I almost put brown trousers on heading off to Parliament last Thursday morning. Scarily I’d been called to give evidence on financial regulation – not from a Commons Committee, but from a high ranking Joint Committee of Lords and MPs. But I was left more than a little gobsmacked at a couple of questions.
What it’s all about
This is a consultation about the mammoth changes to financial regulation. The FSA is being disbanded and the Bank of England will be in control. I’ll try and keep it simple (annoyingly it isn’t). There will be a big new Financial Policy Committee (FPC) and under this will be the Prudential Regulation Authority (PRA), which will be in charge of stability and then there is the Financial Conduct Authority (FCA), which will take over the FSA’s job of looking at products and how they work.
The panel was seriously august (even in September) – made up of this bunch of heavy hitting cross party parliamentarians: David Laws MP, Baroness Wheatcroft, Lord McFall, Peter Lilley MP, Nick Brown MP, George Mudie MP, David Ruffley MP, David Mowat MP and Lord Newby, Lord Skidelsky, Lord Maples and Baroness Drake. But do remember these people were there to scrutinise the bill – they are not the Government.
Thankfully, unlike my appearance at the Treasury Select Committee where I was on my own, here I gave evidence alongside representatives from Consumer Focus, Which?, Citizens Advice and Paul Lewis of BBC Money Box.
An impressive bunch with an impressive grasp
Before I get onto the two questions that shocked me, it’s important I point out that overall they were a knowledgeable, impressive and responsive bunch who both acknowledged that the proposed changes to financial regulation were too focused on ‘macro-prudentiality’ (keeping the system up and running) and a little short on helping consumers.
(OUR BIT STARTS AT 9:14:00)
The main points we collectively made were…(from memory so hopefully it’s close, or better)
- Confusing system. It’s so complicated, how can people be expected to trust it? And, there are too many acronyms (these aren’t what I call them, it’s what they’re being referred to).
- Debt should be part of the FCA. It’s a no brainer to bring debt under the FCA’s control. We can’t continue with the absurdity of the current system that if your bank account has a problem you go to the FSA, but if it’s the overdraft bit it’s regulated by the OFT. Most people see debt as a part of finance, it makes perfect sense to bring it all together.
- Financial inclusion should be a remit. Objectives must include helping ALL consumers – including those who are financially excluded.
- The FCA should look at competition issues. The idea that if the FCA spots anti-competitive action it should refer it to the competition commission weakens it as a regulator and makes little sense.
- Too little consumer regulation. Consumers only have a voice in one of the three new bodies (the FCA, not the PRA or the FPC) and they need to have a voice in all of the three.
- The FCA must accept super complaints. Super complaint rules must be established by consumer groups to trigger a mandated response from the regulator.
- There needs to be a cultural shift. It doesn’t matter what rules you put in place, unless there’s a cultural shift in the attitude of the regulator nothing will change.
- The Ombudsman/ regulator disjoin needs ending. If there are substantial complaints being upheld in an area it should trigger an automatic investigation for systemic mis-selling.
- Banks technique of rejecting complaints to save money, needs to be stopped. Financial companies should be penalised if they reject complaints in the full knowledge the Ombudsman would uphold them (knowing only 10% of people pursue it).
- FCA decisions about redress on individual companies should be public. We need to square the issue that to maintain "confidence" often requires secrecy – which can leave consumers in the dark about issues, and getting products they shouldn’t do when the FSA (currently) knows full well there are problems.
- Public Ombudsman decisions should set a precedent. Ombudsman decisions should be made public and should set a precedent that companies need to follow when complaint handling.
Now while these are a collection of most of the ideas suggested, the five of us giving evidence didn’t agree completely on everything, but they were mostly all singing from the same song sheet.
The two questions…
Now, onto those two questions (I may paraphrase somewhat, so click the video links if you want the exact wording). Also don’t judge them too harshly for it, these were two questions out of many and the whole purpose of these things is to explore different ideas, and I’ve only put it in to spice the blog up a bit.
Plus remember this is a scruitny enquiry, their job is to get the answers on the record, so the questions may’ve been aimed at just that…
- "Do you think the FSA has focused too much on consumers?"- Baroness Wheatcroft.
I simply couldn’t believe my ears, the look on my face probably said it all, and between us one of the members of the committee (who’ll remain nameless) gave me a little nod, which I basically read as saying – go on don’t hold back.
My response was something like:
"You must live in a different world to me – the FSA has done bugger all to help consumers – I first wrote about PPI in 2001, the CAB did a super complaint on it in 2005 and then nothing happening until 2009!"
Now of course to say the FSA has done nothing is an exaggeration, but the fact it takes years and years before anything is done and that there’s a culture of secrecy that protects institutions instead of warning consumers, has to change.
Watch this bit of the video at 9:19:08
- "Don’t you think it’s wrong consumers don’t bear some of the risk and responsibility for where they put their money now we’re protecting all deposit accounts up to £85,000?" – Lord Maples.
Paul Lewis and I double teamed on this one. In fact, I actually interrupted as he was asking the question to correct him and explain the £85,000 safe savings limit is per financial institution, not per bank – and the fact he was saying there’s no risk was defeated by the fact even he didn’t know the complex rules about interaction or foreign banks and they weren’t published anywhere (baring the MSE safe savings guide of course).
I found it quite incredible someone could think this when we’re trying to build trust in the system and a savings culture. As a sadly near financially illiterate society (one reason we so desperately need financial education in schools) to expect consumers to make this judgement is ludicrous (after all, even the Bank of England wasn’t able to spot Northern Rock’s problems).
Paul also made the point that products should be safe when people put money in them, but that’s not a consumer choice, it’s a given and consumers must be protected.
Then at the end Peter Vicary-Smith from Which? made perhaps the killer point; that considering consumers have bailed out the banks and stopped them having any risk, the least they can expect in return is safety in their own deposits.
Do let me know what you think below.
Updated note: 29 September: The full evidence transcript has now been published (my section starts at Q119).