The UK’s financial services industry could be subject to greater scrutiny over the performance of its products and complaints procedures under proposed new regulator rules.
The Financial Services Authority’s Discussion Paper 13/1 Transparency outlines proposals for financial services firms to provide consumers with more information about the value of financial products.
The proposals also aim to increase the accountability of the new financial services regulator, the Financial Conduct Authority (FCA), by publishing data on how effectively it responds to whistle-blower complaints.
“Transparency cannot be an end in itself. We want to make sure that disclosure helps customers make the right decisions when purchasing products and helps the market function more efficiently,” Martin Wheatley, chief executive designate of the FCA, which replaces the FSA in April, said in a press release.
In the UK, the financial services industry employs more than a million people and in 2011 was the second largest contributor to the economy, with a 9.4% share of GDP, according to analysis by the UK Department for Business, Innovation & Skills.
At the peak of the financial crisis in 2009, the UK government spent £133 billion to bail out banks and had liabilities of about £1.16 trillion due to the banking crisis. This highlighted the need to reform financial services regulation.
In 2009, the FSA issued a Code of Practice on Regulatory Transparency, which led to the regulator publishing complaints data on financial services firms that receive 500 or more complaints over a six-month period. Discussion Paper 13/1 Transparency is the next step to improving the transparency of the financial services industry.
Insurance claims data
One of the more contentious proposals is the publication of insurance product claims data.
Under proposed FSA transparency rules, customers would be able to compare insurance payout ratios, which measure the likelihood of a product vendor paying out on a claim.
This would be broken down by product and provider, and would allow customers to make more informed decisions on the value of insurance products that are normally purchased as add-ons, such as mobile phone or identity-theft insurance.
The FSA has received an increasing number of whistle-blower complaints during the financial crisis. A common concern among whistle-blowers, according to the FSA, is that their complaints are not acted upon, deterring them from coming forward with sensitive information.
The FSA has proposed publishing data that shows how many whistle-blower incidents there are and how many of these are followed up.
Another major proposal is to publish more information about annuities, such as asking firms to reveal their annuity rates, how many people they are giving enhanced annuities to and the proportion of people who shop for different annuities from the same provider.
Only one-third of customers currently shop around when they buy an annuity, and the annuities proposal is designed to improve comparability, according to the FSA.
Ideas to increase the transparency of FCA work:
- Giving more detail to whistle-blowers about the action that has been taken after they have contacted the FCA.
- Publishing data in an aggregate form about the number of whistle-blowing incidents and any action taken with the information that has been received.
- Expanding the amount of information that is published in the enforcement annual performance account, which could include average length and cost of investigations.
- Publishing aggregated information about supervisory activity, which could include the number of planned and unplanned supervisory visits that have taken place across different sectors.
Ideas on information the FCA could release about firms, individuals and markets:
- Publishing aggregated information about authorisations, including broad reasons that applications are refused or withdrawn.
- Disclosing more details about redress schemes.
- Publishing the amount of redress paid by firms.
- Improving the content, clarity and accessibility of information published about thematic work and saying more about the findings.
Ideas on information the FCA could require firms to publish:
- Improving transparency in the annuity market to make it easier for consumers to compare products and get the best deal.
- Claims data on insurance products to help consumers understand the value of particular insurance products.
- Providing greater context around published complaints data to improve understanding of what the data shows.
The FSA is inviting public comment until April 26th 2013.