Posted: 16th December 2016


On 9 December, the FCA published its finalised guidance for the fair treatment of closed-book customers. The guidance provided firms with detailed information on the actions required in order to treat their closed-book customers fairly.

The treatment of long-standing customers has been a priority for the FCA for some time, and was outlined in the business plan 2016/17. The regulator believes that existing customers should enjoy the benefits of increased competition and innovation by firms, and as such the FCA has been working on its aims to reduce the risk of poor practice in the treatment of existing customers.

The FCA wants to ensure those customers who have life insurance products which are closed to new business are treated fairly and receive the appropriate level of service, and enough information to help them make sound decisions over their product’s suitability.

As well as this, the FCA’s recent consultation paper on its mission stated some groups of consumers are likely to be more vulnerable because of pressing individual circumstances or a lack of financial services understanding. The FCA does not want to see ‘trapped’ in long-term contracts on terms that are deemed unfair, or disproportionally costly to exit.

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.”

Key Points from FG16 / 8

The FCA’s thematic review (TR16 / 2) into the fair treatment of long-standing customers in the life insurance sector found that the firms that were sampled displayed a mixture of good and poor practices. Following on from the results, the finalised guidance focuses on four high-level outcomes and 14 sub-outcomes:

Outcome 1 – the firm’s strategy and governance framework results in the fair treatment of closed-book customers.

  • Sub-outcome 1.1 – the firm’s overarching strategy, including any outsourcing arrangements, takes proper account of the fair treatment of customers
  • Sub-outcome 1.2 – the firm checks, through periodic product reviews, that closed-book products remain fit for purpose and continue to meet the general needs of the target audience for whom they were designed
  • Sub-outcome 1.3 – the firm has adequate governance arrangements for its closed-book business
  • Sub-outcome 1.4 – the firm’s remuneration, reward and performance management arrangements are consistent with the fair treatment of customers

Outcome 2 – the firm’s closed-book customers receive clear and timely communications about policy features at regular intervals and at key points in the product life cycle to enable them to make informed decisions.

  • Sub-outcome 2.1 – regular communications to customers provide them with sufficient information to make informed decisions
  • Sub-outcome 2.2 – communications to customers at the time of key policy events are clear, accurate and enable them to make informed decisions
  • Sub-outcome 2.3 – communications with customers make them aware of guarantees or options (whether time-critical or not)
  • Sub-outcome 2.4 – the firm takes effective action to locate and make contact with ‘gone-away’ customers

Outcome 3 – 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.

  • Sub-outcome 3.1 – the firm takes steps to deal with poor performance with closed and actively marketed products given equal attention
  • Sub-outcome 3.2 – overall, expenses are allocated fairly to closed-book products
  • Sub-outcome 3.3 – the firm regularly reviews the overall fairness of cost allocations and actual customer outcomes, and applies a consistent basis for these reviews
  • Sub-outcome 3.4 – the firm proactively monitors the actual experience of its closed-books of business and consistently passes on the benefits and costs to customers, to the extent permitted by policy conditions

Outcome 4 – 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.

  • Sub-outcome 4.1 – exit and paid-up costs are not excessive and are not driving poor customer outcomes
  • Sub-outcome 4.2 – target ranges for with-profits pay-outs appear reasonable and firms meet these target ranges without the variation of pay-outs being too wide

Regulatory Next Steps

Firms are expected to start reviewing their business practices within three months of this publication (9th December 2016) and to take necessary actions if required. Firms should use the outcomes to better understand the FCA expectations and ensure they are aligned.

Considerations for firms

There are a number of actions that firms may be required to take to ensure that their long-standing customers are treated fairly. Initially, the method by which they review their closed-book accounts – with consideration to the different characteristics their customers may have – will assist the implementation of any changes required.

They will also need to complete periodic reviews of the approach to ensure they are servicing all their customers fairly. In order to ensure their communications with customers are clear and timely, firms should also look to ensure customers are contacted at key points in the product life cycle.

Firms need to adopt clear and effective processes when providing oversight of customer funds. Firms should be thinking about the frequency of reviews, monitor the performance of funds and have a clear reporting framework, setting out metrics of what is expected of their fund managers and at what frequencies. Firms must also assess whether exit charges or paid-up charges are fair. If they are not, firms should be looking to take action to address any unfair outcomes for customers.

It is also worth noting that the FCA still remains focused on vulnerable customers as it states early on in the paper. This indicates the need for firms to review their internal culture to ensure that good customer outcomes are central to their overall business approach.

Read the FCA's full report.

regulatory action paper

We've published a new regulatory action paper 'Delivering Fair Outcomes to Long-standing Customers', which is intended to help firms as they plan their activity up to the end of March and beyond.


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