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FSA set for probe into unfair contract terms

The FSA is to start a consultation into unfair contract terms later this summer which could force life offices to review their existing books and allow policyholders to escape unfav-ourable contracts.

The consultation, which could leave a large dent in life office coffers, is thought to cover the swathes of policyholders stuck in closed funds or antiquated contracts overlooked by recent reviews and the industry&#39s Raising Standards initiative.

Money Marketing understands that the FSA has been approaching editors of the personal finance sections of the national press to get examples of bad practices which it int-ends to investigate.

The consultation could int-roduce new regulatory protection on top of existing Office of Fair Trading unfair contract term legislation.

Pensions lawyer Robin Ellison says: “The big question is what penalties are imposed on the insurance companies. This could blow a big hole in the company&#39s finances. Judges up until now have been reluctant to find against insurance companies and the companies have successfully argued that the papers are commercially sensitive.”

Syndaxi principal Robert Reid says: “If this comes to fruition, it could remedy the Achilles&#39 heel of Raising Standards which looks forwards rather than backwards. It is the contracts taken out some time ago that cause all the problems. It will be great for my clients, who could put their money where they get a better return.”

A spokeswoman for the FSA says: “We will be launching a consultation into unfair contract terms later this summer although we have no date yet. We have powers like the OFT did to look into unfair contract terms that fall under our remit.”

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