise firms on compliance with the FCA rules and regulations, including Article 72B. It's imperative that, if you are looking to comply with the connected contracts exclusion, you get it right.
If you have any questions or require advice, just contact Andrew at: andrew@andrewswanlaw.co.uk