My Lords, had this debate been held just a week ago, I should have had to declare an interest as chairman of the Financial Services Consumer Panel. I resigned that position following a civilised row with the Financial Services Authority about the role of the panel and the resources devoted to supporting it. My personal fate is of no interest to the House but I think that there are underlying issues here of profound importance to the future of financial services in this country, to which I wish to devote my remarks this evening.
What, in today's situation, should the Financial Services Authority's priorities be? One answer came from some senior Members of your Lordships' House at the excellent seminar on the crash arranged last month by the Lord Speaker. The FSA, so these senior speakers argued, needed to get away from one of its jobs, regulating the way in which consumers are served by financial services companies, and concentrate on the other—supervisory and prudential regulation. Helping consumers was a luxury that the financial services industry could no longer afford.
I profoundly disagree with that analysis. In the short run, it is true that the FSA has to beef up and improve its performance on supervision. However, in the long run, there is something even more fundamental than the soundness of institutions, which is the confidence of consumers and savers. The restoration of that confidence cannot be brought about just by restoring the balance sheet of financial services companies; it can be brought about only if consumers resume a feeling that their investment will pay off. However, but at the moment very few consumers watching their nest eggs go down the drain feel that. Therefore, we have too little investment in pensions, too few savings put aside and too little put into protection policies, because confidence has gone.
In general, there is no tension whatever between actions designed to restore consumer confidence and prudential action. As, on the one hand, the FSA enhances its supervisory activities, as it must, so too must it enhance its efforts to restore consumer confidence through appropriate regulation. Is it doing so? At best, and being as charitable as I can be in the circumstances, I think that the jury is out. On the one hand, I applaud the fact that the FSA is pressing ahead vigorously with its money guidance work—financial education and so on. The retail distribution review has been progressed and has important gains for consumers—for example, the end to commission-driven independent advice. On the other hand, the RDR has been watered down somewhat. In its latest manifestation, huge concessions have been made to the banks to enable them to sell their in-house brands under the rubric "sales advice". That is the kind of sales advice you get from a timeshare dealer at a free weekend at its resort—that, at any rate, is what many consumer representatives fear.
Another retreat concerns the FSA's flagship Treating Customers Fairly programme. Themed visits to firms have been dropped. Then there is my poor old consumer panel, where I sought a wider role to deal with the myriad issues raised by the crash—repossessions, proper compensation for depositors and so on. The FSA plans to appoint a further 318 supervisory staff. When I left the panel, it had two non-administrative staff in post and I was denied the half-dozen or so who would have enabled me to do the job.
What is to be done? There are three things. First, the FSA wants to confine the consumer panel to its old core role of advising as an in-house critic of the FSA. That is going to happen, but at least under its new acting chairman, Adam Phillips, who is an excellent man, it should be given enough staff to fulfil that minimal role, not the tiny number of staff that I was allowed.
Secondly, the FSA's insistence on this narrow role for the consumer panel has created a vacuum in representing consumers in the wider world. That vacuum must be filled and the best body to do so would be Consumer Focus—the old NCC, now revived under the splendid leadership of the noble Lord, Lord Whitty, and its chief executive, Ed Mayo. It has to acquire the expertise and the locus to play the wider role that I wanted the consumer panel to play, but the FSA does not want that.
Thirdly and finally, I want to strike a slightly more speculative note. When the immediate crisis has passed, we will have to have a major debate on the future of financial regulation. That is inevitable and there will be lots of contributions. My fundamental question was raised earlier by the noble Lord, Lord Sawyer. Is it sensible for prudential regulation on the one hand and retail regulation on the other to be combined in a single institution? There will be one body that somehow has to deal with all the ways in which products are mis-sold or mishandled or when consumers are ill informed, and at the same time will have responsibility for upholding the integrity of the financial system.
I was not in this House for most of the proceedings on the Financial Services and Markets Bill in 1999. Indeed, as a member of the board of the old Personal Investment Authority, I arrived just in time to sign my own death warrant by voting for the Bill's enactment. Before that time, I remember going to see Alistair Darling in opposition and arguing, unsuccessfully as it turned out, for the then fashionable alternative to a single regulator, which was called the "twin peaks" solution. There would be one body for retail regulation and another for prudential regulation. They would be separate institutions each with its own last to stick to. Time does not allow me tonight to develop the arguments in full. There are arguments on both sides, but in our current situation and given what I fear to be the move away via the FSA from the due attention that should be paid to consumers, I think that that approach deserves another look.