Examination of Witness (Questions 820
WEDNESDAY 2 JULY 2003
Lord MacGregor of Pulham Market
820. Perhaps I should start by declaring
an interest as a non-executive director of a pension, life and
asset management firm, plc. May I start with the opening statement
you made and just be clear. You said it was a letter to the Treasury
(Mr Bloomer) Yes, in early June.
821. Was that based on the 2002 survey?
(Mr Bloomer) It was in some part; it
was a precursor, some thoughts from the Practitioner Panel on
the upcoming Treasury N2 plus 2 review, and some particular areas
we thought it would be important to include in the deliberations
on the N2 plus 2 review. I am sure we will have further input
to that as it goes on. It was early thoughts on that, some of
which came out of the points that came up in the survey.
822. Would it be possible to have a copy
(Mr Bloomer) Certainly.
823. That would be very helpful. So it is
at an early stage and you have not really done this process before
with Treasury, have you?
(Mr Bloomer) No, this was the first.
I think it was originally the Cruikshank Report that decided there
would be a review of the regulatory regime two years after the
N2 date collectively known as N2 plus 2. It was quite a short
time frame, given that it is changing the regulatory regime, but
that is what is going to be carried out.
824. You have actually raised a lot of important
points in that short time frame, if I may say so. You indicated
that you find the dialogue you have with the FSA is good and you
have a good impact. I suppose it is far too early to say what
impact this particular exercise with the Treasury would have?
(Mr Bloomer) It is far too early. It
is in its very early stages and so I have no idea.
825. In your view, if some of it is ignored,
what courses of action do you have?
(Mr Bloomer) In part, this is a Treasury
review of the FSA. Ultimately, it is the Treasury that decides
whether there is any need for changes to the regimepotentially
changes to primary legislation. If there are things we do not
feel are taken up within the Treasury review, then we will continue
to have the debate with the FSA. Those are more issues of structure
and the way the FSA is organised, I suspect, rather than the way
the day-to-day work is done, and certainly it will not touch on
individual consultation papers at all.
826. No, quite, but a lot of the issues
you have raised are not just structural ones that could lead to
changes of legislation. There are operational aspects as well,
are there not? If I could just take three of themthe cost
of complexity and the aggregation of cost, the cost benefit analysis,
and the post operative reviewsdo you do any research on
that yourselves? They are all rather similar areas.
(Mr Bloomer) They all go together. We,
as the Practitioner Panel, have not done any formal research.
Part of our survey asks about people's perception of costs. One
of the things that came back was that costs had increased significantly
and in particular people felt the cost burden on them of regulation
had increased very significantly, and more than they expected.
Again, that is at quite early stages. I suspect there are one-off
costs in that early part. It will be interesting to see next year
how that has settled down and whether people are still as exercised
over the cost of regulation. Some of that came out in the survey.
Some came out of concern that we as the Practitioner Panel had
with looking at the cost-benefit analysis that had come across
the desk. We have been concerned about the supporting research.
It is a very difficult area. We looked internationally. Very few
other countries do this. It is therefore developing awareness,
but I think more use could be made of the trade associations in
trying to determine more accurately what might be the likely costs
of implementing something, and we need to think more about the
research process. We are trying to ascertain what might be the
risks and benefits typically to consumers and the market users
on the other side of the equation. That is why we have suggested,
and the FSA have picked it up in their latest report, that some
post hoc reviews in some areas would be useful actually
to go back and ask what lessons we have to learn. This is an area
that will develop over time as both industry and the FSA get more
used to the cost-benefit analyses.
827. I understand partly in that context
that the NAO do not have the right of access to the FSA. Do you
think that their having it would be of some assistance to you
in this sort of area? It would be independent, outside of the
(Mr Bloomer) I must say that before
I read my notes for this session I had not realised the NAO did
not have access to the FSA in that way. It would not concern me
unduly whether they had access or not because I suspect their
view would be: is the FSA being efficient in its own operations?
(Mr Bloomer) I have less concerns about
that. Although the cost to the industry of the FSA clearly is
something that is relevant to us all, there are much higher costs
in implementing changes to the regulation, or potentially higher
costs in implementing changes to regulation, if they do not give
any real benefits on the other side. I am less concerned about
the NAO and the FSA's efficiency than the cost benefit of changes
829. And the other issues you have raised,
yes. Can I ask one last set of question? You do not duplicate
the appeal mechanisms in any way, do you?
(Mr Bloomer) No.
830. Do you think that there are other mechanisms
that should be involved in considering appeals? Are you satisfied
with the appeal process?
(Mr Bloomer) With one caveat, yes, and
the caveat would be that typically an appeal would involve something
through enforcement already and it would go to the Regulatory
Decisions Committee, the RDC, and then on from there, if you want
to take it on to an appeals tribunal. Up until that point it is
in private. The appeals tribunal is held in public. I think there
has only been one use of it to date by an individual who wanted
to be authorised by the FSA. I do not think it is an accident
that there is not a firm that has yet taken a point to that appeals
tribunal in public because, almost by definition, anything that
gets that far is going to be grey. It is likely that there is
going to be dirty washing to be aired in public on both sides
when a point reaches the appeals tribunal. Most firms are not
going to take that option. It was a point made by the industry
at the time when the FSMA was being drafted. The decision went
the other way and the appeals tribunal is to be heard in public.
It will be interesting to see if anybody uses it.
Baroness Howells of St Davids
831. Mine is an entirely different type
of question. Looking at the list of members here, I think I am
right in believing that you only have one woman?
(Mr Bloomer) Yes.
832. You certainly do not seem to have anybody
of colour on there. Is that because they have not reached the
grade or is it something which we should be worrying about? It
just seems that in 2003 there should be somebody making a move
from the amount of business that is being done.
(Mr Bloomer) There should be. I suspect
the only answer is the number of either women or people of colour
running major firms within the City, which is a much broader topic
than that of the Practitioner Panel.
833. From looking at the Financial Times,
there are quite a few of them coming through. I was just wondering
if that is in the minds of the Financial Services Practitioner
Panel and if they are concerned that it is not multiracial and
it is not looking at women as potential members, or are you in
isolation from the rest of the country in that area?
(Mr Bloomer) We are certainly not trying
to be in isolation. As I said earlier, we are keen to stay in
touch with constituents. We have taken the view that the Practitioner
Panel is likely to be most effective if it has as its members
senior members from the major firms because of the contacts we
have both with trade associations, with other companies and with
the FSA. We are keen that we have a broad range of individuals
on the Panel. We should ensure that it is representative, but
our concerns have been much more that we have the right senior
level people who have a broad overview of the industry rather
than their particular individual backgrounds.
834. So am I to understand that there are
no black people at that sort of senior level in the City? I just
want to know how you see this working. Will it ever happen? Is
it something you have given thought to? If not, I would suggest
you probably need to do so.
(Mr Bloomer) As a panel, we have not
given it any thought. It has not been a topic of discussion. You
are right, we probably should have done so. It should be something
we sit down and talk about. I was trying to remember; there are
some but very few women from any major City firms. In terms of
the constituents of the Panel, and its major firms, I cannot think
of any black people. There is a broader topic here than the make-up
of the Practitioner Panel.
Baroness Howells of St Davids: This is the only
opportunity I have to ask the question and so I wanted to be sure
that it is on the record at this time.
Earl of Mar and Kellie
835. At a slightly flippant level, can I
follow on from Lady Howells. I know that the Select Committee,
which you say your chairman appeared before, was all men. The
House of Commons with its 25 per cent women has also failed the
Howells test. Perhaps I could ask a simple question. You use the
expression "small businesses". Can you please tell me
what is the largest form of small business?
(Mr Bloomer) I do not know. I do not
know what the cut-off point is in the nature of the small business
or how they define their constituents. Most of them are owner-managed
companies, mainly sole traders. Some are larger; they are not
all in that category. Michael Quicke's firm would be larger. It
is a large constituency of the smaller companies.
836. In thinking about the question I had
in my mind, I was pulling figures out of the sky like 200 or 20.
I think what you are suggesting to me is that even 20 might be
(Mr Bloomer) It is not for some of the
members that would see themselves as part of that constituency.
To some extent, from a Practitioner Panel point of view, since
we have Roger and Michael on the Panel, we can actually represent
the whole spectrum. Luckily, we do not have to worry too much
about where the boundary comes. Some would be bigger than that.
There are an awful lot of very small firms. Certainly, when the
rules change to bring in mortgage brokers and general insurance
brokers, there will be another 30,000 or so.
Lord Holme of Cheltenham
837. From the perspective of the Panel,
how do you see the FSA's accountability, in particular to Parliament.
Perhaps I can amplify the question. The danger is that relationships
with Parliament and the financial services are crisis-led, so
that when there is a Maxwell or an Equitable Life, or indeed an
unfolding pensions crisis, then it becomes a hot political issue
and there is an element of crisis management which involves all
of us in the public arena. I was thinking in a more normative
way on a regular basis how you see, both on the parliamentary
side and on the FSA side, that accountability could be demonstrated
and, if necessary, improved. You have dealt with the NAO issue
in your reply to Lord MacGregor. Generally, how do you think that
should work well from the perspective of the Panel?
(Mr Bloomer) One aspect is the FSA's
Annual Report, which is a very full document. For example, they
deal with the points that we as a panel make to them and they
respond to those individually, and the same is true with the Consumer
Panel, and so on. I think that actually is an important part of
their accountability with matters that are raised. They clearly
appear in front of the Treasury Select Committee as well. That
is another clear opportunity to deal with important, specific
issues, particularly those that are perhaps more crisis than normative
in the way they are dealt with. Outside that, I think the other
areas would perhaps be around the cost-benefit analyses and also
around the Treasury N2 plus 2 review, which clearly is an opportunity
for the Treasury to come back to Parliament and say, "This
is how it is working after two years. Here are any suggestions
for change". From a Panel point of view, that is adequate.
I think practitioners are concerned to ensure that the FSA, although
clearly set up under the FSMA and accountable to Parliament, is
also independent, so that it is not driven too much by crises
of the moment and is not responding inevitably to rules made in
haste. There is always a risk of rules made in haste, particularly
in response to an individual case or a particular circumstance,
rather than something that is thought through and addressed in
the broad landscape.
838. Is there anything that you think Parliament
could do to make itself more effective as a body to which the
FSA would be effectively accountable, again from the perspective
of the Panel, realising you are not speaking for the FSA?
(Mr Bloomer) With respect to the Panel,
I think probably the key issue in a complex industry, now with
a very complex rule book and complex regulation, is the more detailed
the understanding applied to the industry or the rules, the more
effective an oversight would be. I do not suggest that as a trivial
solution. I think that is the only way; the complexity of some
of the issues does require time and a degree of knowledge.
839. I would like to return to the small
practitioners and your relations with them, which I find very
interesting. The reason for the division, as you see it, into
small panels and your own is administrative, is it, or are the
issues that you deal with different?
(Mr Bloomer) There are some different
issues, not least this point that many of the small firms do not
actually have necessarily that much contact with the FSA. If the
FSA does its risk assessment and says, "Actually, you are
low impact", even if you went broke tomorrow, on the FSA's
four objectives, then you will see very little of the FSA as a
firm. You will have to comply with the rule book but you will
not have a dialogue with them, whereas something like my own company
comes into the high impact and close supervision category. We
have constant contact and dialogue about all sorts of things.
That leads to a very different understanding of the rules, a different
relationship and different concerns because we are subject to
different processes within the FSA than somebody who is a small
IFA with low impact and low contact who has to deal with the rule
book. It still has questions and issues but they tend to be different
types of questions and issues, different concerns.