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FSA with-profits warning to CEOs

The FSA has sent a Dear CEO letter to insurers, warning that it has uncovered worrying practices in open and closed with-profits funds involving standards of governance and run-off plans.

The letter highlights practices that the regulator observed as part of two reviews, one focusing on the governance arrangements of all with-profits funds and one on management of closed funds, that it believes fall short of its principles of treating customers fairly and effective management and control.

Problem areas include some providers’ arrangements for independent input not involving consideration of wider TCF issues, conflicts of interest in the way that firms use independent reviewers to look at the management of with-profits funds and a lack of timely information to those responsible for the independent review of the management of funds.

The FSA’s second review focused on closed funds and found that the management of some closed funds had not devoted sufficient attention to managing the run-off of the fund.

FSA sector leader for insurance Sarah Wilson says: “Senior management need to review our findings against their approach to managing their firm’s with-profits funds and take prompt action to address any shortcomings.

“We will continue to assess firms on these issues and will take action where we find that customers are not being treated fairly.”

However, the Financial Services Consumer Panel believes that the regulator should go further and develop a stronger interpretation of the rules of independent representation of policyholder interests and ensure consumer have access to better information.

Chairman John Howard says: “These are complicated products, and people need help to understand how to make the best investment decisions. This means that having access to advice, receiving clear communications and being able to see that there is a truly independent voice to represent their interests when board decisions are being taken.

“If this is not done, consumers will yet again be left with little confidence in this sector of the market.”

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