In March 2007 the FSA published Consultation Paper 07/07 on the proposals to change the rules. The Consultation Paper fulfilled the commitment that the FSA made in its 06/07 Business Plan to conduct a review of the permitted links rules. This Policy Statement contains feedback on the responses to the earlier consultation paper and the new rules and guidance.

The FSA found that there were inconsistencies between the existing rules on permitted links for unit-linked insurance and the rules for collective investment schemes. The policy on permitted links for unit-linked insurance did not reflect developments in the markets since 1994 (when the current rules were put in place) or parallel regulatory arrangements for collective investment schemes. The FSA was of the view that changes were needed to update the rules in line with market conditions; avoid further market distortion; and change the current rules to prevent regulatory arbitrage.

The new rules aim to remove unnecessary detail and replace the outdated rules with more principles-based high-level rules. As a result, firms should have greater flexibility in designing products while maintaining the appropriate levels of consumer protection. The FSA asks firms to consider the effect on policyholders as the primary consideration when deciding how best to apply rules. The new rules reflect changes in recent years in the way investment markets operate. For example, there are changes to the way land and property is defined and can be held and a new category of 'institutional policyholder' has been created.

The new rules come into effect on the 6 October 2007.

For further information: PS 07/17 Permitted Links for Long Term Insurance Business