The FSA has fined Sun Life Assurance Company of Canada (UK) £600,000 for failings in the governance of its with-profits business.
The closed book provider trades under the name Sun Life Financial of Canada.
The failings emerged following two significant transactions the company carried out in December 2008 and March 2009. The transactions impacted upon one of SLOC UK’s with-profits funds, holding approximately 114,000 policies and £1.2bn in assets.
The transactions were a type of derivative transaction called a put spread collar, which are used to manage risk. They effectively made material changes to the percentage of the fund held in equities and property holdings.
The put spread collars were not adequately reviewed by SLOC UK’s with-profits committee, and the board of directors did not approve the transactions. The FSA has not criticised the transactions, but says the review and approval process followed by SLOC UK was deficient.
SLOC UK also breached regulatory rules for taking five months to report to the FSA that the fund’s inherited estate, which holds surplus assets in excess of liabilities to provide capital support, had a negative value.
FSA director of enforcement Tracey McDermott says: “This was an unacceptable approach to protecting policyholders.”
Plan Money director Peter Chadborn says: “This confirms a lot of people’s fears about the attitude of life offices to closed funds. A closed book provider should be subject to the same scrutiny and carry out the same corporate responsibility as a fund open to new business.”