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Dear CEO | Release Date: 25th April 2019

To read a longer summary of this Dear CEO letter, click here.

To access the original FCA document, click here.

Short Summary

The FCA has released a thematic review focusing on the fair treatment of with-profits customers by firms managing with-profits funds. The review aims to help firms improve the management of these funds and enhance outcomes for customers. It outlines key findings, examples of good and poor practices, and sets expectations for firms in managing with-profits business.

Key areas of concern identified include:

Investment Strategy and Management: Firms are generally managing risks well, but ongoing vigilance is needed to maintain this.

Governance and Oversight: Some firms displayed weak governance structures, lacking effective oversight and challenge from senior management and boards, which could lead to future customer harm if unaddressed.

Run-off Plans: Many firms were not fully utilising run-off plans as active management tools for closed with-profits funds, which could lead to unfair practices in fund management and distribution.

Excess Surplus Assessments: Some firms failed to conduct annual assessments of excess surplus, risking unfair distributions between exiting and continuing customers.

Capital Management: Inconsistencies were noted in firms’ approaches to managing fund-level capital, with some lacking clear definitions of reserve levels needed to balance fairness in payouts and security of benefits.

The FCA expects firms to:

Key Take-Aways and Actions for Affected Readers:

Firms managing with-profits funds should critically assess their current practices against the FCA’s findings and take immediate steps to address any areas of non-compliance or weak practices. They should prepare to discuss their actions and improvements in the upcoming engagements with the FCA. The review serves as a reminder of the importance of robust governance and effective fund management to ensure fair outcomes for with-profits customers. Failure to address these areas may prompt further action from the FCA.

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