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Osborne ‘profoundly concerned’ over FCA closed book blunder

Chancellor George Osborne has expressed “profound concern” to the regulator over the handling of its announcement of the review into closed book policies.

The Daily Telegraph first reported on 28 March that the regulator is concerned legacy customers are locked into poor investments by steep exit fees, and insurers may be “exploiting” them by levying large fees to subsidise other parts of the business.

The report prompted several insurers’ share price to plummet, including Resolution, Legal & General, Aviva and Phoenix.

The regulator was forced to issue a clarification statement at 2.30pm explaining the scope of the review in more detail.

At 6.30pm, the FCA issued a further statement that it would carry out an investigation into its handling of the issue.

Over the weekend, the FCA came under fire for its response and it was reported that insurers had called for Wheatley to resign over the issue.

In a letter to FCA chairman John Griffith-Jones published today, Osborne says the regulator’s handling of the affair has been damaging both to the FCA and the UK’s reputation for regulatory stability and competence.

He says: “I expect you and the FCA board to do everything possible to make good that damage.”

Osborne says the starting point for the FCA’s investigation must be that it holds itself to the same standards it would expect of a listed company handling market-sensitive information, and hold its staff to the same standards it would expect of any approved person.

He says: “Questions such as the need for disciplinary action for individuals should be considered in this spirit.”

In a speech at City Week 2014 yesterday, FCA chief executive Martin Wheatley said the regulator’s handling of the issue “was not its finest hour”.


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There are 21 comments at the moment, we would love to hear your opinion too.

  1. Are insurers suggesting that their shares wouldn’t have been affected had the FCA released the news via the proper channels?!

  2. A bit like the Budget then George.

  3. Julian Stevens 2nd April 2014 at 9:07 am

    “damaging to the FCA’s reputation for regulatory stability and competence”? I hadn’t been aware the FCA had any such reputation in the first place, least of all for stability. All I seem to receive on the regulatory front are endless streams of “bulletins” updating me on the latest changes and additional requirements dictated by the FCA, just like the FSA before it. Rather, I suggest, the FCA’s reputation is for perpetuating a permanent state of regulatory flux, forever meddling, forever tinkering, forever identifying new things with which it isn’t happy, forever finding fault with what everybody else is doing whilst refusing to tackle its own litany of shortcomings and brushing aside challenges from the TSC and other bodies. Perhaps somebody could explain how, by any reasonable measure, this is supposed to constitute anything remotely approaching stability.

  4. If you are a conspiracy theorist or watch too many American films you might be excused for believing that ‘Big Business’ runs the country.

    I actually think in this case the Regulator is spot on.

    I have been a customer of the Insurance industry for over 40 years and have dealt with them as an intermediary for some 28 years and there is absolutely no doubt that when they think they can get away with it they do exploit their customers. The older contracts didn’t just have high fees – they were usurious. And service standards are not generally substandard – they are abysmal – with a few honourable exceptions. The worst culprits are the biggest companies.
    Moreover it is a bit rich for the directors of FTSE companies to be calling for Mr Wheatley’s head – most of them weren’t around in the 70’s and 80’s when the worst examples were perpetrated, so they probably have little idea of the shortcomings.

    We all have examples of huge exit penalties, high charges and lousy service – so all this bluster seems hugely disingenuous. It is certainly true that if you consider the two largest insurers, over the last 4 years you would have been a darn site better off investing IN them than WITH them. That in itself must tell a tale. Their share price seems to be historically inflated and we have yet to see the full effects of RDR, but while they are looking good the directors are no doubt salivating at the prospect of juicy bonuses – which may well be unforthcoming once the share prices subside to their long term mean.

    That many insurers now seek pastures new away from these shores is also unsurprising. In the main they are moving to less rigorous regulatory regimes where they can once again pick up their nefarious practices.

  5. Well said Harry, the Regulator has got this one right and it’s ridiculous that Big Business can bully in this way. Some of the zombie policies are an absolute disgrace – pension charges so high for “early” retirement. Sales agents used to set up these plans for the maximum term possible because commissions were much higher for the longer term.

  6. @ Harry

    If the FCA made an announcement that they were investigating IFAs for poor advice, ripping off clients with extortionate fees and generally giving poor value for money they would be spot on too (I’ve seen it all in spades over the years) I presume?

    But that’s not the point is it? The problem is with the way it was done, and, once the problem was identified, the way it was dealt with.

    Nice to see you’re staying objective and not pre-judging the outcome of what the FCA actually said, i.e. they will be looking at these issues and presumably making a judgement based on a broad base of collected evidence.

  7. So George is in the pocket of big business after all, there’s a surprize, of course the FCA were spot on for once. This should also be further good news for IFA’s 🙂

  8. Hold on a sec !!!

    Look I am no fan of the big insurance companies, but they are no different from any other big company

    But did Mr Osborne forewarn any-one when he delivered his budget ? and this resulted a sharp drop in share prices for those providing annuities ?

    Its alright for people to say they (insurance companies) get what they deserve but these people (treasury and regulator) have the same responsibilities as all of us

  9. @ DH

    You’re missing the point. Osborne changed the law and announced it publicly. Changes in the law affect markets. The only alternative is not to change the law.

    What the FCA did was publish misleading information which created a disorderly market in the shares of insurers.

    I also recall a time many years ago when I worked for a big insurer (one that sold exclusively through IFAs) and I did a stint producing illustrations for said IFAs. If I had a pound for each one where the requestor was more interested in producing the maximum commission by altering retirement dates I’d be writing this from a beach. Perhaps the FCA should go back and investigate that too…

  10. brian weatherley 2nd April 2014 at 2:11 pm

    Are we forgetting the issue is not the ills of yesteryear; many of which are shameful and need to be considered and addressed separately.?

    The point is that, irrespective of share price movement, the FCA performed badly in the execution and discharge of its regulatory responsibilities. The Chancellor is correct in expressing his concerns and, surely, the industry is better for such concern.

  11. @ Grey Area

    Maybe I was just being flippant,

    Re-: insurance companies yes we all have stories to tell and yes we all know the few spoil it for the rest of us.
    Like I said I am no fan of the insurance companies and in the same breath I am no fan of the unscrupulous who create negativity I have to pay for when / if they get found out.

    Maybe there should be a written rule that everyone gets their money back after 10, 20 or 30 years if things have changed ? tongue firmly in cheek !!

  12. @ Grey Area

    I have suspected for some time that you might be working (or have worked) at an insurer. I won’t argue your point about advisers except to say that there are many that have done and continue to do a really good job. Unfortunately the same cannot be said of the insurers who have the capacity to do a lot more harm much more widely – and in many cases have done exactly that.

    Much of what has been laid at the door of advisers was originally promoted by the insurers. The advisers in many cases can certainly be accused of naiveté and gullibility. I well remember attending a seminar in the 80’s where a very well know life office was actually saying –”now’s your chance – transfer anyone you can find out of pensions and make a mint”. This attitude was never only confined to pension transfers. All too often they loaded the gun for too many unthinking advisers to fire.

    Also as I have said my experience of these firms as a customer has been none to cuddly either – but at least being a natural cynic I have managed to steer a course. Case in point – I only ever contributed single premiums to pensions (as I also subsequently advised my clients to do likewise) and thereby avoided the disgracefully high charges that regular premiums imposed.

    I’m afraid that jumping to the defence of insurers is in the view of many (myself included) a nil sum game. I don’t really feel that I have to wait for any conclusions; 40 or so years of personal experience condemns them out of hand. During which time (as a customer) I might also add that I have and continue to receive very acceptable advice from (in the past) intermediaries and currently stockbrokers.

  13. Is the FCA guilty of making a sloppy announcement? Yes!

    Is this review necessary? The answer to that question is also yes!

    The fact is insurance companies and indeed large banks have been offering investment plans and other savings products for a number of years with the promise of reviews. Needless to say that promise has been broken as many insurance companies have sacked their direct sales forces and are also cutting administration post left right and centre.

    So is the customer been shortchanged with high charges and low levels of service imho YES.

    Every single major merger within financial services over the last 20 years has been done so on the basis of cutting administration costs and increasing profits of the organisation without any real benefits to the consumer.

    We have a lot of rules that say that we should be treating clients fairly but in the same breath we contract out call centres to India and do away with anybody who can give advice on the policy.

    Should clients have the ability to move their funds without any exits fee if the original promise is broken surely the answer to that is YES and maybe that would force these insurance companies to reverse some of the job losses that happened in recent years.

    I am all for companies making a profit but not at the cost of the customer and ultimately that is what this reviews about to see whether the customer has been shortchanged.

    After all what does treat clients fairly actually mean?

  14. I am rather confused and more than a little concerned as to why it should need a detailed enquiry, with all the associated costs (who pays for this?), to establish who compiled, who authorised and who issued such a statement.

    When I saw it I felt there would be a problem, as the version I read was nowhere near concise enough, however I assumed that it had been edited down by the news channel…Possibly not it seems!

    By all means have your enquiry and rightfully make someone accountable if you will, but at our cost? I very much hope not.

  15. @Grey Area – The IFAs chasing maximum commissions used to be sales agents for the Zombie companies. When all the life assurers got rid of their salesforces many became IFAs.

  16. One of the U.K.’s largest insurance companies for example has £245 billion under management if you use a 1.5% management fee, which I suspect that some of the old policies is on the low side you get a turnover of 3.67 billion?

    I know this is a very simple analogy that surely client should expect greater levels of customer service and also performance from company that’s earning that type of turnover of offering clients or service e.g. Indian call centres.

    And while we’re talking about service how many jobs is this same assurance company cutting in its administration.

  17. As I was saying at 09.49

    •Pru execs land £47m pay packet for 2013

  18. @ Harry

    For the record I have worked for several insurers over the years but the last time was 15 years ago.

    I take exception to your assumption. Please read my post as nowhere was I defending insurers. My point was that IFAs can be as bad but if the headlines were the same about them then the there would be an uproar.

    It’s easy to have your view skewed by personal experience. My role has meant dealing with the very worst of advisers, mostly IFAs, over the years. I’ve seen mis-selling, fraud and outright theft. It would be easy to not trust a single one. However, I have also worked as an IFA too and know there are a lot of good people out there that make up the vast majority. If only the regulator could see the same and regulate accordingly…

  19. Did the FSA (or now FCA) ever consider the effect on consumers and Advisers when they rubber stamped takeovers and mergers between product providers ? We have spent time money effort and our reputations selecting those Companies and products bets suited to our clients needs and issued copious amounts of paperwork to justify our choice. Then, at the stroke of a pen that has all been turned on its head since the client now has a new product provider, new management,, possibly different charges etc, without consultation either with the adviser or client but approved by the regulators. Not only that but the spirit of data protection goes out of the window since personal information supplied in good faith to one Product Provider is now transferred to another, and the only power left with the client or adviser is to cash funds having considered penalties and tax implications, churning rules, money laundering (in the case of investment bonds held for less than 5 years etc. To cap it all we might be still responsible for the original advice !!

  20. @ Grey Area

    I apologise if I caused offence. That is never my intention – unless referring to politicians! I’m sure individual employees of insurance companies are not responsible for policy. I also accept that there have been some very poor IFAs. Regrettably many of them didn’t even deserve the title. That perhaps is one good outcome of RDR. When one thinks of the likes of Trevor Deaves or Roger Levitt claiming to be IFAs your comments cannot be denied.

    However having come into this business from industry and having there dealt with some very large companies – BP, Shell, Bayer, Hoechst, Dow etc. I was truly shocked when I came into this business to see how lamentably the large organisations were managed and the very poor quality of their senior excecutives. Admittedly there has been some improvement, but there is a long way to go. One can’t escape the impression that they are still being dragged screaming into the realms of TCF and acceptable practices. The City seems to think so too – witness the severe drop in vulture fund shares this week.
    That individual advisers have in the main also had to be dragged screaming is also lamentable, but again they potentially do less damage and are of lesser thematic risk than the insurers – who after all should be setting an example.

    The posts on this site do seem to reflect the low esteem in which these organisations are held and indeed if we are to visit the old mantra of ‘Trust’ it wouldn’t be hard to lay the major portion of blame onto the insurers. After all there is a huge choice of advisers and rather less when it comes to insurers.

  21. Thanks Harry. No offence taken I just didn’t want to be mis-quoted.

    My thoughts about insurers are not too far off yours though I probably believe there were more good ones than you in the ‘old days’.

    Direct sales and quasi-IFAs aside, providers had a symbiotic relationship with IFAs and the bad ones couldn’t have done what they did without implicit help and conniving from said. On the investment side there were always alternatives.

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