FSA releases sector briefing on closed with-profits funds

David Strachan, the FSA's sector leader for insurance, said:

"Closed with-profits funds have attracted considerable interest of late, with concerns often focusing on policyholders who are seen as being trapped in these funds. It is right that the spotlight should be shone on this particular part of the life insurance industry. However, closed funds remain an area that is not well understood and the position is often more complex than is first appreciated.

"The FSA has carried out extensive work on closed with-profits funds and the issues surrounding these funds remain a focus for us. We are keen to raise the level of understanding as well as to dispel some of the myths surrounding closed funds. I am certain that this briefing document will prove a useful source of reference for those who have an interest in closed with-profits funds."

The issues covered by the briefing paper include:

• the FSA's current regulation of closed funds and our proposed changes to the regime;

• challenges for the with-profits industry, in particular the need to treat closed with-profits funds policyholders fairly; and

• common myths surrounding closed funds, such as the belief that policyholders in closed funds should always cash in their policies.

Notes for editors

1. The insurance sector briefing is published here on our website.

2. Our most recent consultation paper on with-profits policies CP04/14: Treating with-profits policyholders fairly Further consultation is available here on our website. On the same page you can also find the earlier consultation, CP207: Treating with-profits policyholders fairly, which was published in December 2003.

3. The FSA started its review of with-profits regulation in spring 2001. The initial review consisted of five issues papers followed by a feedback statement in May 2002 with proposals for changes in the regulation of with-profits business. All publications relating to the with-profits review including subsequent consultation papers and policy statements can be found here on our website.

4. In July 2004 the FSA published a paper entitled Treating Customers Fairly. This reviews the progress firms across all sectors have made in implementing the FSA principle requiring the fair treatment by firms of their customers and considers the next steps to build on improvements made and to address shortcomings.

5. 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; securing the appropriate degree of protection for consumers; and fighting financial crime.

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