Mr.
Hoban: I want to pick up the point made by the hon. Member
for Edmonton. Amendment 42 is a good way of tackling one of the issues
raised in the previous debate: how the Bill equates public awareness
and financial education by removing the public awareness objective.
There is a risk that we potentially throw out some of the work that the
FSA does. Whether it is necessary to reinstate wording along the lines
outlined in his amendment depends on the importance of the objectives
set for the regulator. Those objectives are important, because they
determine how the regulator operates, give structure to its activities
and act as a prompt.
There has
been some elasticity in the objectives of the FSA. On Tuesday, we
debated the financial stability objective, which was implicit under the
market confidence objective but has now been made explicit. If there is
value in making that explicit, is there not value in ensuring that the
FSA recognises that public awareness responsibilities continue, but
perhaps in a more limited way than set out in the Financial Services
and Markets Act
2000? A
link is also important to new section 6A(2)(c), under which the
consumer financial education body will not only promote consumer
awareness of the risks and benefits associated with different kinds of
financial dealing, but have a duty to inform the authority and other
bodies of those benefits and risks. That will close a loop by saying
that if the consumer financial education body identifies risks and
benefits that it feels are so important that they need to be notified
to the authority, the authority should feel under some obligation to
consider whether they should be disclosed. Hence, there would not be a
sense that the information passed to the authorities reaches a dead end
or cul-de-sac, and that there is a further
stage. The
hon. Member for Edmonton has done great service by tabling the
amendment, which reminds the FSA that it has a continuing role, which
goes beyond the minimum that one would expect from a statutory body
regarding the information that it is required to put in the public
domain. It also encourages people to be aware of the FSA’s
activities; in a complex world, it is important that consumers know
exactly what it does. Given the additional requirements under
amendment 42, some work is needed to establish in public
awareness the boundaries between the FSA and the consumer financial
education
body.
The
Economic Secretary to the Treasury (Ian Pearson): I thank
my hon. Friend the Member for Edmonton for initiating the
debate. I support the spirit of his amendment—that consumers
should be made aware of problems in the market. Although I understand
his
concerns, the amendment is not necessary. There are no holes, as some
might fear, in the net, to which he alluded. I also acknowledge the
cross-party support, from the hon. Member for South-East Cornwall, for
what we are trying to achieve by setting up a consumer financial
education body and, as I indicated, upping our game in financial
capability. I
assure my hon. Friend that the FSA will not lose its obligation to make
consumers aware of problems in the market as a result of removing its
public awareness objective. As I suggested this morning, the obligation
is already covered by the FSA’s consumer protection objective.
As part of that objective, the FSA has an existing requirement under
section 5(2)(c) of the Financial Services and Markets Act 2000 to have
regard to consumers’ needs for accurate advice and
information. As
well as publishing the information for consumers, the FSA will want to
work with the new consumer financial education body—again, as I
made clear this morning—to help it to convey important
information to consumers. The new body will build recognition and trust
among consumers and interact with them frequently through initiatives
such as the money guidance service. It will therefore be instrumental
in helping the FSA to take messages to consumers. The Government want
to see the FSA and the new consumer financial education body working
closely together.
Turning
briefly to the detail of the amendment, its first provision would
require the FSA to make public the information and advice about the
regulatory action it has taken to protect consumers. I recognise that
transparency is a key principle of any regulatory system. However, the
FSA’s obligation under section 5(2)(c) of FSMA already includes
making the public aware of any regulatory action that may affect
consumers. We want the FSA to continue to perform that role and
duty. 1.30
pm The
second provision of the amendment would require the FSA to consider any
need for advice and information identified by the consumer financial
education body. If the body identifies a specific need for information
and advice from the FSA, it has an obligation to flag that up with the
FSA. That is already enshrined in our proposals. The FSA, in turn,
should consider that need for information and advice under its consumer
protection objective. I argue strongly that the requirement
on the FSA to consider consumer needs for information and advice is
already covered under the Financial Services and Markets Act 2000,
which refers more widely to any information or advice needs raised with
the FSA by any organisation. Clearly, the new consumer financial
education body would be included in
that. It is right to
raise the issues and I am happy to put it on record that there is every
desire on the part of the Government to see the FSA and the new
consumer financial education body working closely together. However, I
believe that the provision in legislation is correct and sufficient for
our purposes. There is not the hole in the net that my hon. Friend
thinks might exist, but of course we need to ensure that the messages
that consumers need to receive are made available by the FSA and the
new consumer financial education body as
appropriate.
Given
those assurances, I hope that my hon. Friend will withdraw the
amendment. We are not taking our eye off the ball. Nor are we sending
any signals to the FSA to do anything other than actively make
consumers aware of problems in the marketplace. That will
continue.
Mr.
Love: I thank the Minister for that considered and
detailed response. I am somewhat reassured in relation to the
activities of the consumer financial education body. We need to see it
working in practice, and therefore I take the point. Although I would
have preferred the wording in new section 6A(2)(a) to (e) to be
slightly strengthened, I am reassured by the Minister’s comments
about the body’s objective to protect the public and to
publicise matters drawn to its attention in its
work. My
bigger concern when tabling the amendment related to the Financial
Services Authority and its activities in the past. I said that the
activity of the Financial Services Authority had improved substantially
in recent years as a consequence of events. I would be the first to
praise both its regulatory reviews and how it seeks to publicise them,
so I would have no difficulty in being reassured by the Minister that
at present the FSA is unlikely to downgrade any of those activities. It
has been part and parcel of its pitch, if I can put it that way, that
it is a reformed regulator and that it does undertake those activities.
My concern relates to some future point when perhaps other pressures,
instabilities or difficulties in the market might lead it to think that
“public awareness”—I specifically use those words
because that is being removed from its objectives—is not as big
a priority as it has been
recently. However,
I accept what the Minister says: the Financial Services Authority has
done a much better job, certainly in the last year or year and a half,
and it is very aware of its public awareness responsibilities. On that
basis, I beg to ask leave to withdraw the
amendment. Amendment,
by leave, withdrawn.
Mr.
Hoban: I beg to move amendment 43, in
clause 6, page 4, line 36, leave
out ‘and advice’.
I have tabled
this probing amendment to understand how far the new consumer financial
education body can go in giving advice. Advice is an important term to
define in the context of a consumer financial education body. One can
get to a point in the continuum of information when one is giving
regulators advice. It is difficult to draw the line between simple
information and advice that can be used to sell a product. I might go
to John Lewis to buy a vacuum cleaner—[Hon.
Members: “Bad example.”] Actually, the
example is relevant because if someone were to go to John Lewis to buy
a vacuum cleaner, they would be given quite a lot of information about
it. However, if they went to Comet, they would not be given much advice
at all—that is if they could find a member of staff to help
them. The information that John Lewis supplies may well be deemed to be
encouraging someone to make a purchase, so it moves from simple
information to advice. It becomes, “This is the best vacuum
cleaner to buy.” There is a distinction between the service that
one gets in John Lewis or other major department stores and the advice
or information that one gets elsewhere.
When it comes
to advice in the financial services world, it does not take long in a
conversation to find out what an independent financial adviser means by
advice.
They mean advice about the provision of a service or a product.
Moreover, it is the outcome of a fact find, and it is heavily
regulated; it is regulated advice. They are giving advice on a specific
product or providing a particular service. As far as I am aware, the
consumer financial education body will not give that level of
advice—a specific product recommendation from a specific
provider. To be
effective, the body needs to go further than simply providing
information. As I mentioned earlier, there is a big gap between giving
someone a piece of information and someone making a purchase of a
financial services product. The further one gets along that continuum
from information to regulated advice, the higher the chances are of a
call to action or purchase taking place and of a positive outcome from
financial
education. I
know that there is a boundary between regulated and unregulated advice.
Where does the generic financial advice stop? Where do we draw the line
in terms of what the body does? Otto Thoresen explored those questions
in his review, because there was concern about that line. The review
concluded: “Money
Guidance will guide the user to the point where they can choose between
a small number of options, and where they also understand the
consequences of doing
nothing.” There
may be a point at which one can say, “There is a range of saving
products out there. These are their characteristics. We leave it to you
to take the next
step.” Under
generic advice, individuals can be referred to external services. I go
back to my experience at the Help the Aged centre in Gateshead. The
centre gave examples of when it had referred people to other providers.
It signposted someone to an IFA, who is in a position to give regulated
advice. According to Thoresen’s view of money guidance, generic
advice
“will not make
recommendations to buy, surrender or change a specific product from a
specific
provider.” Again,
that falls within the definition of regulated advice. That last point
on regulated advice is important, because the definition is broad. The
UK definition is wider than that encompassed by the markets in
financial instruments directive. For example, MiFID refers to a
personal recommendation in respect of one or more transactions relating
to investment instruments, whereas the UK definition is potentially
broader as it refers to advice on the merits of entering into
transactions.
It is
important to know exactly where the boundary is drawn. In its
representations, the CBI
said: “We
believe the new authority should be limited to the provision of
financial education and generic
advice.” My
interpretation is that it does not mean regulated advice. Those giving
regulated advice need much more information than is available to bodies
operating under the umbrella of consumer finance.
I have talked
to lawyers about where the boundary lies. As they see it, the boundary
between regulated advice and generic advice is somewhat closer to
regulated advice than can be delivered under the current structure,
which stands quite a way back from that boundary. The lawyers say that
one can advise someone to buy life assurance but not which product or
from which adviser.
That would still fall under the definition of generic advice, but it
would not be regulated. I come back
to the point about how to get people to do things. Are we pushing the
envelope of generic advice far enough to narrow the gap between being
told about something and being told to do something about it? Are we
being too timid with this model of advice that the CFEB can provide? We
want to steer as far away as possible from the definition of regulated
advice, so that there can be no doubt whatever about what the body is
doing. The
Bill does not deal with the definitional question of what the body can
do, where the boundary lies between regulated advice and generic advice
and what it means in practice for the service providers under the
scheme. Are we being too cautious in setting the CFEB’s
operational parameters by using the Thoresen definition of guiding
users
“to the point
where they can choose between a small number of
options”? That
is well within the perimeter of generic advice, but it could go further
if that was the intention behind the scheme. On the operation of the
CFEB, clarification of where the Government see the boundary in law and
in practice would be
helpful.
Ian
Pearson: The boundary in law is quite clear. The hon.
Gentleman will be aware from what we propose that the new consumer
financial education body will not be authorised by the Financial
Services Authority to undertake regulated activities. It will therefore
not be able to give regulated financial advice. Any advice that it
gives will be unregulated generic advice, or what has become known as
money guidance since the Thoresen report was published. It goes further
than information, but it clearly is not regulated financial advice on
individual products or services.
When giving
guidance and advice, the new body and its partners will seek to explain
an individual’s options, and may guide them to the point at
which he or she can make a confident and informed decision. In contrast
to regulated advice, a specific product or provider will never be
recommended. That is the boundary between money guidance and regulated
advice.
1.45
pm The
hon. Member for Fareham tried to probe whether we are going far enough,
but I do not think that he suggests that the new body should offer
regulated advice or recommend particular products, as that is not its
role and remit. The body must provide information and advice as in the
commonly accepted dictionary definition of the term. That can help an
individual, and it is part of the way that the new body and its
partners will help people to make the informed decisions that we all
want to see. There is a clear boundary between regulated advice and the
advice that the new consumer financial education body can
provide.
Mr.
Hoban: Is it the Minister’s view that the scope of
the advice given by the new body goes up to the boundary of regulated
advice, or is it well within the definition of generic advice? My sense
is that the parameters of the Thoresen review were well within what
could be classified as generic advice. It took a cautious
interpretation of
what was generic advice, rather than a more aggressive or expansive
approach that would go right up to that
boundary.
Ian
Pearson: I suspect that I have a different view from that
taken in the Thoresen review. I thought that Thoresen’s vision
was about going up to the boundary, and providing advice at the stage
where somebody can make decisions, without crossing the boundary to
providing regulated advice. Both Thoresen and I want the new body to be
as helpful and useful as possible to those individuals who need help,
so going up to that boundary seems the appropriate thing to do.
Clearly, that boundary will be different for different financial
areas.
I know that
this has been tabled as a probing amendment, but were it to be agreed,
the consequences for the new consumer financial education body could be
severe. Removing its ability to provide advice would mean that we could
not get close to the boundary of regulated financial advice, and we
would not have the sort of service that we want the new CFEB to
provide. It has been helpful to have this debate, and to make that
clarification between regulated financial advice and advice, so that
the distinction is clear and well understood. We look forward to the
new consumer financial education body providing that service. As the
hon. Member for Fareham indicated from his experiences in Gateshead,
this sort of advice must be taken to the appropriate level if it is to
be useful. That is why we have framed the legislation in this
way.
John
Howell (Henley) (Con): My comment was in relation to the
CAB evidence, because the boundary was not clear. The CAB talked about,
and expected the provision to
“promote
solutions which meet consumers’...needs”.
That seems to include
more than just advice; it is a package of measures for people to adopt
in order to change fundamental aspects of their lives. That showed that
those who might participate were, and still are, genuinely confused as
to where the boundary
is.
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