Examination of Witnesses (Questions 106-119)
MR JOHN
HOWARD AND
MR MICK
MCATEER
14 DECEMBER 2005
Q106 Chairman: Would you introduce yourselves
for the shorthand writer?
Mr Howard: I am John Howard, Chairman
of the Financial Services Consumer Panel. Hopefully, there are
enough issues that you want to discuss today that I can provide
some valuable evidence on.
Mr McAteer: Good afternoon; my
name is Mick McAteer, Principal Policy Advisor at Which?
the UK consumers' association. I was one of the consumer reps
on the expert banking groups, and I am also the consumer rep on
the CEIOPS consultative panel.
Q107 Chairman: Welcome back, Mr McAteer.
You are well known to us. In your humble, wise, shy and retiring
way, you can tell us exactly what the situation is about the consumer
in Europe and being able to shop across borders.
Mr McAteer: The biggest criticism
we have I suppose on the Commission's overall approach is that
everything is driven towards this belief that if we do not move
we will not see integrated markets at the retail level. The Commission's
objective seems to be the integration of markets per se;
it does not seem to be making sure that consumer needs are met.
One of our big criticisms is that the Commission has this assumption
that the interests of the market and producers are aligned with
the interests of consumers. If you break down these barriers to
integration, you will see more choice for consumers, more innovation,
which will lead to improved consumer welfare. We are quite sceptical
about it because we see very little evidence of any consumer-led
demand for a single market. A recent surveythe Euro-barometer
surveyfound that something like 95% of EU consumers have
never bought a financial product across border. A similar amount
had no intention to do so. To conclude this opening statement,
we do see considerable benefits for the UK consumer and for European
consumers if the Commission focuses on allowing integration to
happen at the wholesale level and at the institutional levels.
There are considerable benefits to be had there from economies
of scale and so on, but we think you should leave well alone at
the retail consumer protection end of the market because we see
more unintended consequences and risks than benefits to the end
user.
Mr Howard: There is a risk, is
there not, that Mick and I will wind ourselves up to be more and
more extreme, but I would certainly go along with what he says
there. A lot of what you have been hearing this afternoon about
MiFID and CESR and all these phrases seem to be an awful long
way from the high street and what matters to consumers. I am concerned
that the whole of this initiative has been taken once again from
the direction of the industry and what is best for commerce, rather
than looking at what the consumer really needs; so I would go
along with Mick as far as that is concerned. The same thing happened
to some extent in this country; that the industry starts off with
all these initiatives, provides the language and the framework
for the way these things are sold; the regulator then comes in
and tries to impose some sort of control over it; and the consumer
has to put up with or suffer what is produced at the end of the
day. I think the same is happening in Europe. It is a shame that
there was not greater consumer input at the Commission level.
I suspect there might have been a different perspective then over
the directive that came out, but we are where we are and we must
proceed from there.
Q108 Peter Viggers: What are the
biggest obstacles to a European single market in financial services?
What problems do you see?
Mr Howard: I think the biggest
obstacle is the outlook of the consumer. It would need to change
dramatically if they are going to take what many would perceive
to be a risk in dealing cross-border. They may not necessarily
realise in some situations that they are dealing cross-border
but I think they would want to know. There is a cultural division;
there is a division on legal grounds, which are all big obstacles
to a single market in financial services coming about. In the
UK consumers will see it as very difficult to judge where any
benefit might come at the moment. I know when you went to Europe
you heard that the FSA was doing a pretty good job. There was
some envy on the part of regulators and supervisors in Europe
as to the way the FSA operates. I think that consumers in this
country feel that there is a regulator here and they are doing
a reasonable job. There are many ways in which they could have
that improved, but I do not think they see much benefit in cross-border
deals of any sort. That is where the consumer is coming from.
It is the outlook of the consumer that is one of the biggest obstacles.
Mr McAteer: I could summarise
it in three things. It is awareness, culture and then confidence
and trust. We see no evidence that consumers are aware of the
benefits of cross-border shopping. The cultural differences are
vastly underestimated at Commission level, and I think that that
is a hugely important point. There is then the general confidence
and trust issue. We have got problems of confidence and trust
amongst UK consumers buying financial products in the UK and it
is very difficult to imagine the consumers would be confident
enough and trusting enough to buy products on a demand-led basis
from other Member States.
Q109 Peter Viggers: We have had a
tepid and moderate response to the 26th regime, which would not
be one of the 25 nations. Do you share that view?
Mr McAteer: I think it depends
very much on the product area. People have previously alluded
to the idea of 26th regime mortgages. It is difficult to see how
that could even happen, given the different Land Registry requirements,
the different repossession protection measures and so on. Property
and everything associated with it has different levels of legal
protection. I would be quite surprised to see a 26th regime even
get off the ground. I would imagine that if the opportunity for
provision of cross-border mortgages was really there, I think
the market would have already developed that regime. I would be
very sceptical about whether a 26th regime could be possible in
the mortgage market. I have heard people talk about the possibility
of a 26th regime for the insurance business, and I have to say
that we would look on that as a backdoor way of introducing a
lower level of regulatory protection. The big fear that consumer
groups have at European level is the issue of regulatory arbitrage
where the industry tries to manoeuvre its way into the lowest
common denominator of regulation. Maybe we are being overly sceptical
here, but we would imagine that is the main reason behind some
of the insurance groups proposing a 26th regime.
Q110 Peter Viggers: The European
Commission has promised a better regulation agenda, and the theory
is that legislation will not be introduced in a situation where
there is a better alternative available. Do you see signs of this
happening? Do you think it is likely?
Mr McAteer: Again, I must confess
to sharing some of the frustration and concerns of the industry
about the way that the European Commission policy-making process
works. We all share the concern that there is a real lack of evidence
base as to the best way forward for regulation, particularly when
directives are being imposed or introduced. Again, the Commission
is making worrying noises about doing ex ante evaluations
of directives and regulatory initiatives and so on. It talks about
better cost-benefit analysis and regulatory impact assessments,
but it remains to be seen whether or not that happens in practice.
Crucially, it remains to be seen how they will undertake those
cost-benefit analyses because we would have criticism of the UK
financial regulatory system in that we think, in our view, that
the cost-benefit analyses are too industry-centric. It starts
from the premise that regulation costs industry. Let us look at
the best way of protecting consumers or meeting consumers' needs!
It remains to be seen whether or not an improved regulatory process
will be delivered by the Commission.
Q111 Peter Viggers: The similar point
is that the Financial Services Consumer Panel refers to the Commission's
agenda and the fact that it stresses the importance of implementation,
enforcement and evaluation of existing legislation. What are the
likely key benefits to consumers from post implementation evaluation
of recent financial services legislation?
Mr Howard: I think you learn by
your mistakesthat's possibly the best way of looking at
it. You could then make an assessment of how effective something
has been. The Consumer Panel is very interested and concerned
to see how some of the latest regulations have been introduced
into the UK is panning out, especially in regard to insurance
and mortgages, to see what the overall cost and impact of those
things has been, and our future work will be looking at those
areas in particular because we want to see whether the regimes
that have been put in place really do what they were supposed
to do and whether the costs to that have been worthwhile. That
is essentially what we would want to do with these European directives,
to make sure that there really was value in doing them after the
event. I notice that you heard from the industry that they were
unsure about whether it was shareholders or consumers that were
paying. I would say that nearly always it is the consumers who
pay for regulation, and they have got a real incentive in having
value for money in regulation, and that is why we would support
that approach of the Commission.
Q112 Mr Todd: You have listened to
the kind of blood-fest we have had over the role of the FSA and
to some extent the Treasury in the first session. They have offered
to assist you in getting the consumer messages across and they
say they have been doing their best to do that. is that your perception
of their performance?
Mr Howard: In the EU?
Q113 Mr Todd: Yes.
Mr Howard: Yes, but what they
can do is rather limited because of the complexity of the EU,
the places where decisions are made, and the task they have got.
So far we have expressed our views on Commission proposals to
the FSA and they have taken that forward, and we have also made
representations, where we can, directly to the EU to try and influence
the way things have happened; but it is very difficult for the
FSA to be able to take messages directly into the heart of the
EU and make a difference as a result. There have got to be significant
structural changes in the way that consumer representation is
introduced in the EU.
Q114 Mr Todd: Does the White Paper
encourage you to think that might happen?
Mr Howard: Absolutely, and I am
delighted to see that the White Paper included a proposal for
what in effect looks like a financial services consumer panel.
It was one of the recommendations that we came up with. I think
they need to go further than that. You have had mentioned to you
already the euro conference that we organised. We had 14 states
represented at the conference. It was very difficult to find consumer
representatives from some countries. When you talk to some of
the representatives there you managed to get an idea of why that
was. I remember speaking to one delegateI will not say
where they were from, but essentially they were a national consumer
agency. They had 40 people who dealt with every consumer issue,
which they were representing to government; but not only that
they were handling queries from consumers who came through the
door, so they were trying to do everything. Expecting them to
have the capacity and resources to deal with something as complex
as financial services really was not on.
Q115 Mr Todd: It is interesting you
say that. Have you gathered the impression, which I think I probably
have, that in terms of consumer representation and the ability
to make the consumer voice heard, this country is quite substantially
ahead ofyou are frowning, Mr McAteer!
Mr McAteer: I do not want to get
involved in semantics here, but from our point of view there is
a huge difference, a world of difference between consumer representation
and representing the consumer interest. Representing the consumer
interest properly is not just about bodies on committees or panels;
it goes much deeper than that. It goes to how the regulatory process
works. It goes to what form of economic model you use to evaluate
the benefits of regulation and so on. I mention that because I
totally agree with you that the FSA and the Treasury are very,
very good at facilitating consumer representation at UK level.
They are very consultative and talk to us all the time; but I
would disagree that they are representing consumer interests in
Brussels.
Q116 Mr Todd: Nor was I suggesting
that. My question was about capacity of consumer organisations
in Europe and the relative strength of the UK experience. I take
all you say about whether the representative function actually
works, but in terms of capacity it sounds from what Mr Howard
has said that there are some places where they are struggling
at a very primitive level of getting any means of getting consumer
opinions heard at all.
Mr McAteer: There is simply no
way that consumer groups at the European level have the resources
of the people to lobby to the same degree as industry.
Q117 Mr Todd: That is presumably
an obstruction to carrying out what the White Paper aspires to,
which is simply gathering representations.
Mr McAteer: There are two possible
models that we are evaluating at the moment. As John says, it
is encouraging that some form of consumer panel is being considered
at European level, which could be very effective if it is resourced
and staffed properly, and if it has the authority to call the
Commission to account. I do not think it will have much impact
if it is just another forum for discussion. It needs executive
power to require the Commission to answer its recommendations
and so on. An equally interesting potential way of representing
the consumer interestwe are looking at how we can translate
the Treasury Select Committee model to the European arena, because
clearly this body of people has had a powerful influence in the
UK financial world.
Q118 Mr Todd: A financial blood-fest!
Mr McAteer: There is a potential
model there. The European Parliament set up IMCO, one of these
committees that is meant to be the internal market in consumer
protection. That has interesting potential as well. I would like
to see that committee play the role that the Treasury Committee
plays in this country for holding both the regulator and the industry
to account at that European level. That is the only way we can
ensure that the structures are in place and ensure that the public
interest is represented in a public forum, and effectively.
Q119 Mr Todd: In the first part of
the discussion when we had the representatives of industry here
there was a discussion about the various processes which eventually
lead to instruments, which make UK law. How do consumers fit into
that chain of decision-making influence? How do they, and how
should they?
Mr Howard: In the EU at the moment
there are a couple of organisations that do input. One is BEUC,
the consumer body that represents the whole spectrum of consumer
issues, so again it is very resource-stretched when it comes to
dealing with specific financial issues. Another body has been
set up called FIN-USE, which is a group of experts in financial
areas. One of my colleagues on the Consumer Panel actually sits
on FIN-USE and would have been here today if it had not been for
the fact that FIN-USE is sitting today. Those two bodies do input
consumer representation, but at quite a low level. They have no
greater opportunity to influence things than to send recommendations
to the Commission or the various Lamfalussy bodies and suggest
what they feel is the most appropriate way forward. There has
got to be a much stronger structure than that, although I would
not necessarily go as far as Mick is suggesting where they would
have some sort of power to veto, or something like that. The sort
of structure that I would like to see would start at a national
level first of all. Our recommendations suggest that the Commission
ought to be putting pressure on national governments to provide
resources for some sort of consumer representation nationally
and to arm those people with resources to be able to make proper
decisions in the financial services area and then from those one
would have a selection of people you could pick to put on a financial
services consumer panel at Commission or EU level, and you would
need to build that into the structure to be able to advise directly.
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