The Association of British Insurers is to enhance its guidance on good practice for unit-linked funds after a Financial Conduct Authority probe uncovered ‘specific’ failures in some insurers' governance of investments.

The [tag|Association of British Insurers|]Association of British Insurers[/tag] is to enhance its guidance on good practice for unit-linked funds after a Financial Conduct Authority probe uncovered ‘specific’ failures in some insurers' governance of investments.

The regulator said its thematic review found no evidence of a systemic failure across the fund industry, however, it did uncover individual problems which, if left unchecked, could disadvantage fund investors.

The [tag|FCA|]FCA[/tag] said it found firms which had poor oversight of outsource service providers, insufficient controls over permitted assets and overly-stretched operational capacity in pricing teams. Problems which could lead to investments in riskier assets.

“In these cases, we required firms to appoint independent external experts to investigate whether customers have lost out and whether compensation is required,” said the financial watchdog.

The regulator's thematic review looked into the governance of unit-linked funds by 12 firms, which it said both represented the full spectrum of insurers operating in the market and managed a significant proportion of the total amount invested in unit-linked funds.

The FCA said it expects the unit-linked market, which is already worth £900 billion, to grow significantly due to auto-enrolment. As such, the regulator asked the reviewed firms to make improvements in response to its findings. Much of this work has now been completed.

“Where failings were more serious, we have required the firms to appoint Skilled Persons to support this work. In the limited number of cases where we felt there was potential for consumer detriment, we have asked the Skilled Person to investigate this,” added the review.

Consequently, the ABI has also committed to enhance its ‘Guide to good practice for unit-linked funds’ in light of its findings on the unit-linked industry.