The Financial Services Authority (FSA) has published final rules on the use of market value reductions (MVRs) by with-profits providers.
In 2010, the regulator consulted on uses of MVRs it deemed to be damaging to consumers.
Today it published updated Conduct of Business Sourcebook (COBS) rules which state MVRs can only be applied where there could otherwise be a payment to a policy holder which exceeds the value of the assets underlying the policy.
The FSA had been concerns with-profits providers were using MVRs to unfairly reduce policy holders' payouts.
"Firms generally accepted that the scope for imposing an MVR should be reduced," the FSA said in a policy statement.
However, it added: "We recognise that there needs to be an element of pragmatism in how the rule on MVRs is applied to reflect the intention to deliver asset share payouts in aggregate over time, not necessarily on each individual maturing policy at all times.
"This is consistent with the nature of smoothing and avoids the cost and administrative complexity of daily recalculation and adjustment.
"We would not regard normal smoothing, which takes an asset share payout below 100%, as inconsistent with the rule."
The FSA stuck mainly to its original proposals in the policy statement. Click here for the full detail.
Head of UK intermediary distribution
‘Promising lead’ or ‘Back to the lab’?
PA360 2019 revisited
Complaints triple in past year
Our weekly heads-up for advisers