Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 120-131)


14 DECEMBER 2005

  Q120  Mr Todd: There is a capacity-building function?

  Mr Howard: There is, yes.

  Q121  Mr Todd: And capacity right through the levels to quite a technical level?

  Mr Howard: Yes.

  Q122  Mr Todd: In which someone can make an input into what will be a legal document in a meaningful way from the consumer perspective?

  Mr Howard: Yes.

  Q123  Mr Todd: The last area is on disclosure of information about products and the regulation of that. Surely, top priority is not quantity of disclosure but the clarity of that disclosure, bearing in mind particularly the point you made at the beginning, which is that not a lot of consumers really go into this at all; that it is critical that if these products do become available it is very, very clear what they are and how they work. Is that one of the focuses of your concern?

  Mr McAteer: This is a hugely interesting point because, clearly, conventional economic theory says that if they have had market failure, then the best way to address that failure is by providing consumers with more information. That is a very attractive proposition. Quality of information is important. The main lesson we have from the UK—because the UK serves like a laboratory experiment of how not to do things in terms of financial regulation—if you look back at why we have had so mis-selling crises and so on, the reason was not because consumers did not have information; the reason we had mis-selling was because of the conflicts of interest throughout the supply chain and the distribution chain and so on. I would agree that we need better information and better quality—

  Q124  Mr Todd: Or they did not understand the information.

  Mr McAteer: That as well. We need better quality information, I agree, but I would just caution against the Commission relying too much on information solutions as being the main restraint on the market.

  Q125  Mr Love: On the capacity-building issue, how long do you think it would take to form a viable European-wide organisation that you are talking about with the capacity to influence events?

  Mr Howard: I do not think it would take that long to set up a consumer panel, to be honest. I think that the capability does reside in most countries. If you pick people with a reasonable consumer background they can usually pick up what is necessary quite quickly when they have the resources available to them. A lot of it is just being able to find where the information is, and also to be able to understand Commission documents. One of the other recommendations that we have made to the Commission is that they ought to make many more documents available not only in national languages but also in a simplified form so that consumers can approach it from a consumer perspective and a consumer understanding, rather than speaking in the language of the industry and the regulator. That is important too, so that people can get quickly on board as to what is going on. That is an important part of the equation.

  Q126  Mr Love: In regard to the Lamfalussy process you mentioned consumer representation within that. How do we improve that situation and get more consumers to those committees?

  Mr Howard: I think that is quite tricky. I am on the Market Participants' Group of CESR. I have been to one meeting so far. The Consumer Panel lobbied for some time to try to get a position on that group, and we have just been given that place. Having been to one of those meetings now, it was severely technical. Everyone on that committee was there in an individual capacity; they were not there on the basis of being industry representatives but they almost all did come from the industry except myself. That was my perception. That is the difficulty you have, that the Commission says "we must have people who know about this" Who knows about it? It is people from the industry. You have to start to tackle that and say, "if you give consumers the opportunity and a little bit of resources, then they will be able to understand these things too and you will be able to redress the balance". I think that is one of the things you have to tackle.

  Mr McAteer: I am on the consultative panel of CIOPS, the body looking at insurance company and occupational pension fund regulation, and by God that is a technical matter. I may have an advantage because I am a pension fund trustee as well, so at least I understand some of what they are talking about. I am the only consumer representative on that group that is supposed to advise CIOPS, which is meant to be one of these key regulatory bodies that advises the Commission. Until consumer bodies have access to the same technical resource and same level of research that the industry has, we are always going to be on the back foot and always starting from a long way back when it comes to influencing the regulatory process. It all comes back to this point about influencing the process way upstream. To use an analogy, whenever a consultation paper in the UK comes out from the Treasury or from the FSA, you always get the impression that their minds have been made up; and the only debate we are having in the consultation paper is about the detail of implementation. The framework has already been set. Until consumer bodies have the resource and the capacity and the access to influence the Commission decision-making process at the highest level, we will always be at a disadvantage as well; so it is a combination of access and resources, which is the two things the consumer groups really do need.

  Mr Howard: I might just back that up by explaining the way that the Consumer Panel works in the UK. We were concerned at one stage that we were being notified and asked for our advice at too late a stage, and the FSA decided that they would do something about that. Most of our input now, or a lot of our input comes in before consultation papers and discussion documents, at the stage where they are considering what is the best way forward, and the strategy. This is a very positive process. It means that they are getting input from us very early on and it means that there are no battles down the line. We can often provide them with thoughts and information that they had not considered, which enables them to come up with a much better product, much better regulation. Getting in there early is key to having a successful framework that is going to work and be satisfactory.

  Mr McAteer: John mentioned the BEUC European Consumer Group. We happen to be one of the biggest funders and one of the key members, but the chap who works in Brussels for them, the policy guy, used to cover financial services, utilities, competition, policy and transport. I think I heard on Radio 4 recently that there are something like 30,000 industry lobbyists working in Brussels at the moment! That gives you some idea of how level the playing field is at the moment.

  Q127  Mr Love: John Taylor mentioned earlier that the regulator should bang the drum on behalf of the consumer. I am just asking you as representatives of consumer organisations: has that provided any benefits so far, and could it in the future?

  Mr McAteer: Do you mean that the UK regulator is doing it in Brussels?

  Q128  Mr Love: Yes.

  Mr McAteer: I do not want to destroy this love-fest or whatever it was, but I do think the UK regulator and the UK Government try very hard here in London to consult consumers and facilitate consumer representation, but I must say that I do detect a sense whenever I go to Brussels that representatives from the UK seem to believe that everything that happens in the UK is the best way of doing things. That is picked up amongst the European Commission as well. They are looking to the UK on how to do things. It may well be that the FSA has the best structure for regulation, but believe me the message that I take across is this: "If you want to learn how not to regulate then you look to the UK and financial services" because we have had this litany of mis-selling episodes, which has undermined confidence in the financial services sector. I do not have to spell out what the consequences would be for the European project if there was a massive scandal involving a so-called foreign firm selling products into a different country. That would knock back the integration of the single market. It is as much about the approach to regulation as the systems of regulation, which I think has not been communicated properly at the European level.

  Q129  Mr Love: One of your opening comments was that there is very little consumer-led demand for a single market retail market, and we talked a lot about the outlook of the consumer. Taking that as our baseline, how can we start to move the issue forward? Has there any research been carried out into the institutional, cultural, legal barriers, historical barriers or whatever? You mentioned about trust and confidence. We do not have trust and confidence in our own British institutions; are they likely to be more confident? It will be interesting to see how Santander, which has now changed its name, will fare. Is there any research on how big a barrier getting the consumer motivated is?

  Mr McAteer: There is some research. The Euro-barometer research for example surveys consumers about their intentions to shop cross-border and tries to analyse why they do not shop cross-border. As I said, it seems to be down to trust and confidence and understanding of the different legal and regulatory systems. The interesting point is that the integration you have seen so far has been on the level of Santander buying into the UK, or German banks buying into UK stockholders and things like that; but we still have not seen direct business-to-consumer transactions on a cross-border basis. That is what I mean by very little consumer-led demand for cross-border services. If there is to be any further integration, it will be on that basis, where firms buy up other firms or else they establish branches in a different country. I cannot prove it but I would suspect that even when it comes to ING, the Dutch bank—whenever UK consumers see that advertisement on television, they naturally expect that that bank is regulated by the UK financial authorities. To all intents and purposes they would consider that to be a UK-regulated bank. I honestly cannot see consumers actively seeking out cross-border transactions, except at the margins. For example, on the Irish border there might be demand for cross-border transactions or on the Dutch/French border or Dutch/German border. On the margins there may be cross-border transactions at that level, but I do not see any real demand for international transactions across Europe.

  Q130  Mr Love: When we met the representative bodies in Brussels, there was some indication that their member organisations in each and every country would be relatively relaxed about some outside financial institution coming to buy a local financial institution and setting up under that name. There would be much more hostility—that is the impression we were strongly given—to somebody coming in under their own aegis and setting up as an alternative provider, hopefully more competitive. Are we a long way from that? It sounded to us like Brussels really was not ready for the second and might just be approaching for the first.

  Mr McAteer: I do think it is a long way off, yes. It is always difficult to quantify how long these things may take, or whether or not the UK firms could compete on a pan-European basis. Who knows! It goes back to the original point. You have to divide it up into the wholesale markets, the institutional markets, the retail markets. By all accounts, UK firms are competing extremely well in the wholesale markets and institutional markets because we have a lot of experience. Whether or not they can compete on a pan-European basis at a retail level, it is too early to say. I do not see any sign of it.

  Q131  Chairman: Are there any points you want to make before we tie up?

  Mr McAteer: Just to reiterate that Which? is concerned about this drive for integration at all costs. I think the Commission is losing sight of the ultimate aim, which is to meet consumer needs. It is not about getting a single market for the sake of it.

  Mr Howard: I endorse that and add that at the moment there is not a lot that is coming through Europe that I feel consumers in this country will benefit from, especially when you look at things like the mortgage regulation. If anything, that adds to the costs to consumers here rather than providing any extra benefit. That is our real concern: no benefits for UK consumers for a lot of what is happening now.

  Chairman: We are very grateful to you. Thank you very much.

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