Published by Vivienne Maclure on
More recent developments in the industry, in the form of Solvency II and the problems identified within the Co-operative Group, have seen that systems of governance continue to receive attention.
The FCA also has governance high on its agenda and plans to undertake a thematic review of with-profits governance, later this year or early in 20151. Can we expect to see Skilled Person Reviews focusing on this area?
Is there anything that you could be doing in preparation for the FCA’s thematic review that could help avoid a Skilled Persons Review? Is it time for you to undertake a healthcheck of your with-profits governance?
This blog recaps the background to with-profits governance, considers what the FCA review could focus on and suggests what you may wish to do ahead of this.
A number of significant factors and events, including the closure of Equitable Life and the stock market falls of 2001 and 2002, highlighted the inadequacy of governance arrangements and the substantial discretion available to firms in the operation of with-profits funds. This led to comprehensive rules and guidance, relating to the fair treatment of with-profits policyholders, being introduced in 2005.
These rules and guidance, primarily set out in COBS 20, were introduced with the aim of improving with-profits governance arrangements:
Whilst these measures were a starting point for tackling the issues relating to poor governance, they were subject to scrutiny and were considered inadequate in addressing all the issues. This led to further amendments of COBS 20, presented in the FSA’s paper PS12/42, which were effected from 1 April 2012. These amendments covered a range of aspects relating to the operation of with-profits business, including the distribution of capital, writing new business and dealing with run-off, but the most significant change was the introduction of a new section, COBS 20.5, which was dedicated to rules and guidance relating to the governance of with-profits.
Whilst specific details of the scope of the FCA’s review are not available, it is likely that the requirements in COBS 20 and, in particular, COBS 20.5 – with-profits governance will form the basis of the review. Areas which could then be covered include:
The FCA will be keen to see that appropriate arrangements have been put in place and that they are effective in ensuring fair treatment of all with-profits stakeholders.
Proprietary and mutually owned with-profits firms will have taken steps to establish necessary procedures and arrangements to meet the requirements in time for their implementation in 2012. It would be worth revisiting and appraising these now, confirming that:
We can assist firms with their preparations by carrying out an independent healthcheck of their governance arrangements to assess whether they are in shape and comply with the with-profits governance rules and guidance in COBS 20. The key questions included in our review would enable an effective and efficient fitness assessment.