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8.40 pm
Mr. Andrew Love (Edmonton): Like other hon. Members, I welcome the Bill. I recognise the huge contribution that the financial services industry makes to the UK economy, and as a London Member, I acknowledge the industry's contribution to the London economy and to the standard of living of my constituents. I also recognise the many failures of the past and the complexity of the Financial Services Act 1986 and its interaction with the Banking Act 1987.
We all know that under the previous Acts, fraud in the financial services became a regular occurrence. We all remember the pensions mis-selling scandal, which is likely to cost some £11 billion. I welcome the long overdue overhaul of the previous legislation, and I particularly welcome the central role of consumers in the Bill. It is good that, as we have heard in the debate, there has been cross-party support for the Bill, and widespread support from those directly involved.
As my right hon. Friend the Chief Secretary said, the Bill will bring about regulation that is fair, clear and accountable, safeguarding the public interest. I recognise the contribution of the Joint Committee, which formed part of the so-called scenic route of the Bill's progress. I pay tribute to members of the Joint Committee for all the work that they did in such a short time, and congratulate them on grappling with the Bill's complexities.
As the only hon. Member on the Government Benches--and as one of the few hon. Members who have spoken tonight--who did not serve on the Joint Committee, I speak with some trepidation. As my hon. Friend the Member for Huddersfield (Mr. Sheerman) said, the Bill takes us in the right direction. But I have two interlinked concerns that go to the heart of the operation of the Financial Services Authority. I hope that the Standing Committee will take both principles on board in its deliberations.
The first is the need to maintain corporate diversity, which is necessary to ensure the widest consumer choice. Our financial services market is characterised by a multitude of organisations, not all of which have the same objectives--indeed, many have widely divergent rationales. We have member-based organisations, although the majority are shareholder-based companies. Some organisations are based on self-help and thrift, and a number of them are democratic and mutual organisations. Many do not put profit at the core of their activities, but many rightly do.
We have large organisations and small, regional and national. They range from small traders, through mutuals and co-operatives, to companies and international public limited companies. Such diversity is a strength in the marketplace and, more important, provides choice for the consumer. The consumer can choose a multinational offering a wide variety of financial services products, or go to his own community, to a small, locally based, perhaps even voluntary, organisation. That choice is currently available, and it should be part of the FSA's remit to ensure that it continues.
That diversity in the marketplace is to some extent at risk. That is partly because of legislative risk, intended or unintended, and partly because of the current tendency towards consolidation in the marketplace. The tendency to reduce diversity will also undermine the Government's attempts to end social exclusion.
Why should my worries about the tendency to reduce diversity be placed at the door of the FSA? The FSA was created from a diverse regulatory structure. As was stated earlier, nine bodies have been brought together to form the FSA, including the Registry of Friendly Societies, the Friendly Societies Commission and others. Those organisations had built up a body of experience and expertise in their areas, not to mention sympathy and understanding of the unique needs of the organisations that they regulated.
That has been partly recognised in the new structure. There are separate sections for all those different organisations, but they form part of a much larger organisation, which, to some extent, is dominated by the orthodox share capital company. The worry is that the unique needs and desires of the diverse organisations that are represented will not be recognised either within the FSA or at board or senior management level.
I have already mentioned continuing consolidation in the marketplace. Whether that is good or bad, and whether it is to be encouraged or resisted, is immaterial. The question is whether it is in the interests of the consumer. Developments in the marketplace that get rid of smaller, regionally based organisations--in some cases, efficient organisations--will disadvantage consumers because it will restrict their choice of provider.
All organisations seem to like the idea of one size fits all. If that takes hold in the FSA, it will reduce the influence of those who do not fit the standard package. That will lead to a lack of sensitivity to the different needs of those organisations, whose diversity will not be recognised. We must recognise that important principle, because organisations that do not fit the mould will be disadvantaged.
The FSA is to be funded by the financial services industry. If consolidation and domination of a particular type of organisation continue, the role of other parts of the market may be ignored or downplayed.
If the FSA is to be really effective, it must address the financial exclusion agenda that the Government have set. To do that, it must defend diversity. The organisations that have traditionally served the low-income end of the financial services market--organisations that are primarily motivated not by profit but by the desire to provide a service to their members--take many different forms. Whether they are based on voluntary action and the democratic impetus of building societies, the common bond of credit unions or the good fellowship of friendly societies, those organisations have a long history of representing the interests of low-income consumers. That should be recognised as a priority by the FSA.
According to the latest studies by the Office of Fair Trading, many people are self-excluded from the financial services market because they do not have any confidence or trust in major financial services organisations. When those people are asked about the major banks or insurance companies, they describe them as large, impersonal and far away. Such institutions do not offer the type of service that low-income consumers require, so they need to find their own solutions through their own organisations.
Most of the alternatives for low-income consumers are risk averse rather than risk taking. The simple reason for that is the alternative organisations do not have the capital to support them if they run into difficulties. However, being risk averse means that they have developed a range of low-risk products. Studies show that low-income consumers are looking for low-risk products, but if consolidation continues and the risk averse are replaced by risk takers, low-income consumers will no longer have an alternative. We will also see greater instability in the market. It should therefore be incumbent on the FSA to ensure that the market is not continually subject to the stresses and strains of the business cycle and the high-risk companies that will come to dominate financial services. In other words, diversity assists the stability of the market.
Diversity also assists competition. Anyone who examines the remaining building societies will know that, because they do not have shareholders and do not have to pay a dividend, they have a competitive advantage over ordinary share capital companies. The Consumers Association's studies over the past five years show clearly that building societies offer a better range of financial services products than their competitors. If those unique
providers are lost to the marketplace, we shall also lose the competition that restrains the other companies from increasing their prices. It is therefore in the interests of the members of building societies and of consumers generally to maintain that diversity.
The alternatives can also assist innovation. Many of the other types of organisation have been innovative in providing products to low-income consumers--who are, after all, their bread and butter, and the market in which they have always been involved. That is why the FSA should consider corporate diversity as one of its principles.
The FSA should also recognise the need of vulnerable consumers to access financial services. That issue has been strongly promoted by the National Consumer Council, but I raise it in the context of the Government's priority of dealing with financial exclusion. The Government want the FSA to play a role in achieving that agenda, and the Select Committee on the Treasury, when it commented on the FSA, agreed that it should involve itself in tackling financial exclusion. There is a great need for it to do so. For example, very few products on the market are suitable for low-income consumers. The commission structures that operate in the financial services market militate against anyone who cannot afford the product taking up those opportunities. Everyone recognises that low-income consumers need financial advice perhaps more than any other section of the community, but they are completely priced out of the market. The recent Moser report showed that 40 per cent. of consumers had numeracy difficulties. That demonstrates the need for such financial advice.
Unfortunately, the charges for many of the products that are coming on to the market are prohibitive. One of the reasons for the personal pensions scandal was that pensions were sold to people who did not have enough income to afford the charges. Another problem is that the burden of regulation is continuing to increase. Several hon. Members on both sides of the House have mentioned that. For instance, during the past few years it has been made even more difficult for people on low incomes to do something as simple as opening a current or deposit account--those who are currently excluded from involvement in the financial services sector.
That is already having a dramatic impact. For instance, there has been an alarming decline in the old doorstep collection market. Traditionally, all the mutual and co-operative companies reached out to loan account consumers in that way, but many are having to withdraw from the market because of the regulatory burden.
Market segmentation is another factor. I do not want to go into the rights and wrongs of red lining, although I have been told that recent studies show it does not exist; but I think we can say that some communities are disadvantaged by the development of market segmentation, and certain individuals certainly seem to find themselves excluded. The consequent increase in direct marketing means that people no longer need to go to the bank; they are directly targeted at home with offers of all sorts of loans and other financial services.
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