Select Committee on Treasury Written Evidence

Memorandum submitted by the Financial Services Authority


  1.  This memorandum is submitted by the Financial Services Authority in the context of the Committee's further inquiry, announced on 29 March, into saving for all and shorter-term savings products.

  2.  The memorandum:

    —  considers the role of financial capability in the shorter term savings market;

    —  outlines work the FSA has undertaken, with others, following the Farepak hamper scheme collapse; and

    —  notes our current review of the Basic Advice regime.

A.   The role of financial capability in the context of the shorter-term savings market

  3.  Making sound financial decisions is an essential life skill. Improving the UK's financial capability is a fundamental part of enabling people to make these sound decisions. This applies as much for decisions on savings, short and long-term, as for bank accounts or insurance plans.

  4.  As the Committee will recall, the FSA's 2006 Financial Capability Survey measured financial capability in terms of how well people make ends meet, keep track of their finances, plan ahead, choose financial products, and stay informed about financial matters.

  5.  The Survey found that:

    —  large numbers of people from all sections of society are not taking basic steps to plan ahead;

    —  over-indebtedness does not affect a large proportion of the population—however, when it does occur it is often severe;

    —  people do not take adequate steps to choose products to meet their needs;

    —  the under-40s are typically much less financially capable that their elders; and

    —  unless steps are taken to improve levels of financial capability, we are storing up problems for the future.

  6.  The first of these findings is particularly relevant to this inquiry: only 61% of the UK population hold a savings account, and nearly half of adults in the UK have no savings at all.

  7.  Our National Strategy for Financial Capability aims to address these key findings by getting the right information to people at the right time and to reach people at certain points in their lives when they need help. It is designed, among other things, to improve the financial capability of children and young adults, to lay strong foundations for the future. It provides employees with ready access to information in their place of work. It targets resources to people at crucial life stages, for example when they are starting a family. And it provides more generally relevant, user-friendly and accessible information and money advice, to help with planning and choosing products, including savings.

  8.  One important element in our direct contribution to improving financial capability is the information we provide on our Moneymadeclear website ( This includes an online guide, "Saving for tomorrow", which provides clear, simple messages on how to take stock of one's finances and take action, in both the short and longer term. Our information on different types of savings products includes credit union accounts and will soon include information about hamper schemes and other alternatives to mainstream saving (see paragraph 11 below).

Farepak and Christmas saving schemes

  9.  In its 1st report of 2006-07, the Committee highlighted the collapse of Farepak Food & Gifts Ltd and the lack of protection for consumer pre-payments to this scheme. It recommended that Government, with the FSA and the OFT, consider the implications of this and how consumer pre-payments could be safeguarded in the future. This would also examine whether an expansion of the FSA's regulatory responsibilities was necessary or whether the appropriate degree of protection could be achieved by other means.

  10.  We worked closely with the OFT, Treasury, the DTI and Sir Brian Pomeroy to deliver the consumer protection needed in future for those who use hamper schemes. We contributed fully to the report OFT submitted to DTI in December 2006. Our contribution is found at paragraphs 63-76 of the report. It notes the principles which underpin our regulation of deposit-takers (including credit unions) and the costs and benefits of such regulation, including those associated with the Financial Ombudsman Service and the Financial Services Compensation Scheme. It also describes our current regulatory approach to pre-paid funeral plans. We believe that the OFT report represents a proportionate response to the problem, especially given the Government's and FSA's commitment to better regulation.

  11.  As noted in Sir Brian Pomeroy's report on Christmas savings schemes, there are clear implications for the FSA's work on financial capability. As the Committee will be aware, we believe that our work in leading the UK's National Strategy for Financial Capability is one way we can help address financial exclusion. We have agreed to enhance the existing savings information on our Moneymadeclear website by including information about Christmas hamper schemes and other alternative forms of saving. The website, providing impartial financial information, forms an important part of the National Strategy, which is designed to improve the confidence and capability of UK consumers. Use of our consumer website is increasing; in the financial year 2006-07, for example, we recorded over 2.2 million visits, just under 750,000 of them in the last quarter.

  12.  We will also promote our consumer information to those trusted intermediaries who are our partners in the National Strategy, particularly those who work directly with the sort of consumer likely to use hamper schemes.

  13.  One part of the National Strategy is the FSA's Innovation Fund. This was launched in June 2005 to provide support for innovative projects run by voluntary organisations, and in March 2007 we announced the latest round of funding. For example, one recipient was Coast and Moors Voluntary Action, based in Scarborough and Whitby, which was awarded £16,000. Working with women, especially those in disadvantaged groups, the project will tackle debt and overspending issues which can occur over Christmas, so that they can apply these skills throughout the year in day-to-day lives. The project aims to replicate the resources across the region and North Yorkshire.

Basic Advice

  14.  In its 12th report of 2005-06, the Committee noted that "the restricted range of products available under the basic advice regime, combined with the perception that the scheme has not been as light touch as expected, has led to a low number of major providers introducing the basic advice regime" and recommended that the FSA conduct a full review of the basic advice regime.

  15.  We introduced Basic Advice in April 2005 as a new, more streamlined form of regulated advice for the sale of "Stakeholder" savings and investment products. As the Committee is aware, we are now planning a review of the Basic Advice regime. At the end of May we will publish a policy statement setting out the scope and timetable for this review, taking into account the suggestions we received from respondents to our October 2006 consultation paper. We will keep the Committee informed of progress.

April 2007

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2007
Prepared 9 October 2007