The UK's Financial Conduct Authority and Financial Ombudsman Service plan to protect investors more diligently than before from the sharp practice that advice firms and others can level at them in the context of offshore life insurance bonds.

These are life policies carried out by offshore (i.e. non-British) life companies. In each case, the product exposes the policyholder to the performance of an underlying portfolio of investments. Once a bond has been purchased, the life company may appoint a British firm (investment manager, perhaps a discretionary fund manager or DFM) to manage the assets to meet its liability to the policyholder. If advice is given directly to the policyholder on the investment of those assets, the policyholder is, in effect, making investment decisions as an agent of the life company. In either case, the life company, rather than the policyholder, is the client at this second stage. This means that the policyholder does not have the protection of the suitability rules or the right to turn to the FOS if poor advice is provided or unsuitable discretionary decisions to trade are taken. The ‘agent as client’ rule (COBS 2.4.3R) does not apply to this situation. This is a complex arrangement for a consumer to follow.

The FCA plans to change the following. The first rule is found in the 'dispute resolution' or DISP part of its rulebook; the second in the conduct-of-business or COBS part.
• DISP 2.7.6R on the jurisdiction of the ombudsman service, and
• COBS 18 (Specialist regimes) to add a new section on offshore bonds, including a requirement for firms providing advice or discretionary investment management services to policyholders in relation to assets held in an offshore life insurance bond. This requirement will mean that these firms will need to disclose the circumstances in which the policyholder can refer complaints to the ombudsman service, with a six-month transitional period from the date on which the rules come into force to make the necessary changes to their disclosures on complaints.

The transitional period does not apply to the handling of complaints and relevant firms are required to handle complaints in accordance with the rules in force at the time they receive this-or-that complaint. This will mean telling consumers that they have a right to complain to the ombudsman service in all final response letters and summary resolution communications issued from the date on which the new rules come into force.