The Financial Conduct Authority (FCA) has confirmed its Consumer Duty does not explicitly prohibit the controversial practice of loaded premiums where premium rates are inflated to pay distributors and advisers higher commission.
However the regulator said it would be looking at subjects and issues such as this over the next year “as they come up”.
The lack of a ban on loaded premiums is despite prominent industry spokespeople and financial inclusion campaigners arguing the practice was not suitable.
In December, Johnny Timpson, a member of the Financial Services Consumer Panel and Financial Inclusion Commission and Cura Financial Services managing director Alan Knowles, told Health & Protection they believed the use of loaded premiums does not meet the FCA Fair Value and Consumer Duty rules.
More recently in April, St James’ Place divisional director Tony Mudd, warned the Consumer Duty would not give any “wriggle room” on the practice.
But when publishing the rules cementing its plans, FCA head of consumer and retail policy Ian Searle told Health & Protection the regulator would not be outlawing loaded premiums.
“We’re not banning any particular type of charge under the duty,” Searle said.
“What the fair value rules say is that there has to be a reasonable relationship between the price the customer is paying and the benefits they get.
“And the other bits of the duty focus on making sure they understand what they’re getting. That it’s clear and simple. That they can understand the pricing and that they can get the support they need.
“Whether specific charging structures meet that will depend on the facts of the specifics and it may vary between firms. We will be doing work over the next year to look at these issues as they come up.”
