Examination of Witnesses (Questions 720-739)
MR JOHN
TINER, MR
CLIVE BRIAULT
AND MR
VERNON EVERITT
16 MAY 2006
Q720 Ms Keeble: Looking at some of
the products which they might be particularly interested in, in
particular about remittances which are obviously very important,
I understand that the regulation of the money transmission is
split between three different agencies and there are steps to
improve it but it is not there yet. I wonder if you could say
a bit about that?
Mr Tiner: Yes. The money service
providers are essentially regulated by the HMRC (Her Majesty's
Revenue and Customs) for the purposes of anti-money laundering
and we have helped, together with the Department for International
Development, together with the HMRC, to try and help all bodies
understand what would be good money laundering controls, because
that is what the worry is for these remittances, they are being
used to launder proceeds of crime and other inappropriate activities.
I think the worry is, as I understand it, that the banks are so
worried about whether those money service providers are engaging
in money laundering activities, but they are reluctant to provide
banking services and so the international remittance service is
being withdrawn, in effect, so it is more difficult to send money
home and that is an area where there are some discussions, but,
again, it is rather outside of our particular responsibilities
to get the banks to come to the table there.
Q721 Ms Keeble: Does that not also
mean though that people who might themselves not be on particularly
spectacular incomes and who are sending money home are actually
getting very poor value for money out of the banking services
for the transactions they are making?
Mr Tiner: Yes, it may be, I am
not sure and, again, it is not an area that we look at. There
is a new directive coming up called the Payment Services Directive
which is going to bring these sorts of organisations into fuller
regulation and it is not yet clear who is going to have that regulatory
responsibility whether it would be ourselves, the OFT or the HMRC,
but it is not currently an area that we really feel we know a
great deal about because we do not have a regulatory responsibility.
Q722 Ms Keeble: Do you not think
that there would be some value, and there has certainly been some
thought on this, in having some sort of a financial product which
will enable people to transfer money more easily because, you
know, you talk about money laundering, but I am sure lots of us
see the other side, which is people perfectly honestly trying
to send small amounts of money?
Mr Tiner: Yes. Well, I think that
is the difficulty, I am sure the vast majority are legitimately
trying to send a small amount of money back to their families
where they come from and that has always been the issue with money
laundering, how can you design a regime that stops the flows of
criminal money going through but allows the vast majority to go
about their everyday business and I think the proportion of measures
we have taken elsewhere now will help that, it will target where
there is suspicion of money laundering, allow other people to
quite easily go about their everyday affairs. Maybe there needs
to be a more flexible regime, I think, in the area of international
remittances.
Q723 Ms Keeble: Do you not think
there is a bit of urgency about this in that if you are talking
about financial exclusion and you are talking about communities
feeling that the industry does not serve them, and quite rightly
so frankly, that it needs to be resolved more quickly than you
are indicating?
Mr Tiner: I do not know and, again,
it is not something which we would either feel we have a responsibility
for accelerating. I think it is the Government, it is the Department
for International Development, together with the HMRC, to decide
what they need to do to meet your objective if it is thought to
be urgent.
Q724 Ms Keeble: So you think that
those two departments should take the lead, not yourselves, although
you are the regulators, are you not, for financial services generally?
Mr Tiner: Yes, but we are not
the regulators for these money service providers.
Mr Briault: Just to clarify that
point, we are the regulator but only if that money service provider
is already regulated by us for another purpose, so we are not
the regulator of a vast majority of them, particularly the smaller
ones, but some of the major ones we would regulate for anti-money
laundering procedures if they are already regulated by us as,
for example, a deposit taker.
Q725 Ms Keeble: The deposit banks,
I understand, are not taking the money transmission services because
of the concern about the regulation?
Mr Briault: Some of them do offer
money transmission services.
Q726 Ms Keeble: But it says, according
to our brief, it says that increasingly they are not because of
this problem.
Mr Briault: I think, as John was
saying, the problem appears to be where banks are themselves providing
services to the smaller money service providers and where some
of those banks are becoming concerned that they cannot reassure
themselves—the banks—that the money service providers
have adequate anti-money laundering systems in place and therefore
may be removing some of the services that they provide to the
smaller money service providers. I do not think we see any large
money service providers exiting the market where they provide
the service direct to their own customers.
Q727 Ms Keeble: If we can just turn
to the Sharia compliant products which is another issue which
again impacts on particular communities. There are two particular
areas I am interested in, one is about, in particular, having
appropriate regulatory regime for the mortgages and, the second
thing, I noted earlier you said on your working group you had
the DFES. I have encountered Muslim students having difficulties
with student loans and I wondered if that is a general issue or
it just so happens that I happen to have encountered these students
and, if so, whether there is thought being given to alternatives
for student finances?
Mr Briault: I have not come across
the student loan point myself, I do not think my colleagues have
either. Perhaps if you have got any further information on that
you might let us know.
Q728 Ms Keeble: Would you be able
to ask through the DFES, since they sit on your group, if they
have encountered it, because I have certainly encountered it from
some Muslim students in my own constituency, which has not got
the biggest Muslim community, so I was quite surprised?
Mr Briault: We will pursue that
with DFES and see if we can discover what the issue is.[3]
32 On mortgages the intention is to introduce a mortgage regime
for those Sharia compliant mortgages from April next year, that
is something which we and the Treasury are currently consulting
on, they are consulting in terms of what the statutory position
should be under the regulatory activities order, we are consulting
on what the regulatory regime should be. As John was saying earlier,
in the context of Islamic banking and financial products more
generally, we are very keen to introduce a regulatory regime which
is very permissive and allows these particular types of transaction
to take place, but that has always been our intention, and what
we are trying to do is introduce something which, as far as possible,
is broadly similar to the existing regime for mortgages, but takes
account of the very particular features of these Sharia compliant
mortgage products, so that is something which we are consulting
on. I think from our early indications and the pre-consultation
we have had with a number of interested groups from that community,
we think what we are doing is something which will very much facilitate
those mortgages being taken up and being adequately protected
through our regime.
Q729 Ms Keeble: Thank you. Has the group
done any other study of the financial services accessed by, in
particular, black minority ethnic communities?
Mr Everitt: There is some specific
sections of the baseline survey which we have yet really to get
under the skin to really understand, but we certainly ask specific
questions in that area so that is an area that we will be focussing
on.
Q730 Ms Keeble: I would like to ask
one question on insurance. Have you looked at improving access
to insurance products, because that is not mentioned in your brief
and I was thinking in particular of the household insurance?
Mr Tiner: Again we do not regard
it as our role to improve access as such because that is not part
of our statutory responsibilities. It is pretty clear that there
are many households around the country who do have their buildings
insured and do not have their contents covered and there is a
question about whether that is to do with their lack of understanding
for the need for that or whether it is because they feel that
the premiums are too high and they are better to be, in effect,
covering the risk themselves, but again we do not go out and try
and promote the products of the financial services industry that
we regulate, we try and go out and create an awareness amongst
consumers for their need for certain products.
Q731 Ms Keeble: Who do you think
should be dealing with that issue then? The reason I ask is in
Northampton 1500 homes got flooded in the floods and most of those
were in some very, very poor areas and it was immediately obvious
who had insurance and who did not and some people were devastated
by it, everybody was devastated, some obviously could not really
recover from it. Who do you think should take the lead in dealing
with those types of issues which are really serious ones for very
poor communities?
Mr Tiner: I think it needs to
be, and it is, part of this financial capability work that we
have just been talking about, because it is not just about savings
and not getting into too much credit, it is also about protection,
both protection of your assets and protection of your life if
you have got dependants and there is, in a way, a surprising lack
of awareness, I think, about the need to take care, to protect
things that are important to you, and that is part of that, so
we have that built into our financial capability strategy. Beyond
that I am not sure where the campaign can come from other than
through the usual channels of public education. The industry can
promote it, but some would worry that is a self serving promotion.
I think that people like the ABI are very keen that people should
realise their need for insurance and know how to go about buying
it and shopping around to get a decent premium and to look very
carefully at the exclusions should they then decide to take out
some cover and that is an area of particular focus for us since
we have been regulating the sale of insurance since the beginning
of last year, to make sure that exclusions in policies are very
clearly highlighted before people get committed. So it may be
that your flood was in a particular flood area and there was a
flood exclusion that nobody perhaps had picked up at the time;
things like that need to be much clearer.
Q732 Chairman: Just to add to Sally's
point about the international remittances. We have received evidence
from the Money Transmitters Association, "Evidence gathered
by the United Kingdom Money Transmitters Association suggests
that as many as 75% of money transmitters have experienced problems
obtaining or retaining a bank account and they further believe
that as many as 25% of the money transmitters' organisations which
have registered with HMRC have not been able to trade because
of problems in obtaining banking facilities". They go on
to say, "The big risk arising from all of this is that if
money transfer companies are prevented from operating legally
through lack of a bank account, they will then exit the formal
sector but continue to trade in the black market". Given
that you have an objective to reduce financial crime does closing
down the bank account of small money transfer organisations increase
the risk of money transmissions activity migrating to illicit
channels?
Mr Tiner: I think it probably
does and I think that there is a risk that those people go underground
and are not subject to any scrutiny at all.
Q733 Chairman: What can we do about
it?
Mr Tiner: I think that it is worth
asking the banks what is causing them to really withdraw from
this area. I think probably Clive is right, I think they are concerned
about the money laundering controls that might be within the money
transmission providers, but we do not want those sorts of money
transfer vehicles to fall outside the system, because it would
open up an avenue for people who want to hide the proceeds of
crime to do so and to get them offshore.
Q734 Ms Keeble: Is there not a completely
different way of looking at this because, as I understand it,
more money goes remittances and this huge amount of money that
goes perfectly legitimately and it has got nothing to do with
money laundering or crime, it has got to do with people supporting
their own communities in a perfectly proper way and is that not
a good way, if people are starting to access financial services,
to provide some incentives and is that not absolutely mainstream
financial services business?
Mr Tiner: I think so, I think
it clearly is. I think the worry that we will have and, I think,
HMRC and the banks will have, is that the people who want to perpetrate
money laundering are very clever at spotting the weakest part
of the system and so if they observe in that area that there is
a level of control and scrutiny which is much less in an area
then that is where they will target and, again, it comes back
to having some sort of sensible balanced risk based system where
you allow all of the people that you are talking about to carry
out their business, but there is some sort of sensible system
that tries to capture those that are pretty obviously dealing
with the proceeds of crime and I think there is work to do there
and I think that between the HMRC, the FSA and DFID we could take
that forward.[4]
33
Chairman: I think so and we are all agreed
on the merits.
Q735 Jim Cousins: In your discussions
that you have about financial capacity with the Government, is
there any discussion about how you address such issues as a low
paid worker entering work for the first time should they opt out
of the state second pension or not, where do they go to for advice
about that, or a young person that has been written to because
they have got part credits under national insurance and they get
a letter that arrives out of the blue, "If you pay us another
£700 you will get another three years' national insurance
credits and we are giving you until 2009 to decide whether you
want to do this"? These are the sort of situations that mystify
and completely confuse very large numbers of people and they are
perfectly normal, they are not exotic situations, they are perfectly
normal everyday situations. Do you ever discuss with the Government
where do people go to check out what they should do in these situations?
Mr Tiner: This has not been part
of the work that we have been doing so far. I completely agree
these are normal situations and they are confusing, they have
not come forward. In terms of the national insurance point that
you make, in particular we have had some discussions and thoughts
about how people get advice on whether to opt out of the second
state pension or not and that is very difficult because there
are so few people providing advice on what to do and it is an
area that we have been worried about because where do consumers
go to get advice, who is prepared to give that advice, because
you do not know today whether that advice is going to be valid
or not because it is subject to changes in government policy as
well as changes in markets. I think this is extremely difficult,
I do not have an answer for you right now. I must say it is a
big problem, particularly the second state pension question, not
just for people who are new into the work place, but people who
have to make the election every year as to how they can get some
help to make the right decision. I do not know, Clive, you have
been doing some work on this.
Mr Briault: I think one thing
I might add is your particular point on the national pension scheme,
if and when that is introduced, which is that DWP are already
thinking about what is the sort of information that you would
need to make available to employees so that they could exercise
whatever choices they have under that scheme. We are also thinking
about that very hard as well and the extent to which you can set
out the position reasonably simply and clearly, preferably through
a leaflet which is available through the workplace for precisely
the sorts of individuals you are talking about where the decision
as to whether to opt out of such a scheme may be a very real and
pressing decision.
Q736 Jim Cousins: You talked earlier
about generic financial advice, but there is no brand, there is
no supply chain, there is no standard of performance for delivering
it, it is very unclear where it is provided. I mean surely those
are issues that you ought to be looking at? I entirely agree that
you are not the agency that should provide it.
Mr Tiner: I think that is right.
I mean there are some brands in some areas, like money advice
and the credit area, but there is not a supply chain, there is
not a brand, trusted brand, to deal with all forms of other everyday
financial advice like the two cases you have mentioned and I think
that the work that we are doing in the financial capabilities
strategy, together with the work that Clive Cowdery's Resolution
Trust is doing, needs to establish whether that can be made to
work, either on a commercially funded basis or on a government
funded basis or monies diverted from the voluntary sector from
current activities to things like that because I think they are
very important, but there is work going on and I think, if I am
honest, I would say that the progress has been slower than it
should have been over the last year or two on that area and I
think we need to address the pace of that.
Q737 Jim Cousins: I do understand
a lot of these schemes that you have been referring to this morning
may very well be very worthwhile schemes in their own right, but
one is left with the feeling there is a whole mass of different
projects, initiatives, going on all around the place to target
different groups of people and yet no one is really assessing
this and drawing conclusions about what general provision needs
to be made or how it would be financed or who by?
Mr Tiner: I think that there are
a lot of initiatives, that is inevitable, because it is the only
way to reach the people that you are targeting. I think that there
is a plan that we have which identifies the funding that is needed
over the next five years. We have people who are quite clearly
responsible for overseeing and driving forward these projects
and we have, I think, a target of things like 10 million people
broken down by the different projects over the five year period.
I think that the area that is weakest in all of this is the area
of generic advice and that is the area that I think needs to get
some urgent treatment, it needs a real injection of effort and
work. It is not clear to me still how that provision of generic
advice can be provided, because to have somebody talking to somebody
of the kind you described, new into the work place with the sorts
of issues that you mentioned, that person themselves needs to
be well trained and needs to understand the issues, be able to
provide trusted advice safely and so creating the supply chain
is not an overnight job, but it needs to be considered very seriously
in a way that has not been, frankly, in the past.
Q738 Jim Cousins: When do you propose
to assess the situation and formulate some proposals, I mean we
know you are looking at this area?
Mr Everitt: What we have asked
the Treasury to do is to take a step back and consider all of
the various funding that goes on at the moment that goes into
debt advice and other crisis type advice and to map who spends
what, where and for what objective and I hope that that will be
done over the course of the summer so that we can get a clear
map of where we currently are and we can set that beside the work
that we describe that Clive Cowdery has been doing, crystallisation
of that and put that together, and see what that tells us, so
we would hope that we would be able to push this on significantly
over the course of the next six months.
Q739 Jim Cousins: Will that draw
some conclusions, because that mapping exercise is presumably
about money the Government is spending now?
Mr Everitt: It is partly about
money that they are spending now, but it is also partly about
money that may be available through things like the unclaimed
assets side of things where that is still at a profoundly early
stage. I mean we have been in touch with them already about the
potential use of those sorts of monies to help in this area, so
that piece of the jigsaw also needs to be set beside, so it is
not just an aggregate account of money already being spent, it
is also taking a look at what might be spent through, for example,
that mechanism.
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