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 thereit is
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
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 forwardone 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
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
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 sensean
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.