Mr.
Hoban: The hon. Member for Edmonton has done us a great
service. New clause 3 highlights the concerns of a number of people
over how the FSA has dealt with some aspects of the conduct of business
in recent years. It also raises the question of there being an
increased focus on individual products, as opposed to regulating only
the sales process.
The hon.
Gentleman gave a couple of examples. If an issue has caused the
regulator concern for a long time and has been flagged up with the
sector, but little is done by the sector to respond to that concern, it
may get to the point where the scale of the problem, which is
relatively minor in itself, becomes quite significant. The hon.
Gentleman mentioned payment protection insurance, which is a good
example. If more effective action had been taken in 2005, the industry
may have been able to avoid having to make the large payments in
compensation that it now has to make as a result of the work done by
the FSA.
The question
is whether we should expect the FSA to act as a consumer champion. If
so, will that affect how it regulates the sector? Will it become much
more proactive, much more interventionist, and more heavy handed at an
earlier stage? Every time we hear of a regulatory failure by the FSA,
particular if a number of people have been involved, it undermines
people’s confidence in the sector as a whole. The complexity of
financial services products and the huge imbalance of knowledge between
the consumer and the provider all make it harder for people to engage
in the purchase of such products.
The consumer
finance education body, set up under the Bill, will give consumers more
confidence in engaging with financial services businesses, but
consumers will need to know that an effective regulator will always be
standing behind the purchase or sales process. I am not convinced that
the FSA has done that job as well as it should. That is why, in our
white paper “Plan for Sound Banking”, we talk about the
need to set up a new regulator—in the white paper we call it a
consumer protection agency. It will adopt a new approach to the
regulation of financial services when it comes to the conduct of
business. We expect it to be much more proactive, and to take earlier
action.
Although the
hon. Gentleman did not talk about the detail of the new clause, we
share an interest in some of the elements that have been raised. I am
particularly interested in the mechanism for ensuring accountability.
Under subsection (7), the authority should be more transparent in the
way that it responds to matters that have been raised by consumer
bodies. Under subsection (9),
the authority would be required to produce reports within a year. Again,
that would ensure that there would be much greater transparency about
the steps that the regulator should take to tackle some of the issues
that have been identified in the retail financial services
sector. So I have a
great deal of sympathy with the hon. Gentleman’s new clause. It
reflects the widespread concern that exists about how effective
regulation of the retail financial services sector actually is under
the FSA, and it sets out an approach that could yield dividends, not
only by improving outcomes for consumers but by acting in the interests
of the industry itself, in trying to take earlier action to avoid these
large-scale cases of mis-selling that do so much to undermine
consumers’ confidence in what is an important sector of the
economy.
Mr.
Colin Breed (South-East Cornwall) (LD): I agree entirely
with the hon. Member for Fareham (Mr. Hoban) and I support
the aims of the new clause.
During the
period of time that the FSA has been in operation, two things have
happened. First, of course, it was set up and brought together all the
regulation. That was a very good thing; it was a good body to bring
together regulators. Secondly, during that period of time, the
so-called “light touch” that it took and its
encouragement of new products, innovation, new business and everything
else was also very good, but the FSA relied very much upon what was
perhaps perceived to be an inherent integrity within the financial
services sector. Regretfully, that inherent integrity was not perhaps
as strong as we all might have expected.
Over time,
there has been a certain amount of confusion among consumers about what
the FSA’s role is in relation to them. I think that many
consumers, when they have confronted the FSA with a problem or anything
else, have often looked upon it more as a trade association of the
financial services companies rather than as a body that looked at
matters from their point of view, as people who are basically lay
people and who feel that they have been wrongly advised, wrongly sold a
product and everything else.
The new
clause is very valuable in that it places a much clearer emphasis on
what is now a necessary role for the FSA. Perhaps that role was not
quite as necessary when the FSA was set up. However, given what we have
seen subsequently, including the various events of the
past few years, there is a need for clarity and some real understanding,
so that consumers can look at the FSA in a way that is much more
acceptable to them, rather than seeing it as a trade association, and
so that, if the FSA is not a consumer champion, at least it can be seen
to look at things much more closely from the viewpoint of
consumers. Ian
Pearson: I am sure that we all agree with the intention of
the new clause, which is to ensure that the FSA takes appropriate
action to protect consumers. However, I must say to my hon. Friend the
Member for Edmonton that, although I congratulate him on its ingenuity,
I am not sure that it is the right way to achieve that aim of
protecting consumers.
As the
Committee knows, the FSA has a number of regulatory objectives,
including consumer protection. Indeed, the Bill adds a further
objective in relation to financial stability. In discharging its
general functions, the FSA is required, under section 2(1) of the
Financial Services and Markets Act 2000, to act, so far as possible, in
a way that is compatible with its regulatory objectives and that it
considers appropriate for meeting those objectives. Those general
functions include making rules and giving guidance.
In
discharging those functions, the FSA must also have regard to a number
of other matters, including whether any burden or restriction that it
imposes is proportionate to the benefits that are expected to result.
As I think the Committee is aware, no attempt is made in FSMA to rank
the FSA’s various regulatory objectives. Effectively, new clause
3 would promote the FSA’s consumer protection objective above
its other objectives, such as financial stability, where it is not
subject to a corresponding duty.
To some
extent, the argument about new clause 3 is the converse of the argument
about amendment 41 to clause 5, which was tabled by the hon. Member for
Fareham and which we discussed some time ago. Amendment 41 was a
probing amendment that proposed giving the FSA a new financial
stability objective and making that objective a priority. At that time,
we discussed the need for the FSA to be able to exercise judgment and
discretion. Those same arguments apply
here.
10.25
am The
Chairman adjourned the Committee without Question put (Standing Order
No. 88).
Adjourned
till this day at One
o’clock.
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