Product providers are set to ignore an FSA letter warning insurance companies against using trust-based arrangements to sidestep the Retail Distribution Review.
Last month Corporate Adviser reported that the FSA had sent a confidential letter to the ABI telling insurers that it would not tolerate them setting up trust-based schemes that paid commission to get round the prohibition on commissions expected from 2012 in the RDR. The FSA has refused to confirm the exact wording of the letter, but says it is monitoring the issue closely.
Standard Life head of policy John Lawson says the FSA’s words are hollow because it is completely powerless to stop providers from doing anything in the trust-based sector. The FSA has no jurisdiction over occupational schemes, which are governed by the Pensions Regulator.
The RDR will not apply to occupational schemes and some providers are looking at launching trust-based arrangements that allow commission to be paid to advisers. Trust-based schemes will also allow refund of employee contributions, with the employer keeping its contributions, when universal automatic enrolment is introduced from 2012. Contract-based schemes and personal accounts will not permit this.
Lawson says being free from FSA regulation means providers could reintroduce front end charging to facilitate commission payments.
Lawson says: “If the markets allow it, we will do it. They can’t tell us not to make products in this way. Just because we are regulated by the FSA does not mean we have to do what they say in unregulated areas. There is not a lot they can do about it if we do, unless they regulate occupational schemes.
The rules are the rules and if competitors operate in that market, we will too. Why would we not pay commission if it kept alive advisers who would otherwise go out of business?
Adam Richards-Gray, spokesman for the FSA says: “This is something we are keeping a close eye on. We are still analysing the responses to our consultations and working towards consulting on detailed rules by the end of the end of the year. As part of this process we are working closely with other agencies (TPR and the DWP) to identify the risks involved, and to make sure we are able to address issues of concern.”