AFM issues an updated version of the UK Corporate Governance Code for Mutual Insurers
Following amendments to its Code by the Financial Reporting Council, AFM has issued an amended version of its annotated Code. All AFM members agree to comply with the principles of the Code, and report to AFM annually on all aspects of their compliance. A copy of the revised Code can be downloaded here.
A Manifesto for Financial Mutuals
The Association of Financial Mutuals (AFM) and the Building Societies Association (BSA) have today launched a four pronged manifesto to help ensure consumers get a fair deal from financial services. The campaign groups representing building societies and mutual insurers across the country have called for action from Government and regulators ahead of next year’s General Election to fix the regulatory and legal imbalance that could stifle the mutual sector.
‘A Manifesto for Financial Mutuals’, aims to level the playing field between shareholder controlled plcs and mutually owned providers. It calls for:
• A fair deal for consumers
• A level playing field for financial mutuals
• A rational approach by regulators to capital
• A more coordinated approach to promoting mutuals, creating a stronger savings culture and tackling the housing crisis
Robin Fieth, Chief Executive of the BSA commented:
“There is a widespread consensus that a diverse financial sector benefits consumers and the economy alike. Therefore, it is a bitter irony that in the effort to address poor behaviour by some plcs and prevent another financial crisis, the resulting legislative and regulatory framework threatens to undermine rather than support corporate diversity.
“Ratcheting up regulation across the board is leading to a matrix of rigid rules that disproportionately affects mutuals. Instead, the differences inherent in the mutual structure should be considered side by side with other types of financial services businesses. Today we are setting out a plan to redress the balance and strengthen the mutual sector.”
Martin Shaw, Chief Executive of the AFM added:
“Consumers are being left with little choice but to go back to the very firms that caused the last recession in the first place. Far from fostering diversity and ensuring the financial sector is more resilient, the present regulatory landscape is tilted towards a one size fits all model.
“It should be a national scandal that not a single new mutual has been set up since the last decade of the last century. Politicians need to translate their aspirations for greater diversity into concrete actions to help the financial mutuals sector to compete on level terms, and to deliver a fairer marketplace for consumers.”
A fully copy of the Manifesto is available to download here
AFM has produced a new report looking at Corporate Governance amongst mutual insurers and friendly societies in the last 12 months. You can download a summary of the report here.
The Association of Financial Mutuals has written to the Chancellor ahead of his Budget statement on 19 March. The letter sets out briefly some suggestions for how the government can work with mutual insurers and friendly societies, to address concerns about financial inclusion.
The letter is available to download here
This afternoon the House of Lords gave its assent to the first reading of a draft bill presented by Lord Naseby, which marks a major opportunity for the mutual sector.
Currently, mutuals raise capital from retained earnings or borrowing and can't raise additional funds from their members or other external sources.
These restrictions can limit their capacity to adapt to new market conditions, secure maximum investment in the business, or their ability to grow through acquisition.
Mutuals should be permitted to raise capital from existing and new members through new capital instruments (redeemable shares) which this legislation seeks to enable.
The Mutuals’ Redeemable Shares Bill would create a legal framework for these shares to be issued in all types of Industrial & Provident Society, Friendly Society and Mutual Insurers. The Bill will also provide powers to make regulations to deal with the detailed implementation of such schemes. Such powers would be exercised under the affirmative resolution procedure of both Houses of Parliament.
In summary, the Bill will:
• Create an optional new and additional class of redeemable share through which specified mutuals can raise additional funds.
• Provide consequential rights to specified mutual society members.
• Restrict the voting rights of certain members who hold only redeemable shares, so that they cannot participate in any decisions to transfer, merge or dissolve the mutual.
Mutuo Chief Executive Peter Hunt said,
‘The challenge has been to amend the capital regime in mutuals to permit the injection of external capital, whilst safeguarding both the core purpose and mutual integrity of the business. We can point to existing examples of where this has been achieved in other countries such as Canada and The Netherlands.
Lord Naseby’s Bill offers a radical step for UK mutuals which are keen to take advantage of their high levels of trust among customers and members.’
Martin Shaw, Chief Executive, Association of Financial Mutuals commented: "We wholeheartedly support the Bill, and the welcome opportunity it would bring for mutual insurers and friendly societies – it can only be good for healthy competition in financial services. In addition, tadalafil at was not “caught” in the negative impact on visual acuity, electroretinogram (display of changes in retinal biopotentials), ophthalmotonus and pupil size. Being able to raise new forms of capital will help mutuals to deliver their business strategy more effectively, to adapt better to new market conditions, and to grow through acquisition.
It is still early in the process, but we might expect this form of capital raising to include retail bonds, which could prove attractive to some consumers. The main reason we are keen to support this work would be to look for longer term strategic opportunities for the sector since it is already well-placed and on track to meet current capital requirements."
This is a complex process and the legislation will take some time to complete, and AFM is pleased to be actively supporting this work. For further information, contact [email protected], or go towww.mutuo.co.uk.
Financial services industry set for overhaul
as one in two Brits plan to ditch their providers this year
The notion of Brits being more likely to get divorced than change bank is a thing of the past. Around one in two people plan to switch financial providers this year, according to new research from the Association of Financial Mutuals (AFM).
Whilst many blame the banks for state of the economy*, austerity has also driven many consumers to be more demanding on what they expect from their financial services provider.
The AFM survey of a nationally representative sample of more than 2,000 people explored people’s attitudes to the range of financial companies people dealt with on a day-to-day basis to meet their financial needs, from banking and savings to insurance, cards and investments.
Overall, 47% of British adults were planning to change financial services providers this year – with 31% of people planning to change two or more of their service providers and a further 17% planned to switch one provider.
With consumers used to the idea of shopping around for general insurance quotes, it was perhaps not a surprise that 27% of people said that they planned to shop around for an alternative general insurance provider in the year ahead. After insurance, almost one in five (18%) planned to change banks or savings provider, dashing the old adage that Brits are more likely to get divorced than change their banks. Additionally, more than one in 10 people (12%) wanted to change their investment firm this year and 11 per cent planned to switch their loan or card provider.
The research also delved into what customers were now looking for in a good financial services provider. Of those who said that they wanted to switch banks or savings provider this year, the top three things that they would be looking for included:
· Financial products that are easier to understand (50%);
· Financial products that deliver good value in the long term (65%);
· An organisation that puts customer’s interests before those of shareholders (46%).
Looking at other financial services providers, ‘value for money in the long-term’ was at the top of people’s wish list when choosing a credit card or mortgage provider (57%). When asked about investment providers, 57% said that ‘products that are easy to understand’ would be the most important factor. Keeping health at home would be a key consideration for most Britons – 41% said that choosing a British product provider would be an important consideration when picking a health or life insurer.
Martin Shaw, Chief Executive of the Association of Financial Mutuals commented:“The research certainly busts the myth that people are more likely to get divorced than change their bank and it is possible that the broken trust in some sectors of financial services is now coming home to roost. Whilst the tough economic climate is forcing many families to become savvier in shopping around and making their money go further, it also seems that what people are looking for from a financial services provider is changing. The short-termism of a good headline rate is being offset by many people now looking for long-term value, simpler products and better service. And after the various bank scandals, it is understandable why more people want to deal with a financial company that puts customers before shareholders.”
“With hundreds of mutuals open for business in Britain today, financial mutuals offer consumers a genuine alternative, organisations run by and for their members, that are driven by offering simple products and good service to their members. Healthy competition in the services industry requires diversity for consumers to have genuine choices – and the mutual sector has its door open for people that want to deal with a different kind of financial services provider.”
The research was conducted by YouGov for AFM, among a GB representative sample of 2,000 people in April 2013.
* Footnote: [1]69% of people surveyed by Vision Critical blamed the banks as the industry sector of 16 options for getting the country into the mess it was in, or making things worse than they needed to be (October 2012, Sample 2000 people). Banks were also regarded as the worst offenders (of 16 sectors surveyed) at covering things up when they make a mistake (48%). Banks (27%), investment companies (27%) and insurance companies (37%) were seen to be the worst sectors for baffling consumers with jargon. Other sectors included in the survey included: supermarkets, airlines, car dealerships, hotels, holiday companies, utilities, retailers and building companies.
AFM comments on 'Mutuality and with-profits funds: a way forward'
AFM and its members very much welcome the approach taken by FSA in CP12/38, coming as it does after more than six years of active engagement with mutual insurers. The consultation demonstrates some fresh thinking from the regulator on their approach to mutual insurers with a with-profits fund, and therefore reflects the wider trend in public policy to, as the government has said, 'foster diversity and promote mutuals'. .
The consultation recognises that for some mutual insurers volumes of new with-profits business have been reducing, and that the rules create barriers to effectively developing alternative business plans. Mutuals are currently at a competitive disadvantage to PLC insurers, because most or all of their assets are subject to conduct of business rules, and there are therefore constraints on the amount of capital available. The FSA proposals envisage that mutual insurers can develop a supervisory-led solution to this, which might include, but is not limited to separating the various interests in the with-profits fund, in other words to create separate pots for with-profits policyholder funds, non-profit policyholder funds, and mutual members' (capital) funds. Any solution would need to satisfy the FCA that the solution is fair to all policyholders, and satisfy the PRA that the mutual remains financially sound, and the consultation stresses that the regulators will take a proportionate approach which will not preclude smaller mutuals.
As the consultation acknowledges, mutual market share in insurance has fallen from over 50% 30 years ago to around 7% today. The fresh approach from the FSA may have come a little late in the day, but should help to remove some of the motivations to demutualise, or for a with-profits mutual to have to wind up- as long as it has a relevant future business plan, and can demonstrate it remains wholly accountable to its members.
AFM will respond to the consultation by the deadline of 19 March, and we aim to be positive about the likelihood of these proposals providing a secure foundation for a stronger mutual sector, whilst looking for a little more explanation of some of the finer points in the paper.
The Association of Financial Mutuals appoints new Chairman and vice-Chairman
The member organisations of the Association of Financial Mutuals (AFM) – the trade body that represents mutual insurers, friendly societies and other financial mutuals in the UK – have appointed a new Chairman and Vice-Chairman.
At its Annual General Meeting on 17 October 2012, AFM’s members approved the appointment of Mark Goodale, Chief Executive of Reliance Mutual as Chairman, and of Phil Loney, Group Chief Executive of Royal London as Vice-Chairman.
The appointments were made following the retirement of incumbent Chairman John Reeve. Mr Reeve stands down as Chief Executive of Family Investments at the end of October, after more than thirty years service.
Mark Goodale was previously Vice-Chairman of the AFM and has been Chief Executive of Reliance Mutual since July 2006, where he has led the Society’s strategy to grow its membership through a mix of providing specialist products to customer niches and acquisitions of selected portfolios of life and pensions policies from other insurers, particularly fellow mutuals and friendly societies.
Mark Goodale, Chairman of the Association of Financial Mutuals commented:“I’m delighted to become the latest Chairman of AFM. Over the last few years, the media spotlight has regularly focused on the failings of some of our largest financial PLCs and there is a growing consensus that big business needs to operate more transparently and responsibly to rebuild consumer trust. During this time, mutuals have quietly continued to work closely with their customers to provide a better experience of financial services. This is an important time for financial mutuals that look after the needs of 20 million people and offer a real alternative to the PLCs. With the support of government and with appropriate regulation, the financial mutual sector can do so much to restore public confidence in our industry.”
Phil Loney was appointed to the Board of Royal London Group on 3 October 2011, coinciding with his appointment as Group Chief Executive of Royal London Group. He previously spent eight years at Lloyds Banking Group, most recently as Managing Director, Life, Pensions and Investments.
Commenting on his appointment, Phil said: "I am very pleased to have been appointed Vice-chair of AFM. As a relative newcomer to the AFM Board, I have been impressed by the enthusiasm and single-mindedness with which AFM works for a successful mutual insurance sector. AFM represents a diverse group of mutual insurers but I believe that there is a single unifying factor at work – the desire to deliver a better deal for members of mutuals. I look forward to working with the new Chairman and the other members of the Board to influence the market environment to make this happen."
Government not doing enough to respond to bad bank behaviour, says Martin Shaw, Chief Executive of the Association of Financial Mutuals
For people to have trust in the financial services industry, they need assurances that the basic components of the system work. The FSA’s record fine of Barclays today is yet another demonstration that banks continue to treat consumers with contempt and are focused solely on making a quick profit regardless of the ethics or legality. The scandals over PPI, or failing IT systems look mild in comparison.
Independent research commissioned by the Association of Financial Mutuals earlier this year found that consumers trust financial mutual far more than plcs with their money. When asked to rank financial mutuals and financial plcs on a trust scale of 1-10, financial mutuals received a ‘Net Trust Score’ of +32%, compared to financial plcs, which registered -5%, clearly demonstrating that whilst a vast majority of people trust mutuals with their money, the same cannot be said for shareholder-owned companies, who people have lost confidence in as a result of the financial crisis.
The Government has already begun to take action to remove the worst aspects of the bonus culture, but it is not doing enough. Until it ensures the system works fairly and properly, the market will remain open to abuse. However, the root of the problem largely rests in successive governments standing by whilst markets became less competitive, less customer-orientated and more concentrated. The answer must be to act decisively to make financial markets more diverse, and that means taking positive steps to grow an effective, mutual alternative to the big banks.
Financial companies ‘Owned By You’, are trusted by you
New research shows people trust mutuals, but not plcs
People are far more likely to trust a financial mutual than any other type of financial services provider, including shareholder-owned high street banks according to new consumer research revealed by The Association of Financial Mutuals (AFM) today.
When asked to rank financial mutuals and financial plcs on a trust scale of 1-10, financial mutuals received a ‘Net Trust Score’ of +32%, compared to financial plcs, which registered -5%, clearly demonstrating that whilst a vast majority of people trust mutuals with their money, the same cannot be said for shareholder-owned companies, who people lost confidence in during the financial crisis.
AFM is today launching a new consumer website called Owned By You (www.ownedbyyou.org) encouraging people to take a more active role in organisations that they own and to provide clearer information about financial mutuals, explaining the fundamental differences with shareholder-owned organisations and the benefits to their customers that result. The site is aimed at both the 20 million members who own a stake in mutuals in the UK, but also at consumers who have not necessarily understood that mutuals mean the organisation is owned by, and run for, the benefit of its customers.
Talking ahead of the launch of Owned By You, Labour MP and Chair of the Business Select Committee, Adrian Bailey MP said:
“One of my criticisms of the [mutual] movement in the past, is that it has not shouted its difference from the rooftops even though it’s got a very good story to tell…The public do, increasingly, appreciate the difference between mutuals and the proprietary sector.”
He added, “This website will go some way to promoting the idea, getting greater understanding of it, and hopefully strengthening the sector.”
Jonathan Evans, Conservative MP and Co-Chair of the All Party Parliamentary Group on Building Societies and Financial Mutuals stated:“I think it is very important that there should be diversity in financial services… Those companies that are actually owned by their policyholders or their depositors, have shown for more than a hundred years that it is a very successful model. That’s why I think the development and the retention of mutuals is so very important.”
Martin Shaw, Chief Executive of the Association of Financial Mutuals, commented:
“The financial crisis meant that many people lost confidence is large parts of the financial services industry, and that this is proving very slow to return. The Prime Minister said recently that we need a better model for business, to get people more engaged- our research shows that we have a solution, in the mutual organisations which people so clearly trust.
“At a time where the public’s perceptions of financial services remain woefully low, we hope that the new website, Owned By You, will help people gain more of the knowledge and tools they need to become more engaged in the way organisations they own are run. We expect that society as a whole is better when the mutual sector is stronger.”
ENDS
Notes on Net Trust Score
Research conducted by Opinium Research on 28/ 29 January 2012, with a nationally representative sample of 2,010.
Respondees were asked to rate financial mutuals and financial plcs on a scale of 0 to 10, where 0 meant strongly distrust, and 10 meant strongly trust.
The average score for mutuals was 6.0, for plcs 4.6. The breakdown of scores was:
% Mutual plc
Distrust 10 28
Neutral 36 38
Trust 42 23
Unsure 12 11
The net trust score is derived from deducting the proportion that distrust away from those that trust.
Notes on Owned By You, www.OwnedByYou.org
Owned By You is an information website for the members of mutual organisations. It has been produced by the Association of Financial Mutuals, the trade body that represents financial mutuals in the UK. It uses content generated by members as well as independently, to provide a rich source of information about the sector in a format that is accessible to consumers.
AFM retains its b2b website, financialmutuals.org, and continues to invest in children’s education through www.funtosave.org(for 4 to 7 year olds) and www.savingsquad.org(for 7 to 11 year olds).
Follow us on twitter: @ownedbyyou
For further information please contact:
Rimmi Shah/ Simon Alderson
Lansons Communications
020 7294 3670 / 020 7294 3680
Martin Shaw is available for comment if required.
Losses from Lloyds and RBS demonstrate acute need to overhaul the bonus system, says Association of Financial Mutuals CEO, Martin Shaw
As Lloyds and RBS prepare to report combined losses of £4 billion this week, despite showing a willingness to pay six and seven figure bonuses, new research from the Association of Financial Mutuals reveals strong public support for curbing excessive and irresponsible remuneration and bonus payments.
Martin Shaw said, “It will come as a shock to many that organisations who fail to make a profit can justify paying their top executives vast bonuses. The Government must commit to looking very carefully and comprehensively at the bonus culture – not just within our private sector organisations – but in the public sector too, to ensure that they are used proportionately and as intended: a reward for exceptional performance.”
New research commissioned by the Association of Financial Mutuals shows strong public support for greater transparency of top executive remuneration in financial organisations, and a clear link between company performance and bonuses.
Over half (51 per cent) of respondents supported either a complete ban on bonus payments unless the organisation was making a profit, or that details of top executives’ pay and bonuses must be made publicly available. Nearly one fifth (18 per cent) supported both of these measures being implemented.
Stability was also revealed as the joint second most important factor, on a par with access to a local branch, that consumers consider when choosing where to save and invest their money.
Shaw added, “This ongoing furore over bonuses in part publicly-owned or funded organisations – especially loss-making ones – shows that taxpayers demand a say in top people’s pay. This is exactly the kind of shareholder activism that will make companies more accountable to their owners.
“There is also a growing realisation from consumers and politicians that the capitalist business model has lost its moral compass and is in need of urgent repair, and that the Government should actively support the growth of other forms of business model – such as companies owned by their staff or customers.”
“There are two positives to take from recent events though”, Shaw noted. “Firstly, Lloyds claiming back some past bonus payments – if adopted more widely – could mark a step-change in remuneration policy for top executives, holding them to closer personal account for the business decisions they take, even in retrospect. This is a must going forwards.”
“Secondly, in opposition the Conservative Party committed to disclosing the number of employees in banks on high salaries. The Chancellor has failed to act on this in Government, but this research shows he has a clear mandate from the electorate to do so.”