Treasury Committee takes evidence on financial regulation

Tuesday, 25 October, 2011

David Ruffley MP questions witnesses on governance of the Financial Conduct Authority.

Witnesses: Angus Eaton, Operational and Regulatory Risk Director, Aviva Plc, Paul Killik, Senior Executive Officer and Partner, Killik & Co, and Philip Warland, Head of Public Policy, Fidelity, gave evidence.

Q23 David Ruffley: Mr Killik, the paper that you submitted to us was interesting where you talk about, "Engagement with industry bodies could help a more segmented approach". You also draw our attention to the fact that in the FSA June paper they were actively talking about reducing the number of relationship-managed firms, and you propose to remedy that. An element of self-regulation and a key part of that would be putting together a panel of professionals, retired professionals, who could give knowledge and advice, I am assuming, to the FCA staff. I just wondered what reaction you have had from policymakers, either at the Treasury or the FSA, to that proposal. Paul Killik: I have not had any. I have not had consultations with them, so I have not had a response.

Q24 David Ruffley: You have not floated it at all?

Paul Killik: I have in papers, but I had no particular response to them.

Q25 David Ruffley: Did you expect a response?

Paul Killik: It would have been nice to have had a response, but in some senses I am not altogether surprised.

Q26 David Ruffley: I just wondered, because it seems an interesting idea. It is a contribution to the debate. Would you have support from the rest of your industry for that?

Paul Killik: Without a shred of a doubt. I think by putting it forward as people at the latter end of their careers, nobody could accuse practitioners of looking after their own interests, but they are coming with a lifetimeÕs experience. We are currently seeing people being retired out of businesses, at 60, 65 these days, who have probably got another 10 years or at least five years of work within them and they would like to contribute in that way, I am quite sure. It would be beneficial for the whole industry and certainly, I believe, useful for the regulator to have that sort of resource internally.

Q27 David Ruffley: I infer from what you just said in your proposals that you donÕt entirely have faith in the likely expertise of staff on the FCA, because in your submission you made clear that in terms of products, the understanding of products, it would be sensible to have some retired practitioners who have been involved in the market for these products and services. You presumably do not believe, or have much faith, that the FCA will be able to recruit such expertise, hence the need for your panel?

Paul Killik: Absolutely. I have been in one small sector of financial services for 40 years, and I canÕt claim to be an expert in all aspects of my small segment. It is hugely complex, the whole gamut of the financial services industries. Therefore, to recruit people and believe that you can then train them internally, without any interface with the businesses that they are regulating, strikes me as a bizarre concept. I know how long it takes me to train chaps up before I put them on the telephone to talk to clients. That is a very long process. We are wasting resource when we have people who would happily contribute, I believe, and not using that level of experience.

Q28 David Ruffley: You did not propose this; the June FSA paper proposed that the number of relationship-managed firms be-and I quote-"significantly reduced". To the layman, this seems to be the opposite of what we-

Paul Killik: You are absolutely correct, and since that paper was written by us we have actually been notified that we are now going on to a call centre. As you have rightly observed, we are not a big business, but we are a very particular niche of our industry and I think the FCA are going to be poorer by not having contact with us and understanding where we believe our industry is going.

Q29 David Ruffley: Your views have been given by yourself as an individual. What I am quite keen to understand is, are there other serious concerns of the kind you have identified prevalent in the rest of the industry?

Paul Killik: Yes, there are. I would add that I am a director. I am on the board of APCIMS, which is a trade association for our industry. I have been on that board now for about 15 years, so I am pretty well plugged into the thinking of the industry.

Q30 Mr Ruffley: Of course, APCIMS is a very important trade body. Are they going to make a fuss about this?

Paul Killik: They have made submissions both to the Treasury Select Committee, and also to the Financial Services Group, Peter LilleyÕs group, as well as, obviously, having dialogue with the FSA. I am not sure yet whether they are in a dialogue with anyone at the FCA.

Q31 Mr Ruffley: Would you think that the idea of a single supervisor across many different product areas is a bad idea?

Paul Killik: What I think is a bad idea is a one-size-fits-all concept. To take a very high-level view of regulation, from a rather analytical approach to it, without understanding the business models of the various companies underneath it, you end up with the regulator effectively designing the business model for our industry. That is not healthy because we are all being shoehorned into a one-size-fits-all regime.

Q32 Mr Ruffley: On that important point, can I ask Mr Eaton and Mr Warland what their comments would be on that issue?

Angus Eaton: I think from our perspective the-

Mr Ruffley: That is, essentially civil servants putting together a model with perhaps limited experience of the products and the industry that they are designing this regime for?

Angus Eaton: We would certainly support the view that it is essential that the regulator has the capability to do what it is set up to do. I endorse PaulÕs comments, in the sense of that is not an easy thing to do. I would say my fear is these recommendations are predicated on the assumption that the industry itself isnÕt taking this seriously and not taking consumers seriously. We have invested an enormous amount in product development and have engaged regulators through our product development processes in a positive way. The danger is that if they separately try and analyse the industry in a way that is the broad brush approach, which I think was suggested, that could give rise to issues.

Q33 Mr Ruffley: This could potentially be quite calamitous for your business-not just your business, but for the industry. Would you go that far?

Angus Eaton: I would say the key for us is in understanding the consumer and the regulator needs to have the capability to do that. If we donÕt understand the end consumer then I think there are issues.

Mr Ruffley: Mr Warland?

Philip Warland: A number of points. First on experience, in general I agree absolutely. I have been in the asset management industry now for 20 years and I can only think of one person who has ever been in the FSA who actually had business experience of the asset management industry. That is the first thing. The second thing I have to confess is that the FSA does have senior advisers who used to be called, "Grey Panthers". The predecessor in my job here in Fidelity was actually an old Grey Panther in the FSA. So they do have that experience in the FSA. But the biggest thing we suffer from is precisely what Paul has described: they do not understand our business model and they throw a whole series of regulations at us, which are really irrelevant and just add to cost. One big one is they talk about governance. They think governance is the way they govern the FSA, which is committee after committee after committee after committee, and we do not think that is a good way to run a business.

Mr Ruffley: Thank you.

Read the full transcript here: