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Mr. Butterfill: I am grateful to my hon. Friend for giving way as, contrary to the impression given by the hon. Member for Edinburgh, Central (Mr. Darling), the miracles of modern science have allowed me to follow the debate from my office while dealing with the work imposed on me by my private Member's Bill, which will be to the great benefit of his constituents.
Does my hon. Friend agree that the problems in the industry exist primarily in the retail and personal sectors and that self-regulation in the wholesale and professional sectors remains almost entirely satisfactory? To impose further change on the retail sector now, when it is just getting over the trauma of the establishment of the Personal Investment Authority, which we should have had in the first place, would impose unnecessary burdens on the industry as a whole.
Mrs. Knight:
My hon. Friend is quite correct, and that is the point that I was trying to make. I thank him for casting light on the issue, in the same way as he does on our days and our nights. My mission with regard to the Financial Services Act 1986 is to ensure that the current system is working well. The Select Committee report refers to its strengths, and it points particularly to its flexibility. We shall draw on those strengths to make regulation truly effective.
The hon. Member for Gordon (Mr. Bruce) said that the structure of the boards should be examined further. He proposed that the chairmen of the boards of the
self-regulatory organisations should be drawn from the consumer side--I hope that I have not misinterpreted him and that he will not need to set me straight. The composition of boards formed the substance of his point and I agree with comments in that regard.
I also agree that the term "self-regulatory organisation" is a misnomer and I concur that "practitioner-influenced regulation" is a better description. Although I agree with much of the substance of the report, I am concerned about the review that is proposed in paragraph 93. I believe that such a review would prove destabilising for an industry that has already seen considerable change.
Mention was made of home income plans. That issue has caused considerable distress and many investors have received assistance. Prior to the introduction of the FSA, investors had to take legal action with little chance of recouping their losses and I realise that many people face residual debt. We are urging all lenders to look sympathetically on anyone in that position, as I understand that several are doing already. Immediately before the debate began I had extensive discussions with the Building Societies Commission about the matter. We discussed involving building societies in home income plans and voluntarily submitting their cases to the building society ombudsman.
I turn now to paragraph 118 and the way in which the Select Committee has encouraged the Treasury to adopt a more interventionist and active role in the co-ordination of financial services supervision and regulation. I am sorry that my reply to that suggestion was considered delphic. I said that the recommendation raises wider issues that will need careful consideration before final decisions are taken. There are wider issues involved if we are considering bringing all regulation under one Department. For example, we must consider the implications for other Government Departments and for interacting areas of policy. In answering the Select Committee, I clearly indicated Treasury inclinations in that area.
Mr. Forman:
As far as I know, there is only one other Government Department that could create an obstacle. Can we not talk some sense into the Department of Trade and Industry and give responsibility to the Treasury?
Mrs. Knight:
I thank my hon. Friend for that comment; I am sure that the DTI will heed his words.
Several hon. Members referred to Lloyd's. My hon. Friend the Member for Chichester (Mr. Nelson), the Minister for Trade, sends his apologies for not being present for the debate this evening. He suspected that the subject of Lloyd's would come up, but he was unable to be here as he had to address a meeting in Nottingham. I have been asked to convey his apologies to the House and to assure hon. Members that he will take up and answer any points raised on the issue.
Lloyd's wrote a letter to hon. Members prior to the debate, in which it says:
My hon. Friend the Member for Gloucester (Mr. French) made some pertinent points about the retail side, citing a number of reports. I agree with him that there is a need for stability, and that all who work in the sector are strongly opposed to change. I rather liked my hon. Friend's succinct encapsulation of the original purpose of the Financial Services Act in six words: "Sell something suitable and be honest."
During the past few months, I have spent a good deal of time listening to people in the financial services industry. We must work with them to ensure that any unnecessary burdens are removed. That is why I support the regulators' efforts to implement the strategy contained in the 1993 Large review, and, in particular, the emphasis on supervision and enforcement. That must be delivered more efficiently to provide proper investment protection.
I am concerned by what my hon. Friend the Member for Gloucester said about the length of the fact-finding pro cedure. It need not be over-burdensome. Like my hon. Friend the Member for Carshalton and Wallington (Mr. Forman), I suspect that part of the reason for the long-
windedness of the form is that those who drew it up wanted considerably more information than was actually required.
Attention was drawn to the need to ensure that friendly societies are not over-regulated. The Personal Investment Authority is currently considering the decisions reached by a committee that it set up to examine friendly society regulation. As the committee was chaired by the chairman of a friendly society, I am sure that its conclusions will be relevant and positive. The PIA has announced that the training and competence of home service agents will be examined, and proposes the establishment of a new qualification known as the home service planning certificate, which should ease the burden on those who sell on behalf of friendly societies.
We must not forget the invaluable role of independent financial advisers. The high streets in our towns and villages invariably contain an office or shop with a sign saying, "Car, house and other insurance, pensions and financial advice". Those offices are run by men and women who have often learnt their skills in the nearby office of a well-known insurance company, or have been trained in a bank. They are as important to the local community as the butcher, the solicitor, the accountant and the supermarket: they provide general insurance services, and help people to plan for the future. The need for those independent advisers has never been greater; the requirement for individuals to take control of their financial future is obvious.
When we discuss regulation and the future of financial services, we should bear in mind the real need to avoid sweeping statements and generalities. We should remember who we are talking about and what we want them to achieve. No system will ever be perfect, but successful regulation of the retail sector can be achieved through training and competence requirements, disclosure and a lighter touch. We need a less prescriptive regime than the present one. This is the so-called disclosure dividend, of which so much has been said; now, much must be made of it. The regulators and the industry are well aware of my views.
The laws of caveat emptor apply to a considerable extent, so those who buy investment policies must themselves be trained. They need to know what they are asking for and what questions to ask, and they need to understand the replies.
Mr. Darling:
The Minister speaks of the need to train those who buy investment policies--the public. How does she propose to train the public?
Mrs. Knight:
There are a considerable number of ways in which we can do it. The first would be to talk about precisely what it is that an investor should be asking. When an individual has decided that he is going to buy a second-hand car, for example, he goes to the car showroom--possibly to four or five car showrooms--and looks under the bonnet, gets in the car, and takes it out for a drive on the road. If he is not confident about his knowledge of the vehicle, he will get a friend to come and have a look. If he is still not sure, he will get the Automobile Association to look it over. Only then will he will spend his money.
"Lloyd's remains committed to achieving the successful implementation of its plans for reconstruction and renewal".
Lloyd's must clearly undertake that task if it is to resolve its problems. The letter continues:
"it is not where regulation is done that is important, but how well it is carried out".
Whatever our views on Lloyd's may be, I think that we would all agree with that. Let me remind the House, however, that we have agreed on the need for a
fundamental review of the regulatory regime for Lloyd's that would consider the options of continuing self-regulation and independent external regulation. That review may well not start before mid-1997, as Lloyd's is seeking to resolve various complex problems.
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