FCA warns LV over cost of independent experts

FCA warns LV over cost of independent experts

The Financial Conduct Authority has warned Liverpool Victoria it will challenge any “spike” in expected costs of the two ‘independent experts’ employed to review its proposed acquisition by private equity firm Bain Capital.

In response to questions posed by MP Gareth Thomas, the financial watchdog said in a letter published at the end of last week (December 3) it had requested updates on overall expenditure regarding LV’s two deal experts - Oliver Gillespie and Simon Grout.

The regulator also said it was “aware” of the estimated fees LV anticipates paying.

“We would have concerns if we considered the fee levels to be high given that part of the costs is being borne by the policyholders of LV,” the FCA said.

“The responsibility for monitoring the expenditure on independent experts is for LV, and the FCA’s rules and principles require LV to consider the interests of their policyholders in this regard.”

In a Treasury Committee meeting held towards the end of last month, concerns were raised by MPs over just how “independent” LV’s independent experts were, considering they were appointed by and are being paid by LV.

In its letter, the FCA confirmed Gillespie and Grout were appointed by LV. Gillespie is considering the overall proposed transaction with Bain Capital, which would see LV demutualise and pay members £100 each - pending a member vote on December 10.

“Gillespie was appointed by LV, and the FCA did not object to his appointment,” said the regulator.

“He is briefed primarily by LV staff,” the FCA  added. “His fees are being split between LV and Bain Capital.”

Grout is set to review the type of transaction LV has proposed to its 1,150,469 members. The FCA said: “Grout was appointed by LV, but his appointment was subject to approval by the PRA [Prudential Regulation Authority], having consulted with the FCA. 

“He will be briefed by both LV and Bain Capital, as the two parties to the Part VII transfer should it proceed, and the terms of reference for his work was agreed with both the FCA and PRA,” the FCA stated. 

Like Gillespie, his fees will be split equally between LV and Bain Capital.

The regulator highlighted a number of times throughout its letter that both experts were fellows of the Institute & Faculty of Actuaries, which it said required them to comply with “professional obligations and an ethical code of conduct”.

Both experts are being supported by three LV employees each in their reviews.

Asked how many further meetings the FCA has held with LV’s board or its representatives since August 5, when the FCA sent a letter to insurers outlining the weaknesses of the industry’s supervision, the regulator said it has met three times.

“The FCA has met with a member of the LV Board on three occasions as part of our ongoing supervision of the firm since this date, and on one occasion with a group of non-executive directors of the LV board as part of the ongoing change in control application assessment for the entity of LV that Bain Capital is planning to acquire.