FCA Sets Out Expectations for Vertically Integrated Insurance Businesses

On 23 July 2026, the Financial Conduct Authority (FCA) published a statement setting out its expectations for general insurance firms operating vertically integrated or closely connected business models.

These models may bring together underwriting, distribution, and intermediary activities, premium finance, and other ancillary services, or involve ownership, investment, or financing arrangements that create close commercial links between insurers, intermediaries, and related service providers.

The FCA does not regard the existence of a conflict of interest as automatically making a business model unacceptable. However, it expects firms to identify, prevent, or appropriately manage conflicts and to ensure that they do not become embedded in customer journeys or commercial incentives.

The FCA has asked firms operating these types of arrangements to review their business models, governance arrangements, systems and controls, and conflict-management frameworks.

Key points from the FCA’s statement

The FCA highlights a number of matters for firms to consider, including:

• Placement decisions and panel design: firms should consider whether conflicts arising from connected commercial relationships are appropriately identified and managed in placement decisions, panel design, and product recommendations.
• Remuneration and incentives: firms should consider whether remuneration and incentive arrangements create or exacerbate conflicts of interest or could adversely affect customer outcomes.
• Customer communications: communications and disclosures should be clear, fair, and not misleading and should enable customers to understand the firm’s role in the manufacture and distribution of products and relevant commercial links.
• Governance and accountability: responsibilities across legal entities should be clearly allocated, with appropriate senior-management oversight. Firms should be able to explain how accountability, decision-making, and control operate in practice.
• Product governance and fair value: firms should maintain appropriate product-governance arrangements, including fair-value assessments where applicable, and consider how these operate across the distribution chain.
• Monitoring and management information: firms should have appropriate monitoring and management information in place and be able to evidence that their controls are operating effectively.

Disclosure alone is not enough

The FCA makes clear that disclosure alone will not necessarily be sufficient to manage a conflict of interest. Customer disclosures should therefore be supported by appropriate governance, systems, and controls.

Firms should also assess potential conflicts before making changes to their business models, including changes involving ownership structures, investment arrangements, debt financing, or intragroup arrangements.

The FCA has also emphasised the importance of ensuring that group structures, governance arrangements, and intragroup relationships do not create barriers to effective supervision. Where business models are overly complex, firms should consider whether simplification is appropriate.

What should firms be considering?

Firms operating vertically integrated or closely connected insurance models may wish to consider the FCA’s statement as part of their ongoing review of governance and conflicts arrangements.

Relevant considerations may include:

• whether material conflicts arising from ownership, distribution, underwriting, financing, and remuneration arrangements have been identified and appropriately managed;
• whether responsibilities and escalation routes across relevant entities are clear;
• whether remuneration and other commercial incentives could adversely affect customer outcomes;
• whether customer communications appropriately explain relevant roles and commercial relationships;
• whether monitoring and management information provide appropriate evidence that controls are operating effectively; and
• whether group structures and intragroup arrangements allow for effective regulatory supervision.

Firms should also be mindful of the FCA’s expectation that material changes to a business model should be notified promptly where they may increase actual or perceived conflicts of interest, business-model complexity, close links within a group, or potential barriers to effective supervision.

The FCA has indicated that it is monitoring this area and has contacted some firms whose business models may present heightened conflicts risks. Firms may therefore wish to consider whether their existing arrangements enable them to identify and manage relevant conflicts and demonstrate how their controls operate in practice.

If you would like to discuss what the FCA’s statement may mean for your business, please contact your usual Sidley contact or a member of our Insurance M&A and Regulatory team.