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FSA relaxes reserve rule

The FSA is throwing a lifeline to providers to stop them being forced into selling equities to meet statutory reserves.

One of the FSA&#39s regulatory resilience tests which aims to ensure life offices have reserves to cover the possibility of a sharp stockmarket fall has been temporarily dropped.

The FSA says the scenario the test covers is no longer likely and it was concerned the tests could trigger unnecessary short-term equity sales.

Companies may be forced to sell equities to raise capital needed to meet reserve requirements which have increased with recent stockmarket falls. But the high volumes of sales have the effect of plunging the markets even lower.

FSA spokesman Vernon Everitt says: “The net effect is to relieve some of the pressure that life companies may have faced to make short-term changes to their investment portfolios.”

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