Select Committee on Constitution Minutes of Evidence

Examination of Witnesses (780-799)



Lord Elton

  780. Ann Foster's first sentence was that you were set up as an independent body. The paper you sent us reveals that you were established under statute, that you were appointed by the FSA, that your budget is set by the FSA who provide your secretariat and pay for them. Presumably they pay your expenses and any honoraria that any of you receive. How do you square that with the word "independent"?

  (Ms Foster) I understand entirely your question and it was one that did intrigue me when I first applied to become a member of the Financial Services Consumer Panel. I have to say that it works. You are absolutely right, the FSA does appoint members, although they do that through Nolan procedures with external members of the appointments panel, and indeed the board does vote our budget and provide our secretariat and we have our monthly meetings in the FSA building in Canary Wharf. Nonetheless, we are fiercely proud of our independence and that is our independence in the way we conduct our business and the way we come to our conclusions. I can honestly say that in all the time I have been there, we have never had any pressure on us at all to come out with a particular recommendation or express ourselves in any particular way. We are able to act independently of the regulator and they value this and I am sure they would wish to retain this relationship. We are free to criticise the regulator, if we think they have not done enough and indeed we have the opportunity to make a public statement about that. We publish our recommendations every year to the FSA and they have to respond openly to that. We are quite confident that, although structurally and operationally we are part of this larger body, as an advice-giving panel, we can act in a completely independent way. We have one agreement with the FSA which is important and that is a "no surprises" policy. If we are going to criticise them, we do have the courtesy to tell them first, but it does not in any way inhibit what we say or how we say it.

  781. How do you set your agenda?
  (Ms Foster) In two ways really. The majority of our agenda is driven by the regulatory timetable and by the consultation documents which come out. Clearly much of what we have to do is focused on that particular agenda. But we can go into subjects on our own account.

  782. Do you?
  (Ms Foster) Yes, we do. For example, there are more directives now coming from Europe. At the moment, the first concentration of directives did not have immediate consumer impact, but gradually they are having more. We are concerned that we do not know enough about the European financial market and we do not know enough about how other countries operate. We probably do not yet know enough about what would happen if German firms tried to sell mortgages to our consumers or French firms sold pensions or whatever. We have decided to make more of a priority of finding out how these markets operate in Europe, how the directives which are coming down the line are going to impact upon our consumer protection and processes and we are also very concerned about getting a stronger consumer voice in Europe for the discussion of these directives. That is an area where we have set our own agenda and have not had it necessarily dictated to us by anybody else.

  783. Do you relate to any other consumer bodies with interests in areas you are concerned with such as the Consumers' Association?
  (Ms Foster) Yes, we do. We have regular meetings with Consumers' Association and with National Consumer Council.

  784. How do you relate to them? What is the effect of your discussions?
  (Ms Foster) It is often just an information sharing session. We find out what their views are. We have a different remit. Our remit is to advise the FSA on the FSA's proposals. An organisation like Consumers' Association has a much wider campaigning role on a wider range of areas. We do liaise very closely with them. We often share common ground but not always.

  785. Did you say your role is to advise the FSA on its proposals? Do you not advise them on any other things which you may discover from the constituency of consumers?
  (Ms Foster) Yes, we do.

  786. Do you make any comment on the proposals after they have been put into effect?
  (Ms Foster) Our prime role is to advise the FSA on its current and developing policies and practices, but we can go further and we do.

  787. You say that the FSA must provide you with a statement in writing for reasons of disagreeing with anything you say. How often does that happen?
  (Ms Foster) Every time we put in a formal response to the FSA outlining our recommendations, they will always respond to us formally in writing.

  788. Have they not disagreed with you?
  (Ms Foster) They respond whether they agree or disagree.

  789. My question is: have they disagreed with you?
  (Ms Foster) Yes, they have, on occasions; yes. We have had occasions where we have been very pleased with the outcome of our representations, where we do believe we have influenced FSA proposals, but there have been areas where we did not get all that we wanted and they have come back and told us so.

  790. And that is the end of the matter.
  (Ms Foster) Oh, no; we can still keep going.

  791. What happens next?
  (Ms Foster) We keep going. If there are other opportunities to raise the matter at other meetings we may have, then we shall continue to do so. We have to be realistic about this. Although we are a strong and effective Consumer Panel, even we know that we do not get absolutely everything we want. There will come a time when a rule will come out which may not exactly reflect what we wanted, but we have had some successes.
  (Mr Watts) To a large extent what the FSA is doing at the moment is setting up rules and regulations and it is still developing its rules and regulations which are going to a very strict timetable, a flexible timetable, but one which has to be done quite quickly. That means that with mortgage regulation, for example, which is just coming in, we believe the FSA has taken on board the most important things that we said about the proposed regulation framework. There are still some things which we do not think they have taken on board which they ought to do, but I do not think we could expect to have 100 per cent of what we say accepted. Just to add a little bit on us bringing our own agenda to the FSA, we have done that in a number of ways. Most important in my view is to do with financial promotions and advertising and direct mail regarding "Buy this investment. Buy that investment". As a result of us saying consumers are being misled by a lot of things in this area, the FSA announced in its last plan and budget that it was giving considerably more resources to that area and having a policy of looking at that area. That is an important area where the agenda was set by us and not by the FSA.
  (Ms Foster) Some of the issues we have with the FSA are quite long term. For example, we have criticised the FSA for not acting faster when the too-good-to-be-true products come on the market; split caps for example. They have agreed with us, but how they tackle this is something for the longer term. Equally, we made the point to the FSA, in the light of Equitable Life, that when the FSA knows that firms are in difficulty, at what stage do they tell the general public that this is the case? Where do they draw the line between preventing people from buying a product from a firm which is clearly in difficulty or actually then making the market collapse even further because people stop buying? It is a very, very difficult issue. Clearly it is one of huge importance for consumers and we have discussed this with the FSA, but it will take some time until they develop the appropriate policy.

Lord Acton

  792. In your annual report of 2002-03 about small firms your synopsis says that the FSA must ensure that the lighter touch supervisory regime does not result in smaller firms being unlikely to face enforcement action and that you are pleased with the FSA's new strategy for small investment firms to address this problem. In response they say they talked about it to you and in the coming year they will work with firms who want help in this matter and that they have established a team to co-ordinate prompt enforcement action. They end by saying that they have presented their plans to the Consumer Panel and welcome their support for this approach. This seems a very happy story but is it accurate?

  (Ms Foster) Yes, it is.

  793. You were pleased with what they wanted to do.
  (Ms Foster) Yes, we were. You are right, we raised the concern, we had a presentation from the members of staff concerned, we were struck by the strategy they outlined to us and it gave us confidence in the way that they were going to regulate small firms.

  794. Very good. In response to Lord Elton you mentioned two things: one was that you had the right to publish and the other was that you would keep probing.
  (Ms Foster) Yes.

  795. Can you give me an unhappy example where the FSA did not like your critique and you did publish and you did keep probing and you won?
  (Ms Foster) One area where we have kept at it is actually on the financial promotion side. This is a very strange field. If a consumer complains about an advertisement which they believe to be misleading and they write to the FSA to make this complaint, they do not know what the outcome is. So even if the FSA agrees with them that it is misleading, even if they talk to the firm, there is no way the FSA can make public that kind of information unless it goes to the full enforcement procedure, which is very lengthy and almost counterproductive to the problem which is trying to be solved. We think this is totally contrary to the interests of consumers at large, so we have raised the issue with the FSA repeatedly. At first the response was that this was a problem with the legislation, even if they wanted to they cannot as this is what the constraints of the legislation are. We then did a very high profile press release and got lots of coverage for it and we have continued to work with the FSA on this. They are now looking at the legislation to see whether it is possible to go further. We have mentioned it already to the Treasury in terms of the two-year review they are doing of the Financial Services and Markets Act. Also, the FSA has indeed developed a more comprehensive financial promotions strategy. We would see that as a success for the panel. If we had not raised this issue, it probably would not have been raised. If we had not kept on, we would not have got where we are now.

  796. So you would not say you have totally won that discussion, but for the most part you have won it. You have got them to look at the legislation.
  (Ms Foster) Some things take a long time, but we have also had a notable success with one part of the proposed regulation of mortgage sales bringing what was to be a three-process method of sale down to two. We appear not to have been successful on something called the suitability letter. We would like the FSA to retain the need to send consumers a suitability letter. At the moment they do not think that this is particularly effective. The other thing I should say is that we actually get several chances to make our point. We often talk to FSA staff before they go public with a consultation. They will come to us with their draft proposals, we can comment then, then the proposals will come out for public consultation and we can have another chance then. Sometimes they will come back to us a third time and say "These are the results of the consultation. This is what we are minded to do" and we can have another chance then.

  797. When you do go to the press does that happen quite often, or is it rare that you actually produce a press release? Do not give me a figure.
  (Ms Foster) It happens quite often. The press do not always take up our press releases, but we have recently had very good coverage for our annual report and what the press are most interested in are the areas where we are critical.

  798. And the FSA do take note.
  (Ms Foster) Yes, they do.


  799. May I look at one aspect which is not covered much in the paper? You touched upon it there and in the highlights of your annual report. Apart from contacts with the FSA you respond to government consultation as well, so there is some dialogue with government, there is dialogue with the FSA. What I want to bring into this is Parliament. How do you see Parliament's role in this? You mention in your paper that the Treasury Select Committee has had a meeting to discuss the annual report. Do you think there is more that Parliament can and should be doing, looking at it particularly from the consumer perspective, in other words representing the consumer, or do you think it is sufficient to be channelled through you? Should Parliament do more?

  (Ms Foster) In terms of FSA's accountability?

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