Page 1 INSURANCE BRIEFING WITH-PROFITS MUTUALS – FCA CONFIRMS WAY FORWARD The FCA has at last confirmed that it will help mutual life insurers to avoid closure once they can no longer write material levels of new with-profits business. In a move designed to promote competition in retail financial services, the FCA has agreed to implement FSA proposals that aimed to allow mutuals with a viable business plan to transition from with-profits to non-profit products. Providing this lifeline is both long overdue and extremely welcome. 1. Key points • The FCA's proposed method of effecting a separation of interests in a mutual insurer's common fund allows it to consider proposals on a case-by-case basis without the formality and expense that would necessarily accompany a formal restructuring (e.g. through a scheme of arrangement). • The FCA has acknowledged, for the first time, the legal uncertainty that surrounds the definition of the rights and interests of with-profits policyholders in assets held in mutuals' common funds, particularly when their with-profits business goes into run-off. • Despite such recognition, the FCA's updated statement of its legal position is disappointing as it does not address all the concerns which had been raised with previous statements published by the FSA. • More helpfully, it seems that final determination of the nature and extent of with-profits policyholders' "interests" in a mutual's common fund is no longer a pre-requisite to obtaining FCA agreement to the establishment of a members' mutual fund. In a previous briefing, we looked at the FSA's December 2012 consultation paper ("CP12/38"), which demonstrated a commitment to finding a way for mutuals experiencing declining levels of new with-profits business to stay in business. It has taken over a year for the FCA to publish its feedback statement ("PS14/5"), causing concern that the FSA's proposals may go no further. Seemingly, those concerns were unfounded and the FCA, like the FSA, wishes to see a thriving mutual sector for years to come. This briefing looks at issues covered by PS14/5. It also considers the response of the Prudential Regulation Authority ("PRA") to CP12/38 (see Supervisory Statement "SS1/14"), which was published on the same day as PS14/5. 22 APRIL 2014 London Table of Contents 1. Key points 1 2. Project Chrysalis – a stepping stone to PS14/5 2 3. What has the FCA kept from CP12/38? 2 4. What is different in PS14/5? 2 5. Impact of competition objective and duty on FCA's approach 3 6. Process for recognising a members' mutual fund 3 7. Appointment of Independent Expert 4 8. With-profits policyholder vote 5 9. Policyholder engagement 5 10. Some specific issues raised by the FCA's proposals 5 11. PRA involvement; Solvency II 6 12. Alternative approaches 6 13. FCA statement of legal position 6 14.Conclusion 8 15.Contacts 9 RELATED LINKS > Herbert Smith Freehills > Insurance homepage > Insurance insights > Herbert Smith Freehills insights Page 2 2. Project Chrysalis – a stepping stone to PS14/5 Insurers have had to consider in recent years how to adapt their business in the light of reducing consumer demand for traditional with-profits products. The position for mutual firms became particularly acute as the approach taken historically by the FSA left them facing complete closure once their with-profits business goes into run-off. After years of discussions between the FSA and mutual insurers (known as "Project Chrysalis"), the FSA seemed finally to have listened to industry. It demonstrated in CP12/38 a willingness to find a way of supporting mutuals that can no longer write sustainable levels of with-profits business but have a viable business plan for carrying on a non-profit business. The FSA recognised that a proprietary insurer is not faced with closure if its with-profits fund goes into run-off because non-profit business can be supported from outside the closed fund. Its proposals aimed to put mutual insurers in the same position, while ensuring that the various interests in the common fund were recognised. In PS14/5, the FCA: • confirms its intention to allow mutuals with a common fund in which with-profits business has been written alongside non-profit business to allocate a proportion of the assets held in that fund to a mutual members' fund (that can be used to support non-profit business into the future), with the remainder staying in a with-profits fund (to support the run-off of the with-profits business); • provides feedback on comments received from respondents to CP12/38, including some modification of the FSA's original proposals to reflect such comments; and • sets out its understanding of the legal position that determines the rights and interests of policyholders in the long term funds of mutual insurers and of the effect of some of the rules relating to these long term funds in Chapter 20 of the FCA's Conduct of Business Sourcebook ("COBS 20"). The FCA has decided to provide mutuals with a real opportunity to restructure their common fund but, crucially, without the need to carry out a formal restructuring (e.g. through a scheme of arrangement, the route adopted in early 2012 by Reliance Mutual). As such, its approach may be considerably less cumbersome, lengthy and expensive for mutuals than other options, while enabling them to carry on writing non-profit business into the future. The FCA's updated statement of its legal position is perhaps less helpful than the other aspects of PS14/5. Unfortunately, there is little evidence of any change from the FSA's views on how the rights and interests of with-profits policyholders in assets held in a mutual's common fund should be defined despite considerable pressure from industry for more careful consideration of the issues. As in the past, there remain clear deficiencies in the FCA's statement. 3. What has the FCA kept from CP12/38? The FCA has adopted the key elements of the approach proposed by the FSA to resolve Project Chrysalis issues: • COBS 20 has been amended to recognise explicitly the ability of with-profits mutuals with a common fund to carry out an exercise to separate out interests in that fund into a mutual members’ fund and a with-profits fund. • Once a separation has been agreed, COBS 20 protections will only apply to the with-profits element of the common fund; the mutual members' fund will be free of many of the constraints that currently apply to the entirety of the fund. This will be achieved through the issue of an appropriate rule modification/waiver under section 138A FSMA. • Requiring firms to apply for individual waivers means that the FCA has retained the ability to review mutuals' proposals on a case-by-case basis, as proposed by the FSA. The FCA emphasises the importance of taking account of the particular circumstances of a mutual in determining whether a proposal should be approved and warns against the idea that a "one size fits all" solution is available. • Firms will be required to appoint an Independent Expert ("IE") to review their proposals; new to PS14/5 is the expectation that the IE will obtain independent legal advice. 4. What is different in PS14/5? Although the FCA has largely decided to follow the FSA's lead in relation to the establishment of mutual members' funds, its approach in PS14/5 differs from that taken by the FSA in a number of significant respects. • A key change is the FCA's acknowledgement that legal uncertainty surrounds the definition of with-profits policyholders' interests in assets held in a mutual's common fund. • Recognising this uncertainty, the FCA suggests that it may be in the best interests of the with-profits policyholders to reach a compromise with the mutual which may give them more than they would achieve in court Page 3 • In turn, this seems to have enabled the FCA to conclude that granting a waiver to a mutual allowing for the establishment of a mutual members' fund may not require definitive resolution of the legal position of with-profits policyholders in that firm, provided that it can be determined that differing legal views have been taken into account and the proposals are fair. • The FCA's competition objective and duty have clearly been important in driving its decision to take forward the FSA's proposals. 5. Impact of competition objective and duty on FCA's approach Preserving a mutual insurance sector The FSA, "a regulator without a competition objective", noted in CP12/38 that a key benefit of its proposal was that "it helps maintain diversity in the provision of retail financial services". This may have been a reflection of the broader political backdrop to this issue, including a commitment in the Coalition Agreement to "foster diversity" and "promote mutuals" (which was made in the context of banks but could be expected to apply equally here). Competition issues have, of course, come to the fore with responsibility for conduct of business regulation of insurers passing to the FCA. The FCA has an explicit operational objective requiring it "to promote effective competition in the interests of consumers" and a duty to discharge its general functions in a way which promotes effective competition in the interests of consumers (as long as this is compatible with its other objectives). It acknowledges the importance of both in the context of PS14/5. It is particularly helpful, therefore, that the FCA recognises that the application of its unmodified rules to mutuals could mean that they are required to close to all new business, or sell their active businesses to proprietary firms, once they can no longer write material volumes of with-profits business. PS14/5 appears to underline the FCA's willingness to promote regulatory solutions that further its statutory objective of promoting competition in the interests of consumers, notwithstanding that it may have some concerns (in this context at least) about the underlying legal analysis. Interpretation of rules and guidance in the light of competition objective The introduction of a competition objective might also have been expected to affect the FCA's interpretation of rules and guidance that were inherited from the FSA. The FCA is currently undertaking an exercise to review its Handbook to understand where rules inherited from the FSA may have adverse effects on competition and to change them to align with its new objective. Absent any changes to COBS 20 as a consequence of this review, we believe that the FCA's rules and guidance must be interpreted in a way that is consistent with its objectives. This is the case even if it means a change from their interpretation under the FSA. The FCA adopted rules and guidance making up its Handbook with effect from legal cutover on 1 April 2013 (i.e. the rules were effectively re-made at that date) and they must be interpreted from then in the light of their purposes (see GEN 2.2.1R of the FCA's General Provisions). We are not sure that the FCA's willingness to entertain waiver applications which enable the establishment of a mutual members' fund suffices in this respect. Rather, to the extent that the analysis in the FCA's statement of its legal position derives from the rules and guidance in COBS 20, we would have expected that analysis to have evidenced consideration of the effect of the FCA's competition objective on their interpretation (albeit that it may ultimately have arrived at the same conclusions). There is no evidence that such a review has been carried out. This is despite the FCA's acknowledgement that its assumption of responsibility from the FSA for conduct of business regulation had prompted it to review its understanding of its legal position, including obtaining advice from external counsel. 6. Process for recognising a members' mutual fund Separate recognition of with-profits interests and a mutual members' fund will be achieved through formal modification by the FCA of the definition of "with-profits fund" that is used for the purposes of COBS 20. The process for granting rule waivers/modifications in section 138A FSMA will be followed and the effect of the modification will be to narrow application of COBS 20 requirements to the with-profits element of the common fund only. Mutuals are required to present proposals on a case-by-case basis identifying that part of the common fund that relates specifically to the with-profits policyholders, as distinct from that part of the fund that might be described as "mutual capital" or the "mutual members' fund". Applications must demonstrate that the relevant statutory tests for granting a rule waiver/modification are satisfied (see separate box). Page 4 Satisfying the "unduly burdensome" test When it comes to the "unduly burdensome" test, the FCA states that "it is possible that firms could argue that it would be unduly burdensome … to close to new business and to go into run off due to the [FCA's] rules". It is not entirely clear what this means but we assume that it is intended as a steer to firms as to the line of argument they should adopt in their applications. Also relevant to the "unduly burdensome" test is whether the FCA might point mutuals in another direction (e.g. requiring them to go through a scheme of arrangement or the vote envisaged by COBS 20.2.60G (as to which see below)) and, if so, when this might happen. CP12/38 was not clear on this issue; it suggested that firms should only apply to establish a mutual members' fund where other legal processes were "not available or viable in the circumstances". PS14/5 still does not really answer the point fully but we think that it would be surprising if the FCA were to regard establishment of a mutual members' fund through the PS14/5 process to be an option of last resort. Mutuals should expect to be questioned, however, on how far they have considered the options that are available to them and why they have preferred establishment of a mutual members' fund over other courses of action. High-level principles applied to consideration of applications The key relevant factor in determining where the split between the with-profits element of the common fund and the mutual members' fund should lie will be the individual features of the mutual concerned. The FCA expects to apply seven high-level principles to consideration of applications (see box). Firms will need to consider how they might meet each of these high-level principles well in advance of any application to the FCA or even discussions leading up to an application. The FCA has responded in PS14/5 to concerns expressed about the lack of clarity given in CP12/38 as to the meaning of the high-level principles, in particular, providing guidance on what constitutes "a convincing and robust business case" (the PRA's comments in SS1/14 also discuss its expectations as regards business plans/supporting material). However, its attempt to address concerns about how comparisons might be drawn between the position of mutual policyholders and that of "equivalent with-profits policyholders" in a proprietary with-profits fund leaves the position unclear. Ultimately, we expect that a greater understanding of how the principles are expected to apply will only come with experience of dealing with the FCA on applications. PRA involvement Since the definition of a "with-profits fund" appears in both the PRA and FCA Handbooks, both regulators will need to consider each application and issue a modification, although this will usually be in the format of a joint direction. Firms need to be clear that each regulator will take its own decision about whether the waiver satisfies the relevant statutory tests (see the further discussion of SS1/14 below). 7. Appointment of Independent Expert The role of the IE has been clarified in the light of the FCA's decision that success of an application should not depend in each case on final resolution of any legal uncertainty that surrounds the rights and interests of with-profits policyholders in assets held in the mutual's common fund. The FCA expressly acknowledges that, in some circumstances at least, it may be in the interests of the with-profits policyholders to agree "an appropriate compromise" with the mutual that takes account of, but does not aim to resolve, the differences in legal views expressed by the FCA and the mutual itself. It is perhaps not surprising, in these circumstances, that the IE is to be given the right to take independent legal advice. The role of the legal adviser will, however, need to be carefully defined and both the FCA and the mutual will clearly wish to have a Statutory conditions for modification of rules The FCA/PRA cannot waive or modify their rules under section 138A FSMA unless they are satisfied that: • compliance: o would be unduly burdensome; or o would not achieve the purpose for which the rules were made; and • the waiver/modification would not adversely affect the advancement of its operational objectives. High-level principles applying to applications 1. The firm has a convincing and robust business case 2. The firm can demonstrate that its proposals are compatible with its obligations to treat policyholders fairly 3. An independent assessment of the proposals and how they affect policyholders is carried out 4. With-profits policyholders under the firm’s proposals will be no worse off than equivalent with-profits policyholders in a proprietary with-profits fund 5. The firm has a strategy to ensure that with-profits policyholders and the wider membership of the mutual are appropriately engaged and informed 6. Balance sheet safety and soundness issues are identified and addressed appropriately 7. The rule modification meets the appropriate statutory tests Page 5 role in any instructions given by the IE to his/her legal advisers. (Similarly, the FCA will want to review the terms on which the IE is appointed by the mutual to ensure that it is comfortable with the role the IE is being asked to play.) Given the FCA's comments, we think that the task for the IE's independent legal adviser should be to review the respective legal positions of the mutual and the FCA and to comment on their application to the mutual's proposal. However, the independent legal adviser should not be required to come to a firm view that either legal position is correct. 8. With-profits policyholder vote Changes made to COBS 20.2.60G reflect the FCA's preference for a vote of the with-profits policyholders not to be held where a mutual's proposals afford policyholders an "appropriate degree of protection". It argues that its competition duty makes a vote in these circumstances "difficult to justify", no doubt because proposals are unlikely to be approved by the with-profits policyholders when the alternative is the receipt of the windfall benefits that would result from the business going into run-off. The FCA's comments in the text of PS14/5 suggest that, where a rule waiver/modification is granted under new COBS 20.2.61G, it will always follow that a vote of the with-profits policyholders is not needed. If this is the case, the uncertainty that COBS 20.2.60G now creates (by the use of the word "may" rather than "will") is unhelpful. It is interesting to note in this context the force of the competition objective and duty in circumstances where the FCA might otherwise have been expected to favour policyholder involvement in a decision. 9. Policyholder engagement Despite the fact that a policyholder vote will not be required to achieve a separation of the mutual members' fund, PS14/5 makes it clear that the FCA expects firms to engage with policyholders. Little detail is provided about the nature and extent of such engagement but the FCA clearly expects policyholders to be notified and policyholder objections to be taken into account (by analogy with the process on a Part VII FSMA transfer). Meeting the FCA's expectations in this respect undoubtedly will carry a cost and, for some mutuals at least, that cost may be significant. It may also go some way to offsetting the advantage of the rule waiver/modification route against alternative approaches (e.g. a scheme of arrangement). Mutuals will undoubtedly hope that the FCA takes a proportionate approach and does not require them to replicate information requirements applying under other, more formal, legal processes. 10. Some specific issues raised by the FCA's proposals Application to mutuals that are not in run-off The FCA indicates that the PS14/5 framework could be used by a mutual whose with-profits fund is still open to new business but would face run-off if a solution was not found. A mutual that is still writing material volumes of new with-profits business may, however, find it difficult to demonstrate that the operation of the FCA's rules would be "unduly burdensome" without the modification requested. Concerns over reattribution rules The FSA's commentary in CP12/38 indicated that the process would not be regarded as a reattribution for regulatory purposes, requiring the mutual to comply with COBS 20 rules applying to reattributions. This comment appeared to be inconsistent with proposed new Handbook text, which suggested that the firm must persuade the FCA that the division of the common fund is not a reattribution. In feedback on this issue, the FCA has unfortunately confirmed that firms will need to demonstrate on a case-by-case basis that separating out the mutual members' fund will not constitute a reattribution. Duration of waiver In CP12/38, the FSA stated that it expected any modification that it issued to be time-limited. Responding to concerns about this, the FCA has said that it intends to allow insurers to apply for a modification of a duration appropriate to the run-off of their with-profits business. The FCA would, as with any waiver (and subject to legislative safeguards), retain discretion to revoke a modification and to monitor its continued appropriateness in the context of its regulatory objectives. How soon can mutuals expect to benefit from the FCA's new approach? Amendments have already been made to the FCA's rules to reflect its new approach so mutuals wishing to begin the process of establishing a mutual members' fund can follow the new process now. For those mutuals that are already engaged in discussions with the FCA, we have no doubt that the FCA's final position in PS14/5 is already being reflected in those discussions. Page 6 11. PRA involvement; Solvency II In SS1/14, the PRA confirms its understanding of its involvement in the process for granting rule waivers/modifications to align with the FCA's approach in PS14/5. Key points to note in relation to process are: • The PRA will need to approve any application to modify the definition of "with-profits fund" by a mutual insurer. • Applications should be sent in the first instance to the FCA, who will forward them to the PRA. • The PRA and the FCA have a statutory duty to ensure a co-ordinated exercise of powers when reviewing waiver applications; both recognise the importance of co-ordination in this context. • The PRA will expect to be consulted by the FCA over the selection of an IE and the terms on which he/she is appointed. • Evidence the PRA expects to see in support of a waiver will include a medium-term business plan, how new business written in the mutual members' fund will provide for the risks of that business and how new product offerings will be sustainable. The PRA's comments on the interaction between mutual waivers and Solvency II unsurprisingly focus on the ring-fenced funds ("RFF") regime. It is generally envisaged that with-profits funds will all give rise to a RFF. As regards mutual members' funds, the PRA concludes that the identification of a RFF for Solvency II purposes will depend on the extent to which the mutual members' fund is restricted and therefore has reduced capacity to absorb losses incurred across the entire firm. 12. Alternative approaches The FCA recognises that, for some mutuals, establishment of a mutual members' fund may not be their preferred option for resolving Project Chrysalis issues. In such cases, principles that it applies to mutual members' fund proposals will read across into the FCA's assessment of alternative proposals with "similar outcomes" (although this concept is also expressed elsewhere in PS14/5 as "similar aims", which does not necessarily carry the same meaning). PS14/5 comments specifically on the introduction of new products, as an alternative to establishing a mutual members' fund. We consider below the FCA's analysis of the legal issues that are relevant to the introduction of new products. 13. FCA statement of legal position PS14/5: • restates the FCA's understanding of the legal position in relation to the rights and interests of policyholders in the long term funds of a mutual life company; and • sets out its view of the effect of certain rules relating to such long term funds that are contained in COBS 20. As has been noted earlier, perhaps the most significant aspect of the FCA's comments is that it has acknowledged, for the first time, that the legal position is unclear, and that it will remain unclear unless the issues are put to the court for resolution. Otherwise, we believe that the FCA's legal analysis remains fundamentally flawed in certain respects. Rights and interests of with-profits policyholders The FCA bases its view of the interests of with-profits policyholders on the following key propositions: • Absent unusual circumstances (i.e. established practice or policyholder notifications to the contrary), with-profits policyholders in an open with-profits fund have a reasonable expectation (as a class) of receiving the entirety of any distribution from surplus accumulated profits (i.e. assets in excess of those required to meet policyholder liabilities and expectations, regulatory capital and to support new business) out of that fund. • With-profits policyholders have no reasonable expectation of a distribution from surplus accumulated profits during the life of their policies, although a mutual may be obliged by COBS 20.2.21R and COBS 20.2.22E to make a distribution of "excess surplus". Where this is the case, the fact that with-profits policyholders can reasonably expect the mutual to comply with FCA rules produces, in practice, the same outcome as if they did have a reasonable expectation of a distribution in those circumstances. • Rules on the distribution of "excess surplus" continue to apply once the with-profits fund closes to new business and goes into run-off. • A with-profits policyholder may have an interest, in his capacity as a member of the mutual, in assets that remain, and are distributed, when a mutual winds up. However, such entitlement is only triggered at the point when winding-up takes place; before then, the interests of the with-profits policyholders, in their capacity as policyholders, override the interests of members. In any event, in the case of a solvent mutual, a winding-up is unlikely to happen as a transfer of business to another insurer during the course of run-off will almost certainly be preferable for policyholders. Page 7 Key to the FCA's understanding of the legal position is its assertion that the rights of with-profits policyholders to distributions, including under the "excess surplus" rules, are the same irrespective of whether the with-profits fund is open or closed to new business. This is consistent with past FSA comments that "fairness" means that, once a with-profits fund is no longer selling material volumes of with-profits business, with-profits policyholders can expect that all surplus will be distributed to the then current generation of with-profits policyholders. The inter-generational transfer of surplus, including the use of the fund to support new business, is no longer fair and should not continue unless the existing with-profits policyholders consent to its doing so. This approach raises a number of concerns. First, the FCA has converted an expectation that a policyholder would benefit should the mutual decide to distribute excess surplus into an expectation that a distribution will be made. This is inconsistent with case law in this area (see In Re Axa Equity and Law Life Assurance Society Plc  2 BCLC 447). Distributions of excess surplus should properly be regarded as "windfall" benefits and nothing more (as is reflected elsewhere in the FCA Handbook). The FCA's comments that requirements in COBS 20.2.21R and COBS 20.2.22E to distribute excess surplus to with-profits policyholders continue to apply during the run-off of the business are also, in our view, misplaced. Applying the "excess surplus" rules in a liquidation scenario applies the rules in circumstances that could not have been intended when the rule was made, an argument which is borne out by comments made by the FSA when it first introduced the requirement (see CP 207, which indicates that the rule is intended to apply to surplus in a fund "that is open to new business"). Finally (and consistent with the FSA's previous statements on this issue), the FCA's legal position has failed to give proper recognition to the interests of a mutual's members in the with-profits fund. FCA commentary to the effect that a significant value should not be attached to members' rights fails to attach a proper value to voting rights and, in the context of a closed fund at least, to members' rights on a winding up. The reference to a transfer of business occurring to eliminate the prospect of a winding-up overlooks the fact that that transfer of business (just like any demutualisation) would need to be approved by the members, who could expect to require their rights to be given full recognition in the terms of the transfer. New products The FCA's legal position on the development of new with-profits products as a means of resolving Project Chrysalis issues is effectively a restatement of the FSA's position in 2009. In summary, a distinction is drawn between new with-profits products that are written on similar terms to existing products and those whose terms are "materially different". This distinction is said to be relevant for the purposes of determining how the test of "material adverse effect" in COBS 20.2.28R should apply. The inter-generational transfer of surplus is permitted if the new generation of with-profits policyholders has similar interests to the previous generation, but may not be if it does not, and in this latter case a comparison with the effect on existing with-profits policyholders of closure and run-off may be required. No legal authority is given for this view. It is also not logical that the inter-generational transfer is acceptable in one instance and may not be in the other. In both cases, the opportunity to benefit from a windfall distribution of the inherited estate is lost to the current generation of policyholders. Whether newly-proposed products are on similar or materially different terms to existing products would no doubt be a consideration for a mutual insurer's board in determining the effect on existing policyholders for COBS 20.2.28 purposes. However, no legal basis has been disclosed for arguing that the test is materially different according to whether the terms of new products are "substantially different" from traditional with-profits policies. Directors' duties The FCA appears to take the view that meeting a firm's regulatory obligations (presumably, as assessed by the FCA) must always be consistent with directors' duties under the Companies Act 2006 (the "2006 Act") to promote the success of the company for the benefit of the members of the whole (or equivalent rules in the case of a friendly society or other mutual not incorporated under the 2006 Act). In our view, whilst it is correct to say that in most cases meeting regulatory obligations will be consistent with directors' duties, the real point here is that directors' duties will be relevant to the assessment of different options available to the directors to satisfy the firm's duty to treat customers fairly. There is rarely only a single route to satisfying that duty and, in particular circumstances, directors' duties will be likely to require the directors to select an option that is not the most generous to with-profits policyholders. At the extreme, we believe there must be scope for conflict between a director's duties under section 172 of the 2006 Act and the company's obligations to treat its policyholders fairly. Where such conflict arises, and in the absence of a clear indication from Parliament that FCA rules can override the requirements of statute, it is simply not enough to say that regulatory compliance trumps compliance with 2006 Act duties. Page 8 14. Conclusion PS14/5 and SS1/14 undoubtedly provide mutual life insurers with an opportunity to transition from with-profits to non-profit products once they become unable to write material amounts of new with-profits business. The lifeline they have been given will only be available, however, to those mutuals that can show they have a "convincing and robust business case" that demonstrates a sustainable future writing non-profit policies. It is helpful that the FCA has recognised that establishing a mutual members' fund is only one way for firms to overcome Project Chrysalis concerns. Firms wishing to pursue other options with "similar outcomes" now have a clear picture of the principles that the FCA is likely to apply to any proposals. Page 9 15. Contacts Geoffrey Maddock (partner) T +44 20 7466 2067 M +44 778 525 5016 Geoffrey.Maddock@hsf.com Alison Matthews (consultant) T +44 20 7466 2765 M +44 780 920 0879 Alison.Matthews@hsf.com Barnaby Hinnigan (partner) T +44 20 7466 2816 M +44 780 920 0299 Barnaby.Hinnigan@hsf.com If you would like to receive more copies of this briefing, or would like to receive Herbert Smith Freehills briefings from other practice areas, or would like to be taken off the distribution lists for such briefings, please email firstname.lastname@example.org. © Herbert Smith Freehills LLP 2014 The contents of this publication, current at the date of publication set out above, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on the information provided herein.