Treating Customers Fairly must be guiding principle for firms managing unit-linked funds
The Association of British Insurers (ABI) has launched a consultation on its revised guide to good practice for unit-linked funds. Amendments were made by the ABI to reflect the findings of the FCA thematic review into governance of unit-linked funds. The guide is designed to be a practical and flexible framework for good governance that the ABI believes all firms managing unit-linked funds should work toward.
What should firms do?
Interested parties should respond to the consultation by March 28. The ABI intends to publish final guidance by the end of April.
Once the updated guide is adopted firms should review their existing policies and processes and make any necessary changes. The ABI sets a deadline of December 31, 2014 for firms to review their operations against the revised guidelines.
In the absence of prescriptive rules for the management of unit-linked funds, firms must act in accordance with the FCA Principles for Businesses. Most importantly, firms should consider what treating customers fairly (TCF) means in the context of their business, how it is implemented across the firm and what processes are in place to ensure compliance with Principle 6.
Scope of the Guide
The consultation includes guidelines in the following areas:
- Fund governance. Firms should maintain adequate governance arrangements to ensure that unit-linked funds are managed appropriately and in accordance with policy disclosures. The section includes guidance on governance structure, scope, outsourcing, conflicts of interest and documentation.
- Fund launches, mergers and closures. Firms must ensure that policyholders are treated fairly when considering proposals to launch, merge or close funds.
- Fund operations. Factors considered include operating standards, use of discretion, mandate compliance, stock lending and permitted links. Again, TCF should underpin firms operations and the guidelines strongly support an open and transparent approach.
- Valuations and unit-pricing. The overriding principle is that unit prices are calculated in a fair and transparent manner so as to treat policyholders fairly.
- Breaches, errors and material incidents. Appropriate systems and controls should be in place to identify, promptly rectify and report errors and breach events. Maintaining an open and transparent relationship with the regulator and board responsibility for embedding appropriate arrangements are key features of the guidelines.
- Emergency situations/disaster recovery. Emergency powers or discretion in exceptional circumstances must be used only to the minimum extent necessary to secure policyholder protection.
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