Examination of Witnesses (780-799)|
WEDNESDAY 25 JUNE 2003
MS A FOSTER
D WATTS FINANCIAL
780. Ann Foster's first sentence was that you
were set up as an independent body. The paper you sent us reveals
that you were established under statute, that you were appointed
by the FSA, that your budget is set by the FSA who provide your
secretariat and pay for them. Presumably they pay your expenses
and any honoraria that any of you receive. How do you square that
with the word "independent"?
(Ms Foster) I understand entirely your
question and it was one that did intrigue me when I first applied
to become a member of the Financial Services Consumer Panel. I
have to say that it works. You are absolutely right, the FSA does
appoint members, although they do that through Nolan procedures
with external members of the appointments panel, and indeed the
board does vote our budget and provide our secretariat and we
have our monthly meetings in the FSA building in Canary Wharf.
Nonetheless, we are fiercely proud of our independence and that
is our independence in the way we conduct our business and the
way we come to our conclusions. I can honestly say that in all
the time I have been there, we have never had any pressure on
us at all to come out with a particular recommendation or express
ourselves in any particular way. We are able to act independently
of the regulator and they value this and I am sure they would
wish to retain this relationship. We are free to criticise the
regulator, if we think they have not done enough and indeed we
have the opportunity to make a public statement about that. We
publish our recommendations every year to the FSA and they have
to respond openly to that. We are quite confident that, although
structurally and operationally we are part of this larger body,
as an advice-giving panel, we can act in a completely independent
way. We have one agreement with the FSA which is important and
that is a "no surprises" policy. If we are going to
criticise them, we do have the courtesy to tell them first, but
it does not in any way inhibit what we say or how we say it.
781. How do you set your agenda?
(Ms Foster) In two ways really. The majority of our
agenda is driven by the regulatory timetable and by the consultation
documents which come out. Clearly much of what we have to do is
focused on that particular agenda. But we can go into subjects
on our own account.
782. Do you?
(Ms Foster) Yes, we do. For example, there are more
directives now coming from Europe. At the moment, the first concentration
of directives did not have immediate consumer impact, but gradually
they are having more. We are concerned that we do not know enough
about the European financial market and we do not know enough
about how other countries operate. We probably do not yet know
enough about what would happen if German firms tried to sell mortgages
to our consumers or French firms sold pensions or whatever. We
have decided to make more of a priority of finding out how these
markets operate in Europe, how the directives which are coming
down the line are going to impact upon our consumer protection
and processes and we are also very concerned about getting a stronger
consumer voice in Europe for the discussion of these directives.
That is an area where we have set our own agenda and have not
had it necessarily dictated to us by anybody else.
783. Do you relate to any other consumer bodies
with interests in areas you are concerned with such as the Consumers'
(Ms Foster) Yes, we do. We have regular meetings with
Consumers' Association and with National Consumer Council.
784. How do you relate to them? What is the
effect of your discussions?
(Ms Foster) It is often just an information sharing
session. We find out what their views are. We have a different
remit. Our remit is to advise the FSA on the FSA's proposals.
An organisation like Consumers' Association has a much wider campaigning
role on a wider range of areas. We do liaise very closely with
them. We often share common ground but not always.
785. Did you say your role is to advise the
FSA on its proposals? Do you not advise them on any other things
which you may discover from the constituency of consumers?
(Ms Foster) Yes, we do.
786. Do you make any comment on the proposals
after they have been put into effect?
(Ms Foster) Our prime role is to advise the FSA on
its current and developing policies and practices, but we can
go further and we do.
787. You say that the FSA must provide you with
a statement in writing for reasons of disagreeing with anything
you say. How often does that happen?
(Ms Foster) Every time we put in a formal response
to the FSA outlining our recommendations, they will always respond
to us formally in writing.
788. Have they not disagreed with you?
(Ms Foster) They respond whether they agree or disagree.
789. My question is: have they disagreed with
(Ms Foster) Yes, they have, on occasions; yes. We
have had occasions where we have been very pleased with the outcome
of our representations, where we do believe we have influenced
FSA proposals, but there have been areas where we did not get
all that we wanted and they have come back and told us so.
790. And that is the end of the matter.
(Ms Foster) Oh, no; we can still keep going.
791. What happens next?
(Ms Foster) We keep going. If there are other opportunities
to raise the matter at other meetings we may have, then we shall
continue to do so. We have to be realistic about this. Although
we are a strong and effective Consumer Panel, even we know that
we do not get absolutely everything we want. There will come a
time when a rule will come out which may not exactly reflect what
we wanted, but we have had some successes.
(Mr Watts) To a large extent what the FSA is doing
at the moment is setting up rules and regulations and it is still
developing its rules and regulations which are going to a very
strict timetable, a flexible timetable, but one which has to be
done quite quickly. That means that with mortgage regulation,
for example, which is just coming in, we believe the FSA has taken
on board the most important things that we said about the proposed
regulation framework. There are still some things which we do
not think they have taken on board which they ought to do, but
I do not think we could expect to have 100 per cent of what we
say accepted. Just to add a little bit on us bringing our own
agenda to the FSA, we have done that in a number of ways. Most
important in my view is to do with financial promotions and advertising
and direct mail regarding "Buy this investment. Buy that
investment". As a result of us saying consumers are being
misled by a lot of things in this area, the FSA announced in its
last plan and budget that it was giving considerably more resources
to that area and having a policy of looking at that area. That
is an important area where the agenda was set by us and not by
(Ms Foster) Some of the issues we have with the FSA
are quite long term. For example, we have criticised the FSA for
not acting faster when the too-good-to-be-true products come on
the market; split caps for example. They have agreed with us,
but how they tackle this is something for the longer term. Equally,
we made the point to the FSA, in the light of Equitable Life,
that when the FSA knows that firms are in difficulty, at what
stage do they tell the general public that this is the case? Where
do they draw the line between preventing people from buying a
product from a firm which is clearly in difficulty or actually
then making the market collapse even further because people stop
buying? It is a very, very difficult issue. Clearly it is one
of huge importance for consumers and we have discussed this with
the FSA, but it will take some time until they develop the appropriate
792. In your annual report of 2002-03 about
small firms your synopsis says that the FSA must ensure that the
lighter touch supervisory regime does not result in smaller firms
being unlikely to face enforcement action and that you are pleased
with the FSA's new strategy for small investment firms to address
this problem. In response they say they talked about it to you
and in the coming year they will work with firms who want help
in this matter and that they have established a team to co-ordinate
prompt enforcement action. They end by saying that they have presented
their plans to the Consumer Panel and welcome their support for
this approach. This seems a very happy story but is it accurate?
(Ms Foster) Yes, it is.
793. You were pleased with what they wanted
(Ms Foster) Yes, we were. You are right, we raised
the concern, we had a presentation from the members of staff concerned,
we were struck by the strategy they outlined to us and it gave
us confidence in the way that they were going to regulate small
794. Very good. In response to Lord Elton you
mentioned two things: one was that you had the right to publish
and the other was that you would keep probing.
(Ms Foster) Yes.
795. Can you give me an unhappy example where
the FSA did not like your critique and you did publish and you
did keep probing and you won?
(Ms Foster) One area where we have kept at it is actually
on the financial promotion side. This is a very strange field.
If a consumer complains about an advertisement which they believe
to be misleading and they write to the FSA to make this complaint,
they do not know what the outcome is. So even if the FSA agrees
with them that it is misleading, even if they talk to the firm,
there is no way the FSA can make public that kind of information
unless it goes to the full enforcement procedure, which is very
lengthy and almost counterproductive to the problem which is trying
to be solved. We think this is totally contrary to the interests
of consumers at large, so we have raised the issue with the FSA
repeatedly. At first the response was that this was a problem
with the legislation, even if they wanted to they cannot as this
is what the constraints of the legislation are. We then did a
very high profile press release and got lots of coverage for it
and we have continued to work with the FSA on this. They are now
looking at the legislation to see whether it is possible to go
further. We have mentioned it already to the Treasury in terms
of the two-year review they are doing of the Financial Services
and Markets Act. Also, the FSA has indeed developed a more comprehensive
financial promotions strategy. We would see that as a success
for the panel. If we had not raised this issue, it probably would
not have been raised. If we had not kept on, we would not have
got where we are now.
796. So you would not say you have totally won
that discussion, but for the most part you have won it. You have
got them to look at the legislation.
(Ms Foster) Some things take a long time, but we have
also had a notable success with one part of the proposed regulation
of mortgage sales bringing what was to be a three-process method
of sale down to two. We appear not to have been successful on
something called the suitability letter. We would like the FSA
to retain the need to send consumers a suitability letter. At
the moment they do not think that this is particularly effective.
The other thing I should say is that we actually get several chances
to make our point. We often talk to FSA staff before they go public
with a consultation. They will come to us with their draft proposals,
we can comment then, then the proposals will come out for public
consultation and we can have another chance then. Sometimes they
will come back to us a third time and say "These are the
results of the consultation. This is what we are minded to do"
and we can have another chance then.
797. When you do go to the press does that happen
quite often, or is it rare that you actually produce a press release?
Do not give me a figure.
(Ms Foster) It happens quite often. The press do not
always take up our press releases, but we have recently had very
good coverage for our annual report and what the press are most
interested in are the areas where we are critical.
798. And the FSA do take note.
(Ms Foster) Yes, they do.
799. May I look at one aspect which is not covered
much in the paper? You touched upon it there and in the highlights
of your annual report. Apart from contacts with the FSA you respond
to government consultation as well, so there is some dialogue
with government, there is dialogue with the FSA. What I want to
bring into this is Parliament. How do you see Parliament's role
in this? You mention in your paper that the Treasury Select Committee
has had a meeting to discuss the annual report. Do you think there
is more that Parliament can and should be doing, looking at it
particularly from the consumer perspective, in other words representing
the consumer, or do you think it is sufficient to be channelled
through you? Should Parliament do more?
(Ms Foster) In terms of FSA's accountability?