Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 80-99)


14 DECEMBER 2005

  Q80  Mr Todd: You are aware we will have the opportunity to ask these questions of them. I was not on the trip that this Committee made to Brussels, but an intriguing reference was made by someone from the Commission who reported that the poor implementation of directives from the European Commission was partly as a result of fear of reprisals from their national regulator. I assume you do not feel that he might have been making any reference to the FSA!

  Mr Tiner: I would have thought not, definitely.

  Q81  Mr Todd: He presumably spoke with some experience of this. Obviously these were complaints to the Commission as opposed to complaints passed on by yourself. Have you had any contact with the Commission to suggest that people may have felt some need to complain to them rather than to the regulator that is accountable?

  Mr Tiner: I do not think we have.

  Mr Todd: I can only assume that this was directed to some other part of Europe—one must hope that anyway!

  Chairman: It was not referred to in the conversation, but it was referred to in—

  Q82  Mr Todd: That is right, and I was going to touch on that. The impression was given that the Commission regarded you as a model in terms of your relationship to the representative of consumer bodies and the consumer at large, which should be repeated at the Commission and generally amongst the regulator community. I am sure you glow!

  Mr Tiner: Not really. All I would say is that we do find our Consumer Panel extremely valuable to us, in advising us and helping us, and, quite frankly, calling us to account. No doubt they will in half an hour's time as well! It would be very useful for that to be replicated at the Commission level. One of the problems on these consultative groups in the Lamfalussy area is that they are often composed of 15 or 20 people, and there is one consumer and 14 or 19 industry bodies; and they get drowned out sometimes. I think there needs to be more influence across the board.

  Q83  Mr Todd: Do you get the impression from your contact with other regulators within Europe that they do not have the same framework of operation as you do?

  Mr Tiner: I very much get that impression. I am not sure that the structure of the consumer panels, practitioner panels and smaller businesses panels that we have is at all common across Europe.

  Q84  Mr Todd: It is a model that we should commend elsewhere.

  Mr Tiner: I think so, yes.

  Q85  Lorely Burt: I would like to talk about mortgages. The mortgage Green Paper that the EU published: you believe that the cost-benefit analysis was an insufficient basis for identifying the optimal selection of measures. What further work do you think needs to be undertaken on costs and benefits of further integration to have a more objective view?

  Mr Tiner: I think what the London Economics report did was to identify what the overall benefits would be from having an integrated mortgage market in Europe, and they were very large numbers—€95 billion or something like that—0.89% of the current GDP of Europe—and that there would be an increase in consumption of 0.7%, should there be an integrated market, which sounds very, very attractive indeed. I think they estimated costs of €2.4 billion one-off and €2.5 billion recurring. The pay-back there, on the face of it, is very interesting indeed. I think that our take though was that before steps are taken to design a mortgage credit directive that these numbers need to be subject to much more rigorous analysis and testing to ensure that the directive route is the best way to achieve those kinds of benefits. We are very much in favour of seeing a more cross-border mortgage market; I think that would be good for consumers. However, I think there is a question about the best way to achieve it, bearing in mind some of the non-regulatory barriers such as language, tax and so on—all the things we know about. That was the background to that comment really.

  Q86  Lorely Burt: What about the proposed euro mortgage, this 26th directive; what do you think about that in the context of mortgages?

  Mr Tiner: We have not in this country seen a huge appetite for euro mortgages. There was a bit of a flurry of activity a while ago. It is not clear to me that because sterling is not in the euro currency that consumers here would be taking on additional risks if they were to engage in a euro mortgage to fund a sterling house purchase.

  Q87  Lorely Burt: I was actually thinking more of the other way, because it seems to me that here in the UK you have a very dynamic mortgage market. We were taking evidence in Brussels and somebody told me that it takes six years to get a mortgage in Italy. It seems to me that in the UK we have such a big variety of really good, very competitive products; and, as yet, as we take the evidence everyone is saying that it is so difficult. What are the barriers? Why can we not go out there and flog our wonderful products to the Europeans, because they obviously need them?

  Mr Tiner: I think we have a very good mortgage market that is very competitive, and it works well. It is one of the markets where consumers do shop around and really know what they are doing; and they drive the market to a large extent. I do not know enough about the mortgage market in all of the other 24 countries to be able to say what the barriers are. I have a worry that the UK industry has in the last few years spent a huge amount of money, hundreds of millions of pounds, implementing the mortgage regulatory system here, which has to a large extent been passed on to consumers through the cost of mortgages, which we do not want to have undone. The industry does not want it to be undone and consumers do not want it undone. There are some fears in some quarters about the unintended consequences of going towards a mortgage credit directive that unpicks what we have already done. If we could see our regime here exported across border, then on the face of it there appear to be attractions to that, but such is the nature of compromise that takes place in Europe that I am not sure you can guarantee it.

  Q88  Lorely Burt: With the eastern European countries as well, when we took evidence in Brussels, we were criticised really because we have not taken advantage of a market which has so many opportunities. It is wide open, and yet here we are; we seem to be stuck here in the United Kingdom, and yet countries like Germany are reaching out there and—cleaning up is what comes to mind, but is probably not very parliamentary, but you know what I mean!

  Mr Tiner: Yes. I wondered why the UK mortgage providers, the big players, are not finding the commercial incentive to do that. Given your accurate description of the market, why are they going about that? It is interesting.

  Chairman: IT platforms and frameworks have been mentioned.

  Q89  Jim Cousins: It is clear that Commissioner McCreevy is very committed to opening up a single market in the ownership and control of financial and insurance companies, and he wants to remove the obstacles to that that some supervisors have. What is your take on that? What are you doing about it? Are you supporting him?

  Mr Tiner: Absolutely. In this country we have never tried to be protectionist in that context. We are ambivalent about the country of origin of people who come in to the UK market.

  Q90  Jim Cousins: Ambivalent?

  Mr Tiner: Yes. We are agnostic—that would be a better word perhaps—about that. When Bank Santander took over Abbey last year the country of origin was not a consideration. A consideration was the prudential safety of the UK operations of Abbey and the consumer protection of their customers. Those are the sorts of issues that are much more important to us, and we have said a similar kind of thing in the context of the bidding that has been going on for the London Stock Exchange. I do not think London would have got to this pre-eminent position had there been a supervisory blockage to foreign investment; quite the contrary, we welcome it. We continue to suggest to Commissioner McCreevy that it would be helpful if a number of other countries followed suit.

  Q91  Jim Cousins: Right, because the issue here is not simply that we are not protectionist, but are we reductionist of protection in other jurisdictions? You are telling us that you do have to reduce protection in other jurisdictions.

  Mr Wright: There are of course quite legitimately prudential tests that people have to follow before they can buy in institutions anywhere, and that is true if you are a UK resident—

  Q92  Jim Cousins: I do not know if it applies to football clubs!

  Mr Wright: Those are quite legitimate tests. What is not legitimate of course is to use them for purposes for which they were not intended, such as any suggestion of using them for protectionist purposes. The objective here is to look at those tests to try and reduce the scope for them to be misused for those kinds of purposes, but on the other hand we must not lose the prudential protections that go with it, which are quite legitimate. For example, in the area of financial crime it would be looking at the kinds of people who buy firms to make sure that they are fit and proper. It is quite a difficult balance: on the one hand an absolutely correct attempt at simplifying but on the other hand not simplifying to the point where you lose prudential benefits.

  Q93  Jim Cousins: That is fine, but are you giving us an idea that through the channels that are open to you, you are seeking to achieve a common platform of prudential tests?

  Mr Wright: I think it is the Commission that is trying to achieve a common platform for prudential tests.

  Q94  Jim Cousins: But are you trying to help them?

  Mr Wright: It is an effort we support, yes, of course, provided, as I say, the prudential safeguards are not lost. The idea of preventing people using prudential safeguards for incorrect purposes is absolutely correct.

  Q95  Mr Love: Can I go back to a previous question because I was intrigued by the discussion we had about hedge funds and Germany opening up this market without looking into the UK market. How would you attempt to deal with that problem? Clearly, you have taken a view—I think quite rightly—that hedge funds as a retail market is a recipe for difficulty. How would you deal with that?

  Mr Tiner: I think the good news at the moment is that there is not any clear evidence that UK consumers are piling into hedge funds via the Internet, into German hedge funds. We need to be very aware of what investor activity there is, and potentially have an information and awareness campaign, should we see that picking up; but it is not something we want to stimulate because I am not sure it would be in the best interests of UK investors. In terms of our formal powers, I am afraid they are rather limited, because the powers are overridden by the E-commerce Directive.

  Q96  Mr Love: I am not suggesting this is happening, but if a German hedge funds decided to package a product for the consumer market, including the UK, that was attractive, but did not perhaps give the warnings for UK or any other consumers, that could prove difficult, could it not?

  Mr Tiner: It could prove very difficult. That is exactly the risk really. The good thing is in reality that most people buy these sorts of complicated products not off the Web but based on advice and conversation with people. If it goes into that, then it does become a regulated activity under the UK regime, so we have some scope in that.

  Q97  Mr Love: One of the things we were very pleased about on our visit to Brussels was the admiration, if that is the right word, that people we met had for the FSA and the work it is doing, particularly in consumer matters and the Consumer Panel. You mentioned Lamfalussy committees and that you would like to have more influence over consumer representation at European level. They clearly recognise a weakness in that regard. How do we get that message across more strongly to them, that they need to have much greater consumer input?

  Mr Tiner: In some ways I think we can only just keep on saying it. Where we are participating in the decision-making and negotiating process among regulators we try and promote that as much as we can because we have seen real benefits from that here in the UK. I think that the Commission has got that. I just think there is an issue around Europe as to how to get it done when there is not the organisation of consumer groups in other countries as there is here, and there are not many of them. This is a huge structure, so there are many consumers but very few consumer representatives, and they get spread very thinly. Of course, it is not just about financial services; they are getting spread across food and telecoms and all sorts of other sectors as well. I think it is something the Commission needs to facilitate—the growth of these sorts of consumer bodies across the European Union. I think it would be very helpful.

  Q98  Mr Love: Is it the case that even though there is goodwill on their part about consumer representation, because of the pressures they are under in terms of who it is and how often—that consumers are effectively being excluded for the reasons that you suggest? Is there a way, without trying to set up consumer bodies at European level from scratch, that we could get that message across that they need to not always recognise the pressures of the lobbying bodies but recognise it is critical to have consumers there?

  Mr Tiner: I do, and the regulators themselves have a responsibility there. I would hope that when the regulators are at the table they are able to say that this or that will improve or damage the consumer position, because the industry lobby is very strong and quite articulate, and it is quite effective. I think the regulators could provide some hedge to that themselves.

  Q99  Mr Love: In relation to mortgage rates, we had the Lyons Review in this country talking about how we could introduce longer-term mortgages. The general conclusion that was reached was that we have a very competitive market. That leads me to believe that because at European level most countries have long-term—15, 20, 25-year mortgages rather than the usual three, five-year terms that we have, that British mortgage products could be very competitive at the European level for exactly the same reasons that Miles argued—yet we do not seem to be able to enter that market. Should we be doing more to make sure that the very innovative mortgage products that we produce get an operation to spread at a European level?

  Mr Tiner: I think the Commission needs to study what is stopping that happening now, and then to address it. I suspect the answer to that is not just regulation wholly, but that there are other things stopping that. Of course, we do have 25-year mortgages; it is just that they turn over every three years, and there is not the same level of turnover elsewhere in Europe because people do not shop around in the same way and chase the rates down to the bottom, which they do quite successfully here. I would hope that through Michael Coogan's European group there are quite a lot of lessons that the rest of Europe could learn from our mortgage markets.

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