Select Committee on Constitution Minutes of Evidence

Examination of Witnesses (800-805)



  800. Yes.
  (Ms Foster) My view is that it is absolutely critical that the FSA retains its independence. That is its strength. Nonetheless, I do think the process of reporting to the Treasury Select Committee is a very valuable tool. I went as a member of the public to the Treasury Select Committee hearings following Equitable Life and the questioning was very testing, very challenging. I am pleased to say that all of the public space was absolutely packed. That to me was a very good accountability mechanism. I think that is indeed an extremely effective way. Of course the Treasury themselves will be doing the two-year review of the Financial Services and Markets Act. Both of these are quite powerful ways of ensuring accountability to Parliament. I cannot at the moment think of anything which would be more effective.

  801. If we focus on accountability, you can take it more or less at three levels. There is a low level of transparency where a regulator volunteers material, but that is the extent of it. There is answerability in terms of being required to respond to questions put to them and at the highest level challenge, in other words where there is a body which can overturn any decision of the regulator. You have been covering answerability in respect of Parliament, where you are suggesting changes are not necessary. From a consumer perspective, are any changes necessary either in respect of the transparency aspect or the appeal mechanism?
  (Ms Foster) From the transparency aspect, we are always pushing for greater transparency, because that is what consumer bodies do. Certainly we made quite a representation to the FSA about identifying the consumer implications of their proposals. Sometimes it is jolly difficult to find them in these several-hundred-page documents. The FSA has responded and now, on the front of all their consultation documents, they will highlight the areas of specific relevance to consumers. So that has got better. From the Consumer Panel point of view, we do find them a very open organisation and we have not had requests for information or requests to see people refused. Greater transparency may possibly require legislative changes to enable the FSA to be more transparent prior to the full outcome of an enforcement procedure.

  802. In an ideal world, if you were given carte blanche to produce legislation it would be to provide legislative authority effectively for the FSA to be able to put more material in the public domain.
  (Ms Foster) Yes. Clearly there are very, very important issues of market confidence, but notwithstanding those, we would like as much as possible to be put in the public domain. I have already given you examples where it is very difficult to know where to draw the dividing line. In terms of the suggestion of an appeals procedure for the Financial Ombudsman Service, I have to say that is not something we would favour. What we appreciate with the Financial Ombudsman Service is the fact that it is accessible to ordinary consumers and they get by and large, provided it is a straightforward case, a pretty speedy response. It would not be in the interests of ordinary consumers to have an appeal procedure, in fact it would really adversely affect them in terms of the cost and the complexity. There is the opportunity of a judicial review, there is indeed the opportunity for the Financial Ombudsman Service to agree with a firm for a test case to go to court if the issues are so complex. We think these are sufficient and would not welcome the addition of another level such as an appeal mechanism of FOS decisions.
  (Mr Watts) On the area of accountability Parliament has a crucial role in defining the scope of the FSA and what is regulated by it and what is not. We have made representations on quite a lot of things in that area and at the moment, for example, we feel very strongly, that home reversion schemes, which are how elderly people can release capital from their home and will currently not be regulated by the FSA, should be brought into the scope. Before that we thought the mortgage advice should be regulated and now it will be. That is a crucial area for parliamentary input.

Lord Elton

  803. Shall we be seeing your views on that in the public press?

  (Ms Foster) On home reversion schemes?

  804. On the non-regulation of the release of capital from elderly people's houses? How would you bring pressure on the FSA to bring this into regulation if it is regulatable under statute?
  (Ms Foster) It is actually a matter for the Treasury and indeed we have said to the Treasury that they should include home reversion schemes.

  805. I absolutely understand all that, but I still do not understand the levers you pull to put pressure on the FSA. I do not say this in any pejorative sense, but at the moment you seem to me like something inside the great empire of the FSA, recruited in order to balance the fact that it is entirely a bureaucracy. You are injected, as it were, with a bias in favour of the consumer, to advise it as its advisers. The only way to change that impression is if I were to see you taking up the cudgels furiously in a disagreement with the FSA where you think they are wrong. I asked therefore: shall we be reading about this in the papers and, if not, how else are you going to bring pressure to bear?
  (Ms Foster) You very possibly will be reading about it in the papers because the Treasury did announce that they are going to publish a consultation on bringing home reversion schemes into the FSA scope. We shall certainly respond to that and we shall make sure you get a copy.

  Lord Elton: Thank you very much. You will also no doubt take some credit for the Treasury announcement.

  Chairman: Thank you both very much indeed for the paper and the annual report and for being with us this afternoon. That has been extremely helpful in explaining your role in the process but also putting your views forward in terms of the process itself. Thank you very much indeed.

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