Endowment holders will only receive compensation if they can prove they were missold a policy and lost out financially.
Under guidelines issued for consultation by the FSA last week, compensation will be made on a “fair and consistent” basis but only if endowment policyholders can prove that they have lost out as a result of unsuitable advice.
The regulator says the consultation aims to outline how companies guilty of endowment misselling should compensate people with shortfalls.
It says this should involve putting the policyholder back in their original financial position as if the misselling had not happened. This should be calculated by the difference in overall cost between the endowment and a repayment mortgage.
The FSA will monitor firms' compliance with the guidelines to ensure fair compensation where it is due, greater consistency in investigation of complaints, assessment of loss and provision of redress.
The regulator says the measures will reduce the need for consumers to complain to the ombudsman, which should result in faster resolution of grievances.
FSA director of consumer relations Christine Farnish says: “The guidelines will ensure that consumers can get fair compensation where it is due and will help ensure that firms meet their regulatory obligations.
“We intend that the final guidance should be included in the rulebook for firms.”