With-profits firms slammed by FSA
The City watchdog is considering enforcement action against two with-profits companies after an investigation showed that many firms are treating policyholders unfairly.
After a six-month review into the with-profits market, the Financial Services Authority has found that many companies are failing to provide customers with ‘comprehensive, timely and clear information to help them understand their policies’.
Other companies have been told off for ineffective governance of funds, especially in how their with-profits committees provide an independent check against senior management decisions.
With-profits providers have been told to make immediate changes or face disciplinary action. Two have already been referred to the FSA’s enforcement division.
Adam Phillips, chair of the Financial Services Consumer Panel, says he is ‘seriously concerned’ about the findings.
‘Although the FSA introduced the current regime for with-profits in 2005, this report shows that policyholders are still not being treated fairly by the FSA’s own measures,’ he comments.
‘There are 25 millions with-profits policies currently being used for pensions and other savings. It is totally unacceptable that firms’ failure to play by the rules is still potentially exposing substantial numbers of consumers to risk.’
The watchdog visited 17 firms, representing 80 per cent of assets in with-profits funds, between September 2009 and February 2010 as part of the review. It will now look at strengthening some of the with-profits rules and publish a consultation paper on proposed changes by the end of the year.
Martin Shaw, chief executive officer at Association of Financial Mutuals, says the review will be a ‘call to action to improve performance’ for some of its members.
He says he welcomes the opportunity to review some of the rules, especially as some of them translate very poorly to mutuals. With-profits providers that are mutuals include LV= and Wesleyan Assurance Society.
The Financial Services Authority is an independent non-governmental body, given a wide range of rule-making, investigatory and enforcement powers in order to meet its four statutory objectives: market confidence (maintaining confidence in the UK financial system), financial stability, consumer protection and the reduction of financial crime. The FSA receives no government funding and is funded entirely by the firms it regulates, but is accountable to the Treasury and, ultimately, parliament.
Generally thought of as being interchangeable with insurance but isn’t. Assurance is cover for events that WILL happen but at an unspecified point in the future (such as retirement and death) and insurance covers events that MAY happen (such as fire, theft and accidents). Therefore you buy life assurance (you will die, but don’t know when) and car insurance (you may have an accident). Assurance policies are for a fixed term, with a fixed payout, and unlike life insurance have an investment aspect: as a life assurance policy increases in value, the bonuses attached to it build up. If you die during the fixed term, the policy pays out the sum assured. However, if you survive to the end of the policy, you then get the annual bonuses plus a terminal bonus.