The FSA's decision not to name a number of life companies which it believes to be to be near to inso...
The FSA's decision not to name a number of life companies which it believes to be to be near to insolvency exposes an interesting tension between the FSA's role as consumer watchdog and its role in protecting the industry it regulates.
In a statement last week to the Treasury Select Committee, FSA chairman Howard Davies, refused to name the 'small handful' of life offices the regulator believes face an uncertain financial future.
This begs the question, what information do consumers, and their advisers, have a right to?
There is a strong argument for the FSA, as the champion of consumer welfare, to inform the public about potential threats to their retirement provision.
The future lifestyle of thousands of people could be impacted upon, if, not having been given the information that would enable a switch to be made early enough, their pension provision was eroded. Just ask the Equitable Life policyholders whether they would liked to have transferred two years ago.
It is interesting to speculate on how an FSA warning could have resulted in a different outcome in the Equitable case. It might, potentially, have forced the Equitable's board to act earlier and accept the inevitability of its situation.
In the FSA's defence, it does have to ensure it does not set off a series of investor panics should a life office come close to an insolvency threshold. It no doubt wants to avoid causing an alarm that could possibly lead to investors switching unecessarily between providers, costing investors dearly in transfer fees.
But there has to be a balance. One of the key points from the Equitable debacle is that no one has been willing to buy up the mutual. There is no cosy cabal of life offices willing to bail each other out and pay for each other's mistakes to keep the whole show on the road while the consumer remains happily ignorant but still gets his money. The hole in Equitable's balance sheet was too big and in current markets few have the money or inclination to help out fellow life companies.
If the ground rules have changed then the regulator should be less confident a behind the scenes deal can be done and should put a greater focus on transparency of life offices. If consumers cannot rely on a life industry cabal they will have to rely on their own judgements and to make proper judgements they need more information.
The other aspect of Davies' statement to the committee was his assertion that while the threatened life offices' solvency point was close, it was not close enough to warrant an alarm warning. What is the FSA's definiton of how close to an alarm warning these businesses are?
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