What we have done for consumers
The development of regulation in financial services involves extensive debate and consultation. The Consumer Panel has been particularly effective in helping the FSA to develop better regulation in early stage discussions. As a result, it is often difficult to identify the precise role the Panel has played in the final outcome. For this reason we have separated our successes into those where we think the Panel made a unique contribution, without which the outcome would have been very different, and those where we exerted significant influence but were not alone in promoting effective change.
Retail Distribution Review (RDR) - The elimination of provider bias in the advice process. The Panel has promoted the elimination of the conflict of interest caused by commission since the early 2000's. Following the launch of the FSA's Retail Distribution Review at Gleneagles in 2006, the Panel has actively engaged with the development of policy, including commissioning research to shape the structure of the regulation, to ensure the availability of good quality advice to all those who need it . The FSA's reforms will raise professional standards and tackle the potential biases created by provider commission payments to advisers and other incentives. Our consistent highlighting of weaknesses in the retail advice sector has influenced the Retail Distribution Review as it has progressed. Our work has included evidence based policy advice on the need for generic financial advice, the potential role of platforms in delivering value to the consumer and ensuring that regulation addresses the advice gap in the middle market This is work in progress and we continue to challenge the FSA to ensure consumer needs are properly considered.
RDR - Platforms - Better value for consumers. As the RDR progressed it became apparent that platforms would play a significant role in the new post RDR world. The Panel has lobbied to ensure platforms conform to the principles of the RDR. As part of this, we commissioned research which demonstrated that it should be possible for the providers of these services to change their business model, given a reasonable amount of time, and therefore ensure a more transparent and competitive market. The FSA is now in the process of undertaking detailed work which we hope will result in a more economically efficient platform industry that delivers better outcomes for consumers and is free from opaque payments between fund managers, platform operators, advisers and consumers. No other consumer group responded to the platform consultations.
RDR - Advice for the middle market - As more responsibility for saving for later life is passed to the individual from the employer and the state, there is a need for regulated advice at lower cost for the less well off. The RDR has emphasised this need. The Panel has campaigned since 2007 for the investigation of more cost effective ways of delivering advice. This has included calling for the FSA to examine the need for "simplified advice" and commissioning research into lower cost advice models and straightforward outcome products. Our ideas have been gaining traction and we are optimistic that, together with our campaigning in Europe, the British public will have much better value and more suitable savings vehicles in the future.
Mystery Shopping - The Panel persuaded the FSA in the early 2000s that it should conduct mystery shopping as part of its regulatory toolkit. The various surveys the FSA conducted in following years highlighted serious deficiencies in the provision of advice, equity release, lifetime mortgage products, PPI and critical illness insurance. The results encouraged the FSA to overcome industry resistance to a more intrusive approach to regulation.
Communications with consumers - The Panel has pressed the FSA over many years to do more to help consumers engage with the market by giving out clear and unbiased generic information, influencing the development of the FSA's Moneymadeclear website and other consumer information. Much of this has now been transferred to the Money Advice Service, but there remains a need for the FSA to continue to communicate directly with consumers on which the Panel continues to advise.
Mortgage Arrears and Repossessions - Since the FSA took over the regulation of mortgages in 2004, the Panel has continued to push for improvements in this vital area for consumers. Most recently we have pressed the FSA to ensure that mortgage companies comply with FSA requirements to liaise properly with customers to do everything possible to avoid arrears and repossessions. At the same time we promoted this need with the Ministry of Justice which eventually resulted in the mortgage arrears pre-action protocol.
More effective identification of emerging risks - The Panel has collected intelligence from consumer groups on emerging risks for consumers over the last three years. This work has informed the FSA's conduct policy and is now in the process of being embedded in the FSA's consumer engagement and Retail Conduct Risk Outlook report. This will support the more proactive approach to regulation which the FSA is adopting.
Areas where the Panel has had a major impact on policy
Mortgage Market Review (MMR) - Inappropriate mortgage lending during the last housing price boom has led to serious consumer detriment, with some consumers struggling to maintain their mortgage payments. To prevent this happening again, the FSA has developed detailed proposals to regulate the sales process and, in particular, to mandate appropriate affordability assessments for all mortgages. While the Panel welcomed the proposals, we were concerned that the FSA's cost benefit and economic analysis was not sufficiently robust to ensure the proposals did not adversely affect creditworthy consumers. The Panel's privileged position inside the FSA meant that we were in a better position to discuss the FSA's analysis. This has been an important influence helping the FSA to refine their MMR proposals.
Financial Crisis in 2007/2008 - The Panel actively lobbied to achieve the greater compensation offered during the crisis for retail bank deposit holders should their bank collapse. This was successful. We have continued to press for better and more effective compensation in both the UK and at the European level, including cover for temporary high balances. Our consistent position has been that different brands should be covered by separate compensation; since consumers do not understand that very different sounding brands can be authorised under the same institution and so only qualify for one compensation limit.
Banking regulation - Ineffective self-regulation of the banking sector resulted in consumer detriment from poor business practices. The Consumer Panel and others lobbied for the transfer of regulatory responsibility for conduct of business from the Banking Code Standards Board to the FSA in November 2009. The Panel continues to work with the FSA to improve the effectiveness of consumer protection in this sector.
With profits funds - Research published by the Panel highlighted significant problems in the governance arrangements in with profits funds. The FSA has taken action on some of the issues we raised, although we feel it acted too slowly and considerable work is still needed to protect the interest of with profit policyholders. This is something which the Panel's lack of a statutory relationship with the Prudential Regulatory Authority in the future may make more difficult.
Enforcement - The Panel expressed the view to the Treasury Committee in 2003 that the FSA had relied too much on the reassurances of the industry in its compliance work. The increase in the number and profile of enforcement action from 2008/9 onwards was a response in part to pressure from the Consumer Panel. The Panel has always maintained that strong action against firms and individuals is important, not only for better behaviour in the industry, but also for consumers to gain confidence from an industry which is well policed.
Financial Capability - The Consumer Panel had long argued for an impartial generic financial advice service which is not linked to the sale of any financial products. In 2008 we therefore supported the Government's Thoresen Review, which led to the FSA being charged with the development of a money guidance service. This led to the creation of CFEB the Consumer Financial Education Body and ultimately the Money Advice Service.
Payment Protection Insurance The Panel has consistently pressed the FSA to take strong action against firms that have mis-sold Payment Protection Insurance. It has been closely involved in efforts to get effective and timely redress for those consumers who were mis-sold PPI.
Financial Services Consumer Panel
20 November 2012
Terms of reference
Beyond our statutory remit in the Financial Services and Markets Act 2000, we have formal terms of reference agreed with the FSA which set out our role and responsibility as follows
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