Firms holding with-profits funds worth over £500m will soon be forced to specify the expected financial liabilities of individual product groups and reveal any changes to its reserves.
A “Dear CEO” letter published on the FSA website last Friday suggests the regulator has stepped up its ‘realistic reporting’ exercise in a bid to further show its commitment to transparency.
The letter, which has already been sent out to all firms with with-profits funds in excess of £500m, reveals the FSA plans to repeat its realistic reporting approach, which is to be fully introduced by the end of the year.
Firms previously taking part in the exercise had to measure their liabilities and calculate how much capital is required to cover these.
This time round, however, the FSA is also asking them to provide an analysis of the total balance sheet showing liabilities for different groups of products.
This may include expected future costs of guarantees and/or adjustments to the With-profits Benefit Reserve, the FSA explains.
Although the FSA will require companies to specify the liabilities of different products groups or types, it is thought this information will be confidential between the firm and the regulator.
The FSA wants firms to comment on the approach taken. It admits it may include some extra workload for firms, but says it expect them to have made these analyses internally anyway.
“We appreciate the additional work in producing these product-related balance sheets but we expect that you will have been analysing this information yourselves and you will understand our need to assess the impact different groups of products have on the total liabilities of the fund,” it adds.
Firms taking part in the exercise will have to send the completed forms to the FSA by the end of September.IFAonline
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