This is the first time that I have had the pleasure of addressing this meeting and, of course, the first time the meeting has been held since N2.

I would like to take the opportunity this morning to reiterate the role of the Financial Services Practitioner Panel and the way in which we work. I would also like to add a view from the practitioner end of the spectrum as to how the FSA with its full powers begins to be seen by practitioners.

But first I would like to make a personal remark which I made at a conference the FSA organised on Managing Regulatory Risk. I have in a sense come late to regulation, although I have worked most of my life in a regulated environment. Indeed, I find most practitioners, whilst mindful of the rules that result, do not spend much time understanding the philosophical underpinnings of the development of regulation nor of the wider consequence that can flow from apparently minor changes to rules. Why should they? It is their task to run their businesses and satisfy their customers.

Indeed there is a curious asymmetry between the way many practitioners discuss regulation (and generally their desire for less of it) and the extent to which they press for ever more detailed guidance and rules.

It is hardly surprising, given the increasing intrusion of regulation into many activities in the economic life of the country, that this should be so. In stormy seas a sailor will always seek safe harbours. And the seas have become a lot stormier for most of us.

Let me then say a word about what the Practitioner Panel is not. It is not part of the FSA. It is not a representative body constructed with any delegated authorities from practitioners to speak on their behalf. In determining our membership the views of practitioners, largely through their representative bodies, have been carefully taken into consideration and the balance of the Panel reflects the wide spread and depth of the financial services industry in this country.

We are not, however, a super trade association for all financial services companies and we recognise that in its day-to-day dealings with the financial services industry the FSA has effective counterparts in many of the trade associations with which to have the necessary dialogue on detail. We leave the process of detailed responses to consultation to individual firms and trade associations.

Secondly, we are not a heavily resourced body, believing that it is better that we contribute such wisdom that we possess to the process of ensuring that the regulated are willing to consent to operating within the bounds of the environment established by the regulator.

These powers are very substantial and potentially dangerous and it requires the regulated at least to acquiesce fully in the process of regulation for the entire balance of the system to work satisfactorily. I believe that the Panel is a conduit which can help to build that
consensus.

Thirdly, the Panel does not believe that it will succeed in ensuring this delicate balance is successfully maintained if it conducts its affairs through megaphone or loud hailer.

Accordingly, we take detailed differences to the FSA and its staff in, I hope, a thoughtful manner likely to ensure a reasoned dialogue rather than through confrontation. We have found that the FSA has been responsive for its part in this process.

And finally, we are not a veil which assists in giving the FSA a pretty face were the reality to be different. In practice, we find the FSA open to discussion, willing to listen to and respond to proposals and to make a significant effort to ensure that before it brings proposals before us they have been carefully thought out. This does not mean that we like all of the output or that we will not have our differences but they are developed within a framework which gives the appropriate opportunity to ensure that all views are heard.

Life has changed for the Panel since N2 in several ways. First, the continuous supply of consultation documents is slowing down. In general, we
have had the opportunity to comment on drafts before the consultation process began in order to ensure that the best possible opportunity for resolving differences was explored in advance. We support very much the intense consultative approach taken by the FSA but we reject the argument that says that a particular rule is satisfactory because it went through and emerged from the consultation process. Inevitably, there are detailed rules that have not emerged perfectly and it is important that regulated firms are able to understand fully their liabilities in the period up to a satisfactory amendment of such rules.

Consultation continues and the Panel is able to continue to participate in the process. We were particularly pleased to see that the FSA had established a taskforce looking at the impact of market forces. Sometimes rules may be a less effective and more costly way of regulating than the market itself. We have made the point that excessive, detailed processes which require costly documentation for, for example, complaints handling may in fact be an unnecessary extra burden when, in reality, the market will punish those firms that do not look after their customers properly.

We believe that as regulation evolves this market forces theme should become a more important part of the assessment jigsaw in determining the value of new regulation.

Inevitably, following N2 and the establishment of a statutory regime, the experience of regulated firms in dealing with its regulator is changing. Unsurprisingly, faced with this new world and the yards of documentation which accompany it, there are many questions of interpretation raised in practitioners’ minds. It was one of the advantages of the old world that interpretative dialogue was possible between regulator and regulated without statutory consequences and we recognise that the world has changed. Nevertheless, the FSA needs to be alert to the genuine needs of
practitioners to find their way clearly around (perhaps I should say “through”!) the rules. In a dynamic market causing firms to reach for lawyers as a first resort is unlikely to be the most effective route for ensuring competitive flexibility.

There is, of course, a significant difference between genuine enquiries for information and understanding and those enquiries which seek to test the boundaries of the rules under the guise of the former. Altogether, however, the Panel hopes that the FSA will endeavour to behave as far as possible in a manner which allows for the maximum help to be given to those seeking to find their way through this new labyrinth.

Inevitably, no matter how good the consultation and rules setting processes were, some rules will have emerged in imperfect form. It is pleasing that the FSA has recognised this reality and that they have an active process of reviewing the necessary changes. There is some anxiety amongst practitioners to understand clearly the framework within which they can operate prior to the rule being satisfactorily amended and to understand the extent to which they can avoid systems expenditure to cope with the present version of the rule which would prove to have been unnecessary after amendment. We are grateful that the FSA is sensitive to this issue and it is important that as much clarity as possible is available.

The Panel continues to value the clear understanding by the FSA that it is not operating a zero failure regime (and cannot) and that through its risk-based assessment it is endeavouring to ensure that resources are directed most effectively to the areas of greatest risk. Its policy of proportionate regulation is greatly welcomed and has, in no small measure, assisted in achieving the support of regulated firms.

One of the Panel’s objectives is to monitor the FSA’s effectiveness as seen by the industry. To this end, in 1999 the Panel conducted a survey of practitioners’ views about regulation at that time. This was, of course, before N2 but the Panel hoped that the views then expressed would form a clear baseline to allow the Panel to measure and report on the practitioner view of the performance of the FSA. As we speak, we are conducting the second such major survey amongst regulated firms and this we believe will also help to provide an objective and clear picture of the issues which now face practitioners.

In our Annual Report we commented on issues with respect to research, the operation of the Financial Services Ombudsman Service, issues of materiality and the need for performance feedback about individual regulators. In all these areas I am pleased to report that the FSA has responded positively and shown a willingness to adjust to legitimate concerns.

The financial services industry exists to service its customers and will only be successful if it does so prudently and effectively. The consequence is that firms have a vested interest in happy consumers. I do not accept that the consumer interest and the practitioner interest need necessarily diverge in relation to the regulation of the market place but there is at present the beginning of anxiety amongst practitioners that in seeking ever more information requirements, we are travelling along a path which leads to a form of regulated process, regulated product and, ultimately, regulated benefits.

Perhaps “prescribed” could be a better term than “regulated”. The balance in this argument is complex and difficult to strike and each tiny step of itself may feel wholly reasonable. We need to be careful if we are to maintain our tradition of highly effective innovation and international competitiveness.

Perhaps this is an appropriate moment to repeat our anxiety that there needs to be careful meshing together of the outcomes of all the cascade of enquiries into financial services lest inadvertently the law of unintended consequences is to come into operation. I hope the Treasury will be mindful in the weeks ahead. The Panel will respond to Sandler in the coming weeks.

Whatever our domestic issues, perhaps the greater challenge will come from how we mesh with European regulation and here I would like to thank the FSA for its constructive approach to working with practitioners in relation to the future of European regulation. That is not to say that we will always agree but the need for a coherent position on many issues will be of significant importance. Here there ought to be a strong community of
interest between practitioners in the UK and consumers in the UK.

Finally, I would like to express our gratitude to all those at the FSA with whom we interface for the very high quality of the work they bring in front of us and the positive way in which the FSA shows its willingness to work to succeed in creating a proportionate and manageable framework for our businesses to work within.