Select Committee on Treasury Minutes of Evidence

Examination of Witness (Questions 140-151)



  140. There seems to be £22,000 gone astray. Are these the only accounts you produce or do you produce for your own panel proper accounts?
  (Mr Brown) We produce a longer version for our own panel.

  141. Could you submit that to this Committee?
  (Mr Brown) Yes.

  142. Because it is not in the FSA's accounts and it is quite a sizeable sum.
  (Mr Brown) We would be very happy to.

  143. In view of the inaccuracy, we ought to be clear where the money is going. Could you do that?
  (Mr Brown) Yes.[7]

Mr Tyrie

  144. Are you sure that your table on page 22 about people's dissatisfaction with these products is saying very much? After all, if you are someone who is happy having bought stocks, it rather depends whether they have gone up or down. They tend to go down almost as much as they go up in the long run; whereas if you buy an endowment policy this is a very different kettle of fish where you are locked into a financial arrangement for half a lifetime. Do you think it might be a good idea if you start to distinguish between these two types in your subsequent publications?
  (Mr Brown) I agree that regrets can come from all sorts of different directions and that one should not read into this that this is an indicator of mis-selling or something fundamentally wrong with the design of the product. We just wanted to get an indication of those products which people felt grumpy about.

  145. Do you think it might be a good idea to differentiate between these? I could read this table and conclude that 94 per cent were happy with their PEPs; 92 per cent with their investment bonds; 92 per cent with their repayment mortgages and 92 per cent with the personal pensions, but that is not the impression you are trying to give in this table at all.
  (Mr Brown) No. We were exploring those things that people were unhappy with.

  146. We are all agreed that there is understandable consumer ignorance about many of the products which people are forced to purchase. In trying to deal with that ignorance, have you considered working with any other institutions or bodies which could develop programmes in schools to enable people entering the labour market to have a better understanding of what they end up buying?
  (Mr Brown) I ought to say what really is our job and what is the FSA's job here. The FSA has a considerable education, consumer awareness remit and a considerable programme, particularly in schools. One of their achievements is getting it onto the national curriculum and they produce materials and so on. It would not be an activity that the Panel itself would carry out. We would talk and do talk with the consumer education department at the FSA, but we are not doing it ourselves.

  147. Related to that, people are buying products in ignorance. People do not read the small print and that is made clear in a number of your questionnaires which you advance. You want to prevent the public being ripped off. That seems to me to be very high on your list of priorities. One of the points you made at the beginning was that you were concerned that the FSA might use its opposition to zero regulatory failure as an approach to create or allow an environment to be created in which there might be an unacceptable level of rip offs. I want to put to you that the main reason why so many people seem to be happy with products which they have bought, even though they do not understand the fine print, is competition. It is competition in the market that creates better, cheaper products. Is not the strongest possible benefit that is going to come to consumers in this market going to come from a reduction in prices as a result of competition? Do you have that as something which you are also monitoring, ensuring that those bodies responsible for monitoring competition are doing so adequately?
  (Mr Brown) The Panel does place a high value on competition and we note one of the principles of good regulation included in the Act that the FSA has to abide by is on encouraging and not squashing competition. However, we have to be realistic about which products, which financial services, respond to competition and which do not. It is quite clear that in the mortgage market there is a degree of competition which we do not see in other parts of the market. In the mortgage market, we have seen consumers exercising choice and driving better deals because of the numbers of products on the market. We have seen the prices of other products, investment products, come down as a result of regulatory intervention on CAT standards and stakeholder pensions. I think it is important that competition is not damaged but we have to be realistic. Sometimes, financial purchases are so rare that consumers do not build up experience in repeat purchase like they do in other markets and there is such an asymmetry of information between the provider and the consumer that the normal rules of shopping around and the impact that has on price and quality of product do not apply.

  148. You began that reply by saying that you placed great emphasis on competition. If I may say so—and I have not read the Home Office document—I cannot find very many references to your monitoring of the relationship between regulation and competition which, after all, seems to me to be the crucial relationship which will decide whether consumers will get better value for money and lower prices in the long run.
  (Mr Brown) We would not agree with you that it is the crucial issue. In the period we are in now in financial services, regulation for consumer protection is the crucial issue. We agree that, in circumstances where those consumer protection measures inhibit competition to the detriment of the consumer, there is something to worry about. We should be looking at that. Of course, that is a central issue in the polarisation debate. We will take that on board. Our main concern, given the experiences that consumers have had in the market place over the last 15 years, still has to be consumer protection from the mis-selling and other things that are done to them.

  149. You have a long report on that and the relationship between that and consumer attitudes. Could we also have something on competition in your future reports, what you have done to monitor and improve the effectiveness of competition and competitiveness?
  (Mr Brown) Given the issues that are live in the regulatory debate at the moment, there is bound to be discussion on competition.

  150. Can we have something in your report on that?
  (Mr Brown) There is bound to be something in the annual report.

Mr Laws

  151. When I was questioning you earlier about the Equitable situation, you were not absolutely sure understandably when, after the Panel was set up in December 1998, you received your first substantive briefing on the matter. This may be an unfair question to drop on you from the air but could I ask, through the Chair, whether it would be possible for us to get a note from you later on when you have that substantive information?

  (Mr Brown) Yes.[8]

  Chairman: Thank you very much. It has been very helpful. We have taken you down a lot of paths and avenues, some directly and others indirectly. We hope to continue that relationship in the future. Looking at your report, it is very clearly written. I notice that in appendix seven you have a glossary and you also have defined terms in highlighted colours. That is a contribution to helping consumers in the plain English debate. Your report is thicker than the Practitioners', so I look forward next year to both your reports being even thicker.

7   Ev 23. Back

8   Note by Witness: It was in October 2000. Back

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