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A crucial test for Standard and FSA

You can almost sense the collective shiver running down the spines of IFAs across the country as Standard Life grapples with the FSA&#39s new way of calculating financial strength.

It has not been a very good couple of weeks for the giant Scottish mutual.

But a few things are clear. The first is that the life office is not insolvent for regulatory purposes. But its capital base is clearly thinner than many of its rivals, having suffered more from stockmarket reverses as a result of its heavier weighting in equities when markets fell.

It has also offered more guarantees and held out for longer on cutting bonuses.

But the position is not much different from that of last year. The finances of Standard Life have not deteriorated since then, so if this is a crisis it is one that is inspired by the actions of the FSA.

Is the FSA correct to take such action? Its new rules, which will hit Standard and which most of its peers say they can cope with, will prevent Standard Life from including future profits and subordinated debt in its calculations of free assets.

The moves by the FSA could push Standard into demutualising to increase its freedom to raise capital. The board is believed to be considering this option seriously.

If the FSA is acting to make sure that companies do not overstretch themselves, thus preventing a repeat of Equitable Life, then its tough stance is merited.

If it is it over-reacting, which is always a massive risk in the wake of a scandal of Equitable&#39s proportions, then it is restricting the company&#39s freedom to do business and restricting consumer choice unnecessarily.

Let us hope that the FSA and Standard Life&#39s board get things right.

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