EMAG

The independent action group for current and ex Equitable Life policyholders, funded by contributions.

Equitable Members Action Group

Equitable Members Action Group Limited, a company limited by guarantee, number 5471535 registered in the UK

Search
Documents: 19/07/2007 - ORAL Q & A taken at the FSA’s annual pblic meeting on 19th July, 2007.

ORAL Q & A taken at the FSA’s annual pblic meeting on 19th July, 2007.

Now available on the FSA’s website:

Paul Braithwaite (General Secretary; Equitable Members’ Action Group)

I am member of the public as opposed to a member of the industry. My question is a big one, and it is not sectional; it is about the FSA, the Financial Ombudsman Service (FOS), consumer protection and Europe.

A year ago, EMAG commissioned éminence grise Lord Neill to investigate in depth the FOS treatment of some three dozen Equitable Life complaints. Despite that being dismissed out of hand by the Financial Ombudsman Service, it was very influential on the European Parliament’s in depth investigation of the way Equitable Life had been regulated in its 400 page report.

That report identified how damaging Equitable Life and the past half dozen years had been to the industry and to the regulator’s credibility. They voted on it last month, and it received the staggering endorsement of 605 MEPs in favour of adopting the report, with only 10 against. That report was accepted by the Single Market Commissioner. The report included at Recommendation 12 that there was a need to strengthen the FOS’s capacities and to ensure that it is truly independent from the FSA and from government.

Now, there is a precedent for such a separation in the energy industry. Ofwat is the energy regulator and there is a healthy tension there with the consumer protection service, energywatch. However, this does not seem to be the current FSA direction with regard to the future of the FOS. John Tiner has recently spoken under principles based regime, which seems to be the new mantra, about the FOS taking on greater legal authority and setting precedent, affecting case law in its decision. Now, this is contrary to the raison d’être of the FOS to be a voluntary, alternative dispute resolution service that provides natural justice and is not subject to expensive, high hurdles of legal proof.

Therefore, can the FSA please articulate a response to the European Parliament’s EQUI Report recommendation of total separation from the FSA and government of responsibility for consumer protection by the FOS and more recently, under Solvency II, for UK accountability for regulatory negligence, which is of course currently exempt?

Callum McCarthy

I think the energy regulator is Ofgem, but that does not change the thrust of the question in any way. I think there are two questions there. One is the relationship with and independence of the FOS, and the second question is regulatory indemnity. Clive, will you comment on the first?

Clive Briault

First of all, I think it is important to say that the structures on which you are commenting are clearly established by the Financial Services and Markets Act. I could just say it is therefore a matter for the government and stop, but I am not so easily stopped. I should also make clear that the government has already said it intends to respond and comment on the European Parliament’s report, but it will do that as part of its overall response to both that report and the forthcoming report of the UK Parliamentary Ombudsman on Equitable Life. Therefore, the government has announced that it will be commenting.

In terms of the relationship between the Financial Ombudsman Service and the FSA, I think it is fair first of all to reflect the statutory position that the FSA is responsible for appointing the directors of the Financial Ombudsman Service. It is responsible for agreeing the budget of the Financial Ombudsman Service and also for writing a number of rules setting out the way in which firms we regulate should handle complaints, including the very important rule that if they have not dealt satisfactorily with a complaint in the eyes of the consumer after eight weeks, the consumer has the right to take that to the Financial Ombudsman Service.

Having said that, it is also clear—and indeed stated clearly in the legislation—that the Financial Ombudsman Service should have complete operational independence from the FSA and the government in terms of handling the individual complaints that reach it through that system. We certainly think, and we believe the Financial Ombudsman Service also thinks, that that operational independence in terms of handling individual complaints is very firmly established. There is no sense in which the FSA interferes in the FOS’s handling of individual complaints. I think it is important to draw a distinction between the statutory responsibilities that the FSA is given under legislation and the operational independence of the Financial Ombudsman Service, which is not only enshrined in that legislation but is also the approach that we have very much taken during the life of the FSA.

Callum McCarthy

I myself will deal with the second question, which is about the statutory immunity of the FSA from being sued for negligence in the absence of bad faith. This too is enshrined in the legislation. It was extensively discussed when the legislation was going through Parliament, and I think that it is recognised internationally that in the interests of regulators doing their job robustly and without undue fear of litigation, it is appropriate for regulators to have the protection that is given by statutory immunity, except for bad faith. This is something that has been a central element of government policy towards regulation for the past 25 years, so it is well established. We observe it and are grateful for it.

Paul Braithwaite

My understanding is that within the 27 member states in Europe, many are accountable for negligence. I think that it is a proposal of Solvency II, if I understand Sharon Bowles MEP correctly, that it will try to introduce accountability for negligence. In that John Tiner is perhaps demob happy, could I ask for his comment? It was interesting that Mr Leighton made the point that European law is Roman and, it seems to me, is in contrast to your principles based regime. We have a dichotomy here.

John Tiner

I do think that the way in which European legislation is based may put a brake on the move towards more principles based regulation, but it will not derail the exercise. I think that if you look at examples of how the Commission has dealt with market failures in the clearing and settlement world, for instance, Commissioner Charlie McCreevy has gone towards—as a first port of call—an industry solution. Perhaps his predecessor would have gone straight for the law as a way of resolving it. I have been very heavily personally involved in the development of Solvency II, and I think much of it is completely consistent of being principles based and risk based. While there are some elements in MiFID that take us the other way too, being a Leeds United supporter I am generally optimistic about life and that the European situation will not put an unreasonable brake on what we are trying to do. However, I agree with Roy that it will require an awful lot of commitment from the top management of the FSA, as we have given it over the past several years, to make sure we have the right level of influence in Brussels.

Callum McCarthy

I would just mention another problem that arises. We are conscious of the difficulties within a single institution of ensuring that principles are interpreted in the same way by different members of the FSA. That problem is clearly exacerbated across Europe, when you have different traditions in different countries and different levels of expertise and approach. Because of that, one of the things that we have been pressing very strongly within each of the three Lamfalussy committees is a real method to get a common training and educational system for regulators across Europe to make it easier to introduce principles in Europe on a comparable basis. However, I think there are some real issues here of the sort that John has indicated, as well as the sort that you have identified. We are taking them very seriously.


And another Q, from Chris Harlow

(Project Manager; Oxford Brookes University)

I am just a customer of the industry. I want to ask the FSA how it hopes to achieve the consumer confidence that should result from good governance of the FOS, which I understand you have to follow by statutory regulation. I have talked to several hundred complainants to the FOS over the course of the past five years, every one of whom has had sound reasons for doubting the procedures and the fairness of that body. I would be prepared to give the names of them in confidence if I had their permission to do so and they were prepared to do that.

You will be aware that Lord Neill, a distinguished legal representative, conducted a survey of the FOS’s procedures in a number of cases. His conclusions were that the FOS failed on grounds of natural justice, lack of independence, and its inability to convince anyone of its impartiality. It was delayed and not prompt in its delivery of judgements. It was obscure in the way that it explained awards. Unfair conditions were attached to the judgements that it made. There was an uneven playing field between the judgements made by the FOS in terms of the company’s representation and the complainant’s representation. There was inequality of arms, that is to say of the weapons that could be brought to bear in the disagreements between consumers and the FOS.

I stand as a consumer who did complain to the FOS about my treatment by the industry, as one of those who has been thus abused as I see it by the FOS. It does not, according to Lord Neill, hold the scales of justice evenly. It does not display any form of impartiality. At times, the FOS officials are unhelpful, argumentative, aggressive and appear to be advocates for the industry and not advocates for consumers. If all of these judgements have some substance, and I personally would vouch for several hundred people who say that they have, then how is it that the FSA considers that by continuing to be the main body that supervises and, I suggest, dominates the FOS’s judgements, it can show that good governance is being applied to this body?

Callum McCarthy

The suggestion that the FSA dominates the FOS is not one which, I would just like to put on record, I would in any way recognise as a description of the present arrangements. I would not want to accept that description tacitly.

Clive Briault

It is rather difficult for us to add a great deal to that. The FOS has made a response to the report by Lord Neill, to which you refer. As Callum says, the FOS is operationally independent from the FSA. Quite rightly, it was entirely operationally independent from the FSA in the way in which it dealt with all of the complainants, including by the sounds of it yourselves, with whom it has dealt. It would be both impossible and improper for us to comment on how it has dealt with those individual cases.

The only point I would make more generally is that I am always struck by the in general very high customer satisfaction scores that the FOS receives from its own consumer surveys that it carries out, against a backdrop where the FOS upholds in favour of firms in some 60% of the complaints it receives. It is very interesting that your research seems to be very different from that, and I do not know whether your research is something that you have passed on and discussed with the FOS itself. With all due respect, I think that is the body with which it should be discussed because of its operational independence from us.

David Kenmir

When the issue of the Ombudsman comes up in public fora, I genuinely do not envy them their job. You have to remember that the complaints that get to the Ombudsman are the ones that have not been resolved within the eight week period Clive referred to earlier. By definition, there is therefore an element of antagonism between the firm and the consumer because there has been an eight week process where the complaint has not been settled to their mutual satisfaction. The very points you have made have been made to me on numerous occasions by members of the industry from each sector, who actually use exactly the same words to describe what they believe is the institutional customer bias of the Ombudsman against firms. The Ombudsman is in a very difficult position and has to make extremely difficult judgements about the merits of each case on an individual basis.

http://www.fsa.gov.uk/Pages/Library/Corporate/Meetings/qanda_07.shtml


WRITTEN questions in advance to the FSA’s annual meeting July 19th, 2007

Question from Mr Paul Weir

The Equitable Life scandal has had disastrous consequences for the industry and the FSA alike. It seems that the FSA has been extraordinarily 'accident prone' in the alarming attrition of the FSA staff responsible. Sir Howard Davis, Michael Foot and Martin Roberts have left. David Strachan has moved on and John Tiner is going. The man responsible until last week, Ian Tower, has suddenly - without warning - left.

When the Parliamentary Ombudsman finally reports is there anyone left in the FSA from the Equitable's regulatory team that can be held to account? Is this string of departures really just coincidental - given that the FSA had sight of the PO’s draft report in January and is potentially subject to criticism?

FSA answer

There is no connection between the Parliamentary Ombudsman's report and the decisions of the colleagues you mention to move on. Their decisions were taken for normal business reasons such as the end of their term in office, retirement and career development.

The FSA will continue to discuss with the Parliamentary Ombudsman her emerging conclusions. Our commitment to engage with her is unaffected by the departure of particular members of senior management or employees.


Question from Mr Chris Carnaghan

This Autumn, Equitable Life will seek, by simple majority of those voting, policyholder approval to transfer its With Profit Annuitants to Prudential, and – if this is approved – will seek the court's approval for the deal. The FSA is overseeing this process. The FSA's similar oversight of the Equitable Life 'Compromise' in 2002 was deeply flawed, and its oversight of Equitable's transfer of annuitants to Canada Life in 2006 also merited some criticism.

The Chairman of the Equitable Members' Action Group, John Newman, wrote on 14 June to the relevant FSA official, Ian Tower, expressing concern over several aspects of the proposed transfer. Mr Tower has since left the FSA, apparently at short notice, and the letter and the concerns remain unanswered. As one example EMAG maintains that there should be two separate classes of voters, WP annuitants and non-annuitants, whose interests are not the same.

Will the FSA answer these concerns very soon; and also to take this opportunity to assure all Equitable policyholders that it is doing its duty to ensure that the transfer proposals are transparent, fair to them all, and the best that can be obtained under the circumstances.

FSA answer

In March 2007 the Society reached agreement with the Prudential for the transfer of its with-profits pension annuity business, comprising approximately 62,000 policies.

The process for the transfer of insurance business is governed by Part VII of the Financial Services and Markets Act 2000. This introduces a range of safeguards to protect the interests of policyholders:

  • it requires the Court's approval;
  • the Society's Board will not implement the transfer unless the members approve the proposal at a vote which will be arranged for later in the year;
  • the terms of the transfer and its impact must be reviewed by an Independent Expert (in practice this will be an actuary for a life business transfer), who will give a view on the effect on policyholders;
  • as regulator, the FSA is able to scrutinise any proposals to ensure that regulatory requirements are and will continue to be met, including whether consumers interests are appropriately protected; and
  • the Court will give the FSA an opportunity to register any objections/reservations it has with the proposed arrangements.

We will ensure that policyholders receive timely and relevant information in relation to the proposed scheme. We will also ask the Society to invite policyholders to make any representations directly to the FSA and we will consider these representations when reaching a view on the fairness of the Scheme.

We responded to Mr Newman's letter of 14 June on 16 July addressing the concerns raised.

We considered the proposed non-profit transfer in some detail, taking into account the Independent Expert's report, and concluded that we had no reason to object to the transfer. We considered the position of the different groups of policyholders, both those transferring and those remaining, including the with-profits annuitants.

http://www.fsa.gov.uk/Pages/Library/Corporate/Meetings/qanda_advance_07.shtml