FSA sets outs ideas for improving the transparency of with-profits funds

• presenting certain information currently in the returns in summary form, but also including additional details of financing and capital support;

• requiring additional disclosure, based on asset shares. This would be a major change over current disclosure requirements and would be a significant step towards better understanding of the with-profits business; and

• Publishing regulatory returns on the FSAs website to make them easily accessible to analysts, commentators and consumers.

Speaking at a conference on life insurance at the Institute of Economic Affairs today, John Tiner, FSA managing director - consumer, investment and insurance directorate, commented:

Significant improvement in the transparency of with-profits funds, which form such a large part of the insurance industry, must be one of the major outcomes of the FSA review of insurance regulation that I am leading. More open reporting will strengthen consumer confidence and I am confident that the industry will respond positively to our ideas.

The purpose and content of the regulatory returns need be reviewed to provide a clearer picture of the underlying financial position of with-profits funds and of the risks to which they are exposed. The issues paper sets out a number of ideas on how this might be achieved, including disclosure at individual fund level and making them more easily accessible.

Information at individual fund level

The FSA recognises that regulatory returns are very detailed and opaque documents and suggests providing, at an individual fund level, key information in summary form. A further option would include a change in disclosure to show an insurers ability to meet full discretionary (rather than only guaranteed) benefits . This would be a significant step towards better understanding of the with-profits business. The Issues Paper includes illustrations of how such summary reports might look.

Improving accessibility

At present, information in the regulatory returns cannot be accessed until it has been placed on the public record at Companies House, having first been submitted to the FSA. Under current legislation, the filing deadline to the FSA is six months after the year-end. This is already to be reduced to four months for years ending on or after December 2001 and to three months for years ending on or after December 2002. However, the returns cannot be viewed electronically at Companies House. On-line publication would therefore make access quicker and easier.

The Issues Paper is the second in a series to be published under the FSAs review of the With-Profits industry. This review was announced in February and will itself form an important part of the comprehensive review of insurance regulation that the FSA is already undertaking.

The purpose at this stage is to stimulate debate and seek views on a series of issues and responses are requested by 11 January 2002. . The FSA will draw on the responses to this paper, and those to other issues papers to be published during the remainder of the year, in bringing together the conclusions of the With-Profits Review in Spring 2002.

Notes for editors

1. The full issues paper can be found on the FSA website www.fsa.gov.uk. Copies are also available from the Publications Department 0845 608 2372.

2. The FSAs with-profits review was announced in February and is looking at the prospects for change in four main areas:
   • the extent of discretion available to management over the operation of with-profits funds and how that discretion is exercised;
     
   • improvements in the transparency of the published information in consumer literature and in the regulatory returns about with-profit funds;
     
   • better information for policyholders about the progress of their investments, including improvements in the language used to describe returns, and greater clarity about investment strategies and the way in which terminal bonuses are determined; and
     
   • the principles which underpin the requirement for firms to have due regard to the interests of customers and to treat them fairly.

   In the first phase of the Review a number of activities were undertaken to gather information and seek input to the scope of the Review, including publication of an initial Discussion Paper, an Open Meeting held on 18 June, a programme of visits to interested external parties, and consumer research. The issues arising are being taken forward in a further series of Issues Papers covering the key themes under the Review: Procedures for Handling Inherited Estate; Use of Plain Language; Disclosure, Regulatory Reporting; Unfair Contract Terms; and Governance & Discretion. A final report will be prepared by Spring 2002.

3. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000; maintaining market confidence; promoting public understanding of the financial system; the protection of consumers; and fighting financial crime.

4. The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.