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.”