The Treasury Select Committee has published their report based on their inquiry into inherited estates. The Committee is none too complimentary about the Financial Services Authority’s (FSA) regulation of the with-profits industry.
"The Committee concludes that the Financial Services Authority (FSA) is not providing a robust enough framework to manage the conflicts of interest inherent in proprietary life funds."
I am hardly surprised, the FSA's "regulation" has been all but non existent.
Chairman of the Committee, the Rt Hon John McFall MP said:
"The approach taken by the FSA towards inherited estates seems a long way from the philosophy of 'principles-based regulation' to which it aspires. Policyholders need to have confidence that their interests are being protected, but the current oversight by the FSA gives no such assurance.
Policyholders deserve a regulatory framework based on a clear set of principles and unambiguous guidance on how inherited estate can be used by life firms’ management."
He refers to FSA regulation as "barmy":
"Shareholder tax is another example of the FSA's barmy regulation in this field."
He then goes on to put a well aimed boot into Prudential:
"I was astonished that the Prudential had taken £1.6 billion from their inherited estate to pay the costs of compensation arising from mis-selling."
Then Norwich Union:
"Tens of thousands of Norwich Union’s longest-standing policyholders do not stand to receive the whole value of the recently announced special distribution. The Committee was not convinced by the argument that such phasing of payments was necessary for the stability of the funds concerned.
In my view, phasing represents an unreasonable barrier for policyholders wishing to exit the fund."
The Committee calls on the FSA to take action in several areas to ensure that policyholders interests are protected, including the following:
- To ensure that a fair price is offered in a re attribution, not just an adequate price.
- To provide a very strong case about why the phasing of special distribution payouts should be permitted, noting that the FSA has yet to put forward an adequate case.
- To consult on a redesign of the overall regulatory system for with-profits funds during 2008. The Committee said that they are not satisfied that the FSA has done enough to provide a robust framework.
- To consult on the charging of shareholder tax to the inherited estate by the end of 2008, noting that their view is that it should not be permitted.
It is clear that those with money stuck in these lousy endowment funds have been ill served by the FSA. It really is worth, in my view, considering mounting a class action against the FSA and the life assurance companies for this disgraceful situation.