FSA seeks views on Sandler with-profits proposals

FSA Managing Director John Tiner said:

"We strongly support Mr Sandler's objective of achieving greater transparency and intelligibility for with-profits business and we agree with his broad approach to the corporate structure within which it is proposed that firms should write with-profits business. We also see merit in the recommendations that with-profits funds should limit their investments essentially to tradeable assets and avoid financing the firms other business ventures.

It appears to us that, at a detailed level, there may be scope to simplify the proposed structure, thereby making both product design and consumer understanding easier. And the design of the implementation detail will require careful analysis and evaluation.

We would be particularly interested to receive views on two of the reviews recommendations. The first concerns the mandatory adoption of the proposed new model for all future new with-profits business. The second refers to one of the recommendations for compulsory information disclosure. We believe there is some risk that this might have the unintended effect of encouraging selection against funds in weak investment markets, which could damage their financial stability and the interests of continuing policyholders. This risk is, of course, balanced against the objective of more transparency and Mr Sandler points out that it could be mitigated by application of market value adjusters to terminating policies.

We will be very interested to receive comments on these and the other issues raised in the Discussion Paper. And we will continue to work with Government and others as the specifications for the with-profits product and the other Sandler products are developed."

Notes for editors

1. Discussion Paper 20 Issues for with-profits business arising from the Sandler Review is available on the FSA Website www.fsa.gov.uk. Comments are sought by 16 May 2003.

2. Ron Sandlers review of competition in the retail savings market was published in July 2002. He made several recommendations on the nature of with-profits policies, the structure of with-profits funds and the information that should be disclosed to policyholders.

3. In January 2003 the FSA published FSA Discussion Paper 19 which looked at options for regulating the sale of the proposed Sandler suite of simplified investment products including the with-profits product.

4. The FSA has a programme of consultation underway to implement the conclusions of the With-profits Review, most recently CP 167 With-profits governance, the role of actuaries in life insurers, and certification of insurance returns.

5. The Treasury published in early February a Consultation Document, Proposed specifications for Sandler stakeholder products.

6. 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 appropriate degree of protection of consumers; and fighting financial crime.

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