FSA must do more to ensure Treating Customers Fairly for reattribution of inherited estates says Consumer Panel

13 December

The FSA has today published a letter to Norwich Union and the Policyholder Advocate about the proposed reattribution of the Norwich Union Life Fund. The reattribution will decide how much money will be paid to policyholders for giving up future rights. Billions of pounds are at stake.

The Policyholder advocate has questioned the basis of the calculation of how much may be due to policyholders and challenged some of the expenses charged to the fund. In our recent research into with profits funds we also challenged the sums that can be deducted from the fund as expenses.

We are pleased that in today's letter, the FSA has stated that it will consult early in 2008 on whether mis-selling costs should be paid from the fund, and we will express our strong view that the shareholders, not policyholders, should fund any mis-selling costs.

We remain critical that other expenses such as the expenses of financing new business and some shareholder tax can be deducted from the fund, although we are pleased that the FSA proposes greater scrutiny of these deductions. The FSA has acknowledged that a firm could set a high risk appetite requiring capital to be set aside to cover this and then after the reattribution adopt a low risk appetite and pass the excess capital to shareholders, thus circumventing the reattribution. The FSA says it expects firms to limit post reattribution distribution to shareholders and we look forward to seeing how this can be achieved.

John Howard, Chairman of the Financial Services Consumer Panel said:

"The role of Policyholder Advocate was created by the FSA to represent policyholders in any reattribution. Clare Spottiswoode and her team have done an excellent job of unpicking the complex web of with profits, exposing some potential conflicts of interest that must be addressed. "

 

Notes to editors

1. The FSA established the independent Financial Services Consumer Panel in December 1998 to advise its Board on the interests and concerns of consumers and to report on the FSA’s performance in meeting its objectives. The Consumer Panel has statutory status.

2. The emphasis of the Panel’s work is on activities that are regulated by the FSA, although it may also look at the impact on consumers of activities outside but related to the FSA’s remit. More information about the Panel's work is available on this website.

3. The Consumer Panel brings together a wide range of relevant experience. This includes financial services regulation, working with vulnerable consumers, consumer protection, consumer education, front-line money advice, legal expertise, competition policy, public policy analysis, market research and media.

4. There are currently twelve members of the Panel as listed below (for further information on individual members, see the Panel's website – www.fs-cp.org.uk)

John Howard (Chairman)
Adam Phillips (Vice Chairman)
Kay Blair
Michael Chapman
Stephen Crampton
Caroline Gardner

Jenny Hamilton
Tony Hetherington
Nick Lord
David Metz
Lindsey Rogerson
Carol Stewart