Policy, Risk and Research Division

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 toCP13/1, 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.

1. 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.

1. 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.

1. 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 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.

1. Wehave 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

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 adoptingwherever 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.

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.