In a letter sent to with-profits insurers, the FSA has reinforced the need for firms to ensure that they treat policyholders fairly.
The letter follows reviews of two aspects of the management of with-profits funds which revealed varying standards of governance of funds.
The FSA carried out two thematic reviews this year looking at with-profits. The first looked at how firms provide independent input into their management of with-profits funds to ensure that policyholder interests are considered - it found a number of issues:
- Some firms' arrangements for independent input did not involve consideration of wider issues that could affect whether policyholders are treated fairly.
- Firms need to identify and manage any conflicts of interest in the way that the firm uses independent reviewers to look at the firm's management of with-profits funds.
- Firms did not always provide timely information to those responsible for the independent review of the management of funds.
Sarah Wilson, FSA sector leader for insurance, said: "Since the FSA's introduction of new rules for with-profits funds in 2004 / 05, we have been monitoring individual firms' compliance with the rules. The mixed picture shown in the reviews of two key areas is of concern. Some firms are not doing enough to provide independent input into the management of with-profits funds or are not devoting enough attention to running off closed funds.
"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."
The FSA's thematic work was carried out earlier this year. The review of independent input looked at 40 of the largest with-profits firms. The review of closed funds looked at 13 funds that closed to new business before the introduction of the FSA's rules.
