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FCA finds ‘material problems’ in £900bn unit-linked funds review

The FCA has found “specific material problems” among a number of providers following its thematic review of the £900bn unit-linked fund sector.

The review, published today, focused on 12 major firms and found cases of poor oversight of outsourced services, insufficient controls over what unit-linked funds were investing in, and over-stretched pricing teams which resulted in pricing errors.

The FCA says these failings had the potential to disadvantage customers if left unchecked, although it made clear it found no evidence of significant widespread systemic failings in the sector.

In some cases, firms were required to carry out a skilled persons report, or past business review, to assess whether customers had lost out and were due compensation.

As a result of the review, the Association of British Insurers has said it will improve its guidance for the unit-linked industry to clarify good practice.

Some firms in the review have also been asked to improve their practices, much of which has now been completed.

The review found that firms are increasingly outsourcing operational functions to specialist providers, and identified failings in the oversight of outsourcing in half of the firms in its sample.

It also found that half of the firms reviewed could have compensated customers more quickly, or moved faster to correct errors, such as those relating to unit pricing. One insurer took over a year to quantify the extent of a material pricing error.

The regulator identified concerns about historic pricing in a third of its sample firms.

The review of the £900bn sector was launched in January with the aim of ensuring sufficent protections for pension savers automatically enrolled into a unit-linked fund.

The FCA says some 85 per cent of the £900bn invested in unit-linked funds is pension savings. The regulator says given the increasing numbers of employees being automatically enrolled, it wanted to ensure firms were meeting its standards and treating customers fairly.

The FCA says: “We found no material issues evident throughout our sample of firms that posed a serious threat to customers’ investments. So we do not consider there are any significant widespread, systemic failings in the sector. We did, however, find specific material problems in individual firms which – if left unchecked – could have led to customers being disadvantaged.

”We have asked the firms in our review to make improvements in response to our detailed findings. Much of this work has now been completed. We are pleased to see that many firms, that were not part of our review, have also proactively begun to review their practices.”

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. @MM- The Headline is going to get some unwarranted responses as the actual article and comments from the FCA read as being a POSITIVE, i.e. most are doing a good job and even those who are not, just appear to need a little tweaking.

  2. Is it not totally inevitable that the FSA will find “material problems” with everything and anything it decides to investigate?

    One wonders just what material problems with the FSA itself (and of what magnitude) an outside body would identify if it decided to investigate. Clearly, just such a body is needed.

  3. @Julian – You have just fallen in to the headlines trap. The article doesn’t match the headline. I am going to read the report now as a result.

  4. To Tessa

    Do you know or could you find out ? how much this exercise has cost the firms involved (I would hazard a guess it runs into tens of thousands)

    This may just highlight that the FCA supervision teams need proper qualifications and understanding, without the need to present a 166 from their back pocket.

    This is costing (in the long run) the consumer a lot of money and is this not a “material problem” ?

    As Phillip pointed out if this does appear to be a bit of “tweaking” the lack of knowledge and ignorance of the industry the FCA regulates is very costly for any firm unfortunate to be visited.

    It makes you wonder what the hell we pay for, if it cant function without calling on a skilled person of some sort ? therefore what need is there for such an expensive regulator ?

  5. This article is seriuosly misleading. The first line of the executive summary of the report which I just downloaded from the FCA reads “we found no material issues evident throughout our sample of firms”. Really bad piece of journalism.

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