Examination of Witness (Questions 806-819)|
WEDNESDAY 2 JULY 2003
806. Mr Bloomer, good afternoon and thank you
very much for being with us today. We are sorry the previous session
had to be delayed until today because of parliamentary business.
We are also grateful for the paper explaining the role of the
panel, which you have submitted. Before we put questions based
on that, is there anything you would like to say to the Committee?
(Mr Bloomer) I am the Deputy Chairman
of the Financial Services Practitioner Panel, for the avoidance
of doubt. I would like to highlight a few areas that have passed
before the Practitioner Panel to date. They come from a recent
letter we sent to the Treasury in respect of issues we would like
to see considered in their N2 plus 2 review, which is just kicking
off, on the operation of the FSA. One is the cost of complexity.
Any individual rule or change in rules is by itself sensible;
the cost looks reasonable. But what does not appear to be considered
is the aggregation of all those changes and the consequent complexity
and cost. Another area which flows on from that is the cost benefit
analyses where we have some concerns. I think we would like to
see the process defined more tightly, particularly in respect
of research supporting cost-benefit analyses. It is a difficult
area, and I know the FSA are looking at it, and in particular
looking at post hoc reviews, which we would also like to
see carried out. A third area is guidance where practitioners
are concerned that, in the move from a self-regulatory to a statutory
environment, we have difficulties always in getting informed advice
and support on the application of what is a new and complex rule
book. Again, I know that is an area the FSA is looking at. The
Financial Ombudsman Service and its relationship with the FSA
is another area of difficulty, in particular the FOS's ability
effectively to create rules without the consultation process that
exists within the FSA itself and the consequences of that for
the industry and practitioners as a whole. Lastly, I point out
the number of different and overlapping reviews that we have to
deal with at the moment and make a plea for greater coherence
and structure across these reviews. I think that would be welcomed
807. I begin on the role of the Panel itself.
It is possible that some of the questions this afternoon will
overlap with those asked of Mr Brydon when he appeared before
the Treasury Select Committee but, because we are looking out
across a number of organisations, we are putting similar questions
to each. In terms of the Panel itself, as you say, you are there
to represent practitioners and so of course the individual members
of the Panel themselves are not chosen in any sense to be a delegate
of any particular body, but the Panel itself is meant to be broadly
representative of practitioners. For that reason, you have a range
of members. How can you know, or how can you ensure, that you
are the voice of practitioners? How do you deal with the point
that was put to Mr Brydon by the Treasury Select Committee that,
of course, the way members are appointed is through the FSA rather
than by, say, bodies of practitioners?
(Mr Bloomer) There are a number of points
there. In practice, prospective appointments to the Panel have
actually been suggested by the Panel and then put to the FSA and,
to my knowledge, the FSA have never turned anybody down who we
have suggested would be a good addition to the Panel. The Chairman
and Deputy Chaiman of the Panel, because of the way the structure
works,need approval by the Treasury as well, but the suggestions
for new members come from the Panel. We pool those suggestions
and also maintain a dialogue with all the trade associations.
We try and take feedback from the practitioners in the industry
more broadly by talking to a whole range of member associations
and trade associations. Lastly, we do a biennialsurvey of firms,
most recently during 2002, which again gives us a very good idea
of what practitioners are thinking. We will do the next one in
2004. Preparation for that is already underway. Those are, if
you like, formal mechanisms. Informally, we publish information
on who we are; we publish our addresses and how to get hold of
us; and all of us will pick up points from people we see around
the industry if they feel there is something the Panel ought to
take account of.
Chairman: In terms of the survey, we may be
interested in some of the findings that derive from that.
808. I am also exercised about your apparent
independence. You are funded entirely by the FSA, are you not?
(Mr Bloomer) That is to the extent we
have funding; we are supported by the FSA secretariat. In the
last year we hired a researcher, paid for by the FSA. The FSA
also pay for the costs of our biennial survey. Other than that,
there is no remuneration to Panel members or other support of
809. As I understand it, the secretariat comes
from the FSA and is by all accounts not big.
(Mr Bloomer) No.
810. How big is your constituency? How many
firms are you actually representing in ballpark figures?
(Mr Bloomer) The total number of regulated
firms today would be about 11,000. That is shortly to increase
to about 40,000.
811. Might you need a few more researchers?
(Mr Bloomer) Many of those would go
in through the Small Business Panel. We have the Co-Chairman of
the Small Business Practitioner Panel sitting on the main Practitioner
Panel as well. We pick up the input, if you like, of that body
of small firms and will do so as that gets much bigger via the
Small Business Practitioner Panel. At present, I do not feel we
need more researchers to play our role. We do try and operate
at a higher and more strategic level. The Practitioner Panel does
not try and replicate the efforts and the role of the trade associations.
They do a lot more detailed work on consultative papers and they
have much greater resources than we have. We try not to replicate
812. How do you distinguish between your functions,
between you and the practitioner trade associations? One difference
is that they are each concerned with a different sector, but within
that sector, you made a distinction between what they are for
and what you are for. Can you clarify that?
(Mr Bloomer) Perhaps if I use an example,
one issue that we had significant debate around was the presentation
of and use of past performance data in advertisements for fund
management and for fund management trusts, unit trusts and so
forth. Clearly, several bodies, the ABI, the Investment Management
Association, and so on, were very exercised about the proposal
and did a lot of detailed work on it. From the Panel's point of
view, we discussed much more the principles underpinning the proposals..
We were more concerned to look at the research that had been done
by the FSA to support the position they were taking. We try and
stand back from the detail of what would actually be put in the
adverts and look more at the principle of the use of past-performance
data generally, what would be good for consumers and what we,
as practitioners, found that our customers felt helpful. It worked
very effectively and it ended up with some significant changes
to the original proposals, but it was a two-tier exercise for
813. May I just declare an interest, which I
should have declared at the beginning, if it is an interest. Many
years ago I was Chairman of the then FIMBRA. You probably know
what that stands for. You have two small practitioner members
as chairmen of panels. Can you tell us a bit more about the relationship
between you and them and the FSA?
(Mr Bloomer) The Small Business Practitioner
Panel at the moment has joint Chairmen, Michael Quick and Roger
Sanderswho I think has appeared before this Committee.
We see the minutes of the Small Business Practitioner Panel as
a matter of course. They attend all of the Practitioner Panel
meetings and report on any particular activities or any particular
issues. They also take a full part in the Practitioner Panel's
discussions. They are more broadly involved than simply reporting.
They produce their own report to the FSA and have their own conversations
with the FSA, again as well as being routed through the Practitioner
814. What is the result of that relationship
between you and them?
(Mr Bloomer) I think it is a much better
understanding on our part of the concerns of small practitioners.
One of the things we found in the survey is that there are some
distinct differences in the responses to the FSA and changes in
the regulatory environment of large members with greater resources
and the small business members, many of whom may be effectively
sole practitioners. It is a useful way of ensuring that when the
Practitioner Panel deliberates, we do have broader input than
just what the big companies think.
815. Have you ever had a serious difference
of view with the FSA on which you have either criticised or not
been satisfied with their responses to your recommendations?
(Mr Bloomer) We have never had to write
to them under the terms of Section 11. We perhaps write on a formal
issue to them and they write a formal response. We believe that
is actually the best way to have a dialogue with the FSA to promote
change. There have been topics on which we have disagreed significantly.
The issue of past-performance data in the first instance is one,
and following discussions there were fairly significant changes
made. Another would have been the original paper on with-profit
funds and the management of with-profit funds, and that has led
to some changes in the latest version of the consultation paper.
I think we found in general a willingness on the FSA's part to
engage in dialogue at senior levels, and a willingness to go backwards
and forwards. In my more than two years with the Practitioner
Panel, we have not had anything that has ended up as a major disagreement
where we have not managed to find common ground.
Lord Holme of Cheltenham
816. I am sure you would accept that this is
within the industry a leadership group. If you look at the distinguished
members of the panel, it is not only a representative group but
it is a selection of the leaders of the financial services industry.
I wondered in that respect, and this is following Lord Elton's
question, although clearly the FSA would be prudent to carry with
it the leadership of the industry, which you certainly are doing,
how far at the same time you really feel that in a bottom-up sense
you are representative of the larger financial services industry,
which is not necessary part of these large players in the City?
(Mr Bloomer) I think, in particular
through the survey, we do feel that we have a real contact with
the constituency, if you like, as well as through the trade associations.
Regularly at meetings of the Practitioner Panel we have someone
from one of the trade associations coming along. We may have a
formal conversation with them, as well as an informal conversation
outside that formal meeting and, as I was explaining earlier,
through the Small Business Practitioner Panel. I think we have
the right mechanism to stay in touch. In the last survey, we asked
how many people knew of the Panel and what they thought about
it. I cannot remember the percentage off the top of my head but
the result gave us, not complacency but some cause for feeling
that we were representing the bulk of firms.
817. Clearly, in that respect, the survey, which
is pretty frequent, I gather annually, is obviously a very key
instrument of transmissionbottom-up as opposed to top-down.
Who actually designs the survey? Is it done in consultation with
the FSA? Is it done by you on your own? Given that market research
generally elicits answers to the questions that you put into it,
who puts the question into it?
(Mr Bloomer) The Practitioner Panel
is a start point for the questions. The one we did in 2002 was
the second. In large part we tried to stay with some of the questions
from 1999, which was the first, which was before N2, and so before
the FSA really started its operation. In the next one we will
try and maintain quite a lot of the same questions so that we
can get some sense over time of the way responses change. The
research firm that worked with us , BMRB, had an input into the
questions and the design to try to ensure an unbiased view. The
FSA is shown the questionnaire out of courtesy and this year we
added some questions at their request, but this was entirely at
the Panel's discretion and we retained full editorial control.
The FSA may of course pull together all the addresses because
they have the address database It is a part of an open exercise
between us. We are very keen to share the results with the FSA.
We also publish them and include a summary in the Practitioner
Panel's Annual Report. The FSA responded to that in their Annual
Report as well, and so we try and take the bias out. That is true
of the point you raise.
818. Could I ask one further supplementary on
that? In thinking of the last two annual surveys, can you identify
anything where the members of the Panel were really quite surprised
and said, "Oh, well, now, that is not what we had thought.
We had better pass that on post haste to the FSA because we, as
a panel, had not taken that view and had not had that understanding
and that concern"?
(Mr Bloomer) These reports are every
other year, not annually. The thing we were most surprised at
last year was a growing gap between expectation and performance
of the FSA. That was in particular in the area of informal guidance.
That was perhaps one of the most surprising things, that that
gap had opened up as we tried to compare against the list of what
we see as priorities for the FSA, and "which of these do
you think are most important for the FSA?"; then "how
do you think . . .?"; and "that is what we expect; how
do you think they performed against them?" I suspect that
gave us more surprise than we expected.
819. That there was a greater gap?
(Mr Bloomer) Yes, and there was this
much greater concern about the ability to get informal guidance.
That is a topic we have discussed with the FSA, to which they
have responded. Some of it may be because of their risk-based
approach to regulation, which I think all practitioners would
wholeheartedly support, but it does mean that if you are classified
as a low-risk firm, you consequently get less attention. Therefore,
instead of having a close dialogue and going in to talk and so
on, you may feel more distant. That is particularly an issue for
the small companies. It is a difficult area, particularly for
smaller companies. There was a real concern about the complexity
of the handbook and the difficulty of finding your way around
the handbook, which is again something the FSA have addressed
now: "how can I get informed advice that is not wrapped up
in a legal requirement?"
Lord Holme of Cheltenham: That is very interesting.
1 Note by the witness: Around one in three
chief executives, four in ten heads of compliance and a quarter
of smaller organisations had seen or heard something about the
Practitioner Panel. Opinions of the Panel were generally positive;
around 90 per cent of practitioners who had seen or heard anything
about the Panel thought it had an important role to play on behalf
of the industry with the FSA. Around 70 per cent of practitioners
who had seen or heard anything about the Panel felt it was helping
the FSA to understand industry views and was independent of the
FSA. Around 60 per cent of practitioners felt that the members
of the Panel could represent the industry as a whole. Of those
who had an opinion, around two-thirds agreed that the Panel was
able to influence FSA policies and decisions. There were more
mixed views on the ease with which firms were able to express
their views to Panel members, with around half of practitioners
who gave an answer agreeing that this was the case. Back