In February 2011, the FSA consulted on a number of rule changes to improve and enhance with-profits policyholders’ protection. Now, the FSA has published Policy Statement PS12/4, containing a summary of the responses it received to the consultation and its final rules.

The FSA believes that that the interests of with-profits policyholders are quite broad and in order to effectively manage those interests a balance must be struck. This balance may be necessary in terms of the differing interests of with-profits policyholders and other members, the interests between withprofits policyholders and shareholders in a proprietary firm, or even between different types of policyholders.

The main changes highlighted in PS12/4 relate to the rules and guidance surrounding the operation of with-profits funds under COBS. Some of the new rules on the mutual with-profits sector that were consulted on in February 2011 have not been taken up in PS12/4 as the FSA considers that there is further work to be done in that sector. Notably, the FSA intends to make its work on mutuals a priority, in preparation for the incoming Solvency II Directive.

Amongst other things, the FSA has dropped the proposals made in the consultation which would have required all with-profits funds to have with-profits committees. It has also made some changes to its proposals in relation to the composition of the committees. In relation to conflicts of interest, the FSA has made some elements of its guidance into mandatory requirements in PS12/4. This includes requiring firms to take reasonable care to ensure that their operating practices are fair. Firms must also be able to demonstrate to the FSA that reasonable care has been taken. The FSA has also introduced a new rule requiring firms to demonstrate that the purchase or retention of strategic investments is likely to have no adverse effect on the interests of with-profits policyholders.

The Conduct of Business Sourcebook (With-Profits Business) Instrument 2012, containing the final amended Handbook text, was published at the same time as PS12/4 and will come into force on 1 April 2012.

Useful links

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Policy statement on distribution of retail investments 05.shtml

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FSA publishes with-profits Policy Statement