Chairman, Ladies and Gentlemen,

Introduction

It’s a pleasure to have this opportunity to address the FSA Annual Meeting. I took over the chairmanship last November from Jonathan Bloomer who is now my Deputy until this coming October.

The panel has been very busy over the last year and the nature of the work has changed as we now have live experience post N2 of the FSA in full action. This has shortened the Panel’s lead time to respond to areas of change or concern as the period for lengthy UK consultation has been passed although we have a series of humps in the form of Mifid and CRD consultation emanating from EU organizations in Brussels or Paris.

Panel Operations

Let’s however focus on UK issues where we have been busy and on key issues we have deployed our new approach of working in subgroups
within the Panel. These groups are put together often at quite short notice to interact with specific FSA staff working on important issues. We have established subgroups on enforcement, hedge funds, TCF and cost of regulation. Just this month we decided to form one on Private Equity. We find this an effective way of working and an efficient use of the time of senior people both in the industry and at the FSA.

On the issue of Panel priorities, it is worth me briefly mentioning 2 particular pieces of work. Firstly, as I just alluded to, the Panel – in partnership with the FSA – recently published an indepth study into the costs of regulation. We called for a gritty accounting exercise, which Deloiite was commissioned to undertake. It was a groundbreaking and challenging project. The Panel believes that the finished article provides a solid and reliable basis to identify those rules and aspects of regulation where the costs – especially in the retail sector – are highest. We will continue to push for these more costly areas of the handbook to be reviewed as part of the FSA's Better Regulation agenda.

Secondly, the Panel is part way through its 2006 survey of regulated firms. This is an important study, which examines the industry's view about the FSA's performance and effectiveness. We conduct the survey every 2 years and over 10,000 regulated firms – of all sizes and types – have been invited to take part. So it is truly authoritative and comprehensive in nature. If you receive one of our questionnaires, please do take the time and trouble to complete it, we want to know your views.

Principles based Regulation

Principles based regulation is pioneering work and there will be teething problems. Within the financial services industry senior management are
generally very supportive of Principles and Risk based regulation but down in their Compliance Departments the view may be slightly different as they are the ones who will get it in the neck if there is a regulatory problem. This is our problem in the industry and I have spoken at some length to the trade bodies to encourage firms to ensure that throughout their enterprise – not just in the Compliance Department and at the very top but at all levels there is an understanding and collegiate attitude towards proper conduct and embracing a business ethic which accords with the requirements of principles based regulation. On the FSA side it is essential that the quality of supervisory staff matches that of the practitioners they regulate. Supervisors must be sufficiently skilled to be able to evaluate the quality of the risk decisions being made by firms. This is not easy given the restrictions faced by FSA and historically performance has been patchy, many excellent supervisory teams but some lacking the necessary skills and experience.

However I commend FSA for tackling this issue upfront and making substantial progress during the last year on ‘People’ issues. Remuneration structures have been adapted and an ambitious programme of intensive offsite training has been implemented which matches the best that the industry itself can provided for Practitioners. This programme was implemented in 2006 and is still underway so it’s too early to see the full force of the results but it is definitely on the right lines and has our full support.

Consumer Matters

On consumer issues I meet from time to time with John Howard Chairman of the Consumer Panel. It is vital to the success of our Retail Industry that we work hard to build Consumer Confidence. Coming myself from the Wholesale Industry, I have tried hard to give special attention to Retail Issues and in some ways it is helpful that I approach them with the mind of a Consumer, who hopefully understands finance – but a consumer with a wife, three adult children and friends who sit around the kitchen table and discuss their problems of Mortgages, Pensions, football e.t.c. My kitchen table is of course statistically a completely unacceptable sample but it does give me a flavour of the concerns of Consumers without media slant and from people whose opinions I value.

I have been frustrated at the time it has taken to find a route to provide citizens with a reliable source of Generic Advice on finance. The Panel has encouraged the FSA to provide a single national website separately branded for the provision of Generic Advice and which would be a HUB around which other advice initiatives could be hung. It is clear that in today’s world vast swathes of the UK population young and old have access to the web and are regular surfers. Of course there are many who need help to access and understand information but this single national website could be accessed by Citizens Advice Bureau, through Library Services and many other means. It would deliver totally unbiased, reliable and verified advice in which all can have confidence. I am pleased that the FSA is now moving rapidly to develop this and ‘Mortgages Laid
Bare’ was an early example of an improved approach to Consumer communication.

Callum delivered a carefully balanced speech earlier this year on the vexed subject which we in the industry refer to as Caveat Emptor. We believe that consumers need to take more responsibility that just being honest when entering into a financial contract of any kind. Of course honesty on both sides is the very first base point of any financial contract but it is not enough. Sadly there is statistical evidence that many will be ‘economical with the truth’ if they think they can get away with it and this causes firms to be ultra cautious in dealing with Retail clients with heavy documentation costs which put up the price to the Consumer.

Many financial contracts are difficult to understand due to legal language and the use of jargon. As an industry we must work to simplify the explanation of products in Plain English. Having done this we do however expect the consumer to read and understand what the product is about – its upside and its downside. If in doubt ask questions and seek advice.

International

The last part of my comments today are directed at the FSA’s position as the regulator of one of the world’s major international financial centres. I was brought up in the West of Scotland where in my school days they made Iron, Steel, Ships and Railway Locomotives. That’s all gone and it’s a pleasant surprise for me to find later in life that the UK is still a very prosperous country. This is of course down to a blend of manufacturing and design success in modern industries and the success of service industries.

The Financial services industry pays approximately one third of all Corporation Tax paid in the whole of the UK and 11% of PAYE and NHI. Without this contribution the nation would be significantly poorer. And it’s not all in the glittering tower blocks of the City and Canary Wharf. It’s in the international success of Edinburgh, Glasgow, Leeds, Manchester, Cardiff and other centres around the UK.

Much of this is export led. The UK has the highest contribution to its trade balance of any nation in the world from financial exports provided by firms located here whether they be British, French, German, Japanese or whatever the ultimate ownership.

Therefore our Financial Regulatory system needs to be internationally competitive and attractive. As a consequence I look at the FSA as a brand in the world market place. Prior to the creation of the FSA, historically, it was the Bank of England that was that brand.

Whilst I don’t expect the FSA to be a Sales Organisation running marketing or advertising campaigns in overseas markets, I do encourage them to maintain a high profile in world regulatory fora and on a bilateral basis with the key overseas developing markets for our services – China, India, The Gulf e.t.c.

Much good work is being done by the FSA on international issues – what we ask is that this is maintained and I have no reason to doubt the commitment of FSA to this. What we also urge is that this is well communicated at home and in overseas markets.

In conclusion my thanks go to Jonathan Bloomer for all his hard work as Deputy Chairman and then Chairman. When I took over the Panel was in very good shape thanks to his leadership; the time and contribution of its senior industry members and a particular thanks to our excellent secretariat led by Chris Cherlin. We were delighted to see John Tiner back in office last Autumn and I would also thank you Chairman; the Board of the FSA and the staff at all levels who have worked well in allowing us to be the Industry’s constructive critic of Financial Services Regulation which is our role.