A senior MP has warned the Financial Conduct Authority (FCA) may be repeating past failings and ignoring the report into the collapse of London Capital & Finance (LCF) as it handles the potential demutualisation and takeover of LV=.
Gareth Thomas MP, who is chairman of the all-party parliamentary group for mutuals (APPGM), also criticised the LV= leadership and called on its chairman Alan Cook to answer questions in Parliament.
In April the APPGM published a highly critical report into the agreed demutualisation of LV= and its takeover by private equity firm Bain Capital.
During its investigation the group heard evidence from other members of the LV= board but Cook only responded with a written submission.
In a Parliamentary debate last night on the demutualisation, Thomas said: “I believe now that Alan Cook, the chairman of Liverpool Victoria, has a series of questions to answer about the proposed demutualisation and sale to Bain Capital.
“Earlier this week I formally invited him to Parliament to enable him to do just that.”
He expanded on the APPGM’s concerns about the deal, questioning whether Bain was a suitable purchaser and arguing the “leadership of Liverpool Victoria have thus far refused to provide a more open and transparent explanation of their motives and their intentions”.
Thomas also argued there had never been a clear, easy-to-understand explanation as to why demutualisation was needed and that its own accounts and executives showed the business was well capitalised.
“Secondly, it is difficult to see how the members or owners of Liverpool Victoria will benefit from the demutualisation.”
An LV= spokesman confirmed to Health & Protection the invitation had been received but Cook was on holiday this week and he would respond on his return.
FCA ‘not conducting interlinked decisions’
Thomas also criticised the regulators’ handling of the proposed takeover, noting the FCA and Prudential Regulatory Authority (PRA) had met the LV= board almost 60 times but not had one with the firms consumers and owners.
He highlighted the two-step process to convert the mutual to a company limited by guarantee and then accept the Bain offer as a vital issue which was being ignored byt the FCA.
“The conversion to a company limited by guarantee and the decision to pursue demutualisation are both fundamental to the treatment of Liverpool Victoria’s consumers,” he said.
“The FCA is refusing to consider both decisions together and to investigate, as I have indicated, whether the chairman in particular and other members of the board knew much earlier than they have been willing to admit thus far that demutualisation was their desired end point.
“The failure to consider interlinked business decisions in a holistic way was a fundamental failing identified by Dame Elizabeth Gloster in her devastating report on the London Capital & Finance debacle. This appears to be a clear repeat of that mistake, albeit with a very different business.”
Thomas asked economic secretary to the Treasury John Glen, who was representing the government at the debate, to ask the FCA to explain its refusal to investigate the link between the two steps.
And he also asked Glen to request the FCA publish the details of the two independent experts appointed by the board of LV= so that customer-owners can ask questions about the plans.
‘Regulators undertaking rigorous processes’
Glen did not agree to quiz the FCA but said the approval process involved safeguards designed to ensure members and policyholders were kept informed and their interests were protected.
“I have been reassured that the regulators are undertaking rigorous processes, as evidenced by the number of meetings that they have had, to assess the viability of the transaction and the suitability of Bain to manage an insurance business,” he said.
“Importantly, the statutory objectives of the regulators put policyholders’ interests, as well as consideration of the impact of the transaction on the market, at the heart of their assessment.
“I greatly support the regulators in their roles, and trust that they will endeavour to secure the best outcome in the interests of members and policyholders.”
‘Finalising comprehensive information pack’
The insurer told Health & Protection that it was “finalising a comprehensive information pack with the regulator” which will include reports from an independent expert and with-profits actuary which would be shared with members.
“We also held webinars for members last week and will provide all members with another opportunity to pose further questions through further webinars once the member voting pack has been received,” it said.
LV= added that it had always been clear that the strategic review and proposed transaction with Bain Capital was solely driven by considering the best long-term interests of members and this had been the guiding principle behind any decision.
“We welcomed therefore the opportunity to provide written and oral evidence to the APPGM earlier in the year explaining why Bain Capital was singular in offering an excellent financial outcome for members as well as an unrivalled and long-term commitment to our future prospects, business and people,” the insurer said.
“We were disappointed by the findings of its report. We have always recognised the importance of providing our members with all of the information they need to make an informed decision in advance of the vote.”
The vote to approve the transaction will require 75% of those who vote, to vote in favour and there is no minimum turn-out required. The transaction will only proceed if members approve that vote.
Health & Protection also contacted the FCA putting several questions to it about the issues raised during the debate, whether it believed it was at risk of repeating failings and its meetings with LV= customers and owners.
The regulator had not responded at the time of publishing.