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FSA gets it wrong - again!

Ed Bowsher
by Lovemoney Staff Ed Bowsher on 29 July 2009  |  Comments 3 comments

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...

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Comments (3)

  • LAWR3NC3
    Love rating 9
    LAWR3NC3 said

    FSA fines are a funny beast at the best of times.

    If they are to act as a deterrent then they need to directly hit the pockets of the directors/managers of the company at fault, who were unable to put appropriate management systems in place. These individuals can then pass the blame & penalties down the line to the salesmen who presumably actually made the sales & earned the bonuses & secured their continued employment. The Which Magazine rightly castigates the FSA for effectively allowing the product providers to pay their fines out of a fund which will eventually (after all what else could they use it for?) be used to pay bonuses to the policy holders whose suffering is the cause of the fines in the first place! The lunatics have truly taken over the asylum.

    Why isnt the FSA required to recompence the policy holders with the fines they receive? Believe me this never happens. What do they actually do with the fines? Answer: They increase their own bureaucratic reach & fiefdom by introducing ever greater form filling & employing ever more box tickers.

    What does the FSA actually achieve? (To avoid intruding on their only too recent & public disgrace, we will not consider their ability to regulate the banks; Let us, instead consider one of the FSAs most vaunted regulatory systems -their infamous 'money laundering' requirements. If anyone thinks this is a good system then they should try opening a new bank a/c, or simply adding their spouse to an existing bank a/c. The cost to 'UK Plc' is absolutely enormous & runs to perhaps £100m pa. This effects (& delays) just about every single financial transaction in the country but, to date, I think I saw an article 18 months ago suggesting that, since these regulations had been introduced,  less than £10million in 'dirty money' had been confiscated by these means! Please would someone give me a happier result than that!   

    HstG

    Report on 31 July 2009  |  Love thisLove  0 loves
  • Ed Bowsher
    Love rating 79
    Ed Bowsher said

    Hello Honky,

    Thanks for pointing out my spelling mistake! I've corrected it.

    lawr3nc3,

    Thanks for your interesting points on the FSA. Interesting. Especially the bit about money laundering.

    Ed

    Report on 31 July 2009  |  Love thisLove  0 loves

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