Finance Committee

Meeting date: Wednesday, March 14, 2012

Official Report 422KB pdf

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Financial Services Bill

Our final item is consideration of the legislative consent memorandum to the Financial Services Bill. The cabinet secretary, John Swinney, stays with us; for this item, he is accompanied by Claire Orr, executive director of policy and compliance. I invite the cabinet secretary to make an opening statement explaining the LCM.

This LCM is required to ensure that the new functions of the Consumer Financial Education Body, as provided for by the UK Financial Services Bill, can be undertaken in Scotland. As the memorandum explains, the bill provides a new framework for financial regulation in the UK to ensure stability and confidence in the financial system.

The bill is being used to extend the functions of the CFEB, now known as the Money Advice Service, to ensure that it plays a direct role in providing debt advice; it will seek to give the body a clear role in the provision and co-ordination of debt advice and, in effect, require it to provide such advice. Its funding will be paid for through a statutory levy on the financial services industry by the Financial Services Authority.

In response to the downturn, more and more people are seeking advice about their financial difficulties and the body’s purpose is to raise public understanding and knowledge of financial matters, including the financial system, and to increase people’s ability to manage their financial affairs. However, an LCM is required because CFEB’s work relates to providing consumer financial education to enhance the public’s understanding and knowledge of financial matters and personal finance management. Given that such work is not covered by the financial services, financial markets or consumer protection reservations set out in schedule 5 to the Scotland Act 1998, it is therefore within the legislative competence of the Scottish Parliament. However, the reservations apply to the rest of the bill.

As our interests are reflected in the bill, there is no added value in having separate legislation. Indeed, the process would be complex and would require further time and resources to be spent on achieving the same policy aim.

As I have no questions myself, I open up the questioning to committee members.

I think that we welcome the fact that there will be financial education for the public—I am sure that most of the public, too, will welcome the move. However, I wonder whether the need for this education has arisen because of the underlying problem of the complexity of the financial system, with interest rates totally unregulated by Westminster and other issues that other members can no doubt think of, and whether in fact it would not be needed if we had a simpler and better regulated system.

There is a difference between better regulation of the system and the complexity of the financial service sector. On the latter issue, Mr Mason makes an absolutely fair point. I worked in the financial services sector—my goodness, it was not yesterday; it was more than 15 years ago—before I entered Parliament. Even then the industry was complicated and, in the intervening years, it has become ever more complex. That complexity certainly does not lend itself to the public’s genuine and full understanding of financial products and the financial implications that they might have to face, and we must ensure that people are properly and fully equipped with knowledge to handle these questions. Of course, one consolation might be that the service will be funded directly by those who design these complex products.

The committee has to report to Parliament on its views on the LCM. Are members content with the LCM’s terms and to report accordingly?

Members indicated agreement.

I thank the witnesses, particularly the cabinet secretary, who has been here for a full two hours now.

On 22 February, the committee agreed to consider its draft report on the Police and Fire Reform (Scotland) Bill in private; earlier, it agreed to take item 7 in private. I therefore close the public part of the meeting.

11:28 Meeting continued in private until 12:19.