Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 20-27)


10 OCTOBER 2006

  Q20  Angela Eagle: I do not want to get too involved with this, but the answer is simpler products for lower income people. When the Sandler products were produced they were throttled by the industry.

  Mr Lambert: I have been very impressed by the work of a number of trade associations, particularly the ABI. I think the ABI has recognised some of the issues you are talking about. I do think its work on customer impact, its surveying a wide range of clients over a period of time, will show up important and relevant material. I think that is a good start and there are things to be built on around that. I would just like to commend the ABI if I may for the work they have done there—it is a start.

  Q21  Mr Love: Last week the Dispatches programme and Channel 4 News ran an expose on information leaks in Indian call centres where the personal data of hundreds of thousands of people appeared to be available for sale. Have the Retail Financial Services Group heard about that report; and is it a role that you ought to be undertaking to investigate what has happened here?

  Mr Lambert: I personally have not heard of the report, and I would be surprised if it was something we should investigate since we do not have any investigative powers. If there was an issue that there was some systemic failing in the way products were sold and private details collected, if there was a systemic failing that jeopardised consumer confidence then I think that would be something the group might want to consider going forward. We do not have the good fortune of being able to summon witnesses and challenge them, so I would be surprised.

  Mr Vicary-Smith: I would agree.

  Mr Love: The Information Commission is going to look into this matter based on the evidence provided to them by Dispatches; but in their statement over the weekend the Commission said, "If UK companies used an outsource call centre they are required to ensure security was adequate". Is that not something for the group to look at, to see whether its members, the retail, financial services members of the group, have adequate security for the call centres?

  Chairman: It is maybe something you could come back to in the second session, but I do not think it is for this group, but perhaps for the ABI themselves.

  Q22  Mr Gauke: Can I ask about the meeting on 29 September. I know, Mr Lambert, you had already moved on at that point. I know the group discussed the FSA's Treating Customers Fairly initiative. Can I ask what views were expressed at that meeting and the attitude of the group to this initiative and, more broadly, the movement more towards principles-based regulation, rather than rules-based? What do you see as the particular issues there?

  Mr Vicary-Smith: I think the general view around the table was that the concept of moving towards principles-based regulation is a laudable one but that there are enormous difficulties in getting there. In particular, we welcome the work the FSA has been doing in that regard. I think there were two significant concerns that were shared around the group. One is over trying to avoid the expectation that you can do all this very fast; that you can actually say, "We're now going to start treating customers fairly", and within the year therefore it is happening, and therefore you can start dismantling other forms of protection and so on. This is a cultural change, if you like, which will take a long time to run through and therefore ensure that expectations are kept at a sensible level. I think the second thing that struck me was also saying, what is it the industry can actually do in translating the principles into what happens on the doorstep; what happens on the telephone calls? How easy is it going to be for intermediaries and so on to actually be comfortable and confident that they are selling in a way that is compatible with treating customers fairly? There are a lot of issues the industry has on how to actually get best practice and enable it to be implemented correctly. The concept I would say we all felt very comfortable with; but I think there was a lot of concern about how it can actually happen in principle. A lot of work has been going on by the FSA and others to try to ensure those concerns are allayed.

  Mr Satchell: I very much agree with Peter on this. It is relatively early days for principles-based. I think the industry can play a part here, and is playing a part, by introducing guides that can sit underneath the principles, such that we can give some guidance to the industry but without stifling innovation. I would absolutely concur with Peter about this being cultural. You need to get this thing right down the organisation for everyone to understand. There is a natural tendency for people to rely on rules. That is true within the regulator, and it is true within companies as well. People like the comfort of rules. It is a big challenge for both the regulator and the industry to make sure we get these things operating really effectively. I can only speak for my own company where we have been doing a lot of work on customer service initiatives for some years now. For us TCF is a natural corollary of what we have been doing and what we will continue to do. You have got to drive it and continue to drive it through the organisation.

  Q23  Mr Gauke: To what extent do you think there is a real concern looking at it from the perspective of the regulator, if you like the frontline regulator, that they will want to rely upon rules? The senior management at the FSA will talk about principles-based but it is easier and safer for the frontline regulator to always revert to rules. To what extent do you see that as a real issue? How optimistic are you that the FSA will be able to address that?

  Mr Satchell: We see it as a big issue, but I think it is absolutely recognised by John Tiner and Callum McCarthy. They are putting their people through training and development in order to move it that way. We need to do the same on the industry side, and it will take some time to bed down. The other thing that does help in this is the nature of the continuous regulation, the continuous supervision that we get because we are getting feedback on the regulator's view of how we are embedding those principles into the business. That is very, very helpful, so the quality of that feedback is essential.

  Mr Lambert: My understanding was that at the end of the discussion you agreed for continuing to take this forward with the FSA and that there would be further discussions going forward, particularly on thinking about how consumer outcomes are measured.

  Mr Vicary-Smith: If I could make two other points. You asked about the confidence in the FSA taking this decision forward—one of the things which made us a lot more confident about this actually being instituted, as we said to the FSA and publicly on a number of occasions, is that we do not feel that it helps engender cultural change if those who fall short of the marks are not named. Which? has always had a long tradition of naming good and bad practice, and we have found it a very strong vehicle. The lack of naming and shaming on this will actually make the cultural change harder to achieve. The second thing I would like to say is on the issue of enforcement of current regulations. Let us not fall into the trap of feeling that treating customers fairly is moving on from a situation where existing regulations are enforced. Our own mystery shopping exercise a couple of months ago showed that something like half of tied advisers in our mystery shopping exercise were not indicating that they were tied but implying they could shop the whole market, when they cannot. That is a straight breach of the regulations. There is a long way to go in enforcing what is there and getting even that embedded down throughout a massive intermediary community and then there is a cultural change to actually move to principles-based regulation. It is a huge agenda.

  Q24  Mr Gauke: Can I just ask one final point on this. From the industry perspective, do you think it would be easier for larger entities to cope with principles-based regulation as opposed to smaller entities, when you have got large compliance departments and access to legal advice and so on? Is there a potential issue with this?

  Mr Satchell: I think arguably it could go the other way round. I think the burden of the rules on small firms is actually very high, because they have not got the infrastructure to actually have these large compliance departments. I think if you can distil it to a relatively simple basic set of principles and do the right thing then arguably it is better for small companies and arguably a little more difficult for larger companies to get that standardised approach to principles across the organisations.

  Q25  Chairman: One of the recommendations and issues we have focussed on in our restoring confidence in long-term savings report was the issue of risk ratings and the issue of traffic lights with risk. We suggested that the industry must improve the quality of the information provided to consumers about long-term saving products. What were the views of the members on the FSA's decision not to proceed with measures to improve the way risk was communicated to consumers?

  Mr Lambert: As you know, the FSA decided that they could not capture enough in simple form to make it valuable. The members around the table, industry and consumers, felt that they could take ideas forward on this and would have further discussions among themselves to do that. I do not exactly know where they have got to, but my impression is that some of the members and indeed Which? would be interested a voluntary approach to this and are engaged in some discussions around that.

  Mr Satchell: We are still working on it; and still hopeful of bringing something through that could be workable.

  Q26  Chairman: Just speaking from my point of view, I think the FSA has been a bit weak in this area because it does not seem to be beyond the wit of man to introduce some risk rating element to it. It would be interesting to know if this was still on your agenda and if there were ways you could take this forward with industry and consumer groups?

  Mr Vicary-Smith: It is definitely still on the agenda. I agree with your analysis that what consumers need is simple advice to help them; and, in fact, a number of firms are already giving some form of simple advice themselves, albeit not within the regulatory regime in that sense—an FSA-blessed scheme, if you like. I think we would like to take it forward. I think we intend to come back to this. Which? and the ABI are already talking about ways in which we can look together at how a scheme could be introduced. That is a good example of the group being able to work together in a way that perhaps could not have been envisaged 18 months ago.

  Q27  Chairman: Maybe this is one of the messages from this hearing, that under the chairmanship of Ron Sandler you could look at that and maybe at some stage report back to us. With that in mind, may I thank you for coming along this morning. Thank you for establishing the group, particularly your work, Richard, on that and taking the group forward. There is no doubt there is a common setting here for discussing problems and that can only be good. Can I wish you every success with your work again, and thank the secretariat, Matt Inniss and others, for the work they have done. Thank you and we look forward to continuing the dialogue.

  Mr Lambert: Thank you for your friendly and generous support over the period as well. I am personally grateful to you for that.

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