FSA publishes undertakings relating to commission clawback terms

On 18 January 2010, the FSA published undertakings obtained from the following firms under the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCRs):

1. A.P. Financial Services UK Limited. – http://www.fsa.gov.uk/pubs/other/undertaking_ap.pdf

2. Beacon Financial Limited. – http://www.fsa.gov.uk/pubs/other/undertaking_beacon.pdf

The undertakings relate to terms which permitted the firms, both independent financial advisers, to reclaim amounts from consumers if a consumer stopped paying premiums and the firm had to refund commission to the relevant product provider.

In each case, the FSA considered that these terms were unfair under regulation 5 of the UTCCRs, as neither firm had made clear the specific amount that it could reclaim or the timeframe in which it could reclaim it.

This meant that each firm had too broad a discretion when operating the terms in practice.

The firms have amended the offending terms so that the relevant provisions now point consumers towards suitability letters issued to them at the time of sale which provide specific information about the amounts and timeframes of such payments.

In each undertaking, the FSA notes that under the proposed changes in the Retail Distribution Review (RDR) the practice of commission clawback will not be permitted for new business after the end of 2012.

However, firms affected by the RDR that currently operate on a commission basis should in any case review their standard terms in light of these undertakings.

The FSA has also published a statement, summarising the approach taken in the two undertakings and the potential impact of the RDR on commission clawback terms.

1. Read more http: //www.fsa.gov.uk/pubs/other/clawback.pdf