28 March 2007

Financial Services Authority

http://www.fsa.gov.uk

FSA Frees Hedge Funds for Retail Investors

The Financial Services Authority today sets out proposed changes to its 'Permitted Links' rules that govern which assets the £650 billion unit-linked insurance sector can invest in.

The current Permitted Links rules have been in place for 13 years and they have not kept up to date with market changes since then.

The FSA will replace them with a more principles-based set of rules which will allow investment in a wider range of assets while maintaining current levels of consumer protection. To do this the FSA will put in place a set of high level rules for unit-linked insurance funds which will be underpinned by some more detail rules on specific assets.

Dan Waters, FSA Director Retail Policy and Asset Management Sector Leader, said:

"The current Permitted Links rules are out of date, inflexible and difficult for firms and for the FSA to interpret. Our proposals aim to take away unnecessary detail, and replace it with more principle-based high level rules. This is a practical expression of the FSA's stated aim of moving towards More Principles-Based Regulation and should give the firms affected greater flexibility in investing whilst maintaining the appropriate level of consumer protection."

The proposed reforms fulfil a commitment in the FSA Business Plan 2006/07 to review the permitted links rules. Following publication of a Policy Statement this summer the new Permitted Links rules are expected to come into effect in the autumn.

Notes for Editors

1. Consultation Paper 07/7 - Permitted Links for Long Term Insurance Business is available on the FSA Website.

2. The UK's unit-linked market is extremely large. At the end of 2005, the assets representing these products amounted to some £650 billion and premiums paid into these products in 2005 were an estimated £110 billion. Institutional pension fund money makes up approximately 40% of the total funds under management. The rest of the investments are held on behalf of, primarily, retail investors through products such as personal and executive pensions, mortgage and savings endowments, whole of life products and investment bonds.

3. The current rules for Permitted Links are set out in the IPRU (INS) and IPRU (FSOC) modules of the FSA Handbook.

4. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.

5. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.

ENQUIRIES

Press: Robin Gordon-Walker 020 7066 3232
Outside office hours 07795 351 956
Public: FSA Consumer Helpline 0845 606 1234 (call rates may vary)
Website: www.fsa.gov.uk

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