Memorandum submitted by the Association
of Chartered Certified Accountants (ACCA)
The Association of Chartered Certified Accountants
(ACCA) welcomes the opportunity to comment on the Treasury Committee
inquiry into Financial Inclusion and should be happy to provide
further information on the contents of our response.
ABOUT ACCA
ACCA is the largest and fastest global professional
accountancy body, with over 105,000 members and 240,000 students
in 170 countries. ACCA's headquarters are in London and we have
50,000 members (ACCA qualified accountants) and over 60,000 students
in the UK.
ACCA members are qualified to offer a full range
of business, accountancy, auditing, financial and taxation services.
Many are also licensed by ACCA to act as investment advisers and
insolvency practitioners.
EXECUTIVE SUMMARY
It is essential that the scale and characteristics
of demand for increased access to financial services should be
established before any action is taken. For example, how many
of the 1.9 million households in the UK without a bank account
are in this situation by choice?
With regard to other finance providers, the
role of Building Societies should also be addressed and there
must be an improvement in the financial transparency and accountability
of credit unions" financial reports before promoting them
more widely as an alternative finance option for the financially
excluded. The role of credit unions as a potential gateway to
bring the financially excluded into mainstream banking should
be further explored by the Government, beyond its work in mapping
their location and ensuring support is targeted.
In the area of financial education, ACCA believes
that there is scope for children to be taught in secondary school
about financial matters, including bank accounts, tax and pensions.
Basic lessons that explain how and why they will pay tax and National
Insurance and why making early provision for pensions pays, would
not only help to avoid financial exclusion but might help to alleviate
ongoing and longer term problems with pensions provision.
However, increasing the financial education
of consumers can only go so far.
The complexity of financial services products,
often involving taxation issues, complicated mathematics and information
asymmetry between the industry and the consumer, often necessitates
the involvement of intermediaries.
The Government should consider establishing
a financial advice equivalent of Legal Aid. Given the major implications
which can arise from poor financial decisions, a system of "financial
advice aid'—where the cost of professional financial advice
would be subsidised by the state— would help to ensure that
consumers receive correct, unbiased and appropriate advice for
their individual circumstances. The majority of such "aid"
would cover professional services offered in the area of debt
management.
The overall goal must be to extend the provision
of financial advice, but at the same time maintain strict standards.
1. ACCESS TO
BANKING SERVICES
The scale and characteristics of demand for
increased access to banking services must be established before
any action can be determined. For example, how many of the 1.9
million households in the UK without a bank account are in this
situation by choice? When it has been established that demand
for increased access exists, work should then be done to categorise
those affected into groups, if appropriate, and to devise policies
and action points that meet each groups' needs.
The area of access to services would have to
address bank branch and post office closures. Internet banking
is an attractive option for many, but those, particularly in deprived
areas, will not have that option. The elderly in particular are
also less likely to use telephone banking and internet options.
The role of Building Societies in the financial
services market
ACCA is working with the Parliamentary All-Party
Group for Building Societies and Financial Mutuals on its Short
Inquiry into the true cost of demutualisation. The Group carried
out three hearings in November 2005, during which evidence was
taken from witnesses from within, and outside, the mutual sector.
A report will be published in February 2006 which will examine
whether mutuals are better at providing financial services than
those institutions which have de-mutualised in recent years. It
will also examine the effect those de-mutualisations have had
on the remaining mutual sector and on consumer choice. In addition,
the report will examine whether consumers have since paid back
their "windfall" pay-outs from those conversions in
the form of higher charges.
It is clear than any examination of financial
inclusion should not only examine the banking sector and the services
they provide, but also consider the role Building Societies play
in the UK financial services market, which is significant. There
are 63 building societies in the UK with total assets approaching
£250 billion. 2,100 building society branches in the UK own
and operate 2,500 ATMs. No building society charges its members
or any other customers for debit and other cash card transactions
at its machines.
2. ACCESS TO
AFFORDABLE CREDIT
Households excluded from mainstream credit
Similarly to access to banking services, there
should be in-depth research which not only identifies the characteristics
of those excluded from mainstream credit using standard indicators
such as age and employment, but the reasons why each particular
group do not seek mainstream financial products. Not enough is
known about the reasons for the lack of demand by the "financially
excluded"; until these reasons are clearly identified it
cannot be claimed that there is a market failure as there are
products on the market but there are not taken up by those they
are targeted at, namely the financially excluded.
The role of credit unions and community development
finance institutions
ACCA's research, "Credit Unions in the
UK: A study of their structure, growth and accountability"
(Hyndman, McKillop, Ferguson and Oyelere, 2002) chartered the
growth of the credit union movement and the importance of accountability
in this sector. As member-owned, not-for-profit organisations,
they are value driven and committed to serving the financial services
needs of disadvantaged communities and individuals, many of whom
had been abandoned by mainstream banking. Whilst there has been
a significant growth in the credit union movement, with numbers
doubling in the last 10 years, the UK credit union industry is
relatively young. Credit unions do not service the needs of the
2.8 million adults who are financially excluded, and, therefore,
there may be gap in the market. HM Treasury's "Promoting
Financial Inclusion" December 2004 made a number of policy
commitments which included "to work in partnership with the
banking industry to achieve real progress in reducing the numbers
of unbanked" but no similar commitment was made to work with
the credit union movement. The role of credit unions as a gateway
to bring the financially excluded into mainstream banking should
be further explored by the Government, beyond its work in mapping
their location and ensuring support is targeted.
ACCA's research was the first major piece of
work on the accountability of credit unions in the UK. It suggests
that the quality of reporting through annual reports by credit
unions is mixed and, because of this, the potential for adverse
consequences, including inefficiency, a lack of member-interest
focus and, possibly, fraud, is increased. Indeed, the growing
number of credit unions in Great Britain experiencing financial
difficulties might suggest that change is needed. There must be
an improvement in the financial transparency and accountability
of credit union's financial reports given the growth of this sector
and the part they can pay in assisting the financially excluded.
3. FINANCIAL
EDUCATION AND
ACCESS TO
FINANCIAL ADVICE
Financial education
ACCA believes that there is scope for children
to be taught in secondary school about financial matters, including
bank accounts, tax and pensions. Basic lessons that explain how
and why they will pay tax and National Insurance and why making
early provision for pensions pays, would not only help to avoid
financial exclusion but might help to alleviate ongoing and longer
term problems with pensions provision.
However, increasing the financial education
of consumers can only go so far. The complexity of financial services
products, often involving taxation issues, complicated mathematics
and information asymmetry between the industry and the consumer,
often necessitates the involvement of intermediaries.
Access to financial advice
The Government should consider establishing
a financial advice equivalent of Legal Aid. Given the major implications
which can arise from poor financial decisions, a system of "financial
advice aid"—where the cost of professional financial
advice would be subsidised by the state—would help to ensure
that consumers receive correct, unbiased and appropriate advice
for their individual circumstances. The majority of such "aid"
would cover professional services offered in the area of debt
management.
The overall goal must be to extend the provision
of financial advice, but at the same time maintain strict standards.
The public must know what services they are receiving. It is essential,
therefore, that professional advice is regulated and that the
adviser is professionally qualified. For example, unlike the case
with doctors, solicitors and other professions, there is currently
no protection in law for the title "accountant" and
any person can, in theory, call him/herself an "accountant".
Most reputable qualifications are issued only
after candidates have successfully completed a programme of examinations
and obtained a period of supervised practical experience. For
example, as members of a "Chartered" body recognised
by law, ACCA qualified accountants are subject to rigorous ethical
and technical standards and are required to continually update
their professional skills and knowledge (via compulsory continuing
professional development) and carry substantial professional indemnity
insurance cover.
It is in the public interest that more is done
to differentiate between qualified and unqualified accountants.
ACCA has urged the DTI— which currently claims that the
inclusion of the word "chartered" differentiates adequately
between qualified and unqualified accountants—to act to
define and protect the term "accountant". Many businesses
and individuals are unaware or uncertain of the relevance of the
term "chartered". In the way that the term "solicitor"
means a client will have the services of a qualified solicitor,
the term "accountant" should, ideally, denote the service
is provided by a fully qualified accountant.
The provision and regulation of generic financial
advice about debt and savings
We accept that there is a role for generic advice
to consumers about aspects of financial services, including debt
and savings. It must be acknowledged, however, that generic advice
by its nature cannot be framed so as to represent advice on which
option is likely to be more advantageous to users. Best advice
must always involve full appreciation of the debtor's individual
circumstances and prospects. This can only in practice be provided
by a specialist adviser and the outcomes tend to be more effective
when the advice has come from a professionally qualified, regulated
source.
We would expect that generic advice about, for
example, pensions, would cover the following basic practical information:
1. Do I have the means to save or should
I rely on the state? What are the implications of both choices?
2. If I should save, how do I go about
it? For example, saving regularly, by "putting away"
a set amount a month, or only saving when there is spare cash
available.
3. The benefits and limitations of
stakeholder/personal pension schemes and company schemes.
Decision trees (particularly online) are a useful
method of giving users a broad understanding of complex issues
and would help to clarify the issues relating to saving choices.
Generic advice about debt and savings should
be produced by the DfES or DWP, following consultation on content
with relevant bodies, including the FSA and the accountancy profession.
The information should then be disseminated in libraries, job
centres and community centres, to ensure that it reaches its target
audience. The draft advice should also be "tested" by
representatives of the target audience to ensure appropriate language
and information for that group.
5. ROLE OF
GOVERNMENT, THE
FINANCIAL SERVICES
AUTHORITY AND
OTHER BODIES
IN PROMOTING
FINANCIAL INCLUSION
The role of Government and the FSA in promoting
financial inclusion
The Government and the FSA both have a role
in promoting financial inclusion. In doing so, it is important
that those who will potentially benefit from the policies that
will be pursued are consulted, with a focus on the barriers in
demand for financial products. As an example, there is a growing
acknowledgement that consumers need to be consulted if the financial
service market is to operate effectively, with an FSA Consumer
Panel established in recognition of the failings of previous approaches.
In the past, the end-user has tended to be ignored whilst the
debate about consumer products has been played out by the powerful
industry lobby and regulators. In seeking to address any market
failures, those who are considered to be the "financially
excluded" must be included in the design of any initiatives.
The role of enterprise in promoting financial
inclusion
Given that financial exclusion is a function
of deprivation, it has been argued that by decreasing deprivation
then financial exclusion will be reduced. Enterprise has a key
role to play in reducing deprivation. Those in deprived areas
are often excluded from entering the more traditional employment
market. Starting a business or working for a local micro business
can often be the only way into the jobs market.
Since 1997 many policies have been initiated
by the Government that link deprivation and enterprise. There
has also been much research conducted on the characteristics of
enterprises in deprived areas. There is scope, however, to further
consider the role enterprise has on increasing financial inclusion,
examine what impact financial exclusion is having on potential
entrepreneurs and the wider role of various enterprise promotion
agencies in ending financial exclusion.
January 2006
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