Insurance authority imposes stricter controls on commissions
The UAE personal finance industry expects a significant period of regulation, as the Insurance Authority (IA) seeks to enforce stricter controls on commissions.
It is the area of indemnified commissions—the money paid when a financial product is sold—that is under scrutiny from the IA.
The majority of industry participants have anticipated these changes and aims to significantly improve consumer confidence. With greater awareness through the press and from IA itself, consumers will know that the advice—whether from a bank or broker—is regulated, explained Dubai-based financial consultant, Globaleye.
“At present the legislation allows commissions made on the sale of financial products that are sold in the UAE, like some other markets, to be paid up front,” said Globaleye VP, Alex Herbert.
Instead of a full commission at the time of the transaction, it will be “drip-fed” over a period of time. This should align the interests of all parties concerned including the broker, product provider and the client, as the long term relationship will be sealed.
“The issue this can sometimes cause is for some financial product sales to be driven by commission rather than advice where the best outcome for the client should be paramount. This new legislation will help consumer confidence in the market as clients will know they are being guided to personal finance plans that have a strong long-term outlook. Full transparency, qualification and regulation will become standard,” explained Herbert.
The IA is believed to be taking these bold steps to align themselves with established international markets such as Singapore, Hong Kong, UK and US.
“Globaleye will embrace the regulation as long as it is enforced since the UAE still has many unregulated products and distributors. The company operates in many other jurisdictions where similar regulation is already established and it has increased the advice level no end.”
The new regulations are currently in the consultancy phase as the Insurance Authority seek expert advice and opinion from the various providers.
The indications suggest that the new legislation is imminent, with major players in UAE personal finance industry already putting systems in place to cope with it.
Herbert further highlighted that the major concern with the new regulation is the difficulty for new advisors to come into the market as commissions spread over a period of time.
“Already we have seen in the UK a dearth of new talent in this industry which has had the unintended consequence of less people getting advice. The statistics show that the UAE population is saving less, their pensions are poor and their insurance cover inadequate—people need advice,” said Herbert.