Greater transparency and responsibility over executive remuneration demanded by the public, according to new research by AFM
New research commissioned by the Association of Financial Mutuals shows strong public support for greater transparency over 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 by financial organisations.
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Commenting on the Deputy Prime Minister’s Mansion House Speech this morning, Martin Shaw, Chief Executive of the Association of Financial Mutuals stated:
“I welcome much of the Deputy Prime Minister’s speech on responsible capitalism and would strongly emphasise the key role mutuality can play in achieving this.
“Stability, responsibility and accountability are the missing attributes that have led to the advent of what he and others have identified as “crony capitalism”. I would hasten to point out that they are also the principles by which members at the Association of Financial Mutuals operate. They are traits championed by the mutual business model across many sectors.
“While the Coalition Agreement commits to the promotion of the mutual business model, we have seen the focus of attention so far on the John Lewis-isation of public services. Mr Clegg has spoken of the need for shareholders to behave more like business owners – mutuality provides a very simple solution to this: mutuals are owned by you, the customer. I wholeheartedly support his views on the benefits of employee ownership but let us not overlook the integral benefits to consumers, the economy and society of a thriving customer-owned mutual sector.”
Commenting on the announcement that the Co-Op has been given preferred bidder status by Lloyds for the sale of their 632 branches, Martin Shaw, Chief Executive of the Association of Financial Mutuals, stated:
“I am delighted to hear that the Co-Op is the front runner to purchase the branches that Lloyds have been obliged to sell by the European Commission. The mutual business model has never been more relevant for financial services; after the disappointment over the failure to pursue the re-mutualisation of Northern Rock, this is a shot in the arm for the sector.
“The Government made a commitment to foster diversity in financial services through the promotion of mutuality and there has been little evidence of their commitment to this to date. However, this announcement by Lloyds puts the mutual business model in the spotlight as one that is stable, responsible and a perfectly viable alternative to shareholder organisations that don’t always have the interests of their customers at heart.”
Association of Financial Mutuals welcomes a number of new members
We are pleased to announce that CUNA Mutual and the Veterinary Defence Society have become Full Members of AFM.
In addition, we are pleased to be joined by new Associate members: Frontier Investment Management, J.P. Morgan, Littlejohn LLP and Norton Rose.
This brings total membership of AFM to 56 full members and 32 Associate members.
Martin Shaw, Chief Executive of the Association of Financial Mutuals, comments on the 2011 Autumn Statement:
"The Autumn statement sounded in many ways like an emergency budget- with a series of actions introduced to address an economic position that has clearly deteriorated markedly over the last few months.
"We welcome some of the strong language about fostering UK industry, and members of AFM are keen to explore with the Treasury how insurer funds might be made available to help support infrastructure projects and help for smaller firms. It is important that mutual insurers are represented in the Insurers’ Infrastructure Investment Forum that the Government is creating with the Association of British Insurers. This after all is the basis by which mutuals were first created in the eighteenth and nineteenth century. It also reinforces ideas we’ve presented to the Chancellor over the last few years.
"Many AFM members are themselves small businesses, so some of the rate and tax reliefs announced will be positive for companies, as well as for their self-employed customers. However, for a government with a stated commitment to “foster diversity and strengthen mutuals, there remains nothing in the government’s planning to remove some of the barriers to the future success of the mutual insurance sector. And more broadly, with the statement providing a raft of new spending initiatives, the devil may yet be in the detail, as some of the fiscal balances needed are still to emerge."
Commenting on the Government’s announcement today that Northern Rock has been sold to Virgin Money, Martin Shaw, Chief Executive of the Association of Financial Mutuals stated:
“The Chancellor’s announcement today that Northern Rock will be returned to the private sector reflects the advice given to him by UKFI. In their view, the government’s priority was to get the best cash terms on offer now. It remains to be seen in the long-run whether this is the best deal for the customers of Northern Rock and indeed the economy, particularly of the North East – the 2008 banking crisis provided clear evidence that financial stability and competition for banking services may not be served by yet another me-too bank.
It is disappointing that UKFI does not appear to have fully explored the option of remutualisation of Northern Rock – we believe that long term that was a better deal. We call on UKFI to issue a full report on the appraisal of options including the pros and cons of returning Northern Rock to the mutual sector.”
Commenting on the FSA’s consultation paper on implementation of the Solvency II Directive, Martin Shaw, Chief Executive of the Association of Financial Mutuals stated:
“We welcome the publication today of the FSA’s consultation on transposition of Solvency II into the FSA rulebook. Whilst full implementation of the directive is being delayed it is vital for the industry to have clarity now on what the rules will look like in the future.
“Solvency II provides a comprehensive approach to capital management across Europe, and its role in promoting financial stability and consumer protection is a vital part of retaining confidence in the European insurance sector.
“The FSA’s estimation of £1.9 billion in implementation costs for the UK insurance industry demonstrates the financial onus on the sector in order to be compliant when the directive is transposed into UK law. Not only do insurers of differing sizes have to contend with these up front costs, but the ongoing compliance bill will be in the region of £200 million per year. In mutual insurers, of course, those costs are borne directly by consumers and £1.9 billion equates to at least £10 for every policy.
“This makes for concerning reading, particularly given the broad range of other regulatory projects insurers have to cope with at present. Small mutuals in particular will bear a disproportionately higher cost as many of the costs are not scalable, and they have a smaller customer base to share the costs over.
“FSA’s analysis also indicates that whilst capital holdings in aggregate are sufficient, around 20% of UK insurers face a shortfall of £12.5 billion. We expect that the true amount of the shortfall will be much lower by the time Solvency II goes live, as insurers act to retain profits and change their business structure to reduce the amount of capital required. We might also see an increase in strategic action, including disposals of back books and further consolidation.”
Comment on Government and FSA responses to the Treasury Select Committee’s report on the RDR
Commenting on the Government and FSA responses to the Treasury Select Committee’s report on the RDR, Martin Shaw, Chief Executive of the Association of Financial Mutuals, stated:
“It's good to see that the Government has acknowledged the confusion over how much VAT will be payable as a result of the RDR’s implementation; we hope to see further clarification on this soon and we welcome HMRC’s intention to meet with the industry.
“Considering the overarching objective of the RDR is to increase both the quality of advice delivered and the transparency around paying for it, it is crucial for the industry to understand what the regulator envisages a 'low cost simplified advice' regime will look like for consumers and that they consult properly with the industry in order to achieve the best possible outcome for consumers.
“It is right that the Government has not agreed to the twelve month delay the TSC report recommended. At a time of regulatory change, the industry needs as much certainty as possible and preparations for the RDR’s implementation are well underway. The FSA needs to move ahead quickly now to ensure the regulation is in good shape upon implementation.”
Rating agency downgrade
The decision by Moody's to downgrade the credit rating of a number of banks and building societies wasinevitable whenthe Government made it clear earlier this year that deposit-takers should not be seen simply as 'too big to fail'. So this movereflects a catching up by the agency rather than a change in the creditworthiness of the institutions. That said, it was not too long ago that Dexia from Belgium passed its stress testing with flying colours, yetit is now in the process of seeking a further bail-out.
"Investors should not be worried- and as long as they avoid holding more than £85,000 in any bank or building society, their deposits are safe."
Mutual helps reunite family fortunes on prime time TV
Missing Millions: ITV1: 8pm, Tuesday 13 September
Engage Mutual has been working with a team of TV researchers and genealogists to track down recipients of unclaimed funds it holds on behalf of customers or their beneficiaries.
Some of its heart warming stories, featuring unexpected windfalls, will be aired on ITV1’s prime time 8pm slot, with the first of four episodes starting next Tuesday (13 September).
Educating to save as well as saving to educate
Urgent and significant attention needs to be given to those saving for further education according to Martin Shaw, Chief Executive of the Association of Financial Mutuals:
“With the introduction of new tuition fees it has never been more important for parents to start planning towards meeting the cost of education. However, what children need today, just as much as saving to educate, is educating to save. This point is made more prescient with the recent research from the Personal Finance Education Group showing that over half of all teenagers are in debt by the age of 17.
AFM welcomes MPs' call on government to promote financial mutuals
The Association of Financial Mutuals welcomes the report issued today by the All-Party Group on Financial Mutuals, following their Short Inquiry into Corporate Diversity in Financial Services.
