Select Committee on Treasury Written Evidence

Supplementary memorandum submitted by Financial Services Authority


  1.  When we gave evidence to the Committee on 16 September, we undertook to provide further information in a number of areas. This memorandum covers:

    —  changes to the Markets in Financial Instruments Directive (MIFiD);

    —  the Distance Marketing Directive and financial services;

    —  suggestions by the ABI of contradictory regulatory requirements in the Financial Services Action Plan; and

    —  an update on companies time barring mortgage endowments complaints.


  2.  The Committee asked us about the unhelpful outcome of the ECOFIN vote on the MIFiD on 7 October 2003 and subsequent amendments made to the Directive during legislative stages in the Parliament. The Parliament played a very valuable role in raising the concerns of HM Treasury, the FSA and industry participants, particularly on the issue of pre-trade transparency (Article 27).

  3.  The Parliament's view was influential in reaching the final compromise on this issue. HM Treasury negotiators, supported by the UK Permanent Representative and the FSA, also lobbied fellow member states extensively to help achieve a significant improvement on the original ECOFIN text. As a result, the pre-trade transparency provision was amended to reduce the adverse impact on London's wholesale markets. We are satisfied with this outcome.


  4.  The Committee asked us to confirm that financial services sold exclusively by distance means of communication, such as the telephone, are subject to the requirements of the Distance Marketing Directive (DMD). That is correct. Article 1 of the DMD says: "The object of this Directive is to approximate the laws, regulations and administrative provisions of the Member States concerning the distance marketing of consumer financial services."

  5.  The Committee also asked us to respond to paragraph a(i) of the APCIMS submission, which alleges that the UK has not implemented the DMD properly, in that it has applied the Directive's provisions in the area of cancellation, despite the fact that there is an available exemption, and that this approach to implementation has caused firms unnecessary expense.

  6.  The APCIMS submission confuses the DMD's requirements in the area of disclosure with its provisions on cancellation. In the area of cancellation, the right of withdrawal does not apply to distance contracts for "financial services whose price depends on fluctuations in the financial market outside the supplier's control". Services where cancellation rights do not have to be provided include the purchase of foreign exchange, money market instruments, transferable securities, etc. We have implemented these provisions in a way which is consistent with the Directive, which does not require cancellation rights to be given in these situations.

  7.  The DMD also requires firms to provide consumers with information about the financial service before they enter into a distance contract. These provisions apply to all distance contracts, regardless of whether or not cancellation rights have to be given. We have amended our Handbook to implement these requirements.

  8.  APCIMS raises a question about the cost of implementing the DMD. In order to implement this Directive we have had to amend our Handbook of Rules and Guidance. Inevitably, there will be some cost to firms in having to comply with these changes, but the process of consultation and CBA has kept costs as low as possible, consistent with our obligation to comply with the Directive's requirements.

  9.  HM Treasury and the Inland Revenue, not the FSA, are responsible for the Savings Tax Directive.


  10.  The AIM says in its written evidence that the FSAP seems likely to bring "significant new costs, mainly as a result of overlapping, and sometimes contradictory, regulatory requirements". It does not give any examples in support of this claim.

  11.  In the absence of specific detail, it is not entirely clear what point the ABI has in mind. It is true that certain regulatory requirements are dealt with in a number of FSAP directives—for example, the Distance Marketing Directive, the Prospectus Directive and the Markets in Financial Instruments Directive all contain disclosure requirements. We are not aware of any specific contradictions in this respect and, as we said in our oral evidence, the aim of the FSAP is to bring greater conformity and consistency across Europe. However, as we note in paragraph 41 of our written evidence, ironing out ambiguities stemming from compromise positions in a number of existing, non-FSAP directives, including the E-Commerce Directive, would make a useful contribution to creating a more certain legal environment in which business can undertake financial services within the EU.

  12.  In this regard the Committee may be aware of the report last year for the Foreign Office by Robin Bellis, which makes several valuable recommendations for improving the quality of EU legislation, as well as the joint response of HM Treasury, the FSA and the Bank of England to the reports of the four independent expert groups,

which was published earlier this month, and which emphasises the importance of evidence based policy making. It is available at:;

  and the Bellis Report is available at:


  13.  As at 4 October 2004 15 out of 20 major firms were not relying on time bars, in some form, to reject mortgage endowment complaints, compared to 13 firms when we last updated the committee in July.

  14.  Of these 15 firms, five are actively reviewing their positions in this area. The Committee asked specifically about the position of Aviva. They are planning to introduce time bars from March 2005; they are giving policyholders at least 12 months notice of their time running out.

  15.  Twelve of the firms currently not time barring have given us permission to disclose their names. These are listed as Annex A. Of the five other major firms who are applying time bars, most have indicated that they will look at the individual merits of particular cases and will consider exceptional circumstances.



LincolnStandard Life
Bradford and BingleyCIS
NationwideRoyal London

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