Watchdog drops hardline stance on mutuals and with-profits
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Your support makes all the difference.The Financial Services Authority has signalled a climbdown on its draconian rules that threatened the future of mutual insurers and with-profits funds.
The Financial Services Authority has signalled a climbdown on its draconian rules that threatened the future of mutual insurers and with-profits funds.
The City regulator is to amend its draft rules on this area substantially. The first draft - known as Consultation Paper 207 - sent shivers through the long-term savings industry when the plans were published last year.
CP 207 suggested, among other things, that mutual insurers should pay out all the gains they make on investments as bonuses to their members, and that they should not be allowed to use money from with-profits funds to invest in other businesses. This would have prevented the creation of a business such as Standard Life Bank.
This was seen as an attack on mutuals and coincided with a huge row between Standard and the FSA over investment returns which led to Standard deciding to give up its mutual status.
However, in meetings with leading insurance industry figures over the last few days, the FSA's head of insurance regulation, David Strachan, has signalled that CP 207 is going to be substantially amended before it is turned into firm rules.
Among the changes will be:
* 100 per cent distribution from funds will now be an objective, allowing for working cap- ital to keep the fund operating.
* The rule preventing other investment by mutuals will be downgraded to being guidance.
* Target ranges showing how well investments could do can use "typical" rather than actual policies.
A source within the mutual sector said this was "a massive victory for common sense". "This shows the FSA is listening to people's concerns and is not merely trying to get rid of mutuals and with-profits."
The draft regulation still has to go before the FSA's board for approval. This is likely to take place later this month, with the revised plan being published in early July.
The FSA, though, is still concerned about with-profits as a product, believing it does not fit in with the principles of increased disclosure to customers about what is being done with their money.
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