Prudential Regulation Authority Rulebook

2.1

Since the introduction of the detailed rules on with-profits business in the Conduct of Business Sourcebook (COBS) 20 of the FSA Handbook in 2005, with-profit mutuals have been concerned that some of the FSA’s rules and guidance were too prescriptive and prevented mutuals moving beyond their with-profits business into new non-profit business, even where firms considered that this would be demonstrably fair to all their policyholders and in the interests of their members. With-profits mutuals said that, for mutuals which wrote their with profits business out of a common fund (in which the interests of with-profits policyholders and the interests of members were co-mingled) these rules (in particular, COBS 20.2.55R and 56R) raised the risk of these firms having to close to new business altogether and go into run-off. 

2.2

With-profits mutuals approached the FSA with these concerns, and the FSA along with representatives of the sector undertook work from April 2007 to seek to resolve this issue. This work was known as Project Chrysalis. Further representations were made in 2011 following publication of CP11/5 ^[2] , and in December 2012 the FSA published CP12/38. This proposed that COBS 20 should explicitly recognise the potential for with-profits mutuals with a common fund to seek to identify within that fund a mutual members’ fund to which COBS 20 would not apply directly. The mutual members’ fund could then, for example, be used to write new business without being restricted directly by the limitations contained in COBS 20. The FSA proposed that firms could achieve this split for regulatory purposes by applying for a waiver under section 148 of the Financial Services and Markets Act 2000 (FSMA) in order to modify the application of relevant parts of COBS 20 to the mutual members’ fund.