FSA publishes review of with-profits sector
29th June 2010The Financial Services Authority (FSA) has today published the findings of its comprehensive review into the operation of with-profits funds.
The review focused on whether firms are treating their with-profits policyholders fairly, looking specifically at how senior management in firms have implemented FSA rules. The review showed the performance of firms is mixed. Some firms are performing satisfactorily; however, a significant number of firms are not adequately demonstrating the practices the FSA expects from a well-run with-profits business.
The two main areas of concern are:
- ineffective governance of with-profit funds, especially in how independent challenge is provided by firms' with-profits committees, which means that policyholders' interests may not be properly protected; and
- significant weaknesses in the quality of consumer literature - the FSA is not satisfied that all firms are doing enough to ensure that policyholders receive sufficiently comprehensive, timely and clear information to help them understand their policies.
The FSA is addressing these concerns. Firms have been told to take action quickly to improve their operations; for example, several firms have been directed to make immediate changes to their governance arrangements to better protect policyholders' interests. The FSA will be monitoring firms' responses closely, and will consider disciplinary action if firms do not address the concerns. Two firms have been referred to the FSA's enforcement division for further investigation.
The review showed that some aspects of the rules around with-profits could be further strengthened to provide greater protection for policyholders. This will be the subject of further policy work and the FSA will set out any proposed changes in a consultation paper by the end of 2010.
Ken Hogg, FSA insurance sector director said:
"This review shows that, while there has been some progress, there is still more work to be done by firms in the with-profits sector to make sure that their policyholders are treated fairly. We expect all firms to raise their game in this area, not just the firms that we reviewed.
"Our focus on with-profits does not end with this review. Firms should make sure that their communications with policyholders are clear and manage expectations about the likely performance of their policy. They should also ensure that their with-profits committees are providing an independent challenge to their management. We will continue our intensive supervision of the with-profits sector and we expect firms to take action to address our concerns."
The FSA conducted in-depth visits to 17 firms, representing 80% of assets in with-profits funds, between September 2009 and February 2010 to interview key individuals and review relevant documentation in order to assess how firms are operating their with-profits funds.
