Navigating difficult market conditions
The past has year been a very difficult one for markets, firms and consumers. Against this background and operating for the first time under our full powers and responsibilities, we have sought to anticipate potential external problems before they arrive and react proportionately to emerging risks. We believe we have made a significant contribution to maintaining market confidence and securing appropriate consumer protection. Despite being under considerable stress, insurers have remained solvent and have managed their financial positions more prudently. By taking a realistic approach to the solvency margin, we reduced pressure on insurance companies to engage in "forced" selling of equities.
Reform of insurance regulation
We have made good progress in strengthening insurance regulation under the Tiner Project. Progress will continue in key areas including identifying significant risks early and taking effective and proportionate action to mitigate them, and building more effective working relationships with high impact firms who pose the most serious risk to the achievement of our statutory objectives.
Protecting consumers
Treating customers fairly and with integrity: The tough market conditions prevailing have exposed cases were firms have not treated their customers either fairly or with integrity. We have made clear that we expect firms' senior management to engage with this aspect of their business more actively in coming years. Mortgage endowments: We have encouraged consumers to complain where they think they have been mis-sold and we have made sure they have the right means to do so. By the end of 2002, product providers had received 185,000 complaints relating to mortgage endowments, had upheld 45% of them and had paid compensation of £170 million to policyholders. In addition, 23 firms have agreed to compensate 433,000 consumers a total of £672 million to resolve product flaws. During 2002/03 fines totalling £2.7 million were levied on firms for mortgage endowment mis-selling and related deficiencies in sales systems and compliance and control procedures.
Split capital investment trusts (splits): We have launched major enforcement investigations into allegations of mis-selling by intermediaries and collusion by fund managers. The groundwork has been laid for improving the regulatory regime for the sector and we have made information available to consumers to enable them to consider their options, including making complaints to the firm and to the Financial Ombudsman Service.
Financial promotions: Firms are understanding better our requirements relating to financial promotions. We received around 500 reports from consumers and other sources about financial promotions in 2002, the majority of which we pursued with firms resulting in the promotions being amended or withdrawn. Consumers, who have been misled, have, in many cases, been offered redress.
Enforcement
Policing the perimeter: UK consumers are vulnerable to targeting by unscrupulous firms and individuals who operate without authorisation. During the year we issued a number of consumer warnings and worked with other countries to take action against unauthorised sellers of financial products. During the year we opened 580 new enquiries - 38 cases were dealt with by a warning letter and eight were referred to other agencies. Emergency injunctions were obtained to freeze firms' assets and stop them from continuing unauthorised activity - and money has been returned to investors.
Enforcing the rules: Firms need to understand that failure to meet the required standards is particularly serious, and that where necessary, we will take enforcement action in the interests of consumer protection and market confidence. At 1 April 2002 we had 315 cases open and opened a further 138 cases during the year. We closed 260 cases and have 193 outstanding. Penalties levied in 2002/03 were just over £10 million.
Chairman's remuneration
The Annual Accounts show that the total remuneration package for FSA Chairman Howard Davies for the Report Year was £385,730 compared to £379,740 for the previous Report Year, an increase of 1.6 per cent. Details of Directors' remuneration can be found on Pages 160 and 161 of the Report.
Financial management of FSA pensions costs
The FSA has in the Annual Accounts implemented in full the provisions of FRS 17 on accounting for the costs of its final salary pension scheme. Using the assumptions required by FRS 17 there was a final salary scheme deficit of £102 million on 31 March 2003. The FSA believes that, when measured on a basis which is more relevant for financial management purposes, the deficit was closer to £50 million. The FSA remains able to operate as a going concern because the pensions deficit will not crystallise for many years and because of its statutory powers to raise fees.
The Report describes how the FSA is exercising greater control over its pension liabilities by ensuring that it takes into account the impact of future salary increases on the pension scheme liabilities; making top-up contributions year by year to the scheme starting with £2.5 million in 2003/4 to ensure it can meet its obligations; and including in the Annual Funding Requirement only the amount of the cash contributions we expect to pay into the scheme each year.
Background
- The FSA Annual Report 2002/03 covers the FSA's regulation of the financial services sector from 1 April 2002 to 31 March 2003 under the Financial Services and Markets Act. It is presented to the Chancellor of the Exchequer and a copy has been placed today by the Treasury in the library of the House of Commons.
- The Annual Report is available on the FSA website at www.fsa.gov.uk. A summary version of the Report is also available on the FSA website.
- Appendix 3 of the Report sets out the FSA's responses to points made by the Practitioner, Small Business Practitioner and Conumer Panels in their Annual Reports published earlier this year. Appendix 7 contains the FSA's response to the Annual Report of the Complaints Commissioner 2002/03published on 16 June 2003.
- As required by the FSM Act, the Report includes an estimation by the FSA of how far it has met its four statutory objectives during the past year and also the FSA's consideration of how it had regard during the year to the principles of good regulation set out in section 2(3) of the FSM Act. The Annual Report also contains, as required by the Act, the report by the FSA's non-executive committee on the discharge of its functions.
- Also available on the FSA website is the FSA's first performance account, in line with "Our approach to performance evaluation" (January 2002). This comprises reporting against our high level indicators, key priorities and published service standards, with links across to the relevant parts of the Annual Report.
- The Report will be discussed at the FSA's fourth Annual Meeting to be held at Cabot Hall, Canary Wharf, London E14 on Thursday 17 July. Representatives of consumers and of the regulated industry will be invited to the event and the public will be able to attend. The holding of the meeting is in line with the FSM Act requirement for the FSA to organise an Annual Public Meeting so as to allow a general discussion of the contents of its Annual Report.
- The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection of consumers; and fighting financial crime.
- The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.
