Select Committee on Treasury Minutes of Evidence

Examination of Witness (Questions 65-79)




  65. Good morning, Mr Brown, and welcome to the inquiry this Committee is undertaking. Could I ask you to introduce yourself.
  (Mr Brown) I am Colin Brown. I am Chairman of the Financial Services Consumer Panel.

  66. Are there any introductory remarks you would like to make to us?

  (Mr Brown) Yes. I would like to add three points to the note that we sent to you. One is that the Panel is a very important part of the FSA's accountability mechanisms because it was basically set up to balance the very many and well resourced voices of the industry. There are very few voices on the consumer side, and I think it is extremely important that there is a strong voice with some budget behind it to make the point on behalf of the consumer. Secondly, that means that the Panel operates much more publicly than the Practitioner Panel. We publish much of our work. We see that as extremely important. I think we have put something like 56 submissions and reports into the public domain so far, and that is a fundamentally different aspect of our operation when compared with the Practitioner Panel. That is not the only part of our accountability. I would say that we really do welcome the scrutiny of this Committee. I may in the end live to regret that! We are ultimately accountable to the public, but the public are not a group that we can directly communicate with, and this is probably the best channel we have for our accountability to the public. We therefore welcome this opportunity and hope that we may have more.

  67. A point was made by Mr Brydon earlier when he said the Practitioner Panel fully supported the concept of a non-zero failure regime as presently organised by the FSA. Do you share that view? I am thinking of some consumers who would come to you and say, "Look, we have been fiddled out of our money and the regulator is toothless." Many of us as Members of Parliament get that in our constituency surgeries regularly.
  (Mr Brown) There are two aspects to that. The first is that when companies fail, there is a compensation scheme and the Ombudsman scheme to try and pick up the pieces when things do go wrong, so even when there is a failure, the architecture of the Financial Services and Markets Act has elements within it and in the operation of the regulator to try and catch people. But on the central point of the non-zero failure regime, we have had this explained to us in detail by the regulator on several occasions, and we understand it to the extent that in the end the regulator cannot be perfect; no organisation can be perfect, and it would have to spend a whole lot more of the consumers' resources ultimately to ensure complete perfection and to avoid any failure. We have to reluctantly acknowledge that that is true, that no regulator can be absolutely perfect. As part of regulatory theory, we have more difficulty with it. We are grappling with it, the notion that if there were a zero failure regime it would create a level of moral hazard for consumers in it, and thereby have a bad effect on the market. That we find a harder one to grasp. We are talking with the regulator about this, but on the general point, that they cannot guarantee in every circumstance to catch every failure before it happens, I think we have to accept that is just a practical fact of life.

Mr Plaskitt

  68. Mr Brydon said one of his preferred ways of working was to have a word in the Chairman's ear. How often are you whispering in the other ear?
  (Mr Brown) I have quarterly meetings with the Chairman. We have regular meetings during our Panel meetings with managing directors of the FSA, and we have senior staff attend our sub-committee meetings. Perhaps I ought to explain that, because there is so much business that goes across the Panel's desk, we have found ourselves unable to deal with it just having our monthly meetings, so we have split the Panel up into three sub-groups who also meet monthly for about half a day each to deal with the business. So effectively each Panel member goes to two meetings a month. At those meetings of those sub-committees we have a lot of contact with staff, often very senior staff, of the FSA, and so we have our input through those sessions. But as I say, I meet quarterly with Howard Davies and we communicate by letter and memo on other occasions.

  69. I am just trying to establish how much of the contact is formal and how much is informal. I was quite surprised to see on page 28 of your report that you actually seem to make something of a virtue of "working behind the scenes".
  (Mr Brown) Yes. That is a very interesting point that the Panel has been addressing lately because of the change in the Panel's activity. If I can explain, until just before N2, much of the Panel's output was directed towards the huge number of consultation papers that were coming out from the FSA and from the Treasury in preparation for N2. Much of the behind-the-scenes effort that went on then was in the pre-consultation phase during the discussion of those consultation papers. So they would come to the Panel while they were drafting the consultation paper and ask us for our input before it was published. So many of the CPs that came out had the consumer interest, or at least some input from the Panel, already. That is what we were referring to as behind-the-scenes work then. Ultimately, we would comment on those consultation papers publicly, as you see from our publishing record. Things have changed a little now, because the focus of our activity has changed as the focus of the FSA's activity has shifted from building the regulator and the architecture of regulation to doing the job, and you will see from looking at the press that the FSA is more involved in issues to do with market events and regulatory events rather than issues to do with FSMA and the Human Rights Act and so on. The consequence of that for our discussions with the FSA is that many more of our communications with the FSA have been behind the scenes; letter to managing directors and to Howard Davies and so on. If you look on our website you do not see them because up to now we have been used to publishing our big formal submissions. We have made a decision that we would prepare digests of all our traffic between us and the FSA and publish them on our website from now on. That will mean that the issues which now go on behind the scenes will appear in the public domain.

  70. It is pretty important, is it not? If the consumers are going to have confidence in you representing them and they are looking at your small resources against the FSA's giant resources, are they not going to be a little concerned about all this talk about behind the scenes work?
  (Mr Brown) Yes. That is why we think it is very important to publish everything. We publish a lot already but we are aware that changing the balance in our work could make it appear that we are not doing much any more. We wish to make it very clear both that we are doing work but also what the substantive nature of our dialogue with the regulator is.

  71. Are you determined to become a lot more transparent?
  (Mr Brown) I think we are pretty transparent already. If you take, say, the third quarter of last year, our activity is very transparent, but I am conscious that our work in advising the regulator on market and regulatory events could appear to be behind the scenes, so I am very keen that we publish it now on the website. That will be done retrospectively.

  72. Appendix four is interesting. It is a list of matters on which the FSA has sought your advice. There is not a parallel annex which is the matters that you have taken as priorities to the FSA, the flow the other way. Should you not show the balance between the two?
  (Mr Brown) I think that is probably a matter of presentation. We have put the ones that we raised with the FSA proactively into that list. We have raised a lot of issues proactively with the FSA and got some results from them. We are particularly pleased about the issue of financial advertising and promotion which we raised in our last report. As you know, it is quite hard to believe the formal demands of the regulatory rules that we have on disclosure are there when you look at the promises made and the style in which they are made in advertisements. The Panel has been very concerned for a long time that consumers are misled by financial advertisements. We asked the FSA to conduct two reviews on its advertising rules and it has conducted one and is conducting another as we speak.

  73. Some of the issues in appendix four were initiated by you rather than the FSA?
  (Mr Brown) Yes, I think so.

  74. It would be helpful if we knew which ones had come from which side.
  (Mr Brown) We are in preparation of our annual report right now, so it would be to our advantage as well as helping you to put a list of things that we had raised proactively with the regulator. We will do that.

Dr Palmer

  75. I have to admit that up to very recently when this discussion was scheduled for the Committee I had not heard of the Consumer Panel. I wonder if I am not typical of quite a few people. Do you feel that enough has been done to promote public knowledge of the existence of the Panel? What steps have you been taking on that?
  (Mr Brown) We have one difficulty here and that is that issues to do with financial regulation per se do not make particularly good copy. We do speak with journalists quite frequently who are seeking a jazzy line on an issue, one which is eye-catching. They are interested in hearing about individual cases often and they are interested in new scandals and a more colourful line than we are able to give. What we produce is sometimes rather dry for them, but we have managed to get some media coverage and we hope to get more because we have just recruited a professional PR and media person to help the Panel. We hope to make ourselves a bit more prominent in the future, but we are rather in the hands of the journalists here and it is difficult making financial regulation glamorous.

  76. To be parochial about it, do you feel that you have done enough to encourage MPs to refer constituents to you when they have this kind of issue?
  (Mr Brown) We have written to MPs. I do not think we have written to MPs to ask them to refer problems to us because we do not wish to encourage the notion that we can deal with complaints. The Ombudsman and firms themselves should be dealing with complaints and it has always been a worry of ours that once we get a good public profile people will come to us thinking that we can address those problems. We have a place on our website where people can contact us with issues and several people have brought brand new issues to us, which we have taken up with the FSA and which I think are being fixed. It does happen. Perhaps we could do more. We do aim to do more in contacting not so much the general public but the next layer of policy makers and people in public life.

  77. Moving to the FSA itself, what is your overall view of their effectiveness and responsiveness to the needs and concerns of consumers?
  (Mr Brown) The FSA with all its powers has only been running for two months now so I cannot comment. My comments are really about the regulator as it was pulling itself together. I think you have to compare it firstly with what went before, which was a set of disparate regulators and regulators that did not always have a particularly good consumer focus. The FSA has certainly worked hard to put the consumer on the map in policy making. It has used its research in finding out about consumer problems very actively and with our encouragement and very effectively. That is one aspect of the way the regulator has conducted itself that we are very pleased with. Our views are largely positive about its approach to consultation and its openness. It has tried quite hard to make sure that consumers and consumer groups can respond to its consultations, although there are real, inherent problems in getting consumer response to very difficult regulatory consultations. As far as its job in regulating markets and protecting consumers goes, the picture is mixed. We have to say, and you will see from our report, that we have been very positive about the FSA in many respects, but we have had some criticisms. Our main criticism in the past has been that the regulator has found it difficult to move quickly and to mobilise and reshape its resources to deal with particular systemic consumer problems. We have criticised the regulator for failing to move quickly enough over endowment mortgages, for example, and this is an area that we have been watching right from the start to see whether this very big organisation can tool itself up in a way which can respond quickly, in a way which protects consumers better. That has been where our main criticism has been.

  78. How do you feel the FSA has responded to criticism so far? Have they been responsive or defensive?
  (Mr Brown) They have been responsive to our criticisms. They have engaged positively with what we have said to them, but the jury is still out on that major issue. For example, on responding quickly, we did see after 11 September that the regulator was able to move very quickly in a very dangerous situation in terms of financial regulation. I hope that is an indication of how they would move if there is an obvious consumer protection issue of a similar scale that comes up soon.

  79. How should we interpret the fact that the Consumer Panel has not so far made any formal representations? Is this a sign that on the whole you are content or is it a sign that on the whole you prefer to pursue more informal channels?
  (Mr Brown) At present, it is an indication that we are content with the response of the regulator to our representations. We are very pleased to have the section 11 power there and if there is a change of circumstances in the future we will not hesitate to use it. At the moment, we have a very good relationship with the regulator and they do listen to our representations.

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