Investing on a ‘with-profits’ basis has traditionally been a popular choice. It aims to smooth out the peaks and troughs of stock market cycles and ensure a fairer return to the saver.
It is vital that companies offering such an arrangement are transparent in their dealing. Sadly, Sun Life Assurance of Canada (UK) has significantly failed not once but twice to operate its with-profits business correctly.
It has been caught out by the Financial Services Authority which has fined the firm £750,000 but agreed to a 20 per cent discount as Sun Life honourably agreed to settle.
The design and operation of the firm’s arrangements were “unclear and inadequate, resulting in a high risk that policyholders’ interests would not be protected properly”, according to the FSA.
This followed significant transactions in 2008 and 2009 which impacted on the with-profits funds, holding 114,000 policies and £1.2bn in assets.
The with-profits committee of Sun Life Assurance of Canada (UK) failed to adequately review the transactions whilst its board of directors did not approve them.
Since the firm’s review and approval process was deficient, it led to an unacceptable risk that proper independent judgment would not be applied to the transactions. It’s vital that there can be an independent challenge of management decisions to ensure policyholders are fairly treated. The firm flouted such a basic policy.
It is almost incomprehensible that the firm took this approach as the FSA had actually written to the CEOs of with-profits companies the previous year to draw their attention to the need for their governance arrangements to include independent challenge of decisions for policyholders.
The firm should therefore have been fully aware of expectations in this area.
The with-profits committee and board had the primary responsibility for the fair treatment of policyholders. They both failed.
The penalty should fall on those who held executive decision, rather than the business be penalised. They are well-paid and flouted the care entrusted to them. They should personally pay the fine. It would be a salutary lesson to their peers.