On 24 September 2019, the FCA published a webpage setting out its key findings and next steps in relation to its review of firms’ governance practices covering the value provided by unit-linked funds. These funds can be described as funds whose performance determines the benefits due to holders of unit-linked insurance contracts.

In an earlier policy statement published in April 2018 on the Asset Management Market Study, the FCA confirmed changes to the FCA Handbook implementing a number of remedies outlined in the study. The FCA found that there was weak price competition in the sector and consequently implemented rules aimed to address this but these will not apply to unit-linked funds. There is evidence that suggests there are similarities between authorised funds and unit-linked funds. Therefore, the FCA wanted to investigate the common features exhibited in both funds.

The FCA found that insurance firms’ fund governance for unit-linked funds often does not include considerations that it believes are likely to be important in assessing whether unit-linked funds provide good value for their investors. The FCA sets out its findings accordingly:

  • how firms think about value is sometimes too limited;
  • firms often do not compare fund fees with others in their range;
  • firms share scale economies with funds only to a limited extent;
  • firms comply with regulatory interventions but tend not to go further;
  • firms were unable to show us how product features other than asset management were good value;
  • firms check their competitors’ prices but not apparently with the aim of competing on price;
  • institutional customers often drive hard bargains; they may have less need of the investor protection afforded by fund governance; and
  • the impact of independent governance bodies has been positive if limited.

In terms of next steps, the FCA will assess the findings from its review alongside the continuing work on non-workplace pensions, the governance of unit-linked mirror funds and the effectiveness and scope of independent governance committees. It will then decide whether further remedies are necessary.