(3A) In section 5(2) (matters the FSA must have regard to in considering what degree of consumer protection may be appropriate), insert at end , including
(i) advice and information about regulatory action taken in pursuance of this objective, and
(ii) any needs for advice and information identified by the consumer financial education body..
As this is the first time that I have spoken in this Committee today, may I welcome you to the Chair, Mr. Gale? It is a pleasure to serve under your chairmanship. As we heard this morning, clause 6 is one of the most important in the Bill. It is entitled Enhancing Public Understanding of Financial Matters. That is to be done primarily through the setting up of the consumer financial education body. We had a wide-ranging discussion this morning on that subjectalmost a stand part debateand I do not intend to delay the Committee by referring to what was said, other than by saying that both sides of the House supported the setting up of the body, although concern was expressed about how it will operate. Its creation recognises the need to consider the real problems caused by lack of financial understanding, especially given the complexity of the marketplace.
In this mornings debate, a number of concerns were raised, particularly about the removal of the Financial Services Authoritys public awareness objective. It is on the impact that that may have on the activities of the FSA that I wish to speak. Amendment 42 is designed to address that problem. I hope that it will strengthen the consumer focus of the FSA. It would amend section 5 of the Financial Services and Markets Act 2000, which relates to the FSAs objective to protect consumersanother issue that was mentioned this morning.
The amendment would incorporate in that objective the fact that information and advice about the regulatory action of the FSA should be included. That subject was missing from our discussion this morning. The amendment would also mean that information and advice relating to matters identified by the new consumer financial education body was included; we had a debate about that body this morning. The amendment will ensure clarity about the objectives of the FSA and the new education body. To refer back to the title of clause 6, the amendment will also enhance public understanding of the FSAs regulatory reviews and of the new education body.
The amendment is important because of the need for transparency. Transparency is critical, because it is the key to better public understanding of the complex issues that we discussed this morning and, through that, better consumer protection. To achieve that, the FSA will need to work hard to inform consumers about a variety of issues.
The first is poor practice in the marketplace and some of the poor products that are available. In the House, we often speak of the real difficulties in the mortgage market, in terms of the quality of the products available. The FSA has not always delivered that transparency, or worked hard on behalf of consumers. We touched on how balance is to be achieved between the Financial Services Authoritys role representing the industry and its role representing consumers. Although there have been real difficulties in the past, recent work such as the mortgage market review has been widely welcomed on both sides of the divide. Consumer representatives welcomed it as an insight into the FSAs thinking on how it could regulate that marketplace better.
That is important, because better transparency and understanding give the consumer greater confidence. As we have all admitted, we are talking about a technical and complex subject. Greater confidence allows consumers to challenge bad practice in the marketplace and seek redress, which is the critical factor.
I have had discussions with consumer advocacy bodies that have expressed considerable concern that if clause 6 remains unamended, several things will happen. The first, as I mentioned earlier, is the removal of the FSAs public awareness objective, about which Members on both sides of the House are concerned. Also, there is concern that certain activities currently undertaken through the public awareness objective will not be covered by the new consumer finance body. There will be a hole in the net that protects consumers. The combination of those two issues led to amendment 42.
I am worried that some of the activities undertaken by the FSA in recent times, when its track record has been much better, will go by the wayside. Highlighting problems in the marketplace for consumers may well be downgraded. Information and advice, in the specific words used in the public awareness objective, will no longer be a central activity for the FSA, and some of that will not be picked up by the new consumer body.
I will give two examples of the activity that I mean. First, the FSA website, Moneymadeclear, has been widely welcomed, particularly among consumer bodies. It does a fantastic job. Consumers and consumer bodies can access it, and it is widely recognised to contribute to better consumer understanding. Secondly, the FSAs annual report, a comprehensive document, is perhaps not the sort of thing that an ordinary consumer would read, but advocacy bodies certainly make great use of it, and it keeps them up to date with the latest thinking at the FSA. The worry is that without the objective, the site and those activities might be downgraded.
I am not sure that I entirely buy the example. Given that Moneymadeclear is the brand used in the financial capability work, I assume that it would be run by the consumer finance education body. As for the annual report, the FSA is required to publish annual reports, and that will continue to be a requirement even if the FSA loses the objective.
I am concerned about what will happen to things such as the FSAs thematic reviews on mortgages or payment protection insurance. They offer opportunities for industry to learn and consumers to recognise the issues arising from the sale of such products. I am concerned that the FSA will not publicise such reviews as widely as it should. I do not think that it publicises them sufficiently widely as it is, and it might go backwards. In those areas of regulatory activity, I am concerned that the FSA might not be as forthcoming, in terms of publicity, if the objective is dropped from the Bill.
I certainly agree with the second part of what the hon. Gentleman says: the reviews are critical, not only for the FSA in undertaking its activities and regulating the market but, as has been mentioned, in publicising that as widely as possible. The work of the FSA has undoubtedly improved in that area, especially with reviews such as the mortgage market review, which was particularly warmly welcomed. That has been publicised well, but the worry is that the publishing of such information will become less of a priority.
The worry is not that the examples that I gave of the website and the annual report will disappearof course they will not. The worry is that they will not be as comprehensive or be modelled on the ability of the consumer, and consumer organisations, to make use of such mechanisms to get better protection and support, and achieve a better understanding of what is happening in the marketplace. We do not think that the FSA will entirely run away from its responsibilities of providing information and advice, but we are worried that it will downgrade what is currently happening, which has been warmly welcomed over the past couple of years. Amendment 42 would ensure that the responsibility to provide information and advice was not lost.
That leads on to the other objective of the FSA, which is to protect consumers. I believe, as do consumer advocacy bodies, that the amendment would enhance the transparency of the FSAs activities because it imposes that duty of consumer protection. It does that by enhancing the publicising of the FSAs regulatory actions, which is the critically important feature. We do not think that the FSA is likely to be less robust in its regulatory actions; the credit crunch and the recession have seen to that. However, we are worried that publicising those activities might not get as much priority.
Under amendment 42, the FSA must also publicise issues that are brought to its attention by the new consumer finance education body. That is also critical. The Minister referred earlier to proposed new section 6A(2)(e), which states that the consumer education body would provide
information and advice to members of the public.
Through the amendment, I seek clarification from the Minister about whether that wording specifically relates to the provision of generic financial advice through the Thoresen review and to what has been happening in the north-west with the pilot schemes, or whether it refers to a continuation of the publicising of FSA reviews of activities, undertaken by the new consumer finance education body. We are particularly concerned about that widespread publicity.
Let me briefly sum up my point. Amendment 42 would ensure maximum transparency for consumer benefit and redress, and it would clarify and publicise the important work that will be carried out by the consumer finance education body. I hope that the Minister will look kindly, if not on the specific wording of the amendment, then at least on the spirit in which it is brought forwardthe spirit of ensuring that consumers are adequately informed.
May I also, in my first contribution on the clause, pay tribute to the work undertaken by a lot of bodies in recent years to address the issue of consumer financial education? Many other countries have been at it far longer than we have. As the hon. Member for Fareham probably knows, we have about 25 times as many accountants in the UK as there are in Japan, even though Japan has far more businesses. That is principally because the Japanese have financial education very much embedded in their school and education curricula, which means that almost everyone leaving school can not only read and write but do such things as calculate profit and loss, produce balance sheets and everything else. That is an interesting way of going about it. There are some disbenefits, because in Japan, of course, all those knowledgeable people decided to save all their money for about 20 years and locked up the whole economy, so perhaps sometimes that is not quite so useful.
We had some very good contributions from hon. Members this morning on an important subject. All contributions were very worth while. I have a couple of concerns different from those expressed this morning. Education, if that is what it is, comes seemingly more and more often as unsolicited promotional material, which bangs through our letterboxes in ever-increasing amounts and sometimes slips out of magazines and things. I think there should be greater control over some of that material because, frankly, it is sometimes considerably misleading, but regretfully it provides a sort of education.
Secondly, the education often provided through large newspaper advertsoften in the Sundays, sometimes even supported by articles in those very publicationsis not capable of properly differentiating and identifying the needs of the individual readers. It is sometimes enormously misleading. Regretfully, that is the sort of thing that people read, getting completely the wrong information and advice. We need to encourage the appetite for professional financial education in advance. I suspect that we have all had far too many constituents coming to us, seeking information and advice, when they have already made the decisions, sometimes with catastrophic outcomes for the their finances and those of their family. It is important, therefore, that the education is timely, so that people make the right decisions.
To be effective, information and advice have to be trusted and independent, and have to use language that is easily understood, rather than legalese. As for people who give advice, among the more difficult issues is that of being very careful about the legal aspects. We need to address that, so that people have much more easy-to-understand language in the information and advice that they need. The information and advice have to be appropriate to peoples particular circumstances, which differ significantly, as we indicated this morning. Whether we are talking about savings, mortgages, credit cards or pensions, everyones circumstances are different and cannot easily be handled in a rather huge and across-the-board way.
I am also concerned about the boundaries between the consumer financial education body and the FSA, which I think the hon. Member for Henley mentioned. If in the next few years we see a modest rise in inflationas is predictedand savings institutions continue to provide minimal savings rates of interests, so that savings could in effect be losing purchasing power or value, is anyone likely to tell everyone to take all their money out of the banks at a time when the FSA is trying to get the banks to build up their capital, liquidity and everything else? We have conflicting aspects; what may be right for the consumer may not necessarily be right in other respects. There might also be issues to do with the relevant matters that are, I think, mentioned in the Bill somewhere.
What does the FSA do with its education policy? Does it tell people that having their money sitting in a bank is not a good idea, and to take it out immediately and put it somewhere else? Would it then have to say to the banks, Why havent you attracted far more deposits? It is difficult.
When I was with what is now HSBC, the position was clear: bank managers gave customers advice that was in their interest, even if it was against the interests of the bank. They do not do that now. If they started doing that now, they would be given short shrift. We have moved away from the idea of people trusting in proper information that is in their interests rather than in the interests of something else. If we are not careful, we will be advising consumers in the interest of the national economy rather than in their own personal interest.
I agree with the hon. Member for South Derbyshire that a range of people need advice. I found that out recently when I looked at what happens when I leave this place. What I thought might be the case was clearly not the case. I thought that I might have at least some idea of what was going on. People who think that they know a little bit can be more dangerous than those who accept that they know little, but who pretend that they know nothing and get some proper advice. A little information is a dangerous thing.
What might be termed the vulnerable young people sectorthe 16 to 25sneeds very specific advice as early as possible. I am amazed at how many people in that age group are already borrowing significant sums on credit cards or from relatives. Before they have even begun to earn much, they already have pretty large debts, and we do not help with things such as student loans. I hope that the sector will receive attention, because debt can determine peoples life chances and opportunities for a long time. If they find themselves in severe debt and even going bankrupt at an early age, it can have all sorts of repercussions, not least homelessness and family breakdown, and can perhaps even result in people resorting to crime. That sector needs specific attention.
I agree with the hon. Member for Edmonton, who talked about clarity and objectives: it is important to get clarity and transparency, so that the public begin to have a greater understanding of what the FSA and the Financial Ombudsman Service do. The FSA has been seen more as a regulator than as a consumer protection body. Separation, transparency and clarity will be helpful. The removal of public awareness is a concern of mine. We need to listen to what the Minister says about that, and I look forward to his remarks.
I want to pick up the point made by the hon. Member for Edmonton. Amendment 42 is a good way of tackling one of the issues raised in the previous debate: how the Bill equates public awareness and financial education by removing the public awareness objective. There is a risk that we potentially throw out some of the work that the FSA does. Whether it is necessary to reinstate wording along the lines outlined in his amendment depends on the importance of the objectives set for the regulator. Those objectives are important, because they determine how the regulator operates, give structure to its activities and act as a prompt.
There has been some elasticity in the objectives of the FSA. On Tuesday, we debated the financial stability objective, which was implicit under the market confidence objective but has now been made explicit. If there is value in making that explicit, is there not value in ensuring that the FSA recognises that public awareness responsibilities continue, but perhaps in a more limited way than set out in the Financial Services and Markets Act 2000?
A link is also important to new section 6A(2)(c), under which the consumer financial education body will not only promote consumer awareness of the risks and benefits associated with different kinds of financial dealing, but have a duty to inform the authority and other bodies of those benefits and risks. That will close a loop by saying that if the consumer financial education body identifies risks and benefits that it feels are so important that they need to be notified to the authority, the authority should feel under some obligation to consider whether they should be disclosed. Hence, there would not be a sense that the information passed to the authorities reaches a dead end or cul-de-sac, and that there is a further stage.
The hon. Member for Edmonton has done great service by tabling the amendment, which reminds the FSA that it has a continuing role, which goes beyond the minimum that one would expect from a statutory body regarding the information that it is required to put in the public domain. It also encourages people to be aware of the FSAs activities; in a complex world, it is important that consumers know exactly what it does. Given the additional requirements under amendment 42, some work is needed to establish in public awareness the boundaries between the FSA and the consumer financial education body.
I thank my hon. Friend the Member for Edmonton for initiating the debate. I support the spirit of his amendmentthat consumers should be made aware of problems in the market. Although I understand his concerns, the amendment is not necessary. There are no holes, as some might fear, in the net, to which he alluded. I also acknowledge the cross-party support, from the hon. Member for South-East Cornwall, for what we are trying to achieve by setting up a consumer financial education body and, as I indicated, upping our game in financial capability.
I assure my hon. Friend that the FSA will not lose its obligation to make consumers aware of problems in the market as a result of removing its public awareness objective. As I suggested this morning, the obligation is already covered by the FSAs consumer protection objective. As part of that objective, the FSA has an existing requirement under section 5(2)(c) of the Financial Services and Markets Act 2000 to have regard to consumers needs for accurate advice and information.
As well as publishing the information for consumers, the FSA will want to work with the new consumer financial education bodyagain, as I made clear this morningto help it to convey important information to consumers. The new body will build recognition and trust among consumers and interact with them frequently through initiatives such as the money guidance service. It will therefore be instrumental in helping the FSA to take messages to consumers. The Government want to see the FSA and the new consumer financial education body working closely together.
Turning briefly to the detail of the amendment, its first provision would require the FSA to make public the information and advice about the regulatory action it has taken to protect consumers. I recognise that transparency is a key principle of any regulatory system. However, the FSAs obligation under section 5(2)(c) of FSMA already includes making the public aware of any regulatory action that may affect consumers. We want the FSA to continue to perform that role and duty.
The second provision of the amendment would require the FSA to consider any need for advice and information identified by the consumer financial education body. If the body identifies a specific need for information and advice from the FSA, it has an obligation to flag that up with the FSA. That is already enshrined in our proposals. The FSA, in turn, should consider that need for information and advice under its consumer protection objective. I argue strongly that the requirement on the FSA to consider consumer needs for information and advice is already covered under the Financial Services and Markets Act 2000, which refers more widely to any information or advice needs raised with the FSA by any organisation. Clearly, the new consumer financial education body would be included in that.
It is right to raise the issues and I am happy to put it on record that there is every desire on the part of the Government to see the FSA and the new consumer financial education body working closely together. However, I believe that the provision in legislation is correct and sufficient for our purposes. There is not the hole in the net that my hon. Friend thinks might exist, but of course we need to ensure that the messages that consumers need to receive are made available by the FSA and the new consumer financial education body as appropriate.
Given those assurances, I hope that my hon. Friend will withdraw the amendment. We are not taking our eye off the ball. Nor are we sending any signals to the FSA to do anything other than actively make consumers aware of problems in the marketplace. That will continue.
I thank the Minister for that considered and detailed response. I am somewhat reassured in relation to the activities of the consumer financial education body. We need to see it working in practice, and therefore I take the point. Although I would have preferred the wording in new section 6A(2)(a) to (e) to be slightly strengthened, I am reassured by the Ministers comments about the bodys objective to protect the public and to publicise matters drawn to its attention in its work.
My bigger concern when tabling the amendment related to the Financial Services Authority and its activities in the past. I said that the activity of the Financial Services Authority had improved substantially in recent years as a consequence of events. I would be the first to praise both its regulatory reviews and how it seeks to publicise them, so I would have no difficulty in being reassured by the Minister that at present the FSA is unlikely to downgrade any of those activities. It has been part and parcel of its pitch, if I can put it that way, that it is a reformed regulator and that it does undertake those activities. My concern relates to some future point when perhaps other pressures, instabilities or difficulties in the market might lead it to think that public awarenessI specifically use those words because that is being removed from its objectivesis not as big a priority as it has been recently.
However, I accept what the Minister says: the Financial Services Authority has done a much better job, certainly in the last year or year and a half, and it is very aware of its public awareness responsibilities. On that basis, I beg to ask leave to withdraw the amendment.
I have tabled this probing amendment to understand how far the new consumer financial education body can go in giving advice. Advice is an important term to define in the context of a consumer financial education body. One can get to a point in the continuum of information when one is giving regulators advice. It is difficult to draw the line between simple information and advice that can be used to sell a product. I might go to John Lewis to buy a vacuum cleaner[Hon. Members: Bad example.] Actually, the example is relevant because if someone were to go to John Lewis to buy a vacuum cleaner, they would be given quite a lot of information about it. However, if they went to Comet, they would not be given much advice at allthat is if they could find a member of staff to help them. The information that John Lewis supplies may well be deemed to be encouraging someone to make a purchase, so it moves from simple information to advice. It becomes, This is the best vacuum cleaner to buy. There is a distinction between the service that one gets in John Lewis or other major department stores and the advice or information that one gets elsewhere.
When it comes to advice in the financial services world, it does not take long in a conversation to find out what an independent financial adviser means by advice. They mean advice about the provision of a service or a product. Moreover, it is the outcome of a fact find, and it is heavily regulated; it is regulated advice. They are giving advice on a specific product or providing a particular service. As far as I am aware, the consumer financial education body will not give that level of advicea specific product recommendation from a specific provider.
To be effective, the body needs to go further than simply providing information. As I mentioned earlier, there is a big gap between giving someone a piece of information and someone making a purchase of a financial services product. The further one gets along that continuum from information to regulated advice, the higher the chances are of a call to action or purchase taking place and of a positive outcome from financial education.
I know that there is a boundary between regulated and unregulated advice. Where does the generic financial advice stop? Where do we draw the line in terms of what the body does? Otto Thoresen explored those questions in his review, because there was concern about that line. The review concluded:
Money Guidance will guide the user to the point where they can choose between a small number of options, and where they also understand the consequences of doing nothing.
There may be a point at which one can say, There is a range of saving products out there. These are their characteristics. We leave it to you to take the next step.
Under generic advice, individuals can be referred to external services. I go back to my experience at the Help the Aged centre in Gateshead. The centre gave examples of when it had referred people to other providers. It signposted someone to an IFA, who is in a position to give regulated advice. According to Thoresens view of money guidance, generic advice
will not make recommendations to buy, surrender or change a specific product from a specific provider.
Again, that falls within the definition of regulated advice. That last point on regulated advice is important, because the definition is broad. The UK definition is wider than that encompassed by the markets in financial instruments directive. For example, MiFID refers to a personal recommendation in respect of one or more transactions relating to investment instruments, whereas the UK definition is potentially broader as it refers to advice on the merits of entering into transactions.
It is important to know exactly where the boundary is drawn. In its representations, the CBI said:
We believe the new authority should be limited to the provision of financial education and generic advice.
My interpretation is that it does not mean regulated advice. Those giving regulated advice need much more information than is available to bodies operating under the umbrella of consumer finance.
I have talked to lawyers about where the boundary lies. As they see it, the boundary between regulated advice and generic advice is somewhat closer to regulated advice than can be delivered under the current structure, which stands quite a way back from that boundary. The lawyers say that one can advise someone to buy life assurance but not which product or from which adviser. That would still fall under the definition of generic advice, but it would not be regulated.
I come back to the point about how to get people to do things. Are we pushing the envelope of generic advice far enough to narrow the gap between being told about something and being told to do something about it? Are we being too timid with this model of advice that the CFEB can provide? We want to steer as far away as possible from the definition of regulated advice, so that there can be no doubt whatever about what the body is doing.
The Bill does not deal with the definitional question of what the body can do, where the boundary lies between regulated advice and generic advice and what it means in practice for the service providers under the scheme. Are we being too cautious in setting the CFEBs operational parameters by using the Thoresen definition of guiding users
to the point where they can choose between a small number of options?
That is well within the perimeter of generic advice, but it could go further if that was the intention behind the scheme. On the operation of the CFEB, clarification of where the Government see the boundary in law and in practice would be helpful.
The boundary in law is quite clear. The hon. Gentleman will be aware from what we propose that the new consumer financial education body will not be authorised by the Financial Services Authority to undertake regulated activities. It will therefore not be able to give regulated financial advice. Any advice that it gives will be unregulated generic advice, or what has become known as money guidance since the Thoresen report was published. It goes further than information, but it clearly is not regulated financial advice on individual products or services.
When giving guidance and advice, the new body and its partners will seek to explain an individuals options, and may guide them to the point at which he or she can make a confident and informed decision. In contrast to regulated advice, a specific product or provider will never be recommended. That is the boundary between money guidance and regulated advice.
The hon. Member for Fareham tried to probe whether we are going far enough, but I do not think that he suggests that the new body should offer regulated advice or recommend particular products, as that is not its role and remit. The body must provide information and advice as in the commonly accepted dictionary definition of the term. That can help an individual, and it is part of the way that the new body and its partners will help people to make the informed decisions that we all want to see. There is a clear boundary between regulated advice and the advice that the new consumer financial education body can provide.
Is it the Ministers view that the scope of the advice given by the new body goes up to the boundary of regulated advice, or is it well within the definition of generic advice? My sense is that the parameters of the Thoresen review were well within what could be classified as generic advice. It took a cautious interpretation of what was generic advice, rather than a more aggressive or expansive approach that would go right up to that boundary.
I suspect that I have a different view from that taken in the Thoresen review. I thought that Thoresens vision was about going up to the boundary, and providing advice at the stage where somebody can make decisions, without crossing the boundary to providing regulated advice. Both Thoresen and I want the new body to be as helpful and useful as possible to those individuals who need help, so going up to that boundary seems the appropriate thing to do. Clearly, that boundary will be different for different financial areas.
I know that this has been tabled as a probing amendment, but were it to be agreed, the consequences for the new consumer financial education body could be severe. Removing its ability to provide advice would mean that we could not get close to the boundary of regulated financial advice, and we would not have the sort of service that we want the new CFEB to provide. It has been helpful to have this debate, and to make that clarification between regulated financial advice and advice, so that the distinction is clear and well understood. We look forward to the new consumer financial education body providing that service. As the hon. Member for Fareham indicated from his experiences in Gateshead, this sort of advice must be taken to the appropriate level if it is to be useful. That is why we have framed the legislation in this way.
My comment was in relation to the CAB evidence, because the boundary was not clear. The CAB talked about, and expected the provision to
promote solutions which meet consumers...needs.
That seems to include more than just advice; it is a package of measures for people to adopt in order to change fundamental aspects of their lives. That showed that those who might participate were, and still are, genuinely confused as to where the boundary is.
That was a brief but helpful speech by my hon. Friend, because it suggests that there is a lack of clarity about where, in practice, the boundary is. Promoting a solution goes beyond what the Thoresen review says about guiding the user to a point
where they can choose between a small number of options.
That is very different from a solution. I do not think that a solution is necessarily a package; it may be advice such as, You should get some life assurance. This is one of those areas where we will have to see how it develops in practice. People will find different ways of delivering generic advice and have their own view about where the appropriate operational boundary is given the expertise of the people involved. What expertise may be available from one provider may be very different from that from another. The purpose of the amendment was not to prevent advice being given, but to trigger a debate. I suppose that the hon. Member for Wolverhampton, South-West would have tabled a much more elaborate amendment around definitions to tease out a debate, and that is certainly an alternative to this. None the less, it has been a helpful debate. There is some uncertainty about what advice is. We know where the hard edge of regulated advice is, but it is difficult to work out how far we can go to get to the point where we are on the right side of that boundary. Having had the debate, I beg to ask leave to withdraw my amendment.