CarolAnne Macdonald
Policy, Risk and Research Division
Financial Conduct Authority
25 The North Colonnade
Canary Wharf
London E14 5HS
23 April 2013
Dear CarolAnne,
AFM Response to CP13/1, Transparency
1. I am writing in response to this discussion paper, on behalf of the
Association of Financial Mutuals. The objectives we seek from our
response are to:


Signify our support for greater regulatory transparency; and
Explore some of the proposals made in the paper.
2. The Association of Financial Mutuals (AFM) represents 53 member
companies, most of which are owned by their customers. Between them,
AFM members manage the savings, protection and healthcare needs of
20 million people, and have total funds under management of approaching
£100 billion. The nature of their ownership and the consequently lower
prices, higher returns or better service that typically result, make mutuals
accessible and attractive to consumers, and have been recognised by
Parliament as worthy of additional consideration by the new regulators.
3. We consider that it is vital to the objectives of the FCA that they continue
to challenge themselves, and firms, to promote high standards of
transparency and accountability. Where consumers maintain a strong
mistrust of parts of the financial services industry, there remains a
continued need for firms to demonstrate that they act fairly and in the best
interests of its customers. For most firms this is a natural part of their
ethical approach to business, but there are exceptions.
4. Similarly, for the regulator to be seen to be acting appropriately, it needs to
provide clear evidence of the actions it has taken. Most of the concerns
AFM Response to DP13/1, Transparency 1
expressed at the effectiveness of the FCA’s predecessor were, we
believe, overstated, but to correct those perceptions the new regualtor
needs to present clear evidence that it is making good decisions based on
appropriate regulatory processes.
5. We have addressed the specific points made in the paper, and would be
pleased to discuss further any of the issues raised by our response.
Yours sincerely,
Chief Executive
Association of Financial Mutuals
2 AFM Response to DP13/1, Transparency
Responses to specific points made in selected chapters
Chapter 3
Much has been made of the presumed failings of the FSA in previous years. Whilst we
do not consider much of this to be justified, the regulator intensified some of those
concerns by a limited amount of accountability and transparency, and a reluctance to
admit errors.
We are encouraged by the fresh approach exhibited by the FCA, and believe that this is
more appropriate and compatible with its wider set of objectives. We consider it is
important that FCA leads by example rather more than did its predecessor, by adopting
wherever practical, the same levels of transparency itself as it expects from regulated
firms, and by committing itself to similar standards (of governance, disclosure, fairness
etc).
For example, the regulator establishes funding requirements each year, based quite
loosely on its business plan and the conduct risk outlook. We consider that these should
be much more closely aligned, so that firms can see more accurately where their fees
go, and can more readily recognise that an increase in fees is consistent with a higher
cost of supervision for that category of firm.
With regard to whistleblowing, data supplied by FSA via Freedom of Information
requests as well as to a member of AFM indicates that there is a significant opportunity
to improve the logging of whistleblower referrals, and what happens to them.
Notwithstanding legal constraints on what the regulator can say to the whistleblower, we
consider a prerequisite to a more effective whistleblowing regime is to have a proper
recording system in place.
On enforcement activity, FCA should continue to publish information that serves to act
as helpful deterrence to other organisations. Where politicians have queried the lack of
bankers brought to account during the financial crisis, it would be helpful to understand
what action was considered against individuals and why it was or wasn’t pursued.
Chapter 4
We agree with the proposals to make the authorisation process more transparent, by the
use of anonymised aggregate data. FCA should consider carefully how to ensure data
is anonymised, as volumes of request will be low in some sectors.
We consider there are risks in publishing the results of thematic work. Most thematic
reviews take a relatively small, representative sample of firms, and publication of data
might imply that there were more widespread problems than there really are. This may
in turn undermine consumer confidence disproportionately. The solution may be in the
first instance to issue findings to a sector and to invite evidence to the contrary, rather
than to publish incomplete findings.
We think it would be helpful to publish more information about the scale and nature of
redress payments.
AFM response to DP13/1, Transparency 3
Chapter 5
As the paper concedes, there has been a significant change in the type of information
customers receive in the annuity market, and in the processes adopted by firms to help
ensure customers get a good deal. The ABI Code of Conduct on retirement choices
came into force on 1 March 2013- we would expect the benefits of the new Code to
crystallise in the coming months, and would urge the FCA to assess the effectiveness of
the Code after at least six months operation, before determining what new requirements,
if any, are required. In the meantime, further analysis of the behavioural reasons on why
consumers do not act, or act rationally, would be a valid contribution from FCA.
Regarding the publication of claims statistics on some insurance products, members of
AFM have been particularly pioneering. By the same token, some AFM members are
reluctant to appear on price comparison sites, because they tend to encourage product
selection on too narrow a set of criteria.
We recognise that for many consumers the earliest moment of truth (or conversely the
point at which they discover they have mispurchased an insurance policy) is when they
make a claim. Understanding how likely your insurer is to pay a claim therefore should
be a key part of the buying decision. Hence most AFM members have published claims
data on income protection products for many years, and consumers and IFAs have
confirmed this has been valuable information.
At different times we have also published sector statistics on Holloway income protection
claims data. Whilst we found it difficult to identify an appropriate set of data that could
be published in an unambiguous way, we were disappointed that not all insurers were
willing to explore how to publish claims data. We therefore see a legitimate role for FCA
in identifying good practice and a common basis for publishing data. We have explored
a range of options for collecting claims data and would be happy to share our
experiences with FCA.
On contextualising complaints data, we consider this to be important to giving
consumers appropriate incentive to act on the data presented. We would encourage
FCA to resurrect the earlier proposals, and if necessary mandate their use.
4 AFM Response to DP13/1, Transparency