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David Strachan, the FSA's sector leader for insurance, said:
"The closed with-profits funds sector remains high on the FSA's agenda. This is not just in our day to day supervision, but also in protecting policyholders when funds are sold and helping ensure that policyholders receive adequate information.
"Since we published our first briefing on closed funds last year, the majority of our new requirements for the fair treatment of with-profits policyholders have taken effect. These include particular rules to address some of the issues associated with closed funds. There have also been significant changes within the sector itself as third-party consolidators acquire funds. The briefing discusses these developments which have important implications for both firms and for consumers.
"The publication of this paper is an important part of our commitment to engage in constructive debate with the industry and our other stakeholders - as the new regime takes effect."
Although some of the issues set out in the briefing are unique to closed funds, a number of them are relevant to open funds that are 'nearing' closure. Amongst the topics considered in the briefing are:
- issues concerning policyholder communication, the management of their inherited estates, the outsourcing of management functions and the particular considerations that can arise around closed funds' investment strategies;
- regulatory changes introduced since the last briefing, such as the information that must be provided to the FSA and policyholders when an open fund closes to new business; and
- the difficulty of giving generic advice to policyholders in closed with-profits funds. To help policyholders and their advisers in their decision-making, the briefing includes a list of "ten questions" to help policyholders think through the most important issues. Also included are details of life insurers indicating whether their funds are open or closed
Background
- The insurance sector briefing published today is attached.
- The first insurance sector briefing on closed funds published last year can be found here.
- Our most recent paper on with-profits, PS05/1 was published in January of this year and can be found here. It contained the final rules and guidance for treating with-profits policyholders fairly. These were consulted on in CP04/14: Treating with-profits policyholders fairly – Further consultation which is available here on our website. On the same page you can also find the earlier consultation, CP207: Treating with-profits policyholders fairly, which was published in December 2003.
- The FSA started its review of with-profits regulation in spring 2001. The initial review consisted of five issues papers followed by a feedback statement in May 2002 with proposals for changes in the regulation of with-profits business. All publications relating to the with-profits review including subsequent consultation papers and policy statements can be found here on our website.
- In July 2004 the FSA published a paper entitled Treating Customers Fairly. This reviews the progress firms across all sectors have made in implementing the FSA principle requiring the fair treatment by firms of their customers and considers the next steps to build on improvements made and to address shortcomings.
- 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 of consumers; and fighting financial crime.
- The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers obtain a fair deal
