The key points from the review are:
• 11 firms of varying types and sizes were included in the thematic review.
• The FCA found a ‘mixed’ picture.
• The regulator aimed to gain an understanding of the levels of exit and paid-up charges being incurred by long-standing customers, and firms’ behaviour in applying those charges. They found that even where customers are aware of the charges, the impact on returns received may be significant and may present a barrier to ‘shopping around’.
• The FCA also sampled communications provided to long-standing customers, who had requested either to surrender or transfer their policies.
• Six of the 11 firms applied exit or paid-up charges to some policies. The FCA findings indicate that these six firms may have failed to inform customers of these charges at the time they were incurred, raising concerns that some customers may potentially have been unaware that they would have to pay such a charge or that they have paid or are paying such a charge.
• No final conclusions have been drawn on how widespread these practices may be, but the FCA will undertake further work in relation to this matter.
The draft non-handbook guidance provides firms with extra detail on the actions they should be taking in order to treat their closed-book customers fairly in the future. The FCA aims to convene an industry-wide discussion with a view to reaching a voluntary solution to capping or removing exit and/or paid-up charges on investments of the type that were the subject of this thematic review.
This is part of the FCA’s wider work on pensions and contractual terms, as well as the design of the product lifecycle which began in 2008, all of which has been bubbling under the surface for some time. A number of the firms cited may be referred for enforcement action; however the outcome is currently uncertain.
This is a three month review, so the FCA has requested feedback by 3rd June 2016. If you would like to give your input on this issue, just email tr16-02@fca.org.uk with your views.
