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FCA calls on providers to review closed-book policies


The FCA has called on providers to review their closed-book policies to make sure customers are still being treated fairly.

Except in “exceptional” cases, products should be reviewed at least every five years, the regulator said in new guidance on how to treat closed-book customers this morning.

The update follows a March review of how long-standing customers in policies closed to new business were being treated. Six providers were referred to FCA enforcement after the regulator uncovered widespread failures as part of the closed-book review, including over the disclosure of exit fees and paid-up charges.

The FCA says: “Firms that have closed-book customers should have well-defined and effective processes to ensure that products continue to meet customers’ reasonable expectations. Firms should also have in place adequate risk management systems to ensure that they can identify where poor outcomes may be occurring, and take appropriate action.”

The regulator said that there may be cases where much more frequent reviews of closed-book products were needed however.

“We feel it would be highly unlikely that a five-yearly review will be sufficient for all products on a firm’s book. There are also likely to be events that occur that give good reason for carrying out an ad hoc review: for example, a firm may highlight that its range of pensions require review due to recent legislative changes promoting increased freedoms to ensure that these products will continue to provide fair outcomes for customers in light of the changes made. If not, firms should take action to address this.”

The FCA said its guidance did not mean firms would be required to amend terms and conditions, but that firms should be doing things like communicating charges and other options available before charges are applied, as well as taking other products into account when performance is poor.

“Due to the long term nature of these contracts we consider a reasonable interpretation of fairness should include a more holistic consideration of the overall outcome being delivered today rather than rely solely on something that was promised many years ago and which is embedded into a contract’s T&Cs.”

The FCA says it expects firms to conduct a business review in the next three months and react to the guidance if they need to, including by dropping any outsourcing contracts that are no longer in customers’ best interests.

The regulator also says that a “voice of the customer” should be heard on key committees to make sure firms adequately consider treating customer fairly principles.

However, the FCA stressed that providers did not need to give full advice to closed-book customers.

“This guidance applies to product providers. Where we refer to firms’ communications with customers, we are referring to provision of information rather than advice. We do not intend there to be any implication in this guidance that product providers should provide advice to customers.”



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