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January 2019

This month’s contributors are: Arnaud Houdmont

Andy Agathangelou

Better Finance

Transparency Task Force

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Richard Murphy

Tax Research & The Tax Gap

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Neil Lancastle De Mont University

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Get in touch if you wish to place an article! Edition #33 January 2019

The official publication of The Transparency Task Force. FREE to members of the Transparency Task Force, membership of which is also FREE

3 Calling all like-minded people around the world 4 Locations for Symposia 6 Upcoming Events 8

European Authorities remain mostly blind when it comes to the Past Performance and Costs of Long-term Savings Products, despite first reports ever released

12 Kingsman has Failed 15 The TTF Ambassadors, Special Interest Groups and Advisory Board - Find out more 16 Can the UK shift from Shareholder to Stakeholder Primacy 20 Get Involved


The Transparency Times | | January 2019 | Edition #33

TTF COMMENT: CALLING ALL LIKE-MINDED PEOPLE AROUND THE WORLD On the basis that the financial services sector is not national or local but global, I believe it makes sense to attempt to deal with its many flaws, challenges and issues on a global basis too. For that reason, the Transparency Task Force has been internationally-orientated since the early days. Whilst we are very much UK-based, we already have 4 internationally-orientated Special Interest Groups: APAC, EMEA, Americas and Global Transparency Index; and we have already run 2 Transparency Symposia outside the UK: Boston MA and The Hague. For 2019 we are ramping up our overseas activity considerably, whilst continuing to “keep up the pressure” in the UK. We are running symposia in all of these locations during 2019: Boston, being held on 12th March New York, being held on 14th March Dublin, being held on 29th May Hong Kong, being held on 10th October Melbourne, being held on 17th October Singapore, being held on 22nd October

In addition we are hoping to run symposia in Amsterdam, Zurich, Brussels, Toronto and Chicago; and of course we will have several in London. Please do get in touch ifbeing involved in any of those events might be of interest to you. The theme for our overseas events is the question: “How can we accelerate the rebuilding of trust in financial services?” and that will also be the theme for a major event being planned for London. It will be the first Trust and Confidence Summit in the world; and it will involve politicians, regulators, civil society leaders, think tanks, subject-matter experts, thought leaders, progressive market participants, the media, trade bodies and professional associations. The Summit will kick off a major 3 to 5 year project that if successful, will establish a trust and confidence strategy that will benefit the entire finance sector. The centre-piece for the Trust and Confidence Summit will be a White Paper being produced in conjunction with Newgate Communications; they have been doing a superb job helping to analyse and articulate how malpractice in the sector has eroded the public’s trust and confidence in financial services; and what the best way

forward might be to help drive the change that is needed. In essence, we are concluding that the Financial Services Sector: • is profoundly important for the wellbeing of society, financial security and political stability • needs to be trustworthy to function effectively • is not trusted The “call to action” is the idea that there is merit in all the sector’s stakeholders and leaders working collaboratively to help rebuild trust and confidence. That’s a message we are keen to get out there; and it’s a conversation we want to have with anybody that’s willing to listen. Please get in touch through if you would like further details.

Edition #33 | January 2019 | | The Transparency Times




New York




Hong Kong

The Transparency Times | | January 2019 | Edition #33





Chicago Please make contact if you want to participate in any of our thought leadership events taking place right around the world in 2019 Edition #33 | January 2019 | | The Transparency Times


UPCOMING EVENT Time for Transparency “How can we accelerate the rebuilding of trust in Financial Services” Tuesday 12th March

Venue – Mercer, 99 High St, Boston, MA 02110, USA

For any enquiries about the above event please make contact through


The Transparency Times | | January 2019 | Edition #33

UPCOMING EVENT Time for Transparency “How can we accelerate the rebuilding of trust in Financial Services” Thursday 14th March

Venue – Manhattan, New York - venue to be confirmed

For any enquiries about the above event please make contact through

Edition #33 | January 2019 | | The Transparency Times




Arnaud Houdmont | Chief Communicaitons Officer |

23 January 2019 - Long-term retail savings er products for which consumers and Pub clue as to their future performance, they d performance has been. On 10 January 2019, following a 2015 request by BETTER FINANCE[1], the European Supervisory Authorities (ESAs) finally released reports on costs and past performance of long-term and pension savings products sold or marketed in the EU. BETTER FINANCE welcomes this first step in the right direction and sympathises with some of the


challenges encountered by the ESAs concerning data

availability. However, the reports fall short of meeting their objective and of fulfilling

the European Commission’s request. This situation raises questions about the fulfilment of the investor and consumer protection mandate of the European Authorities. Alarmed by the fact that retail financial services continue to rank as one of the worst consumer markets in the entire European Union according

The Transparency Times | | January 2019 | Edition #33


| Better Finance

s are the only EU consumblic Supervisors don’t have a don’t even know what their past to the European Commission’s Consumer Markets Scoreboards, and warned by BETTER FINANCE, the Commission decided “to ask the European Supervisory Authorities (ESAs) to work on the transparency of long term retail and pension products and an analysis of the actual net performance and fees, as set out in Article 9 of the ESA Regulations”(Capital Markets Union Action Plan, September 2015, page 18). In October 2017 the EC issued its request to the ESAs to report on the gross, net and real net historical returns, and on costs at product-category level, for:

Arnaud Houdmont joined the team at Better Finance following a varied and multi-facetted career in the world of communication, press relations and research at the heart of Europe. During this time he worked closely with policy makers from the European Commission, the European Parliament and private sector stakeholders on topics such as youth employment, entrepreneurship, health policy, sustainability and innovation. Prior to this he earned a master’s degree in Global Communication from Goldsmith’s College (University of London) and a bachelor’s degree in International relations from Sussex University. His studies and career have given him a critical and analytical insight in a range of issues, as well as a profound knowledge of the political economy, media and the European institutions. On a personal level Arnaud is fascinated by all aspects relating to sustainable development and political economy. At Better Finance, Arnaud is responsible for all communications activities and the continued development of an inclusive communication strategy aimed at reaching all interested parties and stakeholders. He speaks fluent Dutch, English and French and has a very good working level of Spanish.

• Retail UCITS (Undertakings for the Collective Investment in Transferable SecuEdition #33 | January 2019 | | The Transparency Times


rities) and AIFs (Alternative Investment Funds) and Structured Retail Products (SRDs) under the remit of the European Securities and Markets Authority (ESMA); • Insurance-based Investment Products (IBIPs) and Personal Pension Products (PPPs) in the scope of the European Insurance and Occupational Pensions Authority (EIOPA); and • Structured Deposits (SDs) covered by the European Banking Authority (EBA). The data as requested by the EC was supposed to be gathered primarily from the disclosure and reporting requirements pursuant to EU law and to be accompanied by performance information compared to market performance (benchmark indices). The reports are also required to include recommendations for consecutive reporting cycles, including with regard to the usefulness of the various disclosure documents. Regrettably, the reports recently published by the ESAs only cover a very small fraction of the €20 trillion retail market in the EU, staying limited to: • A small part of the life insurance and pension products, the number one product category used by EU citizens with 39% of total financial savings: • only 21% of life-insurance products (“IBIPs”), and not with the required last 10-year time frame (only 5 years), with mistakes and surprisingly high returns for “profit participation” products;


• almost nothing on Personal Pension Products (“PPPs”); • nothing at all on occupational pensions; • Some investment funds (which all in all represent only 8% of EU households’ financial savings): “retail” UCITS funds in just 14 Member States, nothing on AIFs which are widely sold to European individuals; • And nothing on bank structured products, and - more importantly - on bank savings accounts, the number two financial savings product for EU households (28% of total). One can argue that those may not be adequate for long-term needs, but they are actually used as such by many citizens. What’s more is that no objective comparisons (against benchmarks) were made. Moreover, they lack concrete recommendations or next steps, in particular with regards to the utility of the current EU disclosure documents (the PRIIPs KID for example) as requested by the EC. This is all the more unfortunate since the 2017 EC Study on the Distribution of Retail Investment Products already failed to propose a way forward as regards i) identifying ways to improve the policy framework and intermediation channels so that retail investors can access suitable and cost-effective products on fair terms, ii) providing an assessment of how the policy framework needs to evolve to benefit from the new possibilities offered by online-based

services and fintech... The “next steps” part of the reports is also inconsistent with last month’s consultation document from the same ESAs (December 2018)[2] on improving the PRIIPs KID by proposing to reinsert a standardized disclosure of last 10 years performances compared to benchmarks. Such an ESAs’ proposal would nevertheless solve many of the obstacles faced by EIOPA for life insurance products. Even though the ESAs are legally required (article 9(1) (a) of their founding Regulations) to collect, analyse and report on consumer and market trends with the aim of “promoting transparency, simplicity and fairness in the market for consumer financial products or services across the internal market”, they have not done so until now. “EU savers and individual investors are once again left in the dark”, stresses Guillaume Prache, the Managing Director of BETTER FINANCE. “How is it possible”, he asks, “that the pan-EU financial supervisory authorities still do not measure the performances of the consumer markets they are responsible for? One cannot adequately supervise what one cannot measure. BETTER FINANCE asks the ESAs to clearly communicate to the European Commission, Parliament and Council what they need in terms of EU disclosure rules to achieve this core part of their mandate.” 1 BETTER FINANCE, CMU Briefing Paper 2015, page 27, Research_Reports/en/CMU_Briefing_Paper_-_For_Print. pdf.

The Transparency Times | | January 2019 | Edition #33

Venues wanted for transparency symposia in all of these locations: Amsterdam, Auckland, Beijing, Berlin, Boston, Brussels, Cape Town, Chicago, Dubai, Dublin, Frankfurt, Geneva, Hong Kong, Johannesburg, London, Los Angeles, Melbourne, Montreal, New York, Ontario, Paris, San Francisco, Santa Monica, Shanghai, Singapore, Sydney, The Hague, Tokyo, Toronto, Vancouver, Washington D.C. and Zurich. For further information please get in touch through Edition #33 | January 2019 | | The Transparency Times




by Richard Murphy | Director | Tax Research & The T

Some older readers will understand a joke much b describe an organisation as undergoing a ‘Talbot’ given to the failing Hilman / Chrysler brand of car ditch attempt to save the whole corporate edifice. The trouble was that they did not redesign the really poor cars that the company made at the same time. They just stuck a new badge on them. I cannot help but think that John Kingman has ‘done a Talbot’ to the Financial Reporting Council (FRC) when reinvesting it as the Audit, Reporting and Governance Authority, which will inevitably be termed as ARGA henceforth. The reality is that John Kingman did a classic insider’s job


on the FRC. This is hardly surprising. As a former Treasury civil servant who was on record as supporting the FRC in its existing structure he was hardly going to fillet it in public to make it fit for purpose. So frightened of the public was he, in fact, that he has refused to publish the evidence submitted to his review, claiming it was not in the public interest to do so. For a review of a body committed to maintaining standards of transparency that is quite astonishing.

Addressing the real issues As is Kingman’s failure to appreciate the scale of the issue that accounting faces. Whilst focusing on the role of auditors, in the main, Kingman dismissed the even deeper concern that what auditors are auditing is financial data of little relevance to most users of financial statements. And that is an FRC issue. The FRC sets UK accounting standards, used by many more companies than IFRS,

The Transparency Times | | January 2019 | Edition #33

Tax Gap

beloved in Private Eye, when they ’. Talbot was the corporate ID rs in the UK in the 1980s in a last . with almost all of them privately owned. And yet Kingman failed to notice that UK GAAP is based on IFRS, which in turn defines the only users of accounts for whom it has concern as the suppliers of capital to a company, and then only with regard to their decision as to whether to engage with it, or not. In other words, Kingman failed to notice that most financial statements created using FRC standards have been designed for the use of financial markets in which almost none of the companies who have produced them are engaged. And this is despite his report saying: The FRC has not, to date, been a particularly effective champion of the need for annual reports and accounts to be comprehensible and of genuine value for their readers. He has chosen to do nothing about this. Instead he has said:

Richard Murphy was included in Accountancy Age’s “Financial Power List for 2006” of the 50 most influential names to look out for in 2006. He is Director of Tax Research LLP, a specialist research company investigating the impact of tax systems on social issues. Current clients include governments, local authorities, government agencies, think tanks, NGOs and charities. Director of The Tax Gap Limited - Publisher of The Tax Gap report on the tax accounting of the largest companies in the FTSE index. 2. Senior Tax Policy Advisor for Tax Justice Network, as a founder member of the Tax Justice Network advises on issues such as international taxation, tax competition and its impact, the harmful effects of tax haven activity and flat taxes and the development of just systems of taxation. Co-author of the Tax Justice Network’s book “Tax Us If You Can” published September 2005. Also Partner at Fulcrum, Chartered Accountants Specialist firm of chartered accountants advising on business development, strategy, tax and finance. Richard’s academic appointments include: Research Fellow, The Tax Research Institute of the University of Nottingham Business School Appointed to address the relationship between tax and corporate responsibility and as such also working closely with the International Centre for Corporate Social Responsibility at the same Business School. Visiting Fellow, University of Sussex Centre for Global Political Economy Appointed to join research teams working on the impact of offshore taxation on key financial, policy and economic issues. Coordinator of the only international academic conference on international taxation policy and the offshore world, held annually at the University of Essex. Member of the Research Committee of the Association of Chartered Certified Accountants (ACCA) He is a Fellow of the Institute of Chartered Accountants in England & Wales (qualified 1982, fellow 1993) and become a Graduate in business economics and accounting at Southampton University in 1979.

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The regulator should be required to promote brevity and comprehensibility in accounts and annual reports, to engage meaningfully with investors and asset owners about their information needs, and to ensure the proportionality and value of reports. I have no problem with the objective, but to overlook the fact that the needs of many users are ignored at present, and to instead make brevity his objective in financial reporting, is reckless irresponsibility. Those who need data require it, whatever the length of the report. And it is wrong to pretend otherwise. CMA proposals will go further As a consequence, as an exercise in reform Kingman could not have got off to a worse start. I accept that putting accounting regulation on a sound statutory footing is wise. I agree that securing ARGA’s finances makes sense. I concur that annual reporting on progress makes sense. I think extensions of powers appropriate. But to be candid, nothing that King-


man recommended on auditing will go anywhere near as far as the Competition and Market Authorities’ proposals will. They are considerably more useful.

price for that. We needed more than a sticking plaster to keep the status quo going. But that is what we got. Talbot failed. Kingman will not save the profession.

What the CMA recommends will, however, be dependent upon auditors having useful data to audit and right now far too much accounting data is what I call CRAp. That stands for Completely Rubbish Approximations to what the users of accounting data really need. This is true at all levels of accounting, from the multinational corporations to the micro entity. Kingman has created a body that will not recognise that, because he has not recognised it himself. And he could not because that would undermine all that Kingman has himself endorsed in a career at the Treasury and in commerce.

This article was first published in Accountancy Age. See Richard’s blog here: uk/Blog/2018/12/19/kingmanhas-failed/

This review needed a real outsider with broad vision to lead it. Kingman was not that person and as a result it missed the point that it is not just the accounting regulator that needs reform, but accounting itself. And all in the profession will pay the

The Transparency Times | | January 2019 | Edition #33

The Transparency Task Force Ambassadors While we value every member of our campaigning community, some go over and above. They are particularly aligned to our cause and, as such, are profoundly impactful for positive change. They are our Transparency Task Force Ambassadors.

The Transparency Task Force Advisory Board The Transparency Task Force has now grown to the point that an Advisory Board is now needed to formally shape our purpose and strategy moving forward.

The Transparency Task Force Special Interest Groups The TTF Special Interest Groups are our collective response to the extensive need for reform of the financial services sector, right around the world. We believe that those who areaware of issues should collaborate with others to put things right it’s in everyone’s interest to do so. Our Special Interest Groups are all about understanding the potential power of working together to drive much needed change by harnessing the transformational power of transparency. Each of of our teams have a meeting/conference call quarterly.

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by Neil Lancastle | Senior Lecturer| De Montfort Un

The short answer to this question might be ‘No’. S been deeply entrenched in UK law since at least 1 successfully challenged directors’ pay awarded o Cork Railway Company (Haldane, 2015, p7). Subs was made legally explicit in Section 172 of the UK However, it is often overlooked that firms are ‘‘pure conceptual artifacts (sic), even when they are assigned the legal status of individuals’ (Meckling, 1976, p548). This ‘legal fiction’ opens up the more useful possibility that legal status could be weakened for shareholders, and strengthened for other stakeholders (Gindis, 2016, p15).


However, in the UK and other common law countries, existing case law provides a strong backstop to shareholder primacy; in turn, this weakens the ability to extend protection to other stakeholders through voluntary initiatives such as CSR (Jo, Song, & Tsang, 2016, p54). Under civil law or a hybrid legal system, it can also be

easier to strengthen the legal rights of other stakeholders: for example, nature has been recognised as a legal person in Ecuador and Bolivia (Shelton, 2015); in New Zealand, the Wanganui Tribunal established legal personhood for the Whanganui River (ibid); and in Uttarakhand, India, legal personhood has been extended to the animal king-

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Shareholder primacy has 1883, when shareholders on the winding up of the West sequently, shareholder primacy K Companies Act (2006) (ibid, p9). dom (PTI, 2018). Arguably, some stakeholders, in particular under insolvency and employment law, have already become better represented in the UK under the influence of the European Community (Armour, Deakin, & Konzelmann, 2003, p541). The question then arises: what impact will Brexit have? Despite this European influence, core UK institutions such as ‘takeover regulations, corporate governance codes and the law relating to directors’ fiduciary duties’ have remained strongly oriented towards shareholders (ibid, p531). Under voluntary initiatives, there is also a ‘missing link’ between what firms say they will do for other stakeholder, and what they actually do, with little evidence that words become actions (Bartkus & Glassman, 2008; Cooper & Owen, 2007).

The outlook, therefore, is somewhat gloomy. On the one hand, our common law system prioritises social stability and continuity. On the other hand, a ‘legal fiction’ is just that – a story that changes as new case law is written. The most direct way to do this would be to balance the interests of all stakeholders in UK Company Law. Anything less would be an illusion. References

Neil has a background in technology and finance, including Record Currency Management (1998-2000) and Barclays Global Investors (2000-7) where I worked on the development team for the iShares platform. I also have experience in data management at UBS Global AM (2007-9). He completed an MBA in Technology Management from the Open University in 2010 and a PhD in Management from the University of Leicester in 2015. My PhD is about the carry trade in foreign exchange markets, which led me into stock-flow consistent economics. Also, Neil teaches various finance courses at De Montfort University, as well as research methodology.

Armour, J., Deakin, S., & Konzelmann, S. J. (2003). Shareholder Primacy and the Trajectory of UK Corporate Governance. British Journal of Industrial Relations, 41(3), 531–555. Bartkus, B. R., & Glassman, M. (2008). Do firms practice what they preach? The relationship between mission statements and stakeholder manage-

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ment. Journal of Business Ethics, 83(2), 207–216. s10551-007-9612-0 Cooper, S. M., & Owen, D. L. (2007). Corporate social reporting and stakeholder accountability: The missing link. Accounting, Organizations and Society, 32(7–8), 649–667. aos.2007.02.001 Gindis, D. (2016). Legal personhood and the firm: avoiding anthropomorphism and equivocation. Journal of Institutional Economics, 12(3), 499–513. Haldane, A. G. (2015). Who owns a company? London, UK. Jo, H., Song, M. H., &


Tsang, A. (2016). Corporate social responsibility and stakeholder governance around the world. Global Finance Journal, 29, 42–69. gfj.2015.04.003 Meckling, W. H. (1976). Values and the Choice of the Model of the Individual. Swiss Journal of Economics and Statistics (SJES), 112(IV), 545–560. Retrieved from http://www. pdf PTI. (2018). Uttarakhand HC declares animals to be ‘legal persons.’ Retrieved from https://www.

uttarakhand-hc-declares-animals-to-be-legalpersons/ article24335973.ece Shelton, D. (2015). Nature as a Legal Person. Vertigo. Retrieved from

The Transparency Times | | January 2019 | Edition #33 the collaborative, campaigning community dedicated to driving up the levels of transparency in financial services, right around the world. the official publication of the Transparency Task Force. It is a great opportunity for our community to share news and views, insights and ideas, right around the world. how we bring people togethor to discuss and debate the key issues and to listen to thought leaders on the vital topic of transparency in financial services. awarded to one individual/organisation at each of our Transparency Symposia, in recognition of the contribution they are making to encourage greater transparency.

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Profile for Transparency Task Force

Transparency Times #33 January 2019  

The Transparency Times is the official publication of the Transparency Task Force, the collaborative, campaigning community dedicated to dri...

Transparency Times #33 January 2019  

The Transparency Times is the official publication of the Transparency Task Force, the collaborative, campaigning community dedicated to dri...