Mr.
Hoban: That was a brief but helpful speech by my hon.
Friend, because it suggests that there is a lack of clarity about
where, in practice, the boundary is. Promoting a solution goes beyond
what the Thoresen review says about guiding the user to a
point “where
they can choose between a small number of
options.” That
is very different from a solution. I do not think that a solution is
necessarily a package; it may be advice such as, “You should get
some life assurance.” This is one of those areas where we will
have to see how it develops in practice. People will find different
ways of delivering generic advice and have their own view about where
the appropriate operational boundary is given the expertise of the
people involved. What expertise may be available from one provider may
be very different from that from another. The purpose of the amendment
was not to prevent advice being given, but to trigger a debate.
I suppose that the hon. Member for Wolverhampton, South-West would have
tabled a much more elaborate amendment around definitions to tease out
a debate, and that is certainly an alternative to this. None the less,
it has been a helpful debate. There is some uncertainty about what
advice is. We know where
the hard edge of regulated advice is, but it is difficult to work out
how far we can go to get to the point where we are on the right side of
that boundary. Having had the debate, I beg to ask leave to withdraw my
amendment. Amendment,
by leave,
withdrawn. Clause
6 ordered to stand part of the
Bill.
Schedule
1Further
Provision about the Consumer Financial Education
Body
Mr.
Hoban: I beg to move amendment 47, in
schedule 1, page 52, line 31, at
end insert— ‘(4) The board
must include at least two members who represent the interests of
consumers.’. The
amendment seeks to reserve two places on the board of the new consumer
financial education body for people who represent the interests of
consumers. The board composition set out in the Bill is very
permissive. It states that the body must
have, “a
chair; a chief executive; and a board (which must include the chair and
chief
executive)”. In
a body that is aimed at helping consumers and improving financial
education, there should be someone who is there to represent the
interests of consumers. The FSA board has no predetermined places for
consumer representatives. The Consumers Association has campaigned for
two places to be set aside for its representatives. The Government have
gone part of the way down that route by appointing Brian Pomeroy and
Mick McAteer to the FSA board, but there is no statutory requirement
for the FSA board to have two consumer representatives. Arguably, the
FSA’s consumer panel, which is chaired by Adam Phillips, is a
way of ensuring significant consumer input into the work of the FSA.
Moreover, the FSA has two practitioner panels—one deals with
larger practitioners and the other with smaller practitioners—to
provide an input along with the board members who come from the
financial services industry. The appointment of consumer
representatives would be a significant advantage for the consumer
financial education board because it would give it a very clear and
distinctive consumer voice on the board. It would also help to
demonstrate a degree of independence from the FSA. A demonstrably
independent board would ensure the credibility of the authority.
Consumer groups want a dedicated body, and Citizens Advice and others
have commended that. However, there will be some who ask, “Can
the body be truly independent of the FSA, given that the power of
appointment of board members rests with it?” I can see the basis
of that argument: if someone is appointed by the FSA, would they be
beholden to it? However, the experience to date of the Financial
Ombudsman Service and the Financial Services Compensation Scheme, where
the same power of appointment exists, suggests that both bodies are
robustly independent of the FSA. There is no reason why the new body
should not be similarly independent.
However, if
one accepts that the body will be seen to be independent in practice,
the next question is, “What other guarantees of its independence
are there? What guarantees are there that it will have a wide range
of
people on its board, reflecting a whole range of different stakeholder
interests?” I think there will be interest from people in the
industry and asset paymasters of the CFEB, but it is important to have
people who are clearly representative to be the voice of consumers.
That is the purpose of amendment
47. Ian
Pearson: I assure the hon. Member for Fareham and others
that the Government expect the CFEB board to have, without question,
wide-ranging representation, including a significant number of board
members who bring consumer insight and propose consumers’
perspectives. However, my difficulty with the amendment is that I do
not believe that it is appropriate to specify that on the face of the
Bill, as it does not allow flexibility in the future. Given that no
other elements of the board’s composition, such as its overall
size and the representation of other interests, are prescribed
in the approach that we have adopted, I do not think that it is
appropriate to do so in this
case. As
I said, there is every expectation of strong consumer representation on
the new body. It is, after all, called the consumer financial education
body, and it would be absolutely amazing if it did not have strong
consumer representation. However, I do not believe that we need to
provide for that on the face of the Bill. If we did, we would have to
put many other measures on the face of the Bill as well. Having given
the Committee those assurances, I hope that the hon. Gentleman will
withdraw his amendment.
Mr.
Hoban: I am not sure I am minded to withdraw my amendment
on this occasion. One would have expected the FSA’s board to
have consumer representatives, yet the appointments of Brian Pomeroy
and Mick McAteer were held as a great advance.
The amendment
would send a clear signal that there will be consumer representatives
on the board rather than simply an expectation of such representatives.
As I said, one would have expected the FSA board to have consumer
representatives, but the appointment of the two new directors was
clearly to make sure that consumers are heard, implying that they were
not heard in the past.
The Minister
could have been much more positive about the amendment than he proved
to be. His view shows that consumer voices can be overlooked. They are
not as numerous as industry voices, and do not necessarily have the
same clout in lobbying and profile. Given that we have a body that will
work on behalf of consumers and represent their interests, their voice
should be heard loud and clear, and there should be a statutory
requirement for them to be there. I am not minded to withdraw the
amendment on this occasion and would press it to a
vote. 2
pm Question
put, That the amendment be
made:— The
Committee divided: Ayes 4, Noes
5.
Division
No.
3]
Question
accordingly negatived.
Mr.
Hoban: I beg to move amendment 46, in
schedule 1, page 53, line 30, leave
out paragraph
6. The
amendment refers to the market confidence and financial stability
paragraph. It is a probing amendment, which seeks to understand how the
paragraph will interact with the activities of the consumer financial
education body, because it says that the body should exercise its
function
with “regard
to the importance of...maintaining confidence in the UK financial
system; and...maintaining the stability of the UK financial
system.” In
a way, paragraph 6 acts as a constraint on the activities of the
consumer financial education
body. On
Tuesday we discussed whether one FSMA objective took precedence over
the others. The structure of FSMA is that various objectives are set,
and it is then subject to other factors. Paragraph 6 mirrors that
approach by saying that the objective of the consumer financial
education body, which is set out in the first part of the Bill, is then
limited or constrained by the duty to maintain confidence in and the
stability of the UK financial system. In part, that goes back to the
debate that we touched on this morning and this afternoon about what
the consumer financial education body is for. Whose side is it on? Is
it a consumer champion, or is it impartial when considering the
interests of individuals and those of the industry sector? How will
that be reflected in its
work? We
have identified situations in which there are, perhaps, products with a
particular problem or risk, and one of the objectives of the consumer
financial education body is to advise consumers about the risks and
benefits of certain financial products. If we go back to the example of
payment protection insurance, the FSA’s thematic review
indicated that there was a problem with the sale of such products and
questioned whether they were being sold appropriately, identifying some
significant flaws with the sales process. The consumer financial
education body could look at the outcome of the thematic review of the
sale of a product and decide that the risks were so great that it
wanted to tell consumers, “We don’t want you to”,
or even, “You shouldn’t buy these products”,
giving clear and explicit advice through its website or face-to-face
discussion with clients that the particular product should be avoided.
That might be a reasonable step to take, but what happens when we then
have the overlay of paragraph
6? Such
products might be fundamental to the profitability of individuals and
financial institutions. Sounding some clear warnings about the products
might undermine confidence in the UK financial system. A consumer
financial education body might, if we consider the recent example of
the bank charges, advocate that people should claim compensation for
the mis-selling of products. It might see that as being part of its
remit. I do not know whether it is. Part of this debate is
to help tease that point out. If the financial consequences of
a
large number of complaints are possible multi-billion pound claims
against financial institutions, does that undermine the stability of
the UK financial
system? I
have presented some pretty extreme cases to make my point. How does
clause 6 constrain the role of the consumer financial education body?
Is it there as a consumer champion? Is it there to highlight the risks
and to encourage consumers to take action, or does it adopt a more
neutral position on the more difficult areas around consumer finance?
Where the boundary will be set is the point that I am trying to tease
out of the debate. We could argue that if we said people should not buy
payment protection insurance, that would go beyond the role of generic
financial advice. There should not be recommendations to buy, surrender
or change a product from a specific provider. That might be going
beyond its remit. Or is it within the remit of the consumer financial
education body? It might be prevented from doing so where there is seen
to be a wider risk of making that sort of information known, and the
consumer financial education body would be constrained by paragraph
6. Consider
the run on the Rock. If at a time of financial crisis the consumer
financial education body felt that it should advise consumers about the
deposit protection limits, and that led to people shuffling around
their deposits in bank accounts and triggered a run on a small bank,
would that be putting the stability of the UK financial system at risk?
I am trying to work out where the boundaries are between what the
consumer financial education body can do in terms of fulfilling its
core objectives of advising on risks and ensuring people understand the
risks associated with particular transactions or services, and how that
might then, in the sort of circumstances that we have seen relatively
recently, have an impact on financial stability and market confidence.
We need to understand how paragraph 6 is meant to work in practice and
what it might prevent the consumer financial education body from
doing.
Ian
Pearson: Let me try to shed some additional light on
matters for the benefit of the Committee. The consumer financial
education body will have one sole function and objective, which is to
increase consumers’ understanding and knowledge of the financial
system and help them to manage their financial affairs more
effectively. As has been pointed out, the Bill also requires the new
body to have regard to the importance of maintaining confidence in the
stability of the financial system. Let me emphasise that the
CFEB’s consumer financial education remit will always be its
primary consideration, and it will be accountable for delivering that
function.
In contrast,
the have-regards in the legislation are designed to inform that
function, so that the CFEB considers wider market issues when
performing its functions. The have-regards allow it to consider the
issues on its own terms, protecting its operational independence while
also ensuring that the body links into the wider financial
architecture. The have-regards will give the CFEB a broader and
rational frame of reference when making policy, which we think is
important. They will allow it to legitimately take into account any
broader market consequences of its actions, as of course a stability
crisis could ultimately have far profounder consequences for consumers.
However, I strongly want to emphasise again that the primary obligation
for the new body will
be to consider how to help consumers better manage their financial
affairs. It is designed to do what it says on the tin; it is about
consumer financial education. The
have-regards also give the new body a duty to raise any potential
issues that it identifies that could affect market confidence or
stability with the FSA and others as appropriate. Hence it could
potentially act as an important source of market intelligence for the
regulator. That flagging role should complement its consumer awareness
function, not compromise it, and is a useful addition. The Government
are clear that the requirements to consider financial stability and
market confidence are an important counterbalance to the CFEB’s
overall objective. We are very clear about the primacy of the overall
objective.
The hon.
Member for Fareham again raised the issue of whether the new body will
be neutral or a voice for consumers. He will be aware that the majority
of respondents to the “Reforming financial markets”
consultation said that they thought that the new body should focus on
consumer education, and not pursue consumer advocacy. There are other
bodies, such as Consumer Focus, that already act as consumer advocacy
organisations, and they are playing their role effectively at the
moment. Obviously, the CFEB will want to work with them where
appropriate. It will also liaise and work with other bodies, such as
the Office of Fair Trading, and it will want to work in a collaborative
way. I think that there is strong role clarity in the body’s
remit, which is enshrined in legislation.
I hope that
those clarifications are sufficient for the Committee, and that the
hon. Gentleman will withdraw his probing
amendment.
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