Financial Conduct Authority
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FSA consults further on change to with-profits rules

The Financial Services Authority (FSA) yesterday published a further consultation paper (CP) relating to compensation and redress payments arising from operational failures including mis-selling that life insurance companies may currently charge to their with-profits funds.  These proposals relate specifically to proprietary firms rather than mutuals.

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).  In a consultation paper issued last year (CP08/11) the FSA proposed that the shareholders alone should meet the cost of future compensation and redress payments as the current rules may not lead to the fair treatment of policyholders.  The FSA is now proposing that the amended rules should only apply to compensation and redress payments resulting from events that take place after the rule comes into force.  This will provisionally be the end of July.

The consultation will close on 22 May 2009.  The FSA will then publish a policy statement and will finalise draft rules.

Notes for editors

  1. Consultation Paper 09/9: With-profit funds - compensation and redress: Further consultation, feedback on CP08/11 and draft Handbook text
  2. 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.  Inherited estates have built up over the years from different sources: premiums from past generations of policyholders and associated investment returns, and/or past capital injections from shareholders.  FSA rules already require firms to consider whether they have an ‘excess surplus’ in a with-profits fund that should be distributed to policyholders.
  3. 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. The FSA as the UK Listing Authority is the UK competent authority for listing.
  4. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.