The head of the Financial Conduct Authority (FCA) has revealed details of its thematic review into the £902bn unit-linked funds sector -and said the regulator is also looking into the annuity market.
Speaking at the Association of British Insurers biennial conference yesterday, Martin Wheatley (pictured) said that the review had been one of the "most important thematic reviews we've been working on over the last 100 days".
He said:"This is a hugely significant sector. It has somewhere around £902bn worth of funds under management, with 87% of that being pension business.
"The question we are asking is whether these firms are acting in their customers' best interests. Are they allocating a fair proportion of revenue received from stock - lending to the fund - or are they recycling too much to the shareholder? Are they managing funds in line with the investment objectives disclosed to customers?
"And, just as importantly, are they transferring counterparty credit risk from reinsured funds to policyholders without asking them? Without obtaining their express consent to do so."
Wheatley said that details of the review would be published in the autumn and he urged insurers to engage with it.
The FCA will increase its efforts in conducting market-wide thematic reviews, as opposed to targeting individual firms, he said.
The regulator is also currently working on a review into the annuities market and has recently sent out requests for information to insurers.
Wheatley said he was looking to assess the full consequences of consumers not exercising the open market option.
"So, what exactly are the financial implications of not hunting around for the best deal? How do we make sure this important, one-off decision is made well?
"Much has changed since 2008, our review will help us understand the impact of these changes for UK pensioners."
Risk to retail investors
Joined as head of strategy, multi asset, in June
Group income protection