Appeal to the Information Commissioner
in response to the letter from the FSA of
14th July turning down
a request under the
Freedom of Information Act
to see its
survey of maturity payouts.
1. "Disclosure and transparency are crucial to market integrity."
There are numerous references to the importance of disclosure and good information on the website of the FSA, e.g.: "Disclosure and transparency are crucial to market integrity."; x "seeking to achieve better consumer understanding through improved disclosure"; x "empowering consumers through education and disclosure of information on charges and other key features of financial products."; x "One of the best protections for consumers is information.".
The reference to savers and investors as "consumers" and to the industry as "providers" should arguably be the other way round. Savers and investors provide their savings and capital to the industry where it is consumed by various charges, fees, levies, adjustments, reductions and so on.
Below the surface the FSA is not so enthusiastic about disclosure. For example fund portfolio turnover is specified as a percentage in the accounts of mutual funds in the US but not in those of unit trusts in the UK, but:
"The FSA will not bring forward proposals to require the disclosure of portfolio turnover." (5.81) x x
Its annual survey of maturity payouts and surrender values for with-profits policies x is confidential.
2. "A fair deal for consumers"
The FSA frequently uses the expression "a fair deal for consumers" which it applies to everything it does:
"Underpinning the FSA’s whole regulatory approach is our desire to secure a fair deal for consumers." x
But it does not give an exact definition of what "a fair deal" means, such as in its report A fair deal for consumers. x It should mean fair benefits in return for contributions made. But the FSA is reluctant to provide any information about the benefits which have in practice been provided in the past, such as its survey of with-profits payouts. It consulted about whether or not past investment performance data should be included in its Comparative Tables concluding that it should not be because:
"Past investment performance provides no guide to future performance." x
But I am interested in past performance data. Whether or not it provides a guide to future performance, and is therefore "a relevant consideration when picking a product provider" (6.49), x are separate issues. This is the argument: "We cannot give you this information because you might draw the wrong conclusions." The FSA uses the same argument for concealing portfolio turnover. Fitzrovia quotes Professors Blake and Timmermann:
"We are not persuaded by the argument that important information should not be published just because investors might 'misuse' it." x
3. "facilitating the carrying out of a public function"
It says that its Survey of maturity payouts and surrender values of with-profits policies is confidential because of Section 348 of the Financial Services and Markets Act (2000). But it is surely not confidential because of Section 349:
"Section 348 does not prevent a disclosure of confidential information which is
(a) made for the purpose of facilitating the carrying out of a public function."
The promotion of public awareness is a duty of the FSA under Section 4 of the Act and is therefore "a public function". This Section 349 is not discussed in the FSA's letter, although it was emphasised in my letter of 28th April which concluded:
"In conclusion, I am asking to see the payout survey with reference to Section 349 of the FSMA."
I had made the same reference to Section 349 in a previous letter to the FSA of 17th March, also without reply. The FSA must find this unanswerable.
Surveys are referred to in Section 348 (4) (b): "a summary or collection of information". This may be a reason for this exemption in Section 349. It would be difficult or impossible for the FSA to publish surveys if it always needed permission from all the participants.
4. The four comments
In its letter of 14th July, the FSA gives four comments made by firms. These are invalid reasons for not disclosing the payouts survey starting with "could act against the firms' commercial interests". This is the industry not wanting to say what it is doing with our money.
Firms benefit financially from the existence of hidden charges which are often the result of excessive portfolio turnover. Disclosing portfolio turnover might therefore be said to "act against the firms' commercial interests". But this is no reason for secrecy.
The four comments are very one-sided because they are all from the industry. But then this seems to be a common situation with FSA consultations. Even if some other people do respond the views of these other people are frequently ignored with the help of the phrase "most respondents". If the FSA consults and then follows the wishes of "most respondents" this sounds very democratic. But it is then in fact following the wishes of the industry (which finances it), because most respondents are from the industry. A Google search on "most-respondents" on the FSA website brings up 207 FSA publications, all of which seem to use the phrase several times.
What for example do the Consumers Association and Investors Association think about this? The four comments are highly technical. The Information Commission should not give any credence to them.
5. Cherry-picking
Even though the payouts survey is confidential, the FSA is publishing results from it, in particular Figure 2 in its report The regulation of closed with-profits funds. x Confidentiality enables the FSA to cherry-pick parts of the report which support particular arguments, keeping those parts which do not support its arguments confidential: "Data from our annual maturity payout survey shows that ... ". Does it really? What else does it show? We need to see the survey so that we can judge for ourselves.
Stephen Wynn
E-mail: centre@boltblue.com
17th July 2005