Phoenix Life CA Limited

FCA action

fine

1

in fines

£600k

most recent

October 2012

• Fined £600,000 on 29 October 2012

  On 18 October 2012 the FSA imposed a financial penalty of £600,000 on Sun Life Assurance Company of Canada (UK) Limited for breach of Principle 3 (management and control) of the FSA's Principles for Businesses (the Principles) and the rules set out in the FSA Handbook, namely rules in the Prudential Sourcebook for Insurers (INSPRU) and the Supervision Manual (SUP). The breaches occurred between 1 November 2008 and 26 August 2009 (the Relevant Period). SLOC UK agreed to settle at an early stage of the FSA's investigation. SLOC UK therefore qualified for a 20% (Stage 2) discount under the FSA's executive settlement procedures. Were it not for this discount, the FSA would have imposed a financial penalty of £750,000. SLOC UK is a life insurer operating a closed book of business including with-profits business. During the Relevant Period, SLOC UK's governance arrangements for its with-profits business were unclear and inadequate both in their design and in their practical operation. As a result, there was an unacceptably high risk that policyholders' interests would not be protected properly. These failings were evidenced when SLOC UK executed two significant and material derivative transactions over one of its with-profits funds which held approximately 114,000 policies and £1.2 billion in assets. SLOC UK executed these transactions without adequate review from its with-profits committee. These transactions were also executed without the approval of SLOC UK's board of directors albeit the majority of the directors were aware of the proposed transactions. This approval process was deficient and led to an unacceptable risk that proper independent judgment would not be applied to the transactions. Furthermore, at the time that SLOC UK executed the second of the material transactions, the Inherited Estate of this with-profits fund had a negative value which is a breach of the FSA's rules. SLOC UK also breached the FSA's rules by failing to report the negative value of the Inherited Estate to the FSA in a timely manner. The FSA regards SLOC UK's failings as particularly serious because they occurred at a time when there was a high level of awareness within the with-profits sector of the regulatory standards concerning the governance arrangements for with-profits funds, and the need for with-profits committees to provide independent and appropriate challenge to management on significant decisions concerning policyholders. In particular, a Dear CEO letter dated 19 September 2007 was sent to the CEOs of insurers which set out the FSA's expectations in terms of governance standards for with-profits businesses. SLOC UK's failures therefore merit the imposition of a significant financial penalty. In deciding upon the level of disciplinary sanction, the FSA has: (1) not criticised the merits of the two transactions executed by SLOC UK over its with-profits fund during the Relevant Period; (2) recognised that some consideration was given by SLOC UK to its policyholders' interests albeit there were significant flaws in the governance arrangements to ensure that independent judgment by SLOC UK's with-profits committee was exercised properly; and (3) taken account of SLOC UK's efforts to improve the effectiveness of its governance arrangements and SLOC UK's implementation of recommendations of a review by a skilled person.