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FSA puts focus on variation clauses

The FSA is stressing the need for firms to check their consumer contracts are fair and that any variation clauses are clearly explained to clients.

Speaking to the British Bankers’ Association last week, Katherine Webster, from the FSA’s retail themes division, outlined the position on contract terms following the publication of its statement of good practice in May.

The statement, which is positioned closely alongside the FSA’s treating customers fairly initiative, outlined the regulator’s concerns over variation clauses which give a firm unilateral power to raise long-term insurance premiums after the contract has been signed.

Although the statement does not create an obligation, Webster urged firms to review their contract terms to avoid the damaging repercussions of action taken by the FSA. She warned that the statement was just part of its work to ensure fairness of contracts and said the FSA will take action if unfair contracts come to light or thematic work carried out on particular products or contract clauses finds evidence of this.

Webster also said the FSA’s statement had received the backing of the Office of Fair Trading and the Financial Ombudsman Service, which has recognised it as a useful tool to promote its understanding of the FSA’s approach.

Webster said: “The FSA is not a contract approval authority but it will take action when unfair contract terms come to light. Firms may wish to consider whether their existing contracts contain terms which have been drafted and are being operated fairly and will cert-ainly want to ensure that their standard consumer contracts are drafted fairly.”

Association of British Insurers head of health and protection insurance Richard Walsh says: “It is important that custo-mers understand precisely what they are buying and insurers are clear as to their obligations.”

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