Select Committee on Constitution Minutes of Evidence


Examination of Witness (Questions 820-839)

WEDNESDAY 2 JULY 2003

MR JONATHAN BLOOMER, FINANCIAL SERVICES PRACTITIONER PANEL

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 fairly recently?

   (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 of that?

   (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 regime—potentially 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 them—the cost of complexity and the aggregation of cost, the cost benefit analysis, and the post operative reviews—do 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 industry scrutiny.

   (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?

  828. Exactly.

   (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 in regulation.

  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 ambitious?

   (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.

Lord Elton

  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.


 
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