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FSA proposes relaxation of with-profits rules

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The FSA has proposed relaxing with-profits rules in a move designed to allow mutual insurers which run a single fund to continue to write new business.

At the moment, mutuals which are not writing a “material volume” of new with-profits business must consider closing to new business in order to go into an “orderly run-off” that is fair to policyholders.

This had led to fears that mutuals which do not write a large amount of new with-profits business but offer other financial products, such as protection, could be forced to stop offering these products altogether.

Under the regulator’s proposal, mutuals would be allowed to separate a single common with-profits fund into two parts; a “mutual members’ fund” and a with-profits fund.

The FSA says this would allow with-profits mutuals to continue to provide financial services to new and existing customers using the mutual members’ fund, even if the with-profits fund were to go into run-off.

Any mutual wanting to make this change would need to seek approval from the Prudential Regulation Authority and the Financial Conduct Authority.

FSA head of retail investment policy David Geale says: “We have worked extensively with the mutual with-profits sector to develop these proposals.

“They recognise the need for some mutuals to develop new areas of business, while continuing to protect with-profits policyholders.”

Royal London head of corporate affairs Gareth Evans says: “We are glad the FSA has taken a pragmatic approach here. It is clearly not the intention of policymakers in Government or at the regulator to prevent mutuals from offering financial products.”


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There are 7 comments at the moment, we would love to hear your opinion too.

  1. Is this a raid on the members with-profits fund? In whose interest is it?

  2. Are there really people who still recommend these investments? ‘The magical mystery tour’ of investing. I do find it rather amazing that the Regulator now wants to make life easier for the woebegone products. No doubt the vulture funds will be popping corks. (Did Tiner have any influence on this?)

    Really thought that WP had died years ago – is the FSA hoping for a Lazarus event?

  3. Why relax the rules with the worst offenders who at the drop of a pound note would happily sell their members down the river for a share issue and a pay off.

  4. @Harry Katz

    Harry, can you tell if you feel with profits funds have any merit if there is also transparency to them?
    I am not having a go; I would honestly value your opinion because I have a couple of clients that were delighted with long standing with profits investments from the early 1980’s, albeit not ones that I did for them. The principle seems fine (for nervous clients) and seemed to work OK for many, many years (although without the transparency that would have been nice).
    I appreciate many were badly mismanaged in the early 2000’s and the FSAs tighter rules were introduced just at the time markets rallied (would you credit it?).
    What do you think?

  5. I agree with Harry. plenty of more transoarant ways than wp.

  6. Not sure the posters here read as far as the 3rd paragraph! It’s not about selling WP products, it’s about mutuals selling non-WP products…

  7. As I’ve posted elsewhere, WP as an investment medium purely for growth seems now to be a pretty dead duck and is therefore no longer recommendable. The problem is the long term liabilities that declared bonuses represent, due to the FSA having stipulated every greater levels of reserves to back those liabilities if they’re not to be cancelled out by the imposition of nasty MVR’s at the drop of a hat when the stock market takes a downward lurch.

    But, as a medium for regular income, provided the insurer awards TB on withdrawals, WP still seems to hold up remarkably well and shouldn’t, perhaps, be written off out of hand.

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