Speech - Jonathan Bloomer at the FSA Annual Open Meeting
Good morning,
It has, once more, been a busy year for the Panel and for the Financial Services Authority itself.
As Callum mentioned, since last year’s meeting, over 14,000 new firms have come under the aegis of the FSA’s regulatory regime, with the inclusion of mortgage advisors and general insurance intermediaries. On the Panel’s side we completed our third biennial Survey of Regulated Firms and, in addition to our regular activities, we were and still are engaged in a number of sub groups, forums and advisory committees: about which, more later.
On a general note, I am particularly pleased with the way in which the Panel’s relationship with the FSA has evolved over the past 12 months. Two of our main complaints since the establishment of the Panel in 1998 – the deluge of consultation papers and the Panel’s involvement at such a late stage in the consultation process that we could hardly make a difference – have moved in a positive direction.
The overall number of consultation papers that come before the Panel and the industry at large has reduced significantly, in line with John Tiner’s commitment in 2004 to halving the overall numbers of FSA CPs. This allows us to spend more time on each issue and provide feed back to the regulator more effectively. Moreover, it gives us greater flexibility to be proactive in organising our time and agenda to focus on the issues that we consider to be most important. (Although, having said that, as Callum suggested, there are at present a large number of consultation papers from various sources in the public domain and we hope that sufficient time must be made available for proper consideration of these.)
At the same time, FSA staff are approaching the Panel at a much earlier stage in the policy-making process. This allows us to make our contribution at a strategic and conceptual level rather than getting too involved in the detailed technical discussions of the later consultative stages – something for which we do not have the resources, and which really is more within the realm of the industry bodies and individual firms. These changes are in large part due to the organisational restructuring implemented by John Tiner in 2004 and the FSA’s realignment along wholesale and retail lines. As a result, the Panel now has a more effective working relationship with the FSA, where our comments are genuinely sought and considered at a stage where there is scope for them to be taken on board and translated into real policy changes.
We do, however, still have a number of concerns. For example, our long-standing concern about the overall, cumulative cost of regulation versus the benefits. This was supported by the findings of our 2004 Survey of Regulated Firms.
The cost of compliance is still seen as the single largest issue by the more than 3,000 firms which we survey. The majority of all firms characterised their current total cost of compliance as high or excessive – and nine out of 10 practitioners believe that costs will continue to rise for the foreseeable future. Unsurprisingly, this burden is most keenly felt by smaller firms – Ruthven Gemmell, Chairman of the Smaller Businesses Practitioner Panel will elaborate on this point later.
Disconcertingly, many firms also felt that this could have an adverse impact on consumer choice, as firms would reduce the range of services they offered or curb new product development. Inevitably, this would be detrimental to innovation and to the international competitiveness of the UK financial services industry.
While we realise that not all of these costs are generated by FSA regulation, the regulator can still play a major role in reducing the industry’s cost burden. The Panel thus welcomes current efforts by the FSA to identify areas in which it could roll back regulation without sacrificing any necessary investor protection, for example, as part of its ongoing Handbook Review. Any actual reduction in regulatory requirements, where possible, would be seen as a great step in the right direction by practitioners.
We strongly support the survey into regulatory costs, which the FSA is conducting in partnership with the Panel. This is an important piece of work. The Panel was keen to be co-joined in its governance and the FSA’s agreement to this demonstrates the willingness on both sides to produce a piece of research that has the necessary degree of practitioner input and credibility. The work will quite rightly pay particular attention to the way that costs bear most heavily on smaller firms, and will also endeavour to look at how costs in the UK compare with other relevant international marketplaces. We hope that the results will help the regulator identify areas in which the compliance cost burden outweighs any benefits and could be reduced.
Another area of continual concern is the amount of regulation driven by European Union legislation. I wholeheartedly echo Callum’s comment about the need for thorough impact assessments prior to further European Union Directives. The costs of MiFID will indeed far outweigh any benefits to the UK.
It is, however, important that the FSA is as effective as possible, alongside the Government, in the formative stages of EU legislation in influencing the direction and, indeed, questioning the necessity for more regulation. Furthermore, the Panel continues to monitor whether the FSA transposes EU directives into UK regulation in the most effective and pragmatic manner.
As I said earlier, the Panel is pleased that many of its comments and suggestions have been taken on board by FSA staff. I would like to mention some particular areas where we believe our influence has resulted in an improvement. I must stress that the Panel does not work in isolation, and its achievements are often the result of a joint effort with the trade bodies and individual firms.
One area of significant Panel involvement is ‘Treating Customers Fairly’. The Panel does not object to this as an initiative. In fact, it would argue that practitioners in this country would see fair treatment of their customers as an essential part of a successful business strategy. However, we did express our grave concerns about the arguably prejudicial, negative language in early versions of the TCF paper, which we felt could have had a detrimental effect on consumer confidence, and did not recognise the sound work that had already been conducted by the industry to raise standards.
Since then, things have moved on considerably in a very constructive debate. The TCF paper published earlier this month included many of our suggestions and is a useful document in helping firms to think about good practice in the way they deal with their customers and to help further raise standards. Now it will be crucial to ensure that the FSA apply the principles of TCF in a suitably proportionate, risk-based and pragmatic way when looking at any specific firms operations.
Another related area in which we believe we have made some progress over the past year is caveat emptor, or ‘buyer beware’. We have always maintained that TCF could not be considered in isolation from the recognition that consumers themselves must take some responsibility for their investment decisions – an obligation that is enshrined in FiSMA legislation.
Following a discussion at an FSA board meeting, we have been part of a working group with the Consumer Panel and senior FSA representatives to try and define caveat emptor - which in the past has sometimes been used more as a term of art - and to articulate some reasonable expectations of consumers’ as well as firms’ responsibilities. Later this year the FSA will publish a paper on the subject.
Two days ago the Enforcement process review was published by the FSA. The Panel welcomed the opportunity to be involved in the pre-consultation on this matter. Overall, we believe that the review was well done and we welcome many of the proposed measures, which should increase the transparency and quality as well as the perceived fairness of the enforcement process. There are some areas subject to consultation and the Panel will continue to be closely involved.
Finally, Panel members have always felt that the quality of FSA staff is crucial in ensuring an effective regulator – particularly on the supervisory side. We believe that it is reasonable to expect FSA staff to be similarly qualified to the people they supervise. We therefore warmly welcome the FSA’s training curriculum for its staff, which they shared with us at a recent meeting.
The coming 12 months look like another busy period for the Panel. We are involved in a number of working groups, dealing among other matters with the Cost survey, monitoring the impact of depolarisation and the M&GI regimes, the Financial Capability Steering Group and the Retail Financial Services Forum. We are also already doing preliminary work for our 2006 Survey of Regulated Firms, to build on our previous surveys in monitoring the regulator’s performance.
This will be my last appearance before you as Chairman of this Panel. Roy Leighton will assume the chair in November. I would like to take this opportunity to thank my fellow Panel members for their invaluable contributions and the Panel secretariat for their hard work and effective support. I would also like to thank the FSA for its continued constructive dialogue with the Panel.
Thank you.
