Treasury select committee chairman John McFall is warning that the FSA could be in breach of competition rules by allowing insurers to use inherited estates to subsidise new business and pay misselling compensation.
At a committee meeting this week with the FSA’s chief executive Hector Sants and chairman Callum McCarthy, Labour MP McFall and TSC member Philip Dunne suggested that current regulation was putting companies with inherited estates in a “much stronger position” than new entrants.
McFall said the FSA and the Office of Fair Trading were jointly responsible for “ensuring a healthy and vibrant financial services sector where competition flourishes” and strongly urged the FSA to correspond with the OFT.
He said: “Over the insurance industry, there are estimates of £20bn-£25bn being at stake here for people.”
Sants confirmed that the FSA would consult on the use of inherited estates to fund compensation for misselling but maintained that it was reasonable for firms to use this money to pay expenses relating to new business.
Norwich Union policyholder advocate Clare Spottiswoode has criticised the FSA for favouring shareholders and future policyholders over current policyholders in the reattribution process.
Sants dismissed suggestions that principle-based regulation or a lack of FSA market experience were to blame for the Northern Rock debacle.
He insisted that the turnover of one-third of FSA staff in the past 12 months was due to the upgrading of the division rather than low morale.