Name and shame 'poor' with-profits firms, FSA urged

Advisers and consumer groups are calling on the FSA to reveal the identity of the two with-profits providers this week referred to its enforcement division.

The firms were put under further investigation after concerns were raised about governance following an FSA review of the £330bn with-profits sector.

A number of other firms have been directed to make immediate changes to their governance arrangements to better protect policyholders’ interests, as the FSA says it will take ‘strong action’ to ensure its requirements are met.

It follows a review into the operation of with-profits funds which saw the FSA assess 17 firms representing, as at 31 December 2009, about 80% of the assets in the with‑profits market.

The FSA focused on whether firms were treating their with-profits policyholders fairly, and looked specifically at how senior management in firms have implemented FSA rules.

It concludes the performance of firms is “mixed”, warning a "significant number" of firms were not adequately demonstrating the practices the FSA expects "from a well-run with-profits business”.

The FSA says it never names the firms referred to enforcement unless it ends up taking action against them.

But advisers are now calling for the worst of these firms to be named and shamed in the consumer interest.

Posting comments on our sister site, IFAonline.co.uk, Charles Fisher says: “As an adviser to consumer stakeholders it would be useful if the FSA named the companies being referred to enforcement. This would help me when carrying out with-profits reviews, which I am required to do to satisfy the FSA.”

Harry Katz, principal at Norwest Consultants, also called for the names to be disclosed in the public interest as “with-profits has been a scandal for years”.

Which? chief executive Peter Vicary-Smith adds: “Despite reviews dating back as far as 2001, the FSA has continually failed to look out for the interests of with-profits policy holders.

"It effectively looked the other way when Prudential, AXA and then Aviva plundered the inherited estates of their with-profits funds and failed to act despite criticism from Which? and the Treasury Select Committee.

“The FSA must name the firms that it is referring to enforcement and set in place rules that will ensure fair treatment for with-profits policyholders.”

However, an FSA spokesperson says: "They have been referred for further investigation which means we will look in more detail at these firms but it would be unfair to name them at this stage as action may not be taken against them.”

The regulator has already outlined immediate action these firms should take to address some of its concerns.

Conclusions of the policy review on with-profits and any proposed changes will be published in a consultation paper before the end of 2010. Policy proposals which might be directly affected by Solvency II will be released in 2011.

With-profits

Main areas of concern

• ineffective governance of with-profit funds, especially in how independent challenge is provided by firms’ with-profits committees, which means policyholders’ interests may not be properly protected
• significant weaknesses in the quality of consumer literature – the FSA is not satisfied that all firms are doing enough to ensure policyholders receive sufficiently comprehensive, timely and clear information to help them understand their policies.