Financial Conduct Authority
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FSA confirms changes to with-profits rules

These changes mean that any liabilities arising from operational failures (including mis-selling) after the rule comes into effect on 31 July must be borne by shareholders not policyholders. 

The new rules follow a consultation paper issued earlier this year in which the FSA proposed that shareholders alone should meet the cost of such failures, as the current rules may not lead to the fair treatment of policyholders.  

Dan Waters, the FSA’s director of retail policy and conduct risk, said:

"It is essential that with-profits policyholders are treated fairly.  The changes we are confirming today are an important development in this regard, which seek to ensure that policyholders do not pay for costs resulting from management failings.  In future, the liability for compensation and redress payments will rightly fall to shareholders as the owners of life companies."

Under current rules, a firm may pay compensation and redress from assets attributable to shareholders or from the inherited estate of its with-profits fund (if any).

Notes for editors

  1. Policy Statement PS09/13: 'With-profits funds – compensation and redress' is available on the FSA website.
  2. The FSA published Consultation Paper CP09/09: 'With-profit funds - compensation and redress: Further consultation, feedback on CP08/11 and draft Handbook text' in February 2009 and Consultation Paper CP08/11: 'With-profits funds - compensation and redress' in June 2008.
  3. These new rules relate specifically to proprietary firms rather than mutuals.
  4. The inherited estate is the part of the with-profits fund that is judged to be surplus above what is needed to meet the fund’s liabilities.  It is retained as working capital by firms, but may in future be distributable to policyholders.  FSA rules already require firms to consider whether they have an ‘excess surplus’ in a with-profits fund that should be distributed to policyholders.
  5. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
  6. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.

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