The FCA has published a report summarising the thematic work it has conducted on the unit-linked fund sector (TR13/8). Unit-linked funds are a type of pooled investment offered by insurance companies through their life or pension policies.

The FCA carried out this work to check that insurers operating in the unit-linked market were meeting the FCA’s standards and treating customers fairly. The FCA reviewed 12 firms that between them manage a significant proportion of the total amount invested in unit-linked funds.

The FCA found no material issues evident throughout its sample of firms that posed a serious threat to customers’ investments. Therefore, it does not consider that there are any significant, widespread, systemic failings in the sector. However, the FCA did find specific material problems in individual firms that, if left unchecked, could have led to customers being disadvantaged including:

• poor oversight of an outsource service provider, which could increase the risk of errors not being identified;
• insufficient controls over permitted assets, which could lead to investment in riskier assets than allowed; and
• overly stretched operational capacity in a pricing team, which led to errors occurring and delays in rectifying them.

The FCA found other areas where firms need to make improvements to ensure that customers are treated fairly. These relate, for example, to the management of potential conflicts of interest.

The FCA has asked the firms in the review to make improvements in response to its detailed findings. Much of this work has been completed. For the more serious failings, the FCA has required firms to appoint skilled persons under section 166 of the Financial Services and Markets Act 2000 to investigate whether customers have lost out and whether compensation is required.

A copy of the report is available. http://www.fca.org.uk/static/documents/thematic-reviews/tr13-8.pdf