• FSA Library
  • Communication documents
    • Press releases

FSA/PN/104/2007
28 September 2007

Important changes which will allow life insurance companies to invest in a wider range of unit-linked assets will come into effect next month.

The current Financial Services Authority (FSA) 'Permitted Links' rules, which govern which assets the £730 billion unit-linked insurance sector can invest in, have been in place since 1994 and were in need of updating to reflect market changes over that time. Dan Waters, FSA Director Retail Policy and Asset Management Sector Leader, said:

“We have taken the opportunity to move away where possible from detailed rules and replace them with a set of more principles-based high level rules. This is a practical expression of how the FSA is moving towards more principles-based regulation and will give the firms affected greater flexibility in investing whilst maintaining an appropriate level of consumer protection.”

The new rules reflect changes in recent years in the way investment markets operate. For example, there are changes to the way land and property is defined and can be held and a new category of 'institutional policyholder' has been created.

The new rules come into effect on 6 October and fulfil a commitment in the FSA Business Plan 2006/07 to review the Permitted Links rules. Consultation was carried out earlier this year and a Policy Statement issued today sets out the rule changes.

Notes for editors

1. See Policy Statement 07/17, Permitted links for long term insurance business.
2. See Consultation Paper 07/7 – Permitted links for long term insurance business.
3. The UK's unit-linked market is extremely large. At the end of 2006, the assets representing these products amounted to some £730 billion and premiums paid into these products in 2006 were estimated at over £110 billion. Institutional pension fund money makes up approximately 40% of the total funds under management. The rest of the investments are held on behalf of, primarily, retail investors through products such as personal and executive pensions, mortgage and savings endowments, whole of life products and investment bonds.
4. The current rules for Permitted Links are set out in the Interim Prudential (Insurance) module of the FSA Handbook. The new rules will be located in the FSA's Conduct of Business Sourcebook (COB) and from 1 November in the New Conduct of Business Sourcebook (COBS).
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 promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.