Select Committee on Constitution Minutes of Evidence


Memorandum by the Financial Services Practitioner Panel

INTRODUCTION

  Sections 8, 9 and 11 of the Financial Services and Markets Act 2000 ("the Act") set out the requirements for the Financial Services Authority ("the FSA") to consult practitioners—a key part of the accountability framework set up by the Act to monitor the considerable powers of the single regulator. The Financial Services Practitioner Panel ("the Panel") was set up, as the Practitioner Forum, by the FSA in 1998 to create a high-level body to which it could turn for opinions on matters having an impact on regulated firms.

  Subsequently, the Act established the Panel as a statutory body, alongside the Consumer Panel, which represents the interests of consumers to the FSA. This was in recognition of the important role of both Panels in the accountability and regulatory framework established under the Act.

  Both the Practitioner and Consumer Panels became statutory on 18 June 2001, from which date the Panel adopted the name of the Practitioner Panel, as it is called in the Act, rather than its previous name of practitioner Forum.

  Earlier last year, the Panel's Chairman, Donald Brydon, and Colin Brown, the Consumer Panel Chairman, gave evidence to the Treasury Select Committee ("the TSC") on the operation of the two Panels and to review how they were contributing to the accountability framework of the FSA. The Select Committee questioned both chairmen closely on their relationship with the FSA, and challenged the Panels firmly on their approach to monitoring the FSA. The transcript of the oral evidence given to the TSC can be found at: http://www.publications.parliament.uk/pa/cm200102/cmselect/cmtreasy/600/2020501.htm

MEMBERSHIP

  Membership of the Panel is constructed to represent the various sectors within which regulated financial businesses operate, based mainly on nominations made by trade associations. Members are drawn from the most senior levels of the industry. The very senior level of membership of the Panel, as then established and since, reflects the intention to create a body with both the experience and authority to inform the FSA of the impact of the developing regulatory framework on regulated firms. The Act only specifies two sectors which must be represented, these being recognised clearing houses and recognised stock exchanges.

  The Panel proposes potential new members when necessary, who are then formally appointed by the FSA. The Chairman must have the formal approval of the Treasury. The Panel aims to rotate its membership to ensure a balance between consistency and new input. The Panel also includes the co-chairmen of the FSA's Small Business Practitioner Panel.

ROLE OF THE PRACTITIONER PANEL

  The Panel's remit is to represent the interest of practitioners, and to provide input to the FSA from the industry in order to help it in meeting its four statutory objectives and seven principles of good regulation.

  The main Panel objectives are:

    —  to monitor the FSA's effectiveness as seen by the industry;

    —  to communicate to the FSA issues of general concern to regulated businesses about regulation in practice;

    —  to respond when requested to by the FSA with a practitioner view of key regulatory issues; and

    —  to contribute a broad financial industry view on the formulation of FSA policy and on the response the FSA proposes to make to representations it has received during any formal consultation process.

  As an important part of the monitoring objective, the Panel regularly conducts a survey of regulated firms to seek their views on the FSA's performance. In 1999, it undertook the first survey of regulated firms. The Panel undertook a second survey in 2002 and will repeat it again in two years. In this way it will build up a continuous picture of how the industry's view of the FSA and its regulatory framework is developing.

  The Panel takes care to ensure it does not duplicate the important work of the trade associations in representing the views of their members. These associations generally have the staff and resources to promote the interest of their respective members in response to the impact of FSA regulatory policies on the sector they represent. The Panel aims instead to speak across all sectors in offering input at a strategic level.

  The Panel also monitors any possible breakdown in dialogue between the FSA and trade associations on particular issues and maintains regular contact with trade associations.

STATUTORY STATUS

  On 18 June 2001 the commencement order giving statutory status to both the Practitioner and Consumer Panels under the Act came into force. Section 11 of the FSMA brought an important part of the formal accountability of the FSA to the Practitioner Panel into effect. This provides that, should the FSA ever reject formal advice offered by the Panel, it should have to explain its reasons in writing. The same also applies to the FSA's relationship with the Consumer Panel, and both Panels have therefore agreed a common process for managing these "section 11 representations".

  It is important to strike a balance between ensuring that section 11 can be applied effectively, whilst at the same time not weighing down free and frank debate by unnecessary formality or bureaucracy. Neither Panel expects that formal representations under the Act will be made often, and none have been made to date since the provision was brought into effect. This is nonetheless an important facility: whilst the Panel has no fear that the present FSA administration would ever seek to sideline the Panel or its views, it is important to protect against such a possibility in the future.

ACCESS TO THE FSA

  Generally, the Panel enjoys the benefit of useful and productive discussions at meetings with FSA staff. The Panel Chairman meets regularly with the Chairman of the FSA, and has appropriate access to the FSA Board, and these contacts provide the opportunity to communicate issues of particular import and emerging concerns. The Panel's annual report is the subject of a formal presentation to the FSA Board.

  There are frequent more informal and ad hoc contacts between the Panel members and Directors and senior executives of the FSA. Managing Directors regularly attend Panel meetings to update the panel on current issues within their responsibility and generally impacting on the FSA's work. Senior FSA executives regularly attend meetings to present on policy developments, seeking the Panel's views before going out to wider formal consultation.

  The Panel also maintains a dialogue with the Consumer Panel, in particular through meetings between the respective chairmen. Others with whom the Panel has had useful discussions during the year are Rosemary Radcliffe, the Complaints Commissioner, and Walter Merricks, the Chief Ombudsman of the Financial Ombudsman Service.

BUDGET

  The Panel is supported by one researcher whose costs are borne by the FSA. Ad hoc expenditure, such as the cost of the annual report and its bi-annual survey of regulated firms, is agreed with and paid for by the FSA. The Panel has no other formal budget but reserves the right to request support from the FSA as judged necessary.

  The Panel keeps under review whether this continues to be the most effective way of operating, but for the present considers this the right approach since regulated businesses ultimately pay for the costs of the FSA. This approach does require the unremunerated support of members of the Panel and the assistance of the FSA Secretariat.

2 April 2003

Note: Further general information about the Panel is available at www.fs_pp.org.uk


 
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