Ladies and Gentlemen,

2007 will be a very important year for the FSA and already with just over 50% of it now gone.

The Practitioner Panel is very supportive of the policy of ‘Principles based Regulation and is very supportive of the policy of ‘Making a Real Difference’ and this year we expect to see much progress in that direction so far as people issues are concerned. Of course it can’t be achieved at the turn of a tap but there are encouraging signs of progress – some visible to all and others being worked on behind the scenes.

You will know that I have been very focused on the quality of people employed by the FSA and their ability to do a good job in regulating our very successful financial service industry – we are a key part of the UK economy and last year contributed net to the trade balance a surplus of £26 bn.

There are at least two visible signs of steps in the right direction. Firstly the laudable and significant up-grade of the training of supervisory staff on the Arrow process. These supervisors are the front line troops of regulation who are out there amongst relationship managed firms and need to be as trained and as good as those they regulate.

The second visible improvement is in Enforcement with a reduced number of good people implementing the improved policy following the Strachan review of the whole process. A significant number of cases (at least 51 since October 2005) have been settled at an early stage which is encouraging openness and a regulatory dividend to otherwise sound firms when there is some internal ‘foul-up’ and regulations are unfortunately breached.

So tangible green shoots are to be seen and my message to the FSA is to keep up the pace and achieve the goals set for 2007 and 2008. People are at the heart of this and we are fully behind the FSA’s investment of £50 million in people, I.T. and knowledge management.

Suitably qualified staff that have a good commercial understanding with the ability to exercise pragmatic and consistent judgments will be key to implementing more principles-based regulation.

On the consumer side we have been supportive of the up-grading of the consumer website at the FSA which started with the surprisingly risqué ‘mortgages laid bare’ and has now matured to the modern but more modest ˝money made clear˝. We consider the FSA as doing a good job in leading the National Strategy for Financial Capability.

The panel continues to press the FSA on consumer responsibilities but accepts that there is also a need for consumer education and clear unambiguous explanations of the products offered by the industry.

I welcome the government’s moves to bring financial education into schools and the workplace. The work of the Financial Services Skills Council is also to be encouraged because we urgently need to up the quality of staff in our industry and I look forward to the results from the investment in the National Skills Academy, which operates from four centers across the UK. The FSA’s ability to regulate will be enhanced by these moves as people are important on each side of the fence.

The panel has been severely exercised this year by the deluge of policy reviews and initiatives in the Retail space. We have and continue to be concerned that the deluge is ˝much too much˝ and not significantly joined up with ˝many carts before many horses.˝

We agree that there needs to be an overall Retail Review and that there is considerable scope for improvements but the approach must be ordered such that we start at A and work towards Z in a logical progression with which the industry can cope. We believe that this will in practice result in a better progress towards a mutually acceptable outcome.

I hear what John Howard says about commission but I would argue that one cannot be that unequivocal that all commission is wrong. It seems to be universally taken for granted that commission based remuneration leads to commission bias. However, the Panel has not seen any proper and reliable evidence of this. We believe that the issue is not really about commission per se but about raising professional standards within the Retail industry. While Customer Agreed Remuneration does have its merits much more thought needs to be given as to how it will work in practice and the type of information needed at the point of purchase that consumers find useful.

Life’s experience is that people don’t like fees – mortgages are onerous and a major means of savings and the consumers’ attitude to fees is pretty negative other than for the wealthy. Let’s give the consumer the choice, commissions disclosed or fees disclosed. Someone has to pay the rent.

On the State Second Pension (S2P) issue, the Panel was pleased that the FSA took account of its representations and we consider the outcome to be most proportional and fair.

Our biannual Practitioner Panel Survey published last November confirmed general satisfaction amongst wholesale firms but illustrated the concerns being felt by Retail firms notably smaller firms. Our industry is devoting substantial effort this year to the implementation of Mifid and the CRD, which is a significant task. I urge the FSA to give us the breathing space to implement this. For the first time the major trade associations came together under the umbrella of ˝Mifid Connect˝ to negotiate. This has worked well for the industry and I hope has been efficient for the FSA.

On the International side the FSA has a difficult task as it’s role and responsibilities co-mingle with those of H. M. Treasury. One cannot quarrel with the logic of the FSA’s board decision that international responsibilities rest with the relevant line management. My problem is that the line management has a very onerous range of domestic responsibilities and it must be difficult to find the time to address international issues. I therefore welcome developments over the last year that have either enhanced FSA’s international visibility or have better communicated to the industry what FSA is already doing.

What we must recognise is that the EU is at the heart of our global negotiations whether within the EU, Transatlantically or with Asia. We are but one vote but hopefully a wise and thoughtful vote.

The legal structure of many E.U. states is based upon Roman Law or the Napoleonic code so ‘Principles based regulation’ does not easily sit with the rules based regulation to which they are accustomed. However many of their regulators recognise the commercial common sense of ‘principles based regulation’ and we hope are minded to adopt it as much as possible.

We must therefore work hard at building a lobby amongst modern like minded EU states respecting their rules based tradition and I have encouraged the FSA to devote more resources to this. Financial Services are such an important element of the U.K. economy that we must not skimp on resources to maintain our position in an ever more globalised and electronic industry.

Let me close by thanking my fellow Practitioner Panel members – we are indeed very fortunate to have such a good group of senior people willing to give significant time ‘pro bono’ for the good of our industry. We have an excellent secretariat at the FSA who have worked tirelessly to help me and the other Panel members.

Having sat on the Panel for many years it is my clear impression that industry relations with the FSA have improved greatly and I thank all the FSA staff who have come willingly to our meetings for their open and constructive working relationship with us.

The role of the Chief Executive of the FSA is one of the most difficult in the U.K. with frustrated Practitioners, concerned consumers, it’s own staff, H.M. Treasury and Parliament to satisfy. John Tiner has taken on all of these responsibilities with good humored professionalism and we thank him most sincerely for that and hope that when his upcoming maritime odyssey is over that we will see him again in our industry.

We look forward to working with Hector Sants as the new Chief Executive. Apart from sitting as a member of the Panel and as a consumer I myself had not worked in the Retail industry which I found a positive asset in being Practitioner Panel Chairman as you approached the issues with a fresh mind not coloured by past experiences. Hector, I am sure will do, like John, a good job for all of the FSA’s constituency.

Lastly to Callum and the Board of the FSA our thanks for your open and constructive approach to our concerns and for a good working relationship throughout the year.

This is my last year as Chairman and at the end of October I hand over to the capable hands of my Deputy Nick Prettjohn the UK Chief Executive of Prudential who will I am sure do a very good job for the Panel.