The Financial Conduct Authority has given life companies three months to update practices and comply with new guidance on how to ensure that closed-book customers are given the same treatment as new business customers.
The FCA has published its finalised guidance providing firms with detailed information on the actions they should be taking in order to treat their closed-book customers fairly. Among the products covered by the guidance are personal pensions (including SIPPS and Retirement Annuity Contracts), endowments, investment bonds and whole-of-life policies.
The UK financial watchdog said in a statement today announcing the release of the guidance, that it wants to ensure that closed-book customers, who have life insurance products that are closed to new business, are treated fairly and do not receive less attention than customers who have recently taken out a new product.
This guidance forms part of a programme of work across the FCA that aims to address the risk of poor practice in the treatment of existing customers, as outlined in its recent Business Plan and stated in the release of, as reported, its ‘Mission’ document.
The UK regulator believes that some groups of consumers are likely to be vulnerable because of circumstances and it is keen to ensure that some firms “do not take advantage of, such as those who are trapped unwillingly in long-term contracts”.
The guidance follows the findings of the FCA’s thematic review into the fair treatment of long-standing customers in the life insurance sector (TR16/2) which found a mixture of good and poor practice across the firms involved.
The FCA guidance covers four high-level customer outcomes:
- The firm’s strategy and governance framework results in the fair treatment of closed-book customers.
- The firm’s closed-book customers receive clear and timely communications about policy features at regular intervals and at key points in the product lifecycle to enable them to make informed decisions.
- The firm gives adequate consideration to, and takes proper account of, fund performance and policy values in a way that ensures it treats its closed-book customers fairly and proportionately.
- The firm’s closed-book customers are able to move from products that are no longer meeting their needs in a fair and reasonable manner.
Megan Butler, executive director supervision – investment, wholesale and specialists division at the FCA said: “Our previous work in this area uncovered poor practices at some firms across the sector. We are not introducing new rules, but this guidance will help firms know what we expect of them to ensure their customers are treated fairly going forwards.”
The products covered by the guidance are personal pensions (including SIPPS and Retirement Annuity Contracts), endowments, investment bonds and whole-of-life policies. However, the FCA said that it expects firms to consider the guidance in informing their practices and processes in respect of all products, including actively marketed products, in which long-standing customers are invested.
Three month deadline
Firms are expected to review their business practices within three months of today’s date and, if necessary, make changes to them in light of the guidance.
Click on the following licks to read the FCA full reports on finalised guidance 16/8: Fair treatment of long-standing customers in the life insurance sector and the thematic review 16/2: Fair treatment of long-standing customers in the life insurance sector.