Recommendation U on Good Practices in Bancassurance

RESOLUTION NO. 243/2023 OF THE FINANCIAL SUPERVISION COMMISSION of 26 June 2023 on the issuance of Recommendation U concerning good practices in the field of bancassurance

Pursuant to Article 137(1)(5) of the Act of 29 August 1997 – Banking Law (Journal of Laws of 2022, item 2324, as amended), Article 62(2) of the Act of 5 November 2009 on Cooperative Savings and Loan Associations (Journal of Laws of 2022, item 924, as amended), Article 12(1b) of the Act of 20 July 2000 on the promulgation of normative acts and certain other legal acts (Journal of Laws of 2019, item 1461), and Article 11(1) of the Act of 21 July 2006 on the supervision of the financial market (Journal of Laws of 2023, items 753 and 825), the following is enacted:

§ 1. Recommendation U concerning good practices in the field of bancassurance, constituting an annex to this resolution, is issued.

§ 2. 1. Banks shall adapt their activities to the recommendation referred to in § 1 no later than by 1 July 2024. 2. Cooperative savings and loan associations shall adapt their activities to the recommendation referred to in § 1 no later than by 1 January 2025. 3. Until the adaptation referred to in paragraph 1 is completed, banks shall apply the recommendation referred to in § 4.

§ 3. This resolution shall be published in the Official Journal of the Financial Supervision Commission.

§ 4. Resolution No. 183/2014 of the Financial Supervision Commission of 24 June 2014 on the issuance of Recommendation U concerning good practices in the field of bancassurance (Official Journal of the KNF of 2014, item 12) shall cease to be in force.

§ 5. This resolution shall enter into force on the day following its publication.

On behalf of the Financial Supervision Commission Jacek Jastrzębski Chairman of the Financial Supervision Commission /signed with a qualified electronic signature/

1. Amendments to the consolidated text of the aforementioned Act were published in the Journal of Laws of 2022, items 2339, 2640, and 2707, and in 2023, items 180, 825, 996, and 1059.
2. Amendments to the consolidated text of the aforementioned Act were published in the Journal of Laws of 2022, items 1358, 1488, 1933, 2339, and 2640, and in 2023, items 180, 614, and 996.

OFFICIAL JOURNAL OF THE FINANCIAL SUPERVISION COMMISSION Warsaw, 27 June 2023 Item 15

Recommendation U Page 1 of 36 Annex to Resolution No. 243/2023 of the Financial Supervision Commission of 26 June 2023 (Item 15)

Financial Supervision Commission

Recommendation U concerning good practices in the field of bancassurance Warsaw, 2023

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Preamble This Recommendation is issued pursuant to Article 137(1)(5) of the Act of 29 August 1997 – Banking Law (Journal of Laws of 2022, item 2324, as amended; hereinafter: "Banking Law Act"), Article 62(2) of the Act of 5 November 2009 on Cooperative Savings and Loan Associations (Journal of Laws of 2022, item 924, as amended; hereinafter: "SKOK Act"), and Article 11(1) of the Act of 21 July 2006 on the supervision of the financial market (Journal of Laws of 2023, item 753, as amended). It replaces Recommendation U of the Financial Supervision Commission of 24 June 2014.

Recommendation U is addressed to:

• domestic banks and branches of foreign banks within the meaning of the Banking Law Act (hereinafter: "banks"),
• cooperative savings and loan associations within the meaning of the SKOK Act (hereinafter: "SKOKs"),
• branches of credit institutions within the meaning of the Banking Law Act, provided that their business activity involves activities regulated by this Recommendation, cooperating in the field of bancassurance with domestic insurance undertakings and foreign insurance undertakings within the meaning of the Act of 11 September 2015 on insurance and reinsurance activity (Journal of Laws of 2023, item 656, as amended; hereinafter: "Insurance Activity Act"), conducting insurance business on the territory of the Republic of Poland (hereinafter: "insurance undertakings").

Implementation of Recommendation U should be carried out taking into account the principle of proportionality understood as adapting adopted solutions to the scale and degree of complexity of the conducted activity, as well as the individual specificity and profile of this activity. This means that when conducting business in the field of bancassurance, one should adhere to the recommendations, with the degree of complexity of policies and procedures being adequate to the scale and level of risk associated with business in the bancassurance area. The application of this principle must not result in a deterioration of the level of client protection. The entity is responsible for demonstrating that its use of the principle of proportionality does not affect the reduction of the level of protection for the client or the insurer of the insurance.

The provisions of Recommendation U regarding the internal control system apply mutatis mutandis to cooperative banks, where internal control is performed in accordance with Article 10(2) of the Banking Law Act – by the management unit of the protection system on the terms specified in the protection system agreement or – in accordance with Article 10(1) of the Banking Law Act – may be performed by the affiliated bank on the terms specified in the affiliation agreement.

Taking into account the subject matter of the activity of the National Cooperative Savings and Loan Association specified in Article 44(5) of the SKOK Act, the supervisory authority expects that it will support SKOKs in the process of implementing the provisions of Recommendation U.

In order to apply the principle of proportionality, to the smallest SKOKs, understood as SKOKs meeting two criteria jointly, i.e., having a balance sheet total lower than 50 million PLN and a number of members below 10 thousand, the main recommendations (i.e., Recommendation 1, Recommendation 2, etc.) are addressed directly, and in the scope covered by detailed recommendations (i.e., recommendations 1.1, 1.2, etc.), SKOKs may introduce their own solutions, keeping in mind that these solutions should ensure the achievement of the objectives specified in the individual recommendations, with the exception of Recommendation 6 and 10-22, which should be applied in full scope by all SKOKs.

Entities preparing financial statements in accordance with the provisions of the Act of 29 September 1994 on Accounting (Journal of Laws of 2023, item 120, as amended; hereinafter: "Accounting Act") and implementing regulations to the Accounting Act, in matters not regulated by these provisions, apply Article 10(3) of the Accounting Act.

Guided by the principle of the general good, in order to limit systemic risk, the Financial Supervision Commission expects that branches of credit institutions in Poland will also, to an appropriate extent, observe the provisions of Recommendation U, including in particular Recommendations 7, 8, and 10-22. In the case of a branch of a foreign bank, responsibility in the areas listed in Recommendations 1-3 rests with the branch director.

Recommendation U takes into account regulations contained in, among others:

• the Banking Law Act,
• the Act of 15 December 2017 on insurance distribution (Journal of Laws of 2023, item 1111; hereinafter: "Insurance Distribution Act") implementing Directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016 on insurance distribution (OJ EU L 26 of 02.02.2016, p. 19, as amended; hereinafter: "IDD");
• the Insurance Activity Act,
• the Act of 7 December 2000 on the functioning of cooperative banks, their affiliation, and affiliated banks (Journal of Laws of 2022, item 1595),
• the SKOK Act,
• the Act of 29 July 2005 on the trading in financial instruments (Journal of Laws of 2023, item 646, as amended) implementing Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (OJ EU L 173 of 12.06.2014, p. 349, as amended),
• the Accounting Act,
• Delegated Regulation (EU) 2017/2358 of the Commission of 21 September 2017 supplementing Directive (EU) 2016/97 of the European Parliament and of the Council with regard to product governance requirements for insurance undertakings and insurance distributors (OJ EU L 341 of 20.12.2017, p. 1, as amended),
• Delegated Regulation (EU) 2017/2359 of the Commission of 21 September 2017 supplementing Directive (EU) 2016/97 of the European Parliament and of the Council with regard to information requirements and conduct rules applicable to the distribution of insurance-based investment products (OJ EU L 341 of 20.12.2017, p. 8, as amended),
• Regulation (EU) No 1286/2014 of the European Parliament and of the Council of 26 November 2014 on key information documents for retail investment products and insurance-based investment products (OJ EU L 352 of 09.12.2014, p. 1, as amended; hereinafter: "PRIIP"),
• Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards (OJ EU L 243 of 11.09.2002, p. 1, as amended),

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• Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms, amending Regulation (EU) No 648/2012 (OJ EU L 176 of 27.06.2013, p. 1, as amended).

The impact on cooperation standards of institutions interested in offering insurance products to clients is influenced not only by Recommendation U, but also by other recommendations of the supervisory authority. The provisions contained therein should apply to the extent resulting from the subject matter of the individual recommendations. In the case of the following areas: internal control system, relations with clients and insurers, internal governance, and conflicts of interest, Recommendation U should be applied in accordance with supervisory recommendations contained in Recommendation B-SKOK, Recommendation H, Recommendation S, and Recommendation Z. Recommendations are supplementary to generally applicable legal provisions and cannot be interpreted in a way that could lead to non-compliance with these provisions.

The set of rules on good practices in the field of bancassurance presented in Recommendation U does not comprehensively cover the area of insurance distribution. This results from the regulation of insurance distribution issues in two key regulatory packages, which apply here:

1. The first regulatory package covers insurance distribution principles in accordance with IDD implemented in the Insurance Distribution Act and implementing acts issued on its basis, in particular delegated regulations supplementing IDD, as well as – for products of an investment nature – in accordance with the Insurance Activity Act and the Regulation of the Minister of Finance of 2 February 2016 on the minimum scope of data included in the questionnaire regarding the needs of the policyholder or the insured (Journal of Laws of 2016, item 167);
2. The second regulatory package covers the catalogue of regulatory obligations imposed on financial market entities towards retail clients, specified in PRIIP.

Issues covered by Recommendation U concern the following areas: I. Management board and supervisory board; II. Management of risks associated with business in the field of bancassurance; III. Role of the entity; IV. Accounting policy; V. Relations with clients and insurers; VI. Internal control system in the field of bancassurance.

Recommendation U applies to:

1. insurance contracts concluded from the day of implementation of the Recommendation,
2. renewals/automatic continuations of individual insurance contracts, with the reservation that Recommendation 20 does not apply to renewals/automatic continuations of contracts concluded before the day of implementation of the Recommendation, if the renewal/automatic continuation takes place on identical terms from the perspective of the insured client, in particular regarding the scope of insurance coverage, exclusions of liability, tariffs, and the method of premium calculation,
3. clients joining group insurance contracts on behalf of others from the day of implementation of the Recommendation,
4. clients renewing participation/automatically continuing participation in group insurance contracts on behalf of others, with the reservation that Recommendation 20 does not apply to clients renewing participation/automatically continuing participation in contracts concluded before the day of implementation of the Recommendation, if the renewal of participation/automatic continuation of participation in group insurance contracts takes place on identical terms from the perspective of the insured client, in particular regarding the scope of insurance coverage, exclusions of liability, tariffs, and the method of premium calculation.

The supervisory authority expects that banks and branches of credit institutions will adapt their activities to Recommendation U no later than by 1 July 2024, and SKOKs – no later than by 1 January 2025.

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Glossary of used terms a) Risk appetite – the current and future willingness of the entity to take risks. b) Bancassurance – offering insurance by entities (insurance intermediation or offering participation in an insurance contract concluded by the entity on behalf of others) based on agreements concluded between the entity and the insurance undertaking, directly or indirectly related to the entity's product, including also offering clients insurance products of an investment or savings nature. Bancassurance should also be understood as the conclusion by the entity of insurance contracts related to the entity's product, in which the insurer, based on an agreement concluded with the entity, is obliged to cover the costs of its insurance coverage. c) Entity – this is:

• a domestic bank – a bank referred to in Article 4(1)(1) of the Banking Law Act,
• a branch of a foreign bank – an organizational unit of a foreign bank referred to in Article 4(1)(20) of the Banking Law Act,
• SKOK – a cooperative within the meaning of Article 2 of the SKOK Act. d) Client – this is an entity:
• seeking insurance coverage who has expressed the will to undertake actions serving to conclude, through the entity, an insurance contract, or
• the policyholder or the insured in a contract concluded through the entity, or
• the insured in an insurance contract on behalf of others, in which the entity acts as the policyholder. e) Insurer – this is an entity other than the client, who intends to conclude or has concluded an agreement with the entity, on the basis of which it is obliged to cover the costs of insurance coverage of this entity. f) Audit Committee – a committee for audit, referred to in Regulation (EU) No 537/2014 of the European Parliament and of the Council of 16 April 2014 on specific requirements regarding statutory audit of annual financial statements and consolidated financial statements of public interest entities, repealing Commission Decision 2005/909/EC (OJ L 158 of 27.05.2014, p. 77, as amended) and in Chapter 8 of the Act of 11 May 2017 on auditors, audit firms, and public supervision (Journal of Laws of 2023, item 1015). g) Business model – the principles of cooperation adopted by the entity in the field of bancassurance services with insurance undertakings relating to the role of the entity in the process of offering insurance (e.g.: as an insurance intermediary, as the policyholder in a group insurance contract). h) Renewal/automatic continuation of individual insurance contracts/renewal of participation/automatic continuation of participation in group insurance contracts on behalf of others – extension, on the terms specified in the insurance contract, of the period of validity of individual insurance contracts/period of participation in group insurance contracts on behalf of others. i) Insurance intermediation – the performance by the entity of intermediation in the field of insurance distribution within the meaning of the Insurance Distribution Act. j) Insurance intermediary – an entity performing insurance distribution within the meaning of the Insurance Distribution Act.

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Recommendation U Page 7 of 36 k) CPI Product – credit protection insurance (mortgage, consumer, or credit card) or loan insurance (from English: credit protection insurance (CPI)), excluding insurance for payment cards not related to debt repayment. l) Entity's product – a product other than an insurance product offered by the entity. m) Remuneration – remuneration received by the entity for the distribution of insurance within the meaning of the Insurance Distribution Act or remuneration received by persons with the help of which the entity performs activities in the field of bancassurance. n) Durable medium – a durable medium within the meaning of Article 2(4) of the Act of 30 May 2014 on consumer rights (Journal of Laws of 2020, item 287, as amended). o) Insurance undertaking – a domestic insurance undertaking referred to in Article 3(1)(18) of the Insurance Activity Act, or a foreign insurance undertaking referred to in Article 3(1)(55) of this Act.

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List of Recommendations I. Management board and supervisory board Recommendation 1 The management board of the entity is responsible for developing, approving, and ensuring compliance with the policy in the field of bancassurance. This policy should result from the strategy of conducting business approved by the supervisory board. The division of duties and competences between the entity and the insurance undertaking in the field of bancassurance should result from an agreement concluded between the entity and the insurance undertaking.

Recommendation 2 The management board of the entity should appoint a person or persons responsible for the implementation and realization of the entity's policy in the field of bancassurance and the principles (policy) of accounting in this area.

Recommendation 3 The management board of the entity should periodically assess the implementation of the policy in the field of bancassurance and the possible need to introduce changes. The management board of the entity should inform the supervisory board of the results of the conducted assessment and of any significant events that may affect the functioning of bancassurance in the entity. The frequency of assessing the implementation of the policy in the field of bancassurance should depend on the individual specificity and profile of the activity in the bancassurance area, but it should be conducted at least once a year.

Recommendation 4 The supervisory board of the entity, within the framework of fulfilling its functions and responsibility for the risk management system in the entity, should supervise the implementation of the entity's policy in the field of bancassurance and the principles (policy) of accounting in this area. The frequency of reporting to the supervisory board in this area should enable the provision of information on the change in the entity's risk profile, while maintaining the principle of proportionality.

Recommendation 5 The management board of the entity should ensure an appropriate separation of functions of offering products in the field of bancassurance, risk acceptance, and risk monitoring and control in the organizational structure regarding the conducted bancassurance activity.

II. Management of risks associated with business in the field of bancassurance Recommendation 6 The management of risks associated with business in the field of bancassurance should be an element of the entity's risk management strategy and remain in line with the established and approved risk appetite.

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III. Role of the entity Recommendation 7 The entity should conduct business in accordance with the best interests of the client, in a manner that does not cause a conflict of interest, in particular, the entity should ensure such functioning where there will be no simultaneous, including actual, occurrence of the entity as both the policyholder and the insurance intermediary.

IV. Accounting policy Recommendation 8 The management board and the supervisory board are responsible for ensuring that the principles (policy) of accounting regarding the settlement of revenues and costs from the sale of insurance products are consistent with applicable legal provisions, in particular with the principle of economic substance over legal form resulting from them. In the case of a branch of a credit institution and a branch of a foreign bank, responsibility in the area of accounting regarding the settlement of revenues and costs from the sale of insurance products rests with the branch director.

Recommendation 9 The audit committee should monitor the internal control system and the risk management system in the entity, where there is an obligation to establish such a committee, regarding the settlement of revenues and costs from the distribution of insurance.

V. Relations with clients and insurers Recommendation 10 The entity should have procedures, prepared in written or electronic form, specifying the method of informing clients about insurance products offered within bancassurance. These procedures should prevent the mismatch of the insurance product to the client's requirements and needs. The procedures should cover the offering of insurance products within insurance distribution and participation in insurance contracts on behalf of others. The entity should also have procedures, prepared in written or electronic form, specifying the method of informing the insurer.

Recommendation 11 The entity should clearly indicate to the client whether it acts as an insurance intermediary or as the policyholder. The entity should inform the insurer that it acts as the provider of an agreement with the entity, on the basis of which the insurer undertakes to cover the costs of the entity's insurance coverage.

Recommendation 12 The entity should present to the client and the person interested in participating in the contract on behalf of others adequate and complete information about the insurance products offered by itself, in a clear, reliable, unambiguous, and non-misleading manner.

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Recommendation 13 The entity should enable the client and the person interested in participating in the contract on behalf of others to familiarize themselves with the provisions of the contract regarding their rights and obligations before submitting an application for the conclusion of an insurance contract (insurance intermediation) or a declaration of participation in an insurance contract on behalf of others.

Recommendation 14 The entity should inform the insurer, before submitting an application for the conclusion of an agreement with the entity, on the basis of which it undertakes to cover the costs of the entity's insurance coverage, about his rights and obligations resulting from this agreement.

Recommendation 15 In the case of the entity's product, in which the entity requires insurance coverage, the entity should inform the client about the possibility of choosing an insurance product...