Examination of Witnesses (Questions 80-99)
MR JOHN
TINER AND
MR PAUL
WRIGHT
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 Europeone 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 numbers95 billion or something
like that0.89% of the current GDP of Europeand 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 onall 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 andcleaning
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 agnosticthat
would be a better word perhapsabout 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 viewI think quite rightlythat
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 facilitatethe 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 oftenthat 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-term15, 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 arguedyet 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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