Overview
The Financial Services Authority (FSA) continued towards its objective to establish a common risk-based approach to regulation across all financial sectors. Strengthening insurance regulation has been a theme throughout the year and, as the industry adopts
a more rigorous approach, there is greater emphasis on the need for senior managers to understand fully the nature and extent of their regulatory responsibilities.
During 2003, the FSA issued over 50 consultation and discussion papers. Its decisions to improve unsatisfactory aspects of the regulatory regime were behind some of these papers, but the UK government's legislative developments and policy decisions, and EU legislation under the Financial Services Action Plan, prompted many of them.
Selling simplified investment products
The Sandler review into medium and long-term retail savings has recommended a simplified regulatory regime to cover the sale of a suite of simplified investment products. Different ways of ensuring simplicity, control and investment risks are still under review, and CIS has been helping the FSA with consumer testing. The outcome of HM Treasury's consultation on the products' specification and 'price cap' will be crucial to the success of the proposed new simplified product range.
Depolarisation
The FSA developed further proposals on the currently tied and IFA sectors of retail financial services. During 2004, we expect to see a 'freer' market, where providers will be able to sell each other's products.
With-profits review
Recognising the continuing demand for a long-term savings product that offers some protection from market volatility, but incorporating increased transparency and better governance, the FSA issued reforms aimed at rebuilding market confidence in with-profits funds. In early 2004, providers must produce a Principles and Practices of Financial Management (PPFM) for their funds, to show policyholders how they determine payouts and set annual and final bonuses. A new consultation paper, 'CP207 Treating with-profits policyholders fairly', sets out further proposals on the approach to surrender values and charges to with-profits funds. The proposed new rules and guidance on running with-profits funds in the future are extensive and will need to be embraced positively by the industry.
Integrated Prudential Sourcebook
The FSA continued to develop their Integrated Prudential Sourcebook, which will provide a single, coherent and up-to-date set of prudential requirements, based on the risks a business runs. The new Sourcebook will also introduce new international standards as their requirements become operational over the next two years. During 2003, the FSA published additional proposals and, in parallel, refined the existing regulatory regime to incorporate up-to-date thinking on risk evaluation - in particular, the 'realistic' approach to life fund solvency calculations.
Expanding regulatory scope
A further reform is the expansion of the FSA's scope to cover the sale and service of mortgages and general insurance products, taking effect in October 2004 and January 2005 respectively. CIS will ensure that it has the systems and controls to continue to be effective in these important markets.
Anti money-laundering
Increased controls to combat money-laundering have remained a priority for CIS during 2003. We fully endorse the emphasis the FSA places on risk identification and thorough and complete record keeping.
