Examination of Witness (Question 1-19)|
TUESDAY 5 FEBRUARY 2002
1. Good morning, Mr Brydon, and welcome to the
Committee's inquiry into the Financial Services Association's
Practitioner Panel. Would you introduce yourself for the record.
(Mr Brydon) My name is Donald Brydon. I am Chairman
of the Practitioner Panel. I am also the Chairman and Chief Executive
of AXA Investment Managers.
2. Are there any introductory remarks you would
like to make to us?
(Mr Brydon) Perhaps I could just make one. You have
had a little brief which describes what we do. I think it is important
to understand what we do not do.
We are not established with a significant secretariat and support
to give detailed answers to all of the detailed consultations
and activities of the FSA, but rather to give general guidance
across the whole of industry at a high level during the process
and to feed back to the FSA the broad views of practitioners in
terms of the attitude and response to what is happening. We do
not set ourselves up to compete with or duplicate the work of
the trade associations, who are quite competent to go into the
detailed analysis of each of the individual detailed proposals.
3. If I could press you on that particular point,
your Annual Report is quite thin on these issues. What do you
do that the trade associations cannot do? What is the rationale
for your existence?
(Mr Brydon) Well, you set us up!
4. No, I did not set you up; it was the Government
that set you up in the Financial Services Act.
(Mr Brydon) I beg your pardon. What we do first of
all is to bring together people from across all the trade associations.
Importantly, our membership is not made up of delegates from trade
associations. They are people who are, I hope, respected in all
of their fields. Therefore we bring together people from the investment
industry, insurance, banking and so on with specialisations in
things like derivatives and exchanges. That is a unique forum
in which these senior people can get together and look across
all the issues and themes that the FSA is paying attention to.
For an individual trade association, by definition they will have
deep working parties able to examine, at the end of the day, the
devil being in the detail, the very specific issues around drafting
of individual rules and the ways in which those rules are interpreted.
What we can do is help the FSA not to create an unnecessary row
in the process, and try and smooth the process so that at least
by the time that the regulation emerges, there is an understanding
of what the consequences are likely to be, and a broad support
for the direction that the FSA is travelling in. It may not always
be so, but at least it gives us that opportunity. From the FSA's
point of view, it gives them a forum of senior people that they
can consult across trade associations and across industries who
can give them a different level of advice.
5. How responsive is the FSA to the needs and
concerns of the practitioners?
(Mr Brydon) I think it is fair to say that we do not
know yet. We are still in the very early stages of this new regime.
We meet once a month, and we have always found when we have asked
members of staff of the FSA to come and see us and discuss their
policy and what they are thinking about doing that they have been
happy to do that, and they have exposed not only their thinking
which is going to end up in the consultation document but the
things they have thought about en route and may have discarded
or are thinking between options and they have sought advice on.
In that sense, they have been very responsive and very helpful.
In terms of the practitioners' understanding of what the output
is going to be like, it remains to be seen, and I was very encouraged
in Howard Davies's brief the other day that he made a very particular
point of saying that they have tried to emphasize that they plan
to use their new powers responsibly, that they are not looking
for exemplary scalps, they are not trying to trip people up, but
rather, they are trying to create a framework in which behaviour
is good and that consumers are well protected. That has, I think,
been very much part of the theme we have been saying to the FSA
throughout the period, that we are looking for proportionality
in the way they do things, an understanding of what is important
and what is not important, focus on risks so that the really important
issues are getting a major examination and the trivial are not,
that we move away from American-style box-ticking mentality to
a much more "touchy-feely" dialogue mentality, which
helps everyone to understand in what is always an evolving environment
what is likely to happen next. It is fair to say that we appreciate
the degree of consultation the FSA went through. As we pointed
out last year, we were almost in "consultation fatigue"
as practitioners, but it was still an exercise very well worth
while doing, and one that Europe could very well learn from. But
the proof of the pudding is in the eating, and that remains to
be seen in the actual exercise of the regime as we move forward.
6. Some comment has been made in the past few
months in the light of the problems in the insurance industry
that perhaps the FSA focus should be less on regulation of banks
and more on insurance. If the FSA went along that line, would
you support that?
(Mr Brydon) I do not think it is for us to support
or object to.
7. Would you say there is a need for that?
(Mr Brydon) I think the Tiner review is travelling
in the right direction to examine the whole way in which insurance
is regulated. We support that and have been part of the discussions
and consultation on that. In that sense, we have no issue with
8. You have diverse groups on the Panel. To
what extent do you encounter conflicts of interest, and should
they arise, how do you resolve them?
(Mr Brydon) We have only found one occasion where
it has been better for us not to have a view than to have a view,
if you like, and that has been in relation to polarisation. In
the discussions on polarisation we have had the opportunity to
make comment. In fact, even the FSA say in their consultation
document that the consequence of what they are consulting on now
is that there will be both winners and losers, and we probably
had some of each around the table. So what we said to the FSA
was that we wanted to be sure that they were going through a good
process and that all the issues had been fairly and squarely laid
before people. But we as a Panel will not have a view on whether
polarisation of itself is a good thing or a bad thing. We all
have our individual views.
9. Do you think if a regulated firm thought
it was being coerced by threat of a serious investigation, and
the attendant bad publicity, into doing something that it thought
was wrong or was having its business damaged by the threat of
investigation, that this is something they should immediately
bring to you?
(Mr Brydon) It would be very helpful. We are not setting
ourselves up as an Ombudsman for all regulated firms, but there
is a risk, and we pointed this risk out very strongly during the
passage of the Bill, the risk that there is a very great deal
of power concentrated in one place, and that if you are a regulated
person, sometimes it feels quite frightening, just in case you
tread over a line you did not intend to tread over. That is why
I was particularly pleased by the remarks that Howard Davies made,
because if the regime is proportionate and thoughtful, and there
is not an attempt to trip people up but an understanding that
in the real world things sometimes go wrong, and very good people
can run organisations, things can still go wrong.
10. So people should come to you with that sort
(Mr Brydon) I think first of all they would go to
their trade association, and if they were not getting satisfaction
and there was no practical support, we are a last line of defence.
But in general, what we say is, if there is a good dialogue between
the trade association and the FSA successfully on an issue, whatever
the issue is, there is not really a role for the Panel. The Panel's
role comes when that relationship has broken down or has become
so adversarial over a particular issue that progress is not being
made in either direction.
11. I ask you this question not in any sense
as a personal attack. It is just a reflection. Have you had any
such comments brought to your attention?
(Mr Brydon) No, but then N2 was only two or three
12. I say that because I have had such comments
brought to my attention by people who are too afraid to go public,
some of whom as soon as they retire say they will go public in
a big way about the treatment they have received. What I am just
observing is that there are already people saying that the checks
put in place on this huge power you have described are porous,
that they are weak, that they are inadequate.
(Mr Brydon) I think we are going to become a significant
communication channel for that issue, whether it is on individual,
specific cases, bearing in mind that we are not setup with any
resources specifically, and we could not handle specific cases.
In all probability, a case like that is going to be extraordinarily
complex and turn on nuances which are difficult.
13. One source of protection which a firm might
have is to go to court in, as for example, in the United States,
but in Britain the FSA is immune from any legal action except
in the case of bad faith, therefore leaving them very exposed.
I know that you have worked very hard on this to try and get some
sort of compensatory regime, as I did when the Bill was in Committee.
But what we have is a long way short of what you originally asked
for, is it not? It is a voluntary arrangement, where the FSA,
if they feel like it, can take notice of a recommendation from
the Complaints Commissioner to pay an ex gratia payment
in compensation. In the light of the way regulation has developed
in the United States, do you think that in the long run this is
going to be a satisfactory compromise?
(Mr Brydon) The honest answer to that is we do not
know. We are going to be sucking it and seeing it as it develops.
We are also troubled by the fact that an individual could end
up at the Lord Chancellor's Tribunal in public, being questioned
about his integrity, in a circumstance where it might well be
that he is innocent, if you take a case where the FSA has overstepped
the mark and it has been too aggressive, despite all the attempts
not to do that. That individual probably only has his reputation,
and once he has been through that public process, inevitably his
reputation is going to be tarnished. It feels like a no-win process
for the individual, and we have argued that case, but unsuccessfully
14. I feel it is something perhaps you should
argue more forcibly. Can I take you to another point which is
also in your annual reportyou do refer to the point I have
just raised in your report on page 5where on page 6 you
discuss another issue where you have not as yet succeeded in your
lobbying which is also of great concern to the regulated community.
This is that the Takeover Panel might find itself being second-guessed
by the FSA. Could you say what progress has been made on trying
to create what you describe as a "modus operandi", which
sounds like a gentleman's club arrangement and a substitute for
(Mr Brydon) I think there is a position which has
been arrived at just now where the problem that we fear is not
happening, and the Takeover Panel have broadly been left to get
on with what they do, but again, we will never know until the
issue is tested right at the boundary. There are no formal, written-down
rules which determine that. You are quite right. We are living
through a period during which we have been enormously encouraged
by the way in which Howard Davies has led the FSA, because on
all these sorts of issues, he has understood the problem, he has
said the right things to try and make for life moving forward
in a practical way that does not disadvantage the common good
in the widest sense, and he is trying very hard throughout his
whole organisation to inculcate that whole spirit in the way in
which things are carried through. But it will only be when it
is stress-tested that we will know whether that permeates the
15. I have to say that I feel we are uncomfortably
dependent on the enlightened despotism of Howard Davies, and when
he moves on, if we find someone else less balanced in that job,
many problems may flow from the Draconian regulation that has
been put on the statute book. That brings me to my last point.
On page 4 you refer to another issue which has also been of great
concern, which is, of course, that you are dependent on the FSA
for your own funding. You have no independent source of finance
and if they wanted to restrict the extent of your activities or
to prevent the expansion of your activities if you felt the need
for it in particular circumstances, they could decide not to increase
your budget, which would limit your activities very considerably
(Mr Brydon) It is worth remembering though that the
budget at the end of the day is paid for by our members, our practitioners.
16. Your budget in comparison with the FSA's
(Mr Brydon) Absolutely. In fact, technically we do
not have a budget. What we have is the ability to produce our
Annual Report independently of the FSA, and they are obliged to
print it (and prepare it). They are also willing to finance the
survey which we will be conducting in a couple of months' time
to follow up on the survey we did earlier in our life. They would
be willing and happy to do that, but we have no formalised budget.
We rather prefer it that way because, as you know from section
11, we have won the right for the FSA not to ignore us. If we
write to them in a formal way asking that something happen, they
are obliged to explain in writing, in public, why they would not
do so if that was their view. That would apply to giving us resources
to do our job as well as to anything else. So it would be totally
transparent that they were not being supportive. I think that
would cause the ball to bounce into another court, which you would
be better able to judge than me.
17. I am forming a judgment. My instinct is
that you would be much better off with an independent budget.
That has always been my view. Indeed, the delicate wording on
page 4 suggests that there are at least some on your group who
think the same.
(Mr Brydon) No, that is not so.
18. It says "We believe this to be the
right approach for the time being."
(Mr Brydon) That is right, because you have to remember
that report was being written at the beginning of 2001. At that
stage we still had not got the regime, so we did not know what
the future was going to hold. We will be publishing a new Annual
Report in about a month's time.
19. Can I say in conclusion that I get a lot
of informal feedback. A large number of people in the regulated
community are extremely nervous about the scale of the powers
now in the hands of this new body. Your voice is a very important
one, that needs to be heard a good deal. I just raise the thought
that perhaps you need to think of ways of getting it raised.
(Mr Brydon) I think the survey will be the mechanism
for that, almost certainly, because it is better that we deal
in some evidence than in what is a lot of scuttlebutt at this
stage. It is quite true that the process of going through N2 and
codifying and organising and changing things caused people a great
deal of work, and some of it did not feel at its point of contact
hugely value-creating, and that has created an atmosphere and
a backcloth for the whole issue. The survey is designed to find
out what people think of the performance of the FSA, of their
regulators, of us and so on, and when we have that evidence we
will have the basis on which to opine about how the FSA is performing
in a formal and practical way.
1 Ev 1. Back