Financial Services Bill

Memorandum submitted by Aviva (FS 01)

Summary

1. Aviva is the UK’s insurance market leader with over 14 million customers and over 17,000 employees. We are the only major insurer in the UK that offers both general and life insurance. Our core purpose is to bring prosperity and peace of mind to our customers through good times and bad.

2. We believe that it is the effectiveness of supervision, rather than the structure, that is key to achieving good outcomes for both consumers and firms. There are a number of improvements that can be made to the Financial Services Bill (the "Bill") in the interests of consumers, firms, and the regulators themselves.

3. We ask Parliamentarians to consider the points below when scrutinising and amending the Bill. We consider it important that the Bill require:

a) the FCA and PRA to identify areas where they can share services and information to minimise unnecessary burdens on firms;

b) the Treasury to explicitly consider the balance of experience required when it appoints independent members to the FPC and the Boards of the PRA and FCA; and

c) the FCA to have regard to the potential benefits of consumers accessing suitable financial products that meet their needs.

Accountability

4. It is important that the accountability and governance arrangements of the new regulatory system are strengthened. The new regulatory bodies and the Bank of England should abide by the same corporate governance standards that firms and other private organisations follow.

5. We agree with the Treasury Committee and the Joint Committee that the Court should be replaced by a Supervisory Board with expert members. The Bank’s significant new powers in macro- and micro-prudential policy should be paired with reforms to ensure that clear accountability processes are in place.

6. The Court (or Supervisory Board) of the Bank of England, the FPC and the Boards of the PRA and FCA should have a balance of experience from within the financial services industry, including the insurance and asset management sectors. The Joint Committee makes this point in relation to the FPC. The Bill should require the Treasury to explicitly consider the balance of experience required when it appoints independent members to the FPC and the Boards of the PRA and FCA.

7. The PRA’s accountability would be strengthened by engagement with a Practitioner Panel and this should be mandated in the Bill. If the panel system of stakeholder engagement is suitable for the FCA then it should be suitable for the PRA.

8. We therefore recommend that clause 2K of Chapter 2 of the new Part 1A of the Financial Services and Markets Act 2000 ("FSMA 2000") be amended so that it mirrors clauses 1M, 1N, 1O, 1P and 1Q of Chapter 1 of the amended Part 1A of FSMA 2000. For clarity, the text of the new Part 1A of FSMA 2000 can be found at Part 2 - Amendment of Financial Services and Markets Act 2000 of the Bill (starting at page 15).

9. Consideration should also be given to enabling the Chairs of the Practitioner, Smaller Business Practitioner, Consumer and Markets Panels to formally engage with the FPC.

Double regulation

10. Uncoordinated ‘double regulation’ with the attendant additional costs and contradictions must be avoided. Duplication will simply lead to unjustifiable extra regulatory costs and an unnecessarily complex regulatory environment. The draft Memorandum of Understanding between the Bank of England and the FCA contains sensible measures, but the Bill should provide more certainty.

11. The Bill should be amended to require the FCA and PRA to identify areas where they can share services and information to minimise unnecessary burdens on firms. Firms should have a single process for standard interactions, like approval of candidates for significant influence functions.

12. We therefore recommend that a new clause is added under clause 3D (1) of Chapter 3 of the new Part 1A of FSMA 2000 to include ‘that the regulators identify areas where they can share services and information and act to minimise burdens on firms supervised by both regulators.’

Europe and International

13. The new EU supervisory architecture, and its interactions with the UK regulatory framework, is very important for businesses like Aviva with operations across Europe. It is critical that the UK regulatory authorities effectively influence EU and international bodies in a timely, consistent fashion and with maximum impact.

14. We welcome the Bill’s requirement that the international organisations MOU establish an international regulatory committee and that the PRA and FCA will report on their international engagement.

Due process

15. A shift to judgement-based supervision should be balanced with a strengthening, not an undermining, of challenge mechanisms for firms. R ules and guidance should be developed using robust cost-benefit analysis and consultation.

16. The proposals in S ection 21 of Part 2 of the Bill (Proceedings before Tribunal) to weaken the remit of the Upper Tribunal should be dropped and i t should continue to be able to issue directions to the regulators . This will help ensure that the implications of the regulators’ judgements can be independently reviewed where appropriate.

17. We agree with the Treasury Committee that the Bill should require far more extensive cost benefit analysis and consultation before making new rules and guidance. The PRA’s consultation requirements should be included in the Bill rather than left to the discretion of the PRA. We support the regulatory principle that a burden imposed on a firm by the regulators should be proportionate to the expected benefits.

18. The Bill includes significant new powers for the FCA to ban products and to make public enforcement actions against firms at an early stage. There needs to be proper safeguards around the use of such powers. Also, the FCA needs to be clear about the circumstances in which it would intervene in product development.

Consumers

19. We work hard to produce products that provide prosperity and peace of mind, based on consumer needs. We want to see firms provide suitable products to financially capable consumers in competitive markets.

20. The FCA should be working towards positive consumer outcomes, not just avoiding negative outcomes. Its objectives should require it to work with the industry to promote better consumer access to financial services. We recommend that a new clause is added under clause 1C (2) of Chapter 2 of the new Part 1A of FSMA 2000 to include  that the FCA must have regard to "the potential benefits of consumers accessing suitable financial products that meet their needs."

21. Firms are required to follow FSA rules and guidance, high level principles on Treating Customers Fairly and will be subject to a more intensive product intervention regime. It therefore seems unnecessary for firms to also "be expected to provide consumers with a level of care that is appropriate" (part of the FCA consumer protection objective) . This principle needs to be scrutinised and clarified.

February 2012

Prepared 22nd February 2012