The Association of Financial Mutuals’ chief executive is not convinced the Financial Conduct Authority has done all it can to stand up for members’ interests in the proposed sale of LV to Bain Capital.
Asked by MPs whether the regulator had played its part to the full, Martin Shaw told the Treasury Committee yesterday (November 25) simply: “No.”
Shaw referenced a letter sent by the FCA to the insurer in October, in which it explains why it can only look so far into the deal.
“The FCA wrote to LV last month, and they stated that, in effect, parliament has never given them the powers to offer an opinion on whether or not a sale of a mutual business to another business type is appropriate,” the trade body boss explained.
“Now, I don't think that's right. I think there is sufficient scope within the powers for the FCA to reinterpret that. In fact, the law was changed in 2016 through the Bank of England Act to introduce a clause on corporate diversity.
“And I haven't seen the FCA or PRA [Prudential Regulation Authority] actively act on that. But my interpretation of that would be it is within the powers of the FCA to take a more robust view on ownership, as one of the issues they consider in relation to consumer protection.”
LV’s board of executives is currently preparing for a member vote on December 10, which will decide whether the insurance provider is sold to Bain Capital, and whether it will demutualise.
Throughout the sales process, LV has been criticised by MPs for not being clear to its members about its intentions for the business.
The insurer has promised to pay non-profit members up to £100 each, and its 271,000 main fund with-profit members will receive pay-out enhancements totalling £101m - alongside a further £404m following the £1.1bn sale of its general insurance arm to Allianz.
Though The Times has since highlighted a detail in an independent report, which suggests members will have to foot a £43m bill in deal fees.
Shaw highlighted the irony of the process LV is going through, being the only mutual to have introduced a mutual lock back in the mid-1990s to protect itself against demutualisation.
It ruled a vote could only take place if 50 per cent of members wanted to vote, a scenario deemed nigh impossible.
“LV was the only mutual insurer to take that protection out, now it’s the only one to try and circumvent it,” said Shaw.
‘Failure’ to inform members
Asked by MPs whether it was appropriate for LV to put the business up for sale without telling members in advance, Shaw acknowledged “a number of shortcomings” in the insurer’s approach.
“I’m sure that if the directors had their time again, they would improve the quality of communication throughout,” said Shaw, acknowledging “the late basis by which they communicated [the sale] to members”.
Shaw then flipped the question to whether or not LV was right to sell the business in the first instance. He referenced falls in membership and the strain on its capital position cited in recent documents published by the insurer justifying the deal.