The Financial Services Authority (FSA) has launched a consultation on strengthening the rules on with-profits to better protect policyholders.
The proposals, contained within CP11/05 Protecting with-profits policyholders, are based on the findings of the FSA with-profits review conducted last year.
This FSA review looked at the way in which with-profits providers have been meeting their obligations to treat policyholders fairly.
Specifically, the FSA is proposing to restrict the circumstances under which firms can impose a Market Value Reduction (MVR).
A Market Value Reduction (MVR) is also sometimes referred to as a Market Value Adjustment (MVA). It is designed to ensure that, during turbulent investment market conditions, investors are not able to leave a With Profits fund with more than their fair share of the fund.
The FSA will also seek to improve the ways in which with-profits providers identify and manage conflicts of interest affecting policyholders.
We believe that with-profits is great in theory but often lousy in practice.
With some exceptions, many with-profits funds make it impossible to assess how much risk is being taken or what potential there is for investment rewards.
Policyholders should welcome these FSA proposals which will improve fair treatment in the future. The FSA has quite rightly identified the with-profits sector as needing more intensive scrutiny to protect investors and ensure fair treatment.
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