The Financial Services Authority has been slammed by consumer group Which? for easing the rules on insurers using surplus in their with-profits funds to pay mis-selling fines.
Which? has accused the FSA of siding with the financial services industry over the consumer in forcing policyholders to 'bear the brunt' of mis-selling costs.
When life insurance companies
mis-sell with-profits products like life insurance
to policyholders, they are fined by the FSA and ordered to pay compensation to those affected.
Currently, FSA rules state that these companies can charge the compensation costs they are ordered to pay to the inherited estate.
Which? says that the current system is totally unfair, and that allowing shareholders to avoid responsibility "goes against all principles of good corporate governance," so was pleased with FSA proposals following a consultation in June 2008 that insurers should not be allowed to pay mis-selling fines using money from their customers' with-profits funds.
Originally, the proposals stood for all payments made after 1 November 2008, regardless of when the mis-selling occurred, but yesterday, the FSA changed its tune, and said that although the rule will go ahead, it will only be made effective from July 2009.
"The FSA is now proposing that the amended rules should only apply to compensation and redress payments resulting from events that take place after the rule comes into force. This will provisionally be the end of July," said the FSA in a statement.
This U-turn has infuriated Which? The group says that due to the fact that compared to previous levels of business, there are now very few with-profits policies sold each year, so the FSA’s proposals will have "an extremely limited impact" and will allow firms to "dodge the consequences of past mis-selling and millions of pounds will continue to be taken from the funds."
"The FSA has, once again, left policyholders in the lurch and sided with the financial services industry," said Which? chief executive, Peter Vicary-Smith. "This regulator repeatedly shows it’s unwilling to stand up for the interests of with-profits policyholders."
He continued, "With bonus rates plunging and transfer penalties being introduced, the last thing people need is firms raiding with-profit funds to pay for their own regulatory failings.
"It’s outrageous that insurance companies will be let off the hook, depriving policyholders of millions of pounds.”
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