Insurance companies will be allowed to invest in a wider range of unit-linked assets, such as property, following changes announced by the FSA.
The regulator says the rules governing where the £730bn unit-linked insurance sector can invest were in need of updating, having been in place since 1994.
Coming into effect on 6 October, the new 'Permitted Links' rules will remove the 10% limit on unlisted securities (although they have to be be realisable in the short term).
The FSA has confirmed that its 20% limit on unregulated Collective Investment Schemes (CIS) will apply to property funds.
The level of gearing within a property fund will be limited to a maximum of 10% of the gross asset value. However the FSA has decided to exempt member-directed funds from the requirement, a change of heart since the consultation paper, meaning SIPP investors will continue to be less restricted in their investment choices.
FSA director retail policy and asset management sector leader Dan Waters says the regulator has moved where possible away from detailed rules, to a more principles-based high level approach.
“This is a practical expression of how the FSA is moving towards more principles-based regulation and will give the firms affected greater flexibility in investing whilst maintaining an appropriate level of consumer protection,” he says.
A new institutional policyholder category has been created and there are changes to the way land and property are defined.
The ABI has welcomed the move, saying it is a “definite improvement” on rules hardly touched for over 15 years.
“We are reasonably pleased; this issue has needed to be addressed and we have worked closely with the FSA on it,” ABI assistant director financial reporting John Breckenridge says.
“Having said that, we would have like to have seen a little more freedom given, for example with the use of derivatives.
"The word coming from the FSA is they have done as much as they can under EU law.”
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