FSA gets it wrong - again!
The FSA has made a spineless decision on with-profits funds.
The FSA doesn't have a great track record when it comes to protecting consumers. Just think of its spineless performance on bank charges.
Well, this week, the FSA made an equally bad decision on with-profits funds. Many of these investment funds have performed poorly over the last few years and were missold by insurance companies. In fairness, the FSA has fined some insurance companies for misselling. But the bad news is that the insurers are allowed to pay the fines with money that doesn't really belong to the insurers. (In my view, anyway.)
The money comes from the with profit funds' 'inherited estates.' This is excess money that isn't needed to meet the funds' liabilities. Now, before I go any further, I should say that inherited estates are a controversial issue. Some people think all of the estates should be returned to policyholders. Others disagree. But I'm not writing about that issue today.
My point is that even if we accept that the insurers should have access to some of the inherited estate, it's still not right that this money can be used to pay for fines.
A fine should be a punishment for an insurer. It's supposed to be a deterrent that will discourage dodgy misselling in future. But if the money comes from the inherited estate, the insurers aren't suffering much pain. And that's wrong.
Which? highlighted this issue on Monday and they were spot-on.. The Which? CEO said:
"This is an unbelievable betrayal of consumers who are taking hits from all sides. It appears the FSA is allowing the financial services industry to dictate policy once again.
"In the current environment it seems ludicrous that firms can raid with-profit funds to pay for their own regulatory failings. The FSA must stand up to this industry."
I've nothing more to add...