In June last year the FSA consulted on rule changes that will prevent insurance companies from charging compensation for misselling to the inherited estates of with-profits funds.
It initially proposed to apply the rule to any payment made after November 1, 2008, regardless of when the misselling occurred.
The regulator has today published a further consultation paper outlining its new proposals, which includes an exemption for rectification payments where both the policy holder and the fund are put back into the position that would have existed if the error being corrected had not occurred.
FSA rules currently allow firms to pay the costs of compensation and redress from the inherited estates of their with-profits funds.
The FSA says it does not believe that the current rules provide sufficient incentive for insurers to address failures in their systems and controls and as a result policyholders may not be treated fairly.
The latest consultation will close on May 22.