Examination of Witness (Questions 65-79)|
TUESDAY 5 FEBRUARY 2002
65. Good morning, Mr Brown, and welcome to the
inquiry this Committee is undertaking. Could I ask you to introduce
(Mr Brown) I am Colin Brown. I am Chairman of the
Financial Services Consumer Panel.
66. Are there any introductory remarks you would
like to make to us?
(Mr Brown) Yes. I would like to add three
points to the note that we sent to you. One is that the Panel
is a very important part of the FSA's accountability mechanisms
because it was basically set up to balance the very many and well
resourced voices of the industry. There are very few voices on
the consumer side, and I think it is extremely important that
there is a strong voice with some budget behind it to make the
point on behalf of the consumer. Secondly, that means that the
Panel operates much more publicly than the Practitioner Panel.
We publish much of our work. We see that as extremely important.
I think we have put something like 56 submissions and reports
into the public domain so far, and that is a fundamentally different
aspect of our operation when compared with the Practitioner Panel.
That is not the only part of our accountability. I would say that
we really do welcome the scrutiny of this Committee. I may in
the end live to regret that! We are ultimately accountable to
the public, but the public are not a group that we can directly
communicate with, and this is probably the best channel we have
for our accountability to the public. We therefore welcome this
opportunity and hope that we may have more.
67. A point was made by Mr Brydon earlier when
he said the Practitioner Panel fully supported the concept of
a non-zero failure regime as presently organised by the FSA. Do
you share that view? I am thinking of some consumers who would
come to you and say, "Look, we have been fiddled out of our
money and the regulator is toothless." Many of us as Members
of Parliament get that in our constituency surgeries regularly.
(Mr Brown) There are two aspects to that. The first
is that when companies fail, there is a compensation scheme and
the Ombudsman scheme to try and pick up the pieces when things
do go wrong, so even when there is a failure, the architecture
of the Financial Services and Markets Act has elements within
it and in the operation of the regulator to try and catch people.
But on the central point of the non-zero failure regime, we have
had this explained to us in detail by the regulator on several
occasions, and we understand it to the extent that in the end
the regulator cannot be perfect; no organisation can be perfect,
and it would have to spend a whole lot more of the consumers'
resources ultimately to ensure complete perfection and to avoid
any failure. We have to reluctantly acknowledge that that is true,
that no regulator can be absolutely perfect. As part of regulatory
theory, we have more difficulty with it. We are grappling with
it, the notion that if there were a zero failure regime it would
create a level of moral hazard for consumers in it, and thereby
have a bad effect on the market. That we find a harder one to
grasp. We are talking with the regulator about this, but on the
general point, that they cannot guarantee in every circumstance
to catch every failure before it happens, I think we have to accept
that is just a practical fact of life.
68. Mr Brydon said one of his preferred ways
of working was to have a word in the Chairman's ear. How often
are you whispering in the other ear?
(Mr Brown) I have quarterly meetings with the Chairman.
We have regular meetings during our Panel meetings with managing
directors of the FSA, and we have senior staff attend our sub-committee
meetings. Perhaps I ought to explain that, because there is so
much business that goes across the Panel's desk, we have found
ourselves unable to deal with it just having our monthly meetings,
so we have split the Panel up into three sub-groups who also meet
monthly for about half a day each to deal with the business. So
effectively each Panel member goes to two meetings a month. At
those meetings of those sub-committees we have a lot of contact
with staff, often very senior staff, of the FSA, and so we have
our input through those sessions. But as I say, I meet quarterly
with Howard Davies and we communicate by letter and memo on other
69. I am just trying to establish how much of
the contact is formal and how much is informal. I was quite surprised
to see on page 28 of your report that you actually seem to make
something of a virtue of "working behind the scenes".
(Mr Brown) Yes. That is a very interesting point that
the Panel has been addressing lately because of the change in
the Panel's activity. If I can explain, until just before N2,
much of the Panel's output was directed towards the huge number
of consultation papers that were coming out from the FSA and from
the Treasury in preparation for N2. Much of the behind-the-scenes
effort that went on then was in the pre-consultation phase during
the discussion of those consultation papers. So they would come
to the Panel while they were drafting the consultation paper and
ask us for our input before it was published. So many of the CPs
that came out had the consumer interest, or at least some input
from the Panel, already. That is what we were referring to as
behind-the-scenes work then. Ultimately, we would comment on those
consultation papers publicly, as you see from our publishing record.
Things have changed a little now, because the focus of our activity
has changed as the focus of the FSA's activity has shifted from
building the regulator and the architecture of regulation to doing
the job, and you will see from looking at the press that the FSA
is more involved in issues to do with market events and regulatory
events rather than issues to do with FSMA and the Human Rights
Act and so on. The consequence of that for our discussions with
the FSA is that many more of our communications with the FSA have
been behind the scenes; letter to managing directors and to Howard
Davies and so on. If you look on our website you do not see them
because up to now we have been used to publishing our big formal
submissions. We have made a decision that we would prepare digests
of all our traffic between us and the FSA and publish them on
our website from now on. That will mean that the issues which
now go on behind the scenes will appear in the public domain.
70. It is pretty important, is it not? If the
consumers are going to have confidence in you representing them
and they are looking at your small resources against the FSA's
giant resources, are they not going to be a little concerned about
all this talk about behind the scenes work?
(Mr Brown) Yes. That is why we think it is very important
to publish everything. We publish a lot already but we are aware
that changing the balance in our work could make it appear that
we are not doing much any more. We wish to make it very clear
both that we are doing work but also what the substantive nature
of our dialogue with the regulator is.
71. Are you determined to become a lot more
(Mr Brown) I think we are pretty transparent already.
If you take, say, the third quarter of last year, our activity
is very transparent, but I am conscious that our work in advising
the regulator on market and regulatory events could appear to
be behind the scenes, so I am very keen that we publish it now
on the website. That will be done retrospectively.
72. Appendix four is interesting. It is a list
of matters on which the FSA has sought your advice. There is not
a parallel annex which is the matters that you have taken as priorities
to the FSA, the flow the other way. Should you not show the balance
between the two?
(Mr Brown) I think that is probably a matter of presentation.
We have put the ones that we raised with the FSA proactively into
that list. We have raised a lot of issues proactively with the
FSA and got some results from them. We are particularly pleased
about the issue of financial advertising and promotion which we
raised in our last report. As you know, it is quite hard to believe
the formal demands of the regulatory rules that we have on disclosure
are there when you look at the promises made and the style in
which they are made in advertisements. The Panel has been very
concerned for a long time that consumers are misled by financial
advertisements. We asked the FSA to conduct two reviews on its
advertising rules and it has conducted one and is conducting another
as we speak.
73. Some of the issues in appendix four were
initiated by you rather than the FSA?
(Mr Brown) Yes, I think so.
74. It would be helpful if we knew which ones
had come from which side.
(Mr Brown) We are in preparation of our annual report
right now, so it would be to our advantage as well as helping
you to put a list of things that we had raised proactively with
the regulator. We will do that.
75. I have to admit that up to very recently
when this discussion was scheduled for the Committee I had not
heard of the Consumer Panel. I wonder if I am not typical of quite
a few people. Do you feel that enough has been done to promote
public knowledge of the existence of the Panel? What steps have
you been taking on that?
(Mr Brown) We have one difficulty here and that is
that issues to do with financial regulation per se do not
make particularly good copy. We do speak with journalists quite
frequently who are seeking a jazzy line on an issue, one which
is eye-catching. They are interested in hearing about individual
cases often and they are interested in new scandals and a more
colourful line than we are able to give. What we produce is sometimes
rather dry for them, but we have managed to get some media coverage
and we hope to get more because we have just recruited a professional
PR and media person to help the Panel. We hope to make ourselves
a bit more prominent in the future, but we are rather in the hands
of the journalists here and it is difficult making financial regulation
76. To be parochial about it, do you feel that
you have done enough to encourage MPs to refer constituents to
you when they have this kind of issue?
(Mr Brown) We have written to MPs. I do not think
we have written to MPs to ask them to refer problems to us because
we do not wish to encourage the notion that we can deal with complaints.
The Ombudsman and firms themselves should be dealing with complaints
and it has always been a worry of ours that once we get a good
public profile people will come to us thinking that we can address
those problems. We have a place on our website where people can
contact us with issues and several people have brought brand new
issues to us, which we have taken up with the FSA and which I
think are being fixed. It does happen. Perhaps we could do more.
We do aim to do more in contacting not so much the general public
but the next layer of policy makers and people in public life.
77. Moving to the FSA itself, what is your overall
view of their effectiveness and responsiveness to the needs and
concerns of consumers?
(Mr Brown) The FSA with all its powers has only been
running for two months now so I cannot comment. My comments are
really about the regulator as it was pulling itself together.
I think you have to compare it firstly with what went before,
which was a set of disparate regulators and regulators that did
not always have a particularly good consumer focus. The FSA has
certainly worked hard to put the consumer on the map in policy
making. It has used its research in finding out about consumer
problems very actively and with our encouragement and very effectively.
That is one aspect of the way the regulator has conducted itself
that we are very pleased with. Our views are largely positive
about its approach to consultation and its openness. It has tried
quite hard to make sure that consumers and consumer groups can
respond to its consultations, although there are real, inherent
problems in getting consumer response to very difficult regulatory
consultations. As far as its job in regulating markets and protecting
consumers goes, the picture is mixed. We have to say, and you
will see from our report, that we have been very positive about
the FSA in many respects, but we have had some criticisms. Our
main criticism in the past has been that the regulator has found
it difficult to move quickly and to mobilise and reshape its resources
to deal with particular systemic consumer problems. We have criticised
the regulator for failing to move quickly enough over endowment
mortgages, for example, and this is an area that we have been
watching right from the start to see whether this very big organisation
can tool itself up in a way which can respond quickly, in a way
which protects consumers better. That has been where our main
criticism has been.
78. How do you feel the FSA has responded to
criticism so far? Have they been responsive or defensive?
(Mr Brown) They have been responsive to our criticisms.
They have engaged positively with what we have said to them, but
the jury is still out on that major issue. For example, on responding
quickly, we did see after 11 September that the regulator was
able to move very quickly in a very dangerous situation in terms
of financial regulation. I hope that is an indication of how they
would move if there is an obvious consumer protection issue of
a similar scale that comes up soon.
79. How should we interpret the fact that the
Consumer Panel has not so far made any formal representations?
Is this a sign that on the whole you are content or is it a sign
that on the whole you prefer to pursue more informal channels?
(Mr Brown) At present, it is an indication that we
are content with the response of the regulator to our representations.
We are very pleased to have the section 11 power there and if
there is a change of circumstances in the future we will not hesitate
to use it. At the moment, we have a very good relationship with
the regulator and they do listen to our representations.