Friendly societies

 

June 2008

This page highlights good and poor practice we found in small and medium-sized friendly societies in our recent project.

We focused on corporate governance and treating customers fairly, as well as looking at risk management and financial crime.

Corporate Governance

We expect the boards/ committees of management of friendly societies to have the right balance between executives and non-executives, and have sufficient expertise to oversee and direct the society's affairs. In particular, non-executive directors need to have a thorough understanding of the society in order to provide adequate challenge to management.

Good practice we found

  • Assessing the skills and experience on the board/committee of management and taking action to fill gaps.
  • Regularly assessing board members to see if they still have the right skill and knowledge.
  • Reducing the number of directors after meetings became unwieldy - improving the effectiveness of the committee of management.
  • A 'buddy system', pairing non-executive directors with heads of departments within the society. This gave board members a broader understanding of the business and improved their ability to provide an appropriate challenge.
  • Board members meeting staff outside of formal meetings to get a better understanding of the society's business, and the views of staff.

Poor practice we found

  • Not having a process to assess the effectiveness of non-executive directors and senior staff.
  • Not recording in the committee of management minutes the level of debate and challenge, meaning that the society could not demonstrate the effectiveness of its committee of management.

Treating customers fairly

We expect all friendly societies to put the fair treatment of their customers at the heart of their business.

Good practice we found

  • Using different ways to gather information to determine how their members were being treated, for example:
    • member forums (face-to-face and via dedicated websites);
    • member questionnaires and surveys; and
    • in smaller societies senior management involvement in customer-facing activities, such as complaints handling.
  • Providing the board/committee of management with management information which identifies customer-focused issues, such as trends identified from analysing complaints.
  • TCF committees, to help the society maintain focus and co-ordinate the delivery of TCF initiatives.
  • Despite not being required to do so by FSA rules, putting in place an informal Principles and Practices of Financial Management document to assist it in monitoring maturity payments.

Management information

We found some examples of poor practice in the use of managment information, which is one of the key ways we expect firms to demonstrate TCF.

Some friendly societies were not using their management information effectively. Here are some examples:

  • Poor quality of information included.
  • Not including appropriate TCF key performance indicators.
  • Not monitoring performance against agreed strategies - eg budget against business plan.
  • Producing too much management information with little thought to its use
  • Not drawing conclusions from the data.
  • Sending out management information too close to committee of management meetings, leaving the committee little time to digest the information and provide a sufficient challenge during the meeting.
  • A lack of ongoing review of management information.

Our TCF pages have more information on using mangement information.

Strategy and risk Management

We expect friendly societies to be able to adequately respond to the challenges they could face from changes in the economic, business and regulatory environment.

This involves regularly reviewing the society's strategy. We found some societies need to do more to make sure they take account of external challenges they face and put in place a viable strategy that manages these risks.

We also found some societies appear to have more to do to ensure they keep expenses under control and put measures in place to reduce them where appropriate.

Good practice we found

  • A non-directive firm not subject to the individual capital assessment requirements, commissioned an assessment anyway to help it ensure it fully understood the risks it faces.

Poor practice we found

  • Not assessing the 'profitability' of individual products.
  • Financial Crime
  • Many societies had a good understanding of money laundering risks, but had not considered other areas of possible financial crime.
  • They needed to think more about:
  • external and internal fraud;
  • identity fraud; and
  • data security.

We have a factsheet on data security.