An inter-firm Terms of Business Agreement should describe the insurance relationship the parties actually operate. For an insurer, MGA or broker, that can include authority, product distribution, information exchange, remuneration, money handling, claims, complaints, audit and termination, which means a TOBA is often part of the regulatory control framework rather than only a commercial contract.
There is no single FCA template that every insurer, MGA and broker must use. The regulatory requirement depends on the activities being performed and, in some areas, on the specific authority granted between the firms. This makes periodic review important because an agreement drafted for an earlier business model can become inaccurate as products, delegated authority, distribution economics or client money arrangements change.
This article focuses on regulatory review of inter-firm TOBAs and broker agency agreements. It does not replace a full legal review of enforceability, liability, indemnities, governing law or other commercial terms, but it identifies the regulatory provisions that should be tested against the firm's real operating model.
Start with regulatory status, capacity and the role of each party
The agreement should identify the parties accurately and make clear the capacity in which each acts. A broker may act for the customer when arranging insurance while acting as agent of an insurer or MGA for a particular purpose, and an MGA may itself be an insurance intermediary while holding delegated underwriting or claims authority from an insurer.
Those distinctions matter because authority and regulatory responsibility are not interchangeable. A contractual clause can authorise a broker to do something on behalf of the MGA, but it does not give the broker an FCA permission it does not hold. The parties should therefore compare the TOBA with their current permissions and ensure that the regulated activities contemplated by the agreement are consistent with the status of each firm.
The agreement should also avoid implying a regulatory relationship that does not exist. An independent broker should not be drafted as though it were the MGA's Appointed Representative unless that is the actual arrangement, while an AR agreement needs the specific Section 39 and SUP 12 framework rather than an ordinary independent broker TOBA.
Customer-facing descriptions should remain consistent with the inter-firm position. If the broker acts as insurer agent for money handling or another limited purpose, the firm's disclosures and internal procedures should reflect that role accurately rather than use broad statements that could mislead customers about who the broker represents across the entire relationship.
Define authority in terms that can be operated and monitored
Authority provisions should be precise enough for staff and systems to apply them. Depending on the relationship, the TOBA may need to address the products the broker can arrange, whether any binding authority exists, what documentation can be issued, whether the broker can vary terms and what activities require referral to the MGA or insurer.
Claims authority should be equally clear where the broker has a role beyond simple notification. The agreement should distinguish assistance with a claim from authority to make coverage decisions, settle claims or handle refunds, because those activities have different contractual and regulatory consequences.
The review should then compare the wording with actual practice. If account managers routinely allow activities that the agreement requires to be referred, or if technology gives the broker broader permissions than the TOBA permits, the document is no longer an effective description of the control environment.
Material changes should be formalised. A relationship can drift as new products are added, authority is expanded or service responsibilities move between firms, and informal working practices can eventually become inconsistent with both the contract and the regulatory framework.
Build PROD 4 information exchange into the agreement
A modern insurance TOBA should support the information flows required by product governance. Manufacturers need to provide distributors with sufficient information about the product, target market and value assessment, while distributors may hold sales, remuneration, service and outcome information that the manufacturer needs for continuing review.
The agreement should therefore create clear rights and obligations around relevant information without trying to hard-code every future data field. The parties should be able to obtain the information necessary to perform their current PROD 4 responsibilities and to respond when product or regulatory requirements change.
For an MGA manufacturer, this can include information about target-market distribution, broker remuneration, customer fees, additional products, premium finance and other data relevant to fair value. Where a distributor's services or remuneration can materially affect the overall customer proposition, the agreement should not obstruct the manufacturer from obtaining the information it reasonably needs to understand that effect.
Audit and verification rights can support this control, but the wording should remain proportionate to the relationship between independent firms. The objective is not to give the MGA unrestricted access to every aspect of the broker's business, but to ensure it can obtain and test the evidence required for the products and activities within the arrangement.
CASS 5 and risk transfer require precise agency wording
Money handling is one of the areas where the agreement can have direct regulatory significance. CASS 5.2 allows insurance intermediaries and insurance undertakings to enter into agency arrangements that determine when money is held by the intermediary as agent of the insurer, commonly described in the market as risk transfer.
Where an intermediary has contractual authority to commit the insurer to risk, CASS 5.2.3 requires the relevant written agreement to provide that the intermediary acts as agent of the insurer for receiving and holding premiums. Where the intermediary has authority to settle claims or make premium refunds, the agreement must also address claims money or refunds as applicable. The drafting should therefore follow the actual authority rather than simply contain a generic sentence that "risk transfer applies".
Customer disclosure is also part of the framework. Before an intermediary tells clients that money will be received as agent of the insurer, the applicable CASS requirements need to be met, and the customer communication should accurately describe the extent of the agency arrangement.
The operational money flow must then match the contract. Finance systems, bank accounts and reconciliations should treat the relevant money consistently with the agreed agency or client money position. Where the firm uses insurer agency for some transactions and client money trust arrangements for others, the distinction needs to remain clear in both the TOBA and the accounting controls.
Remuneration clauses should support fair value and conflicts governance
TOBAs often contain the commercial mechanics of commission, fees, overrides, profit commission or other remuneration. The regulatory review should understand how those terms affect incentives and the overall price paid by the customer rather than treating the clause solely as a payment provision.
For relevant non-investment insurance products, PROD requires manufacturers and distributors to understand the effect of distribution remuneration on fair value. The agreement should therefore allow the information needed for that assessment to be obtained and should not create pricing or remuneration structures that are inconsistent with the product's intended value.
The review should be especially careful where the broker has discretion over the final customer price or can add customer fees. The existence of pricing discretion is not itself inappropriate, but the manufacturer or MGA should have sufficient visibility to understand whether the distribution channel can materially change the value proposition.
Customer-facing commission disclosure is a separate question governed by the applicable ICOBS rules. A regulatory review should not assume that every general insurance customer must always receive the exact monetary amount of commission, but it should ensure that the broker's disclosure approach reflects the current rules for the relevant customer and arrangement.
Consumer Duty, complaints and claims cooperation need practical mechanics
Where retail business falls within Consumer Duty, the agreement should support the parties in obtaining and sharing information needed to monitor customer outcomes. A generic clause requiring both parties to comply with applicable regulation is useful but does not answer who supplies claims information, who provides complaint themes or how a material customer issue is investigated across the distribution chain.
The TOBA should therefore support cooperation where one firm's information is necessary for another firm's regulatory responsibility. An MGA may need broker complaint or customer-understanding data for product review, while the broker may need manufacturer information about a product change, value concern or claims issue to treat customers appropriately.
Claims responsibilities should be equally clear. If the broker only assists the customer with notification, the agreement should not imply authority to make claims decisions. Where claims money can be received or held, the CASS analysis described above also needs to match the authority granted.
Complaint cooperation should preserve each firm's own regulatory responsibilities while allowing relevant information to move quickly. A complaint about product design, broker conduct or an MGA decision may involve more than one firm, and the agreement should enable the parties to investigate root cause and any wider affected population rather than treating the matter solely as an individual case.
Audit, monitoring and notification rights should be usable in practice
An audit clause is only useful if it gives the firm access to evidence it may realistically need and if management is prepared to use it. For an MGA, this can include relevant distribution, remuneration, product, complaints or customer outcome information, depending on the nature of the arrangement.
The agreement should also require timely notification of events that could affect the relationship. Loss or restriction of regulatory permissions, significant compliance breaches, material complaints, ownership changes, insolvency concerns, cyber or operational incidents and changes to the distribution model can each be relevant depending on the products and authority involved.
The drafting should avoid collecting notifications that nobody reviews. The firm's broker oversight process should identify who receives the information, how materiality is assessed and what escalation follows. A strong contractual clause can still fail as a control where the business has no operational process for acting on the notice.
Periodic review of the TOBA should therefore test both the wording and its use. Management should know whether information rights are working, whether notifications arrive when expected and whether the agreement still supports the monitoring framework the firm actually operates.
Regulatory change should not leave the TOBA describing an old business
Insurance regulation and business models change regularly, so the TOBA needs a practical mechanism for updates. The parties do not need to renegotiate the entire agreement every time the FCA publishes new guidance, but material changes to authority, information requirements, money handling or customer protections should be reflected where necessary.
A contract inventory can help firms identify material agreements, their current version and when they were last reviewed. Higher-risk arrangements may justify more frequent regulatory review, particularly where the MGA depends on the broker for customer information or where the agreement includes complex agency and pricing provisions.
The review should also compare the agreement with current operations. Updating legal wording without changing the underlying process can create false assurance, while a compliant operational practice supported only by an obsolete agreement leaves unnecessary uncertainty around authority and responsibilities.
The objective is not a perfect document in isolation. It is an agreement that accurately supports the regulatory and commercial relationship the parties are actually operating today.
Termination should address the regulatory consequences of exit
A broker relationship can end while customer and regulatory obligations continue. Termination provisions should therefore address more than notice periods and outstanding commission, particularly where the broker holds customer records, has open complaints, handles money or continues to service policies written under the arrangement.
The parties may need to deal with customer communications, transfer or retention of records, outstanding premiums or refunds, open claims, removal of marketing references and the withdrawal of any delegated authority. The agreement should also support cooperation with historic complaints or FCA enquiries after the commercial relationship has ended.
Where the relationship is terminated because of a conduct or product concern, the firm should consider whether customers already affected require remediation. Ending the agreement prevents future activity, but it does not resolve harm that occurred while the broker was operating within the distribution chain.
A well-designed exit provision therefore protects the continuity of customer treatment and preserves the evidence required to understand historic business rather than treating termination as the end of regulatory responsibility.
How Regulatory Counsel can support
Regulatory Counsel supports insurers, MGAs and insurance intermediaries with regulatory review of TOBAs, broker agency agreements and distribution arrangements. Reviews can cover regulatory roles, authority, PROD 4 information exchange, CASS and insurer agency, remuneration, Consumer Duty, audit rights, regulatory change and exit arrangements.
Speak to Regulatory Counsel to discuss an insurance TOBA or broker agency agreement review.
Frequently Asked Questions
No. The agreement should reflect the actual relationship, activities and regulatory responsibilities of the parties. Specific FCA rules can affect particular clauses, such as CASS agency terms or information required for product governance, but there is no single universal FCA TOBA template.
No. The insurer agency arrangement needs to satisfy the applicable CASS requirements and correspond with the authority and money flows actually used. A generic statement that risk transfer applies should not replace a proper CASS analysis.
The agreement should support the information exchange the parties need to meet their product governance responsibilities. The precise drafting depends on the relationship, but manufacturers and distributors should not be contractually prevented from obtaining information they reasonably need for target-market, value and product review work.
No universal rule requires the exact monetary amount to be disclosed to every insurance customer in every circumstance. The firm should apply the current ICOBS remuneration disclosure requirements to the specific customer and arrangement.
There is no single FCA frequency for every agreement. The firm should use a risk-based approach and review sooner where products, authority, remuneration, money handling, regulation or the operating model changes materially.