Joint Committee on Financial Services and Markets Minutes of Evidence

Examination of witnesses (Questions 20 - 39)



  20.  You are obliged to consult and I am rather interested to know who you consult who is likely to complain against you? Do you find likely complainants with whom you can consult?
  (Mr Davies)  Inspite of what I said about the comment by the Evening Standard we can nonetheless find some people who want to complain about us if we try hard enough. I think that the trade associations but also the consumer groups do have a point of view on how complaints have been handled in the past so I do not think we will find it difficult to generate some responses there.

Mr Sheerman

  21.  Mr Davies, I do not want to go back to the City Editor but in terms of complaints in a sense do you see a responsibility in terms of the consultation process? How widely do you consult? What worries me, our job with a pre-legislative inquiry it seems to me is not to make the mistakes that were made over the last Bill. People keep coming back to us and saying "We do not want that process of the 1986 Act" and I am sure the Government does not want to make the same mistake. The consultative process has been much better, there is a longer period of time. Very often what we do not get is a voice from any view which says "The reason this is better is because we have improved it to suit a more dynamic situation". You have mentioned a more dynamic situation, the diversity of the markets but your initial reply to my colleague from the House of Lords seems to say we are really patching up what was there before and we do not see there is much room for improvement.
  (Mr Davies)  No, sorry, that was purely on the question of the Complaints Commissioner, where in the past you could complain to the SIB about an SRO, etcetera. We had to have an independent Complaints Commissioner in order to cope with the fact that we had managerially merged different regulators. That was all I meant by patching up that particular system. For the future we will need in the complaints area and many other areas an overhaul of the system in a fundamental way. We will overhaul our rule books. We aim to reduce them in complexity and size. We will overhaul our disciplinary procedures. We are in the middle of consultation on that. That was just a very narrow point about the Complaints Commissioner.


  22.  We will be coming to rule books. That is probably as much as you can give us today on the question of accountability. The Government did cover quite a number of these issues when it responded to the consultation. One of our topics will be this subject generally, where we will invite in people who are on all sides of this debate. We will see the extent to which they are content with what you have said today; and also with the way the Government have responded to the consultations. The next subject we would like to deal with is the whole question of the statutory objectives and principles in the Bill. These are obviously an innovation from the point of view of regulation of United Kingdom financial services. It would be helpful, by way of introduction to this section, for you to set out for us what difference you actually see this making. Do they really matter, these objectives and principles? How are they going to influence your work?
  (Mr Davies)  We think they do matter a lot. We think they are helpful. Indeed, we have already found that they are a very effective discipline on our internal processes. You are right that in the past the objectives of regulators have not been clearly set out in the legislation. The Banking Acts and the Financial Services Act are really silent on the point. That has been the cause of some difficulty, both in terms of allocation of resources, but also in the event of failures there has been a lot of debate about just what it was the banking supervisors should have been doing; how much they should have been trying to protect the institution itself, etcetera. So we think that having a framework of objectives, particularly also with a set of provisos about the things we need to take into account in pursuing the objectives, is a helpful one. I think it is particularly helpful for the board—here I think I speak for both the executive and non-executive, particularly for the non-executive members of the board—who have, ready-made in the legislation, a kind of checklist of things that they need to think about whenever we and our staff put up proposals to the board for a new regulation, for a case they might take, whatever. Then the board can say: Have you taken account of the impact of this on competition? Have you done your cost benefit analysis? Is this going to harm innovation? Is this going to drive business offshore? Is it going to worsen the competitive position of the United Kingdom financial services industry and are you doing it, even if it is worth doing, in the most economic and efficient way that you can? This, therefore, provides an important point of purchase for our board on what we do. At the same time, of course, it provides an important purchase for the outside world. The outside world can require us to explain just how we have felt that this new rule, (or rule book or whatever it might be), is contributing to our statutory objectives and does not fall foul of the various things that we must take into consideration. So we have found already that it is becoming a kind of disciplined framework within which we assess what we do. We have told our staff all the time that they have to come back to us with ideas as to what initiatives they wish to pursue to work towards our statutory objectives.

Lord Taverne

  23.  In working out how this is actually going to make a difference in practice, may I take the example of (perhaps to my mind the most basic objective of all) consumer protection. Now, in which sort of way do you think you are going to be able to provide better safeguards to ensure that people do not get sold the wrong product?
  (Mr Davies)  I think it would be fair to say that the statutory objectives in themselves do not guarantee that we do that. But I think a combination of the statutory objectives, plus the learning we have had over the last decade of operating the old system, do mean that we hope we are getting better at doing that. We hope we are getting better at understanding where the opportunities for consumer detriment arise and how best to counter them. But that can only be done up to a certain point. We cannot guarantee that the consumers do not buy products which are unsuitable to them, but we can ensure that the process gets as close to the suitability criterion as it can.
  (Mr Foot)  An example of the current situation which might help: the case of Y2K now. We have some 8,000 firms. We clearly have to prioritise. When we looked across the individual regulators we established that their concept of what was high impact in terms of retail consumers was very different between the regulators who had formed the predecessors to the FSA. Now we have a coherent and consistent framework across the piece in the context of the draft objectives for the protection of retail customers and market confidence, which enables to us to prioritise consistently across the piece in the framework that Howard was describing.

  24.  The legislation still seems to have a slightly worrying bit of it, which seems to enshrine the principle of caveat emptor. Now you are dealing with things which are very complicated and difficult to understand, and you have had a product campaign which has got under way. Do you think that it is a mistake to apply the old doctrine of caveat emptor in the case of these complicated products?
  (Mr Davies)  This is a matter where reasonable people might disagree, but I think I reflect the balance of the opinion on our board if I say that we favour an element of caveat emptor in the legislation; partly, you might say, for slightly selfish regulatory reasons; which is that without that it might be possible for people to argue that regulators should go to any extent possible to remove the possibility of misbuying. I think there is only so much that a regulator can do to eliminate misbuying. We can probably do rather more to eliminate mis-selling, we hope, but there will be judgments that individuals need to make about their own personal circumstances and where we think it would be very dangerous for markets, as a whole, if you had legislation which allowed unpicking of contracts because they did not happen to have turned out the way people would have liked them to turn out. Furthermore, there is no way you can remove the need for individuals to take responsibility for making decisions themselves. What I would say, however, is that in the way the draft Bill is currently formulated, there is a danger—and this is something which consumers associations and others have pointed out—that it might be read that we do this, this and this in terms of rules and education, etcetera, but bearing in mind the fact that consumers take responsibility for their own decisions. I think there is a danger that this could be read in the sense of negating everything that went before. We have come to believe that we would prefer in the legislation something which referred to the need for consumers to pay due care and attention. I am not quite sure I am drafting at this point but to take due care in making their decisions, which we think is an appropriate caveat, if you like, on our regulatory effort. We would like to see the concept reworked a little.


  25.  In your speech to the Chancery Bar Association on 3 March, you said you thought the drafting could be improved a little bit. It was in that direction you had in mind?
  (Mr Davies)  Yes.

Lord Poole

  26.  Could we look at the word "consumer" for a moment. There is a whole range, as you have commented already, of people who can be called consumers. There are the very, very important retail consumers. Then there are the wholesale consumers. An important sub-objective for you is the international character of financial services and the desirability of maintaining the United Kingdom's international competitiveness. How do you see that you are going to be able to have an appropriately light touch for dealing with the wholesale market between consulting adults, and the retail market where I would be the first to say that the greatest possible attention to detail is required?
  (Mr Davies)  The legislation points us in this direction in a number of different ways. One is the one you referred to about the international character of financial markets. Also, we are required to ensure that our regulation is appropriate to different financial markets. As to the way in which we will implement that, obviously we have not yet completely revised our rule books but, for example, in our principles, where we set out the new FSA principles, we disapply certain principles in the wholesale area; so the principles about how you must understand the nature of your customers' needs, etcetera, are disapplied in wholesale market transactions. We have also set out for consultation a three-way classification of consumers because we think that the wholesale/retail split, which people colloquially talk about, is perhaps not the best way of thinking about the different types of consumers which you have in the markets. We have suggested a three-way split which has market professionals at the top where, broadly speaking, we are content for them to exploit each other in private, though we obviously deal with complaints if there is market abuse or whatever. We do not think Goldman Sachs needs to spend a lot of its time worrying about whether Merrill Lynch knows what it is doing. Secondly, what we called expert end-users, who might be the treasurer of a corporation, who might be broadly expected to understand the nature of the derivatives markets, but nonetheless should not be grotesquely over-sold or have his portfolio churned by people blinding him with science. Thirdly, the retail consumer, where we believe the full range of protection should apply. The market reaction to that idea—though we have not yet had all the consultation responses back—but the market reaction to that seems to be reasonably positive.

Mr Heathcoat-Amory

  27.  Following that, I understand your point that there is not a completely clear distinction between the retail and the wholesale markets. Nevertheless, there is a workable destination there. My question is: what work has been done on assessing the regulatory burden, the compliance costs on the wholesale market, which is almost by definition international and therefore highly vulnerable to the danger of being undercut by other jurisdictions? We will know a good deal about your own costs but I would like to know from you whether you have done any work, and whether you should do any work, on trying to assess these compliance costs. And, in particular, trying to compare them in our market, as proposed, with other countries where the regulatory burden may be lighter; and whether there was a risk of regulatory arbitrage, or simply migration of sectors of the market away from what may be an overburdened and over-regulated sector here.
  (Mr Davies)  Part of the answer to that is that, yes, in future it is not just that we might not only feel that we want to do that, but we would be required to do that because it is part of the cost benefit analysis requirement. Clearly, the in-house costs, which are easy to assess, are dwarfed by the out-of-house costs of compliance. We will be required in future to do that kind of work before we propose any change in the regulatory environment. As for what has happened so far, the old SIB, the old regulators, did some cost benefit analysis on particular points. There are two external sources which are useful. One was work done by the City Research Project, by the London Business School on their behalf, which compared the costs of regulation in different centres; and, broadly speaking, in most areas identified the United Kingdom as a low cost area in terms of regulation. Also, the Australian Government commissioned some research as part of their research into regulation before they made their regulatory change, the Wallis Commission, which shows that the cost per unit, if you like, of transactions in London is lower than in any other international centre. So such evidence as one can find is reasonably reassuring, but we also believe that the requirement on us is not only to consider competitiveness in the international dimension, it requires us also to watch out for any signs that activity is moving offshore, particularly where it is moving offshore to a less regulated environment but selling back into the United Kingdom consumers, where we would have scored an obvious own goal if that happened. So we are keen for trade associations to bring that evidence to our attention but I have to say we have not had any examples of that put to us recently.
  (Mr Foot)  That is true. It is a regular topic on the agenda for LIBA and for all the other major wholesale associations. The only other point to make is that looking obviously at the costs of regulation, and looking at the change in patterns of business with Japanese and other firms retrenching within Europe, London has won net far more than you might have thought, or certainly internal costs were not seen as unduly high.

Lord Eatwell

  28.  May I come back to the statutory objectives. Could you tell us a little bit about the objective of maintaining confidence in the financial sector. Is that about probity and honesty? What is it about?
  (Mr Davies)  I think there are a number of component parts to it and certainly the question of fair markets is a very important one. So we would see the market abuse regime as contributing to that objective, as much as to anything else, because we think it is people's confidence that market prices are fair prices and that is a crucial part of that objective. We would also, however, see much of our prudential work as contributing to that. We think it important that consumers—and, indeed, financial institutions—should believe that we run a tight ship as far as prudential requirements are concerned; therefore, that banks and insurance companies operating in our markets are prudentially sound within international best practice standards. So we would see at least those two dimensions as contributing to our work.

  29.  I see that objective as rather confusing because it is a bundle of things. I thought one of the main tasks of the regulator was to manage systemic risk, yet it is extraordinarily odd that our regulator is not told to do this. Now you are telling me that it is bundled into market confidence but it is put in with all these other aspects of market abuse. It is quite different from market abuse. Do you not think there should be a clear objective of managing systemic risk?
  (Mr Davies)  We would feel that a combination of our statutory objectives, and the Memorandum of Understanding we have with the Bank of England and the Treasury, are a respectable way of handling this problem. Indeed, the IMF, who recently reviewed these arrangements, confirmed that they regarded them as operating satisfactorily. It was rather a good model. Our contribution to systemic risk is trying to ensure that institutions are prudentially sound. Also, if they are in trouble and come to us, to see if market solutions to their problems can be found. We contribute to a process of overseeing systemic risk, which is shared with the Bank of England and the Treasury through the Standing Committee framework, on which Michael Foot sits regularly.
  (Mr Foot)  It is certainly our experience in the first year or so that the MOU has shown that what was drafted in the summer of 1997 stands up. We have only had "small" external crises from Asia, Russia, Long-Term Capital Management, and we will no doubt see, (although we would not want to see), in due course, something closer to home.

  30.  This is odd because this is not an objective. It is not a defined objective of the financial regulator in the United Kingdom to manage systemic risk. It is not one of your statutory objectives. Do you not think that is a little odd?
  (Mr Davies)  I have to say that set against the continuing responsibilities of the Bank of England and the MOU, I do not find it odd. I think that these responsibilities sit quite comfortably alongside each other. As a practical matter we have not found this, in any way, handicapping our work.
  (Mr Foot)  If we take the example of Y2K, high impact firms are those with large numbers of retail consumers and sometimes (and sometimes not) because of their position in the market place, this would cause major problems if there were a market failure. That is one example.

Viscount Trenchard

  31.  I would like, if I may, to return to the question of costs of regulation. It may well be that the UK has been a country with a relatively low cost regulatory regime, but I am worried that this may not be the case for very much longer. If you look at the public awareness objective, it seems to me it is cast in very broad terms. I can understand that promotion of the awareness of risks is a very sensible and a proper objective, but I would like to ask whether you think that the provision of education and advice on the benefits of investment itself are quite so appropriate, particularly when we have already looked at the difficulty of having a single regime that applies both to the wholesale and to the retail markets? If, for the benefit of the retail investor, you have to provide education and advice on investment generally, do you think that foreign practitioners involved only in the wholesale market will be happy to pay the costs?
  (Mr Davies)  That would not be where I would start in looking for the income to carry out that objective. I think it will be important for us to consider the way in which that should be funded and to ensure that it is funded by those people who might either be potentially responsible for consumer detriment on the one hand or who might benefit from our consumer education work on the other. We have not determined at this point to spend a lot of money on this activity yet in advance of our statutory responsibilities. We have put out a consultation paper which says how we might go about meeting this objective and that has generated 100 or so responses, most of which are rather enthusiastic about the notion of a regulator operating in that area. They have been enthusiastic partly from a consumer point of view and from a point of view related to the overall cost of the regulatory regime because there is an attraction in the long run in being able to improve the buying process from the consumer end as well as from the regulated firm end which may, over time, allow one to take a slightly different view about the requirements for suitability and the best advice that you put on people if you have got better educated consumers. I would encourage you not to think of the consumer awareness objective as one which is to be seen purely as a regulatory burden. The industries we have talked to who are most interested in this market can see quite a lot of attraction in the FSA lending its name to advice and, indeed, a number of independent financial advisers have taken up publications and are using them in their offices because they show that they give the consumer greater confidence in the regulatory regime, greater confidence in the products available and, all other things being equal, consumers are more confident of what they are being sold and more likely to buy it. That is a side product of our work, but I should say that quite a number of people in the industry have found this an attractive area of work for the regulator for precisely that reason.

Mr Sheerman

  32.  Mr Davies, do you not think there is going to be a revolution of rising expectations? Here we have nine regulatory bodies rolled into one, the FSA, and that is going to have a high public profile. Then, if you build into that public awareness and the mission to protect consumers, are we not actually going to see an inability by the FSA to meet those expectations? I was looking at the Financial Times last week where they make the point that a third of people taking up mortgages at the present moment are sold inappropriate endowment policies linked to their mortgages, and so in terms of public awareness there is a very important role there. I did not realise until fairly recently that if you had a complaint about bank overcharging you could complain to the FSA, as it is now, if you were a personal customer of the bank but you could not if you were a one-person business. Are we going to get this legislation right if we have these bold statements, one FSA with this broad sweep of powers? It is going to attract a lot of attention. Do you think you are actually going to cope with that kind of revolution in terms of perceived demand?
  (Mr Davies)  Could I just try to disentangle the regulatory side from the complaints side because there will be a separate body, although parallel, if you like. It will be the Financial Services Ombudsman, which has a different board and a different chairman, who will be responsible for handling all of the consumer complaints. We think that will be an attraction to consumers because there will be a single point of entry for complaints. People will not have to worry, as they currently do, which particular door they go into to complain. As far as the issue of expectation is concerned, I think I would find it difficult to say that that is not potentially a problem. I think that it could well be. I think it is important that people do not have unrealistic ambitions about what regulators can achieve. I think that is part of the justification why we believe that an element of caveat emptor is appropriate in the legislation and that consumers should not be given the idea that somehow we are sitting alongside every financial adviser or bank clerk ensuring that she does the right thing in relation to every consumer. What we can do is wrap a regime of suitability and good advice around the present system and police that within reason. I hope that people do not have unrealistic ambitions of regulators. In fact, my impression from our so far limited meetings with the public is that—we have held three large open meetings to talk directly to investors about what they think and want from the regulatory regime—people, interestingly, have quite realistic objectives. They are interested to know what the complaints framework is, they are interested to know that we monitor the soundness of firms, they are interested to know that there are a set of expectations that they should have about what they get from companies and on the whole we have not heard individuals say, "Why are you not doing more and preventing every single bad financial decision?" I think people are reasonably realistic about it, but I can see there is a danger.

  33.  I do not mean to deride them, but it seems to me that here you have rather waffly objectives that you are not quite sure you could meet, whereas with something that you could be much more focussed on in terms of systemic risk the Government has not put that in at all.
  (Mr Davies)  I am not sure that I would regard systemic risk as a very easily measurable objective either, frankly. I think that confidence in the markets is something that it is equally hard to measure when you have got it, although you tend to know when it is not there.


  34.  Could I wrap up this section on objectives and principles, although obviously we are going to have to come back to it. There is one issue that has come up before which we have not touched on today. I just invite you to confirm your position that you are very reluctant about the idea of raising one of the principles, about the competitive position of the UK, into an objective which is what some people have argued should happen. Part of that, as I understand it, is the concern about raising unrealistic expectations about what it is that you can actually deliver.
  (Mr Davies)  I think so. Competitiveness as an objective would be a rather different in character from the others and could take us into either areas of explicit City promotion where I think there are other people involved, i.e. the City Corporation, British Invisibles and the Bank of England to some extent are involved in that area, but also, perhaps more importantly, could drag us into commercial issues about just what is competitiveness and could we not bias our regulations in order to promote the interests of this particular market which people could come along and plausibly argue to us was the way of the future, which it might or might not be. I think it would risk dragging the regulator into essentially commercial issues. Lastly, I think that there would be considerable concern overseas in relation to a regulator who had an explicit competitiveness objective. I think we would find some difficulty with some of our overseas counterparts who would say, "What are you really trying to achieve? Are you really trying to work with us collectively"—to pick up Lord Eatwell's point—relating to systemic risk, to guarantee safe markets internationally, or is your real objective to promote the particular interests of the City of London because you are aiming for competitiveness?" I think that could create international confusion.

Mr Sheerman

  35.  Could I put a very quick supplementary on that. The other principle that stands out here is innovation. How are you going to handle innovation? Why is that in principle? What role does the regulator have in stimulating innovation?
  (Mr Davies)  I think not. I think if you read the construction of the clauses it is that we must have regard in performing our duties—and our duties are about rule-making, etc.—to the need not to damage the prospects for innovation. So we are not promoting innovation, we are just doing that. So the way we read that is, for example, to lead us to be very cautious about certain forms of product regulation. We could not completely ban a new product because we thought it might be dangerous for a lot of consumers, because that might hinder innovation. So it would be in relation to our rule-making powers that we would consider the impact on innovation, not promoting innovation in its own right.

  Chairman:  I would like to move on now to the third section we wanted to look at, which is the issue of discipline, enforcement and the tribunal. This has created a good deal of comment and, of course, the Government has responded to it. Lord Eatwell?

Lord Eatwell

  36.  I would like to start on the issue of rules and rule-making. One of the most striking propositions in the Board of Banking Supervision's report on the Barings affair was that the Bank of England did not understand the industry it was regulating. How are you going to ensure that your staff understand the industry for which they are making rules and which they are regulating?
  (Mr Davies)  I think there are two main ways in which we hope to ensure that. The first is that we do aim quite deliberately to recruit people from the market. We aim to have a balanced recruitment policy whereby we do take in some people and grow our own but the greater part of our recruitment, as I say, as a whole is from people who have some market experience and we will certainly continue with that. But secondly, we will involve practitioners to a high degree in our processes, both in the rule-making processes and in the enforcement processes. At the moment we have what we call our handbook of rules and guidance and we have a Handbook Advisory Group, which met this morning, senior market practitioners who are helping us and steering our process of revising our rule books. So there are two ways: one, recruiting in and out of the market and by involving practitioners we hope to ensure that we do understand the market we regulate.

  37.  But your relationship with practitioners is a bit arm's-length, is it not, in the sense that a practitioner who is an adviser is very much representing his or her firm, his or her industry, maybe from a trade association or whatever it might be, whereas a practitioner who has responsibility, which will not be the case in the FSA, actually then has the interests of the organisation at heart for which he or she is responsible?
  (Mr Davies)  I do not think that is entirely the way I would see it because we do, after all, have some very senior practitioners on our main Board. Keith Whitson, who is the Chief Executive of HSBC, Christopher Rodrigues, Chief Executive of Bradford and Bingley, etc. So we do have, and have carried over from the old system, the notion of having senior practitioners on the board and they are clearly fully responsible. We have suggested in our enforcement paper that we would have practitioners on our top Enforcement Committee and we have said that we are prepared to envisage them having a voting right, if that is what people think would be appropriate. We also do deliberately recruit as part of our staffing now a group whom we call colloquially the "Grey Panthers". They initially started off not liking it but I notice they have now got themselves a tie with a grey panther on it. They are more senior people who are very recently retired, who actually work directly with our banking supervision teams, because we did acknowledge, in response to the Board of Banking Supervision Barings inquiry, that banking supervision—in particular the Bank of England typically staffed by recruiting from university and growing their own—was lacking in people with real live market experience. So in those areas we do have this grey panther brigade who are employees and who are responsible and who are on review committees, etc.

Lord Poole

  38.  I share Lord Eatwell's concern. I am interested in what you say about people at a senior level, in a sense sharing his concern, but I am much more concerned about what really happens when your people turn up to regulate real businesses. I do not mean this rudely in any way but I think there is a very long way to go indeed before you meet the objectives you have been talking about of having people who know what they are doing when they arrive in many companies. Over the years I have observed a major transition into box-ticking and just making sure that everything has been neatly done according to rules that have been laid down, and what was really needed was somebody who understood the business sufficiently to know what the right question was to be asked. I appreciate that is a problem for you. I would not have worried about it so much if you had said it was a problem. I think I am more concerned because you did not.
  (Mr Davies)  I would not deny that it can be a problem in some areas and I would not deny that in a perfect world we would have a longer average tenure in our organisation with longer market experience. Unfortunately, the fairness at work legislation does not include any provision for us to be able to ban our employees from taking offers of higher salaries from the market and I am afraid that is something to which we are very vulnerable and it is very difficult for us to pay top dollar. But as a general rule what we have moved towards—and I think this is the case really across all regulators but I know most about it in relation to banking so perhaps I can quote that as an example—is an approach which attempts to assess the overall risks of an institution from the top down and, therefore, to create a framework within which we can focus on the things that really matter rather than on the dignified parts of regulation (if I might characterise them in that way) and certainly post Barings we have introduced a new process called the RATE process, Risk Assessment Tools and Evaluation process, which very much starts at the top and says, "What are the areas of this bank which cause us concern because they are high-risk, because they are new, because the bank is not clear that it really understands how to manage them properly?" and that is where we should focus our attention, pinning senior management responsibility on those areas and making sure they know what our regulatory expectations are. So that is our overall philosophical approach but, of course, when you get down to the small firm you also have to ensure that the requirements have been kept and that there is decent record-keeping, and at the retail end you really do have to ensure that because we have demonstrated that in pensions mis-selling and in other areas poor record-keeping can be very damaging for consumers. So I do not apologise for the odd box receiving the odd tick.

Mr Plaskitt

  39.  It is down at the small firm end that I wanted to ask a question, which follows directly on from Lord Poole's. For example, looking at enforcement in the case of the independent financial adviser, the very small business, giving independent advice, how are you going to be a presence there? How is your enforcement going to apply in that very micro end of the market? Attached to that, the draft Bill gives you the power, as I understand it, to delegate enforcement, if you wish to, to—the phrase is—"body or persons who in your opinion are competent to perform them." Are you minded to do some delegation of enforcement, and if so, to whom, and might it be in the area of this enforcement at the very local, very small-scale level?
  (Mr Davies)  I think it is important to distinguish between supervision and enforcement here because at the low level, and, indeed, any other level, what we have is people who, under Michael, go around and try to make sure things are proceeding as they should and they have got proper record-keeping and proper procedures, etc. Sadly, from time to time his teams find that there is something not right and then they hand over to Phillip's team. So I might ask Phillip to speak specifically on the enforcement point.
  (Mr Thorpe)  I suspect that you were talking about the supervision aspect, the day-to-day monitoring of the activities that are undertaken in the firms?

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