We thank you for giving the Financial Services Authority (FSA) the opportunity to comment on the DTI Consultation Paper ("The Consultation Paper") on Reducing Administrative Burdens – the Consumer and Trading Standards Agency ("CTSA").

We have focused our comments on issues directly relating to our role as financial services regulator and our interfaces with other authorities responsible for consumer protection.

(1) Transfer of consumer credit to the FSA

Footnote 15 to the Hampton Report stated: "a further sub-question, which the Government may want to consider, is whether the consumer credit functions of the OFT should pass to the Financial Services Authority". Footnote 1, page 11 to the Consultation Paper, implies that the Government has contemplated this and will be consulting on this issue in early 2006.

Our position regarding the transfer of consumer credit functions from the OFT to the FSA has already been made clear in discussions between the FSA, the DTI, OFT, and HM Treasury. Our Chairman, Callum McCarthy's statement in the FSA's Annual Report 2004-2005 set out our position. In essence, t here are significant potential implications for the FSA if we are given responsibility for consumer credit and we are not convinced this would be in the best interests of consumers and firms. For example, many consumer complaints about credit are interlinked with problems with goods and services – where regulatory responsibility will remain with local trading standards authorities. It would also add a very significant number of firms to those currently regulated by the FSA. We will, of course, continue to work with the DTI, OFT and HM Treasury on this issue.

From our point of view the key issues which we will want to discuss with you in the period leading up to the consultation in early 2006 are:

  • The views of the FSA Board, the 3 Panels which form part of our accountability framework, trade associations, consumer groups, firms and other stakeholders;
  • The costs, benefits, and risks to consumers, firms, and the FSA's statutory objectives, of any increase in the scope of our responsibilities;
  • The differences in the legal frameworks established by FSMA and the Consumer Credit Bill currently before Parliament;
  • How the FSA can work more closely with the CTSA in future to minimise the burden on firms regulated by both organisations;
  • The implications of any increase in the scope of our responsibilities for the FOS and FSCS; and
  • The potential implications, for credit businesses, of initiatives such as the Payment Services Directive, the review of MSB regulation, and the 3rd Money Laundering Directive.

(2) Consumer Education

Paragraph 23 of the Consultation Paper proposes that the CTSA should take over the OFT's role on Consumer Education.

The FSA and the OFT have worked closely together to ensure that the work of the National Strategy for Financial Capability (which the FSA is leading) and the OFT's work on Consumer Education complement each other. The FSA and the OFT published a joint statement (a copy of which is attached in Annex) earlier this year to explain this.

We do not have an issue with the proposed switch of responsibility, from the OFT to the CTSA, for consumer education. But if this transfer of responsibilities were to occur, it would be important for robust arrangements to be put in place to ensure that the National Strategy for Financial Capability and the CTSA responsibilities for consumer education are complementary. We understand that you do not intend there to be changes to the current arrangements, but the Consultation Paper is silent on this point.

(3) Emerging Risks

Paragraph 29 of the Consultation Paper proposes that the CTSA would have a role in analysing the data generated by the Consumer Direct central database. We would like to discuss the CTSA's proposed role in analysing such risks and the FSA's current role in assessing these with you.

(4) Dispute Resolution

Paragraph 68 of the Consultation Paper, proposes that the CTSA should have a role in quality control of ADR schemes, and paragraph 71 inter alia proposes that the CTSA is designated as a third party to bring proceedings on behalf of a group of consumers (Representative Action).

(a) Quality Assurance of Third Party Alternative Dispute Resolution Schemes

The Consumer Credit Bill will extend the Financial Ombudsman Service’s (FOS) jurisdiction to cover consumer credit on a compulsory basis. Under these proposals some respondents might expect that the CTSA will end up reviewing the quality of the FOS.

We understand that this proposal relates only to voluntary ADR schemes but the Consultation Paper does not seem to restrict it to such schemes. Our understanding is that the FOS's jurisdiction is to be extended but, that its existing governance accountability arrangements will not be disturbed. In our view this proposal should not apply to statutory ADR arrangements such as the FOS.

(b) Representative Action

We assume that the representative action referred to would result in court proceedings rather than complaints to ADR schemes. The FOS in particular is intended to provide resolution of individual disputes quickly and informally. It is not suitable for dealing with representative actions, and would have difficulty determining a complaint brought by a public body. That is why we, in conjunction with the FOS have recently introduced new arrangements for dealing with issues with 'wider implications' for firms and markets regulated by the FSA.

We hope you will find these comments helpful.

Annex

FSA/OFT joint statement

The work of the Financial Capability Strategy, let by the FSA and the OFT's Alliance for consumer education complement each other. Both share a vision of educated and confident consumers making informed choices about the products and services they buy.

The FSA was closely involved in the development of the OFT's strategy and framework. It is a member of the Alliance and plays a strategic role in the Planning Group which oversees the Alliance's activities. And the OFT, with its statutory responsibilities for credit licensing, is contributing to the Financial Capability Strategy borrowing workstream.

The Alliance aims to give consumers the skills and knowledge to function effectively and responsibly when buying goods and services. This is a much wider remit than the Financial Capability Strategy which is focused specifically on personal finance. The FSA is working on the Financial Capability Strategy with Government (including the OFT), consumer groups, financial services firms, media and voluntary agencies: the aim is to use information, education and generic advice to improve levels of financial capability.

This means that although the Financial Capability and OFT strategies do not overlap, the FSA and the OFT can and do work closely together to ensure that information is shared and that there is no duplication of effort or waste of resource.