This is the first sectoral group that I speak to at the start of two years as the Chairman of the Practitioner Panel.
I’m very pleased to begin with an organization with members who are mutuals and many of whom are regional because you are close to consumers and have a very special relationship with the communities in which you operate. My father was once a director of the Kilmarnock Building Society where I used to have a deposit account and I well remember the need to balance attractive deposit rates with the ability to provide local mortgages – very much the hot topic of social occasions for the local community when I was young. The word “demutualization” was then not much in the vocabulary and I am delighted to find the Building Society Association so alive and well in today’s financial markets.
I’m going to divide my remarks into three parts.
Firstly, a brief description of the Practitioner Panel and how we operate.
Secondly some remarks about the current regulatory situation.
Lastly, some issues of today which will develop into important matters for tomorrow.
Modus Operandi of Practitioner Panel
We meet monthly somewhere other than North Colonnade – not because FSA is inhospitable but because we want to be clearly independent and it’s good for all of us to be out and about in the market place and in Practitioners premises. Currently, we have been operating from the Lloyds Insurance Building, and, previously, it’s been the Pru, AXA and Citibank.
When all members are present we are 15 including a Chairman and Deputy Chairman. I ask members to treat our meetings like a FT 100 board and be there unless there is a good reason. These are senior people so they have to travel, so, 100% attendance is not always practical although I have to say that your man Matthew Bullock has a pretty impeccable record of attendance. These are senior and very busy people who give their time freely, without reward for the common good and we should be thankful to them. The paperwork alone is chunky and I always write off the Sunday before a panel meeting to put on a cold towel to read the papers.
Members are there to have a view on anything where they have experience. The Panel is not a turbo trade association with members only representing their sectoral interests. I come from a wholesale investment banking background, but, wholesale is a consolidator of retail and I have children whose endowments are not paying off their mortgages, so, I have views on a wide range of subjects as do other members of the Panel.
You can never satisfy everyone and I know that the Panel has received some criticism for being too low profile and not an upfront champion of the industry. This is unfair and inaccurate because I can assure you that we are very much focused on the good of the industry. If you were the proverbial fly on the wall of our meetings you would have absolutely no doubt about the vigour of our advocacy. We have, however, taken the clear view that we are in existence, not to usurp the positions of the trade associations but to pursue in cooperation as much as possible with the FSA, the achieving of big picture outcomes which will work for the industry and for our clients whose interests are carefully guarded by our sister group the Consumer Panel. Satisfied clients are as much a goal of our industry as they are of the Consumer representatives and I shall work closely with John Howard in trying to mesh the efforts of each Panel to achieve a better outcome for all.
Please don’t be misled by our low profile because having been a Panel member for several years I can assure you that there have been many wins, quietly unsung but very important for the good of the financial services market place. I think our relationship with the FSA has strengthened and we now see policy proposals at a much earlier stage in their development and are able to influence direction where necessary.
I had the pleasure of attending the awards dinner of Mortgage Finance Gazette two weeks ago and knowing I was making this speech today I made a point of asking around about industry issues. I shall not reflect any of the comments made after about 10pm other than to say that you building society people in town for a night out could make City derivatives traders blush.
There were two constant themes Regulation and Cost of Regulation both of which sit in the headlights of the Practitioner Panel. Clearly some aspects of regulation have been too onerous and initiaties for better regulation are welcome. House purchase is the biggest capital
investment decision for most of the population and not something to be taken lightly.
The industry has clear responsibility to fully explain its offering to clients but it should not take “people days” to complete the paperwork to get competitive offers for review by potential borrowers nor can it be done in 10 minutes. As you will know, the FSA is reviewing its Handbook with a view to simplification and money laundering requirements are being revisited with a more principles based system.
In a formal sense “responsible lending” is a current regulatory buzz word and we may need to seek some greater clarification and definition of FSA position on this as a follow up to the current Treating Customers Fairly work. As you know FSA will shortly begin work on a review of the regulatory system post M day and I encourage you to constructively contribute to this – it’s a review not necessarily a prelude to a re-write. All this needs to be seen also in the framework of the EU Green Paper on Mortgage Credit where it is my clear view that we have a thriving, innovative industry here in the UK and the last thing we need are any EU measures which might destabalise this and bring more onerous regulation upon us.
The Practitioner Panel has adopted a system of sub groups working on specific topics with the appropriate teams at the FSA. I was myself part of the sub group on the Enforcement Review and I know that this is a hot subject with many practitioners who feel that the FSA might use enforcement as a weapon of regulation by making examples of firms and individuals to encourage others. Firstly, let me say that I have seen no evidence of this practice but there was clearly a need for a better system. Prior to the Review, the FSA had, largely at its own initiative, taken steps to improve something which used to irritate me greatly with some of the previous SROs. I refer to better Case Management within the Enforcement Division with regular legal reviews every four to six weeks of cases under investigation. These reviews are carried out by staff not working on the case thereby stopping over zealous investigators going “off on one.” This has resulted in significant improvement. I must say that the most recent overall Review of the Enforcement Regime was conducted in an open and constructive manner. The points made by the Panel – in particular the need to level the playing field for access to the Regulatory Decision Committee and ending the privileged access of FSA staff which previously existed were readily taken on board and have been implemented.
Another area which is receiving much of the Panel’s attention is the Cost of Regulation. As you will know we have a jointly mandated project with the FSA for a proper review in this area and with a hard nosed management accounting probe into the true costs. This has been coupled with an effort to establish the incremental costs beyond those which a prudent firm would incur anyway in protecting its financial and reputational condition. The work is being carried out by Deloittes and the initial study will look at three sectors - Corporate Finance; Institutional Fund Management; and
Investment and Pension Advice.
We have not forgotten the mortgage industry and further studies will cover other sectors. To obtain accurate information requires firms to do some work and analysis which may not fit exactly into their existing management reporting but it is essential to have a consistent template with numbers and reliable numbers. I, therefore, greatly appreciate firms who are willing to do this and thank them for devoting the resource to the project because we shall only make progress in alleviating any excess cost burdens if we can reliably prove our case.
I also appreciate those who contribute to our bi-annual Practitioner Panel survey. Preparations are underway for the next survey in 2006 with the sub group ably chaired by Mathew Bullock who, I am delighted to say, has a zealous interest in statistics and in particular reliable statistics. This document is authoritative and has built a reputation for reliability which is heeded by the FSA and is a most useful means for the industry at large to get messages through to regulators and government. I urge you all to continue to support us by your participation next year.
I think we have achieved much in ensuring that FSA regulation is subject to Cost Benefit Analysis which is not easy to get right at a consultation stage and may need to be subject to later audit. We are getting through to the EU the necessity for CBA and it is shocking that we are about to be faced with MIFID – not subject to any CBA analysis in Brussels. However, I think Europe has learned about CBA’s and I’ll stick my neck out and say, absent political interference, that I think future Commission proposals will be subjected to much more rigorous commercial scrutiny, certainly whilst Commissioner McCreevy is in office.
Two subjects looking forward:
I am, frankly, fed up with the time it is taking to come up with a comprehensive answer to the provision of generic advice to allow consumers to make good quality decisions in respect of financial matters. The industry wants to treat customers fairly and in turn expects informed consumers to take responsibility for their side of the bargain.
I am one of those people who have quite a lot of confidence in the intelligence and good sense of a large part of the population because I see it in my everyday work and private life. But, financial products require careful consideration and basic understanding of the points to consider.
There is not, in my opinion, a commercial case for providing generic advice through firms but there is one sure way of putting in front of many consumers a user friendly reliable means of communication and that is by using the Web. I commend to you the New Zealand solution and when you have a moment please let your search engine look for sorted.govt.nz where you will find a single site with a well thought through interactive system to help consumers through the financial aspects of KIDS, MARRIAGE, MORTGAGES etc A similar system here would go a long way to bridging this gap alongside other good work being undertaken through schools, workplaces, Citizens Advice Bureau etc. There are bits and pieces of this in place via the FSA, the BBC and others, but, we need a clear authoritative single site to which some national agency puts its name and which will be a reliable focus for consumers throughout the land.
I would like to close with a few words about Equity Release products which have many potential benefits for semi-retired or retired citizens and offer an interesting business opportunity for your members.
Whether or not when the time comes I’ll take up this new skiing in retirement and “spend my kids inheritance”, I don’t know, but, I believe that properly designed and understood, equity release products have the ability to make longer retirements more comfortable and affordable for citizens whose circumstances make these products suitable.
It is estimated that there is £2.25 trillion of net housing equity in the UK today which is approximately twice the non pension wealth of our citizens. We worry about underfunded pensions plans which are rightly achieving much attention at present – although compared with most EU countries the UK is in a better situation with substantial long term investments held in trust for retirement.
But, we need a package of products and measures to meet current demographic trends. Later retirement – better funded pensions and equity release can all contribute to enjoyable twilight years. I believe that today’s population more accustomed to house ownership – more used to borrowing - more used to switching mortgages in the vibrant market that your members provide, will also be much more willing to borrow in retirement than previous generations.
It is, however, a difficult advice area probably more demanding than pensions. Some work done by the FSA has highlighted significant gaps in the advice process and the need to ensure that borrowers consider health, life expectancy, inheritance plans as well as every day budgeting. This area is being looked into by the new Retail Financial Services Forum created by the Treasury Select Committee and I shall participate in that work.
It strikes me that the mutual industry with its close community involvement and well trained staff is in a particularly strong position to operate in the equity release field, allowing your members to provide their clients with products and services literally throughout their adult lives.
Mr Chairman – many thanks for this opportunity to talk to you today. I hope I am an open and collegiate person so I look forward to hearing from you from time to time over the next two years. I congratulate you and your association for the excellent work you are doing to foster the most successful mortgage industry in the EU and wish you all continuing success in the very important contribution which you make to the financial services industry and its reputation.