Examination of Witnesses (Questions 120-131)
MR JOHN
HOWARD AND
MR MICK
MCATEER
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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