FSA confirms changes to with-profits rules
24th July 2009The Financial Services Authority (FSA) has today confirmed that proprietary life insurance companies will not be able to meet future compensation and redress payments from their with-profits funds.
These changes mean that any liabilities arising from operational failures (including mis-selling) after the rule comes into effect on 31 July must be borne by shareholders not policyholders.
The new rules follow a consultation paper issued earlier this year in which the FSA proposed that shareholders alone should meet the cost of such failures, as the current rules may not lead to the fair treatment of policyholders.
Dan Waters, the FSA's director of retail policy and conduct risk, said:
"It is essential that with-profits policyholders are treated fairly. The changes we are confirming today are an important development in this regard, which seek to ensure that policyholders do not pay for costs resulting from management failings. In future, the liability for compensation and redress payments will rightly fall to shareholders as the owners of life companies."
Under current rules, a firm may pay compensation and redress from assets attributable to shareholders or from the inherited estate of its with-profits fund (if any).
