WIREDGOV

The Financial Services Authority (FSA) has today published proposals to strengthen its existing rules on with-profits to improve protection for policyholders.

Last year the FSA carried out a review of the way in which firms have met the requirements for the fair treatment of with-profits policyholders that were introduced in 2005.  The FSA’s review identified a number of concerns about the way in which firms were operating their with-profits funds and treating their policyholders.

The proposals issued today are based on the findings from that review and aim to improve protection for with-profits policyholders. 

The key proposals:

• strengthen the requirement for boards and governing bodies to obtain independent advice on the management of funds by enhancing the role of the with-profits committee and the with-profits actuary;
• require all firms to have a plan to distribute any excess surplus fairly to policyholders, particularly where a firm experiences a significant fall in the amount of new business it is writing;
• strengthen the requirement for any new business backed by the with-profits fund to deliver value to all with-profits policyholders so that writing new business has no adverse effect on their interests;
• improve the ways in which firms identify and manage conflicts of interest affecting with-profits policyholders;
• emphasise how with-profits policyholders in mutually-owned funds should expect to be treated, specifically around distributions of excess surplus;
• restrict the circumstances under which firms can impose a market value reduction; and
• improve the reattributions process.

Sheila Nicoll, FSA director of conduct policy said

“We have taken the time to review the entire with-profits regime and these proposals aim to address the issues that we have found. The proposals focus on addressing practical issues where policyholders are not always getting the fair treatment that they deserve.

“Policyholders expect to receive a fair return on their investments and that is what we want firms to be able to deliver for them. The purpose of these proposed changes is to ensure that with-profits policyholders are able to feel more confident that firms will conduct themselves appropriately now and in the future.

“This is not the end of our work on with-profits. We will publish further proposals before the end of 2011 to improve firms’ communications with policyholders and we will continue to supervise the sector in an intensive way.”

NOTES FOR EDITORS

• CP11/05 Protecting with-profits policyholders is now available on the FSA website.
• The findings of the With-Profits Regime Review into the operation of with-profits funds were published in June 2010. The review focused on whether firms were treating their with-profits policyholders fairly, looking specifically at how senior managers in firms have implemented FSA rules, primarily set out in COBS 20.
• The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; securing the appropriate degree of protection for consumers; fighting financial crime; and contributing to the protection and enhancement of the stability of the UK financial system.