Speech by Ann Foster
Chairman of the Financial Services Consumer Panel
I. Preamble
Good morning ladies and gentlemen. I should like to begin by saying how delighted we are to hear about John Tiner’s progress and I hope you will send John the Panel’s very best wishes for a full recovery.
The Consumer Panel, although known to quite a few of you in the audience, but not to all, was established by the Financial Services Authority under the Financial Services Market Act to represent the interests of consumers to the FSA. We do this by advising, commenting and making recommendations to the FSA on their existing and proposed policies and practices. I know it is sometimes very difficult to convince the outside world, but I do have to say we operate entirely independently of the FSA and we can and do speak out publicly on our views.
II. New Developments
There have been two developments this year initiated by the FSA, which have helped our work considerably. The first has been the promised decline in consultation documents and I feel that everybody here has benefited from that and would like to say thank you. In addition, members of the FSA staff now come to the Panel at an earlier stage in policy development, so we have the opportunity to discuss proposals at the embryonic stage.
Both of these moves have been much appreciated and have very much helped the work of the Consumer Panel.
III. The Year under Review
I do not want to go through everything we have done this year. You have in your packs our annual report. It is the one with all the happy faces on the front and that gives a full account of our work throughout the year. It is what they describe as a riveting read and you can read it in the sure and certain knowledge that there will be a sequel this time next year. I would however like to highlight a few areas.
1. Mortgage Advice and General Insurance
This year has seen the introduction of a new regulatory regime on mortgage advice and general insurance. It has been a mammoth task and has had a significant impact on the FSA’s approach to regulation. The sheer number of new firms to be regulated has indeed been a considerable challenge.
I would like to say, with a very few reservations, that the Consumer Panel is pleased with the way the FSA has done this job; has delivered on time and hopefully, it will provide a better level of protection for consumers.
2. Treating Customers Fairly
This is another subject very close to our hearts. We have been fully supportive of this initiative and again, we appreciate the tremendous amount of work that has gone on amongst many stakeholders to clarify many of the issues that baffled a lot of us, this time last year.
In the coming year we really would like to see senior management taking responsibility for embedding ‘Treating Customers Fairly’ principles into everything they do, in a way that is appropriate for them and their customers. Reading through the FSA’s publication Treating Customers Fairly, which came out last week, a lot of it seems to me just plain common sense, but I am afraid to say in some cases it will still require a major shift in culture, attitude and approach. We really do hope that firms will embrace this initiative in an enthusiastic and willing manner and not see it as another onerous task that the FSA has imposed on them. I really do believe that if firms adopt the ‘Treating Customers Fairly’ principles with enthusiasm, they will reap the rewards.
3. Closing the Advice Gap
We have had many discussions with the FSA about closing the advice gap. As a background to this, we have been enthusiastic supporters of the FSA’s Financial Capability Initiative, but one year on we do have to record our disappointment at the slow progress made in one particular area, the provision of generic advice. We do recognise that this is a considerable challenge for the whole industry and we appreciate that progress has been made, notably with the appearance of a health check on the BBC website. We see the provision of impartial, generic advice, however, as key to helping consumers become more confident in negotiating their way through a very complicated marketplace and we hope that we will see more progress in the year to come.
4. Rights and Responsibilities
Another area where we have been doing considerable work has been looking at the respective rights and responsibilities of firms and consumers. The Consumer Panel does recognise that consumers have responsibilities and they have been doing some interesting and quite ground breaking work with the Practitioner Panel to try to identify where this begins and ends. As I say, it has been interesting work and quite difficult, but between the two panels we have contributed to a document, which I hope the FSA will publish soon.
There are, however, limits to how far we can expect consumers to take responsibility, as we stand at present and it does seem to us that if the industry still cannot explain simply and clearly the risks associated with buying various investment products, then consumers cannot be expected to take responsibility for understanding these risks. I think it is a challenge to us all, industry regulator and consumers, to find simpler, clearer ways of conveying risk to consumers so that they understand the nature of the risk they are taking.
5. Information Disclosure
In terms of the information disclosure mechanisms that have been put in place this year, we have welcomed improved information disclosure for our consumers. Better informed consumers make better decisions. We have, however, been dismayed at one particular delay, to which I have alluded already, which is the disclosure of key facts for investment products.
This was first proposed in a consultation in 2003 and now will not be implemented till 2007. We think this is an unacceptable delay for a measure that was designed to help consumers make more effective decisions.
We do, however, have key facts for mortgages. These were intended to be a simple summary to help consumers understand the small collection of facts that are really important to them. It is quite ludicrous that this has turned into an unnecessarily lengthy, complicated and sometimes misleading document, which on occasions goes up to 12 or 14 pages.
If consumers are expected to take financial decisions, then the industry must be prepared to help them and not hinder them with information provision. This was designed to be a simple and effective way of communicating key facts to consumers about what will probably be the biggest financial investment they will ever make. It was not meant to be a picnic for the compliance department.
6. A More Prominent Role for Consumers
We would like to see consumers playing a more prominent part in making markets work. We think they can do this by being well advised; by knowing what they need and by shopping around for suitable products that meet their reasonable expectations in terms of costs and performance. There is still a long way to go to get to that situation.
IV. Consumer Panel Research
The Panel has undertaken some research of its own this year and we are going to be issuing that in a series of briefing documents throughout the rest of the year, the first being published today. I would just like to knock on the head the idea that consumers do not believe they have responsibility, our research has shown that 79% of respondents agree with the statement that ‘financial security after retirement is my responsibility’. When we dig deeper, however, over one third of our respondents had made no provision at all, over and above their state pension. Almost half of our respondents were not confident that they would have sufficient income in their retirement. This echoes the findings of a lot of other commentators, but I think it is a very serious state of affairs that we all have to work harder to address and simply to make it easier for people.
V. How People Buy
The document we have released today called How People Buy somewhat depressingly shows that there has been a marked shift away from consumers buying equity based investments. Our research shows that, in the last 12 months, only 9% of consumers bought investment products, compared with 14% in 2000. This will be linked to many factors, but I think that one of them has to be confidence in the industry. In addition, although consumers may pay lip service to shopping around, on the whole they do not, and over half got a quote from just one company before buying. Obviously, we would like to see that figure much higher.
We all do need to explore ways of helping consumers operate more effectively in this very complicated market. The FSA can play its part by further improving its communications with consumers and we intend to work with them to see how we can do that better.
VI. Financial Services and the EU
It seems nowadays that any speech about financial services is not complete without a reference to the EU; mine will be no exception. We do share many of the concerns expressed by the industry and the regulator about European legislation. Many of the proposals will not bring any additional benefits to UK consumers and worse still, some might actually affect the level of protection already there.
We want to play our part again by working with other parties to ensure that the proposals that do actually come to the light of day are those that will genuinely help consumers. We also want to play our part by improving consumer involvement in EU policy making, which at the moment is weak and fragmented. We in the UK are very fortunate to have a lively and effective consumer movement. You may not always agree with that assessment, but that is my view of it and we would like to see much more involvement at a European level, so that policy makers really do have consumers’ interests at heart, when they make their proposals.
To that end, we are planning a meeting of European consumer representatives here in London in November, and we hope the result of that will be more effective consumer representation of financial services.
VII. Conclusion
We look forward to another busy year. It will be my last year, as I shall be stepping down later on this year. I say that with a mixture of relief and regret: relief that I will not have to stand in front of all of you again and regret because it really has been a most enjoyable job. As this is my last appearance at this meeting, I would like to say many thanks to Callum and all his colleagues at the FSA for enabling the Panel to work so constructively with the regulator; for always listening to us and for sometimes agreeing, but always treating us in a respectful and mature manner. We have appreciated that very much indeed.
I will now hand over to Jonathan Bloomer, who is Chair of the Practitioner Panel. Thank you.
