Select Committee on Constitution Minutes of Evidence

Examination of Witness (Questions 806 - 819)




  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 by practitioners.

  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.

Lord Elton

  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 Panel members.

  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 that work.

  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 that purpose.

  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 Sanders—who 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 Panel.

  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[1].

  817.  Clearly, in that respect, the survey, which is pretty frequent, I gather annually, is obviously a very key instrument of transmission—bottom-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. Thank you.

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

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