Trapped policyholders caught in FCA ‘shoot first’ crossfire

On Friday (4 April), FTAdviser revealed the strong reaction of the Association of British Insurers, the trade body representing the large life companies at the centre of the furore, to the suggestion it knew weeks in advance of plans to investigate four decades’ insurance and pension policy sales.

It effectively said officials from the Financial Conduct Authority had only given the vaguest sense of the parameters of the probe during a “routine” and “confidential” meeting in February.

It added that a direct request for detail on what was to be said by senior director Clive Adamson in an exclusive briefing with The Telegraph, which it was informed of on the day it took place and the day before the infamous article that prompted a market sell-off was published, was denied.

The response was unusually candid and hinted at still-simmering anger at the ABI, which apparently wrote to George Osborne the day after the incident as several of its most high-profile members called for the head of Martin Wheatley.

Such unrest is widespread. The Sunday Times reported yesterday (6 April) that Andrew Bailey, Mr Wheatley’s opposite number at the Prudential Regulation Authority, was “furious” over the handling of the issue and in particular that his demands for a clarification statement to be issued were ignored for five hours.

More importantly there is the reaction of the chancellor, who decided against having a quiet word with the FCA boss and instead published a public rebuke in the form of a letter outlining his “profound concern” to FCA chairman John Griffith-Jones.

Perhaps, though, we are missing a key point here.

In the midst of all of this bellicose rhetoric and back-biting, The Telegraph on Saturday published a compelling follow-up to its original report, calling on the FCA not to give in to “political point-scoring and lobbying by insurers” and to stick to its guns on the scope of the review.

It followed the regulator eventually watering down Mr Adamson’s comments as reported by The Telegraph that suggested it might even be minded to look at banning the egregious exit fees many pension firms charged to prevent savers transferring to a new provider.

It would only review a sample of the 30m policies in question, it clarified, and would not look to ban any charges that were within the rules at the time of the sale.

Good news for insurers such as Phoenix and Friends Life owner Resolution, which were hammered on the day Mr Adamson’s statements were published and which rely for 32 per cent and 24 per cent of their respective revenues on such business.

Bad news, though, for many of these trapped clients. The Telegraph report, for example, contained a case study of one policyholder with a £20,000 pot who faces a 14 per cent deduction to move a “poorly-performing” fund that it is claimed was not disclosed in the original policy documents.

Another saver was cited who had already paid an exit fee of 53 per cent last year to avoid ongoing annual fees of 7 per cent. How many more of the 30m policies from before 2000 that remain in force apply similar penalties?

The Telegraph and others accuse the FCA of showing weakness, a far cry from the “shoot first, ask later” approach Mr Wheatley signalled - ironically, in a speech at the ABI - in the lead-up to last year’s launch of the new watchdog.

The problem, as I see it, is precisely this gung-ho attitude. In the FCA business plan the information it gives on this far-reaching and important investigation extends to one sentence; the clarification it issued after a six-hour market meltdown is eight short paragraphs.

Mr Adamson appears to have given far more detail and sounded a far more aggressive tone during his briefing than the FCA was prepared to subsequently stand behind. That it took six hours to issue its clarification suggests further that it could even have been forced to set the parameters of this study ‘on the fly’.

Making policy in this way will not wash when you are dealing with a market of this magnitude and in which huge volumes of institutional assets, including pension and

Making policy in this way will not wash when you are dealing with a market of this magnitude.

It’s an embarrassing affair that seems to have begun with the best of intentions. The FCA should be looking at this market - and should not at this stage be setting limits on its action. That it might be doing just that is the greatest crime in all of this and it is ordinary savers that will suffer.

When you ‘shoot first’ and do so blindly, you cannot control who gets caught in the crossfire.