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6.53 pm
Mr. John Greenway (Ryedale): I am grateful for the opportunity to contribute to the debate.
I begin, as the hon. Member for Warwick and Leamington (Mr. Plaskitt) did, by saying that there is no question but that the debate is crucial to everyone in the country: not only consumers but our financial services industry. The Chief Secretary to the Treasury reminded us that we have a world-class industry. Indeed we do, but we should remind ourselves that it became world class because of the regulatory regime in the City of London. Despite difficulties in the retail sector, the general regulatory structure that we have enjoyed in the City--as my hon. Friend the Member for Arundel and South Downs (Mr. Flight) knows from daily working experience--has enabled innovation to flourish and brought to London major centres of banking and insurance, and an increasing number of financial services from not just Europe, but throughout the world.
The all-party group on insurance and financial services, which I have had the fortune to chair since 1992, has had numerous meetings with the industry and market, and received many representations from them over quite a number of months. I say genuinely to those hon. Members who have contributed who were members of the Joint Committee that the industry's view is that they have done an extremely good job. It is much more relaxed than it was perhaps six or nine months ago. There is still some apprehension about what the rule books will look like and how the new regulatory regime will work in practice, but it is fair to place on record the industry's gratitude for the work of Lord Burns and his Committee of members of both Houses.
The representations and meetings that the all-party group has had have been, as they are by nature, rather more informal. I sometimes wish that we had the resource of the clerical assistants that the Joint Committee has had. None the less, the group has had an interesting exchange of views and has helped to bring progress on the Bill to where it is today: it is much improved.
I want to speak mainly from the perspective of my long experience of working in the insurance and financial services industry, which has gone on since 1970, when I left the police. I worked for Equitable Life and National Provident Institution, which have both been much in the news lately in circumstances that, when I was working for them, no one would possibly have considered likely, but that is how things move on.
Since 1973, I have been an independent financial adviser and insurance broker. Even since being elected to the House in 1987, I have retained a directorship as both an IFA and insurance broker. I am president of the Institute of Insurance Brokers. More important in terms of what I will discuss, for eight years, I have been an elected member of the Insurance Brokers Registration Council, the regulatory body for insurance brokers. I am currently the council's treasurer.
The Bill still leaves uncertain the regulatory arrangements for the independent sector, whether IFAs, intermediaries in the general insurance market or insurance brokers. I want in all genuineness to convince the House that, although my comments will clearly be influenced by special pleading--it would be impossible for them not to be because of the experience that I have had--equally, I plead for a clearer regime for consumers. At the moment, we have a recipe for confusion. We are still a long way off from being satisfied that the consumer interest has been adequately protected.
The hon. Member for Newcastle upon Tyne, Central (Mr. Cousins) asked the Chief Secretary about mortgage and general insurance regulation. I understand entirely the motivation for wanting to retain a self-regulatory approach in mortgage advice. I understand the objectives of the general mortgage code and, equally, the philosophy that lies behind the request for the general insurance industry to find a more comprehensive regime.
Therefore, on principle, I should like to make it clear--particularly to my hon. Friend the Member for Arundel and South Downs--that self-regulation is undoubtedly to be preferred. Nevertheless, in advice on both mortgages and general insurance, we have to face up to the fact that significant hurdles will have to be overcome if we are to achieve a satisfactory self-regulation regime.
One hurdle will be the major concerns about enforcement. In the general insurance market--particularly among insurance brokers and intermediaries--there is real anxiety that regulation will become merely a distribution tool, with standards being enforced and discipline imposed by withdrawing agency. Currently, such withdrawal underpins the mortgage code, as lenders will end one's ability to arrange mortgages if one does not comply with the code. Although some might think that such a sanction would be satisfactory for the general insurance market, its possible use causes anxiety as it would not be underpinned by statute or enforced transparently.
There is also a great possibility that the arrangements would create confusion among consumers. In opening the debate, the Chief Secretary mentioned one-stop shops. However, the retail financial services market does not have anything like a one-stop shop.
People who seek mortgage advice from intermediaries--who have to be registered with the Insurance Brokers Registration Council only if they call themselves a broker--will receive advice on life assurance; perhaps on investments; on whether they require health and sickness cover; on unemployment benefit, if they have been laid off work; and probably also on insuring building and contents.
The Government's proposals, however, would entail advice on those various matters falling into three different regulatory categories. Advice on mortgages, for example, would be covered by the general mortgage code, whereas
advice on life insurance policy would have to be authorised advice--so that the firm would have to be authorised directly by the Financial Services Authority. Advice on other general insurance products--setting aside the issue of whether health and sickness insurance cover will be covered by the FSA-authorised regime--would be regulated by the General Insurance Standards Council.
Such an arrangement does not come close to resembling a one-stop shop. However, that arrangement would have to be used every second of every minute of every hour of every day, in every high street across the United Kingdom. Although the system might work, we have to face the fact that it cannot be characterised as a one-stop shop. Moreover, if firms are authorised--as their stationery letterhead will state--"by the Financial Services Authority for investment advice", and if something subsequently goes wrong with a mortgage or general insurance policy, consumers will not understand why the proclaimed FSA authorisation does not apply to those products.
There may be some scope for doing something about those potential problems. Clause 111--which I do not remember reading in the draft Bill--on non-regulated activity rules, states that the FSA may make rules
I should like to make it clear to the Minister that the proposed arrangements will certainly not enable a one-stop shop, and that there may not yet be a case for giving the FSA power directly to authorise all those activities. However, there must be a case for ensuring that regulation of non-authorised activities is not merely adequate, but equivalent to current best practice and appropriate to risk. There must be a clear complaints mechanism, with access to redress and compensation. There is clear provision for such a mechanism in dealing with authorised products, but it is not clear how such provision would apply to non-authorised activities.
As a regulator for eight years with the Insurance Brokers Registration Council, I have experience of how such concepts and provisions work in practice. I also think that the Financial Secretary, and certainly the Economic Secretary, will know that I am disappointed that the Government have announced that they are minded to repeal the Insurance Brokers (Registration) Act 1977 and to get rid of the IBRC.
Page 4, paragraph 12 of the Bill's explanatory notes states that the Government continue to hold the view that substantial parts of the 1977 Act, which established the council, should be repealed after the Bill's provisions are implemented. It is fair to say that the Bill, which I have read, currently does not provide for repealing those provisions. I should therefore be very grateful if the Minister could, either today or in a letter, tell me by what process the Act's provisions would be repealed.
When replying to the hon. Member for Newcastle upon Tyne, Central, the Chief Secretary said that the Government supported the concept of establishing a General Insurance Standards Council. Although the Minister may be aware of it, other hon. Members may not know that that proposal has not met with universal
acclamation within the general insurance industry. Some people might like us to believe that the proposal has received such acclaim, but the truth is that many insurance brokers and non-broker intermediaries have serious reservations about it.
I should like to establish some facts. The first one is that brokers effectively volunteer to be registered on the list, so that, if they are disciplined and struck off, they may continue in business if they call themselves not insurance brokers, but consultants or intermediaries. Over the years, many small firms have been disciplined by the council and chucked out, but--if insurers were prepared to do business with them--remained in business.
In fairness to the Association of British Insurers, I should say that, gradually, many insurers are whittling away at the number of less reputable firms. Nevertheless, people are on the list entirely voluntarily; no one is forcing them to be on it. Conversely, those who give investment advice must be authorised by the Personal Investment Authority and the FSA.
Although the Government announced last year that they intended to repeal the 1977 Act and to get rid of the IBRC, as council treasurer, I am able to tell the House that more than 80 per cent. of insurance brokers have paid their 1999 membership retention fees. I believe that they have done so not only because they believe in the council and in high professional standards, but because they wish to belong to a discrete body that provides a badge of that professionalism.
Recently, and partly at my instigation, the Institute of Insurance Brokers conducted a survey of the approximately 2,700 insurance broker firms who remain on the register. Over 50 per cent. of firms responded to the survey, of whom 86 per cent. said that their preference would be to keep the council and not to be forced into the General Insurance Standards Council. If the firms that have not paid their membership fee are taken out of the survey, the figure rises to more than 90 per cent.
I make it clear to the Minister that we are not objecting to the creation of the GISC. On the contrary, insurance brokers welcome that and over the years have campaigned time and again for standards to be raised in the non-broker general insurance retail market. We welcome all moves to raise standards, especially in the non-broker sector. Equally, we are not saying that all insurance brokers are saints and angels, because clearly some are not, but the majority are brokers because they want to be seen as professional.
Why should we be so concerned? I remind hon. Members that, through the 1977 Act, Parliament provided the structure under which the Insurance Brokers Registration Council operates. Although that structure was not perfect, and we would have liked some changes to have been made over the years, it is important to understand why we believe that it has strengths. The majority of people on the council are elected to it by their peers and we have a clear disciplinary structure. Disciplinary hearings are held in public and there is a right to appeal to the High Court.
A broker who was struck off last year has appealed to the High Court because he thinks that he has been wrongly done by, which is far superior to simply taking away someone's agency because we say he has broken a
rule that we created. There is no transparency and nothing that can inspire confidence in such a system. We have a proper code of conduct, enforceable client fund segregation and a grant and compensation scheme.
I have had the onerous duty--I am not sure that it was a pleasure--of having to agree with the FSA that the council will raise a levy of all registered brokers to contribute towards the compensation of losses from insurance broker firms that are in default in respect of about 130 cases of pensions mis-selling and the loss of more than £1 million through staff embezzlement at a firm up in Scotland. The professional indemnity insurance does not cover that so we have raised a levy and people are paying it. We have proper monitoring of professional indemnity insurance and solvency. My hon. Friend the Member for East Worthing and Shoreham (Mr. Loughton) said earlier that it will cost £4,000 for a solicitor in Scotland to be registered with the FSA, but it costs an individual insurance broker £60 and an authorised firm £325 to be on our register each year, so reasonable cost is clearly a factor.
I have outlined all that to make the point that the GISC is miles away from showing such equivalence. I welcome the fact that the chief executive of GISC, Chris Woodburn, who has been recruited from another regulator, has said that he wants to meet IBRC standards. That will be a tall order without a statutory structure. The other serious point is that we believe that he should concentrate on the non-broker part of the general insurance market because that is where the problems are.
I would wager that Members of the House have constituents who have complained about an insurance product that was sold to them and for which they could not get redress. A major reason for that is that such policies are sold not by insurance brokers, but by non-registered intermediaries. Such people are independent and are not the responsibility of the insurer. Consequently, there is no redress, no compensation and no complaints mechanism. Standards clearly need to be raised, but how they will be enforced without statutory underpinning and the transparent disciplinary process to which I have referred remains an unanswered question. I do not believe that the threat of agency withdrawal is an adequate solution.
There is concern that regulation will become an instrument of controlling distribution and I suspect that, if hon. Members across the House share a concern, it is not the globalisation of the industry, but the fact that the big get bigger and bigger by the day. Three or four of the biggest firms control a great volume of business, which is not a bad thing in respect of ensuring that we can compete in world markets. Competitiveness has been one of the factors behind some recent mergers of general insurers and I saw in my paper yesterday that CGU and Royal and Sun Alliance may merge. Such a company would be a big player.
The danger of having self-regulation instead of regulation underpinned by statute with transparent standards that apply to all is that the big boys will get away with it and the little guys will get hit for six every time. That is not only me speaking. I am not sure whether the hon. Member for Edmonton (Mr. Love) was present, but the all-party group had dinner with the Association of Insurance and Risk Managers the other day and its
concern on this very point was how the GISC will deal with malpractice in the big broker firms. We know how it will deal with the little guys.
The situation is not satisfactory and a lot of work has to be done. I hope that the Minister will listen to a constructive solution. We are not against the GISC--we welcome it--but it has to be given time to put right what needs putting right in the rest of the general insurance market. It also needs time to show that, although it will not be part of the FSA, it will be able to meet consumer needs and expectations wholly satisfactorily. The need for statutory regulation would then be avoided.
In the meantime, the registered insurance broker community should be left alone to get on with things. There is a great deal to be said for continuing the work that we are doing. We are some way off reaching a stage at which the GISC could apply to registered brokers. In any event, why should anyone want to stand in the way of professional insurance brokers maintaining their own professional body? Solicitors and accountants have the Law Society and the Institute of Chartered Accountants respectively.
All we in the insurance broker community are asking--particularly those in the provincial insurance broker market, although similar concerns are being expressed to me by some of the smaller London brokers who are Lloyd's brokers--is why people should want to stand in the way of allowing us to maintain our own professional body with our own disciplinary arrangements? I am sure that insurance brokers would meet whatever standards that the GISC decides that it needs to impose. We want it to bring the rest of the market up to our standards.
"applying to the carrying on of non-regulated activities"--
such as mortgage and general insurance advice--
"by authorised persons".
I hope that my hon. Friend the Member for Arundel and South Downs will explore that issue in Committee.
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