Question: What was your response to the announcement of the review of the Financial Services and Markets Act?

Adrian Coles: We knew there was going to be a review because Don Cruickshank said the government should review the Act two years after N2. Hence the "N2+2" review.

We're pleased the government met its commitment to do that and with the contents of the government's announcement.

We welcome their determination to look at the impact of the FSMA on competition and we very much hope that the Office of Fair Trading, to whom the Treasury has given this job, looks at the impact of regulation on small institutions. Very often it's the smaller institutions which are very vibrant and have new ideas and are closer to their communities than larger institutions based in the City. However, smaller institutions can sometimes be disproportionately hit by regulatory compliance costs.

We will be submitting something to the OFT to make sure that they are aware of the impact of small institutions on the market place and of regulation on small institutions.

More important than that is the analysis of the powers of the Financial Ombudsman Service. It's clear to us that the FOS has become a quasi regulator; some building societies would remove the word quasi!

The FOS is fine if its just looking at the allegations of maladministration when a firm hasn't done something it promised to do, but where the Ombudsman has gone a lot further is in determining pricing policy, both on the mortgage side and the saving side, and this can have a huge impact.

For example, Nationwide had to pay £90 million to compensate all its customers when it was found guilty of unfair pricing on dual variable mortgage rates. They chose to compensate all their customers, even if they hadn't complained - but other firms didn't choose to compensate all their customers, only the complainants.

The impact of the Ombudsman's regulation is therefore very haphazard and this can't be the most sensible way of going about things.

So we're very pleased that the FSA and FOS jointly will look at the position and we're also very pleased that the review will look at the possibility of a review of Ombudsman decisions.

I mentioned earlier the Nationwide case but Norwich and Peterborough Building Society went through a similar case on TESSA and ISA rates. They had to go to the High Court for a judicial review. The Court examined the way the FOS went about its decision-making, not the merits of the case itself.

Norwich and Peterborough Building Society lost this case. It cost them £1.5 million to compensate all their customers. Like Nationwide, they volunteered to compensate all customers in the same situation as the complainant - even if they hadn't complained and thought that they had been treated fairly.

So the current system has a very haphazard impact. It has a different impact on those institutions who think they should play fair by customers, compared to other institutions who have shareholders to look after.

Question: How would you like the government to take forward its conclusions?

Adrian Coles: Well we don't know what the results of the review will be.

We're very pleased that there is a building society person on the overall management group looking at the review of the Ombudsman's powers - Matthew Bullock from Norwich and Peterborough.

We're going to get the outcome of the review in May. What I hope is that the situation is not left as it is. We cannot have the government, FSA and FOS putting up their hands and saying its all too difficult to change - we need to move towards solutions such as permitting reviews of Ombudsman's decisions.

We also don't want customers who have won an FOS case being appealed against by a big, powerful financial institution.

We've made it absolutely clear that if a customer wins the case, they should win the case in full. What would be reviewed would be the principles behind the decision.

So if the customer receives compensation - they keep it. There's no question that a customer should face the full might of a financial institution in a courtroom.

Question: The Child Trust Fund Bill is currently before parliament. Is this legislation that you have welcomed?

Adrian Coles: Yes we're certainly very keen on the principles behind the Child Trust Fund.

We think it's right that children should have an asset from birth. There's lots of children who aren't born with assets and this will put this right.

We think it's right that the child can't withdraw their savings until they're 18 - we don't want kids buying toys with their money, we want them saving it until they're an adult.

We think it's right that once they reach 18 they can spend their savings on whatever they want. After all, you are an adult then who can vote and you can't keep the money locked up until they are a pensioner.

And we're very pleased that people can add to the fund - so its not just government money, it's an opportunity for members of the family to increase the pot.

However, there is one area of concern which is not in the legislation but we know will be in the regulations.

When you open a Child Trust Fund you can invest in a deposit account and leave the money to accumulate interest, or you can go for stocks or shares.

But what the Treasury is saying that in order to offer a Child Trust Fund deposit account the firm must be able to offer a stocks and shares option to the customer as well.

We think that prevents about a quarter of all building societies from offering this product because they don't offer stocks and shares based products.

It also makes if difficult for the credit unions to enter this market. These are organisations which the government has boosted - they are addressing many areas of financial exclusion - but most of them don't offer equity type products either, and therefore can't offer a deposit Child Trust Fund.

This seems totally wrong and we hope the Treasury change their mind.

Question: Do you think that a Bill like this means that kids should be taught more about handling money as part of their school syllabus?

Adrian Coles: Absolutely. One of the advantages of the Bill is that it requires the children to be educated as well.

There are various ways to do this. You could send them a birthday card with simple messages about how to run their finances; you could send them literature on the plan anniversary. There are many other options.

It would be quite a challenge to make sure the firm sends the right things to the right child: obviously a child of 5 would receive something different to a 17 year old.

More generally, the BSA has given quite a bit of money over the years to the Personal Finance Education Group; one of our members of staff sits on their board.

So we are fully in favour of educating consumers on how best to manage their money.

Question: Has the BSA sent in a submission to the Miles Review on long-term mortgages and, if so, what were your main arguments?

Adrian Coles: Yes, we sent in a submission back in the summer and we will be sending another submission to meet the next deadline of January 23.

We think the report is well written. I've known David Miles for many years and I would have expected little else from him.

We're pleased that he's not saying, "fixed rate good, variable rate bad". Contrary to some press reports he's not trying to persuade everyone to opt for fixed rate, which would be wrong.

What we would not like to see is the government legislate of give tax incentives to encourage borrowers to move to different types of mortgages.

We have a very competitive mortgage market. We are very lucky to have such a wide range of choice and what we don't want to see is the market become less competitive with less choice.

There is some recent research from the European Mortgage Federation which shows that we have the most complete mortgage market in Europe - most types of mortgages are available in the UK, and most types of customers are served, in a way which is not the case in most other European markets.

If you just have fixed rate mortgages, generally the longer you go the higher the interest rate. A lender needs a higher rate of interest if they are going to offer funds for 25 years. If there is an option to repay before the end of the term this further adds to the cost.

The other concern we have is that if every borrower has a fixed rate mortgage, lenders would be absolutely certain that no one would be damaged by an increase in interest rates. They could therefore take on a larger mortgage much more safely. This would add another twist to the house price inflation spiral.

A further concern is that that fixed rate mortgages have to be financed from the wholesale market. The sort of institutions which think it is sensible to fund 25 year mortgages are not retail depositors; they are pension funds and others in the wholesale markets.

Building societies would have to borrow money from the wholesale markets to do fixed rate mortgages. The problem is that building societies are allowed to get only 50 per cent of their funding from wholesale markets.

An act of parliament to change building society legislation to alter this limit would probably be required.

Question: You mentioned the complete mortgage market in the UK, but do you think that the sheer range of options is sometimes daunting, especially for first time buyers?

Adrian Coles: How can people be taught about the choice they've got?

I think it comes back first of all to school. They must be taught some basics. What are interest rates? What is the difference between a fixed rate and a variable rate?

We also need to put resources into educating people after they leave school.

In a sense, school education about mortgages and credit cards is too early. You can't get a credit card or mortgage until you are 18.

We also need more simplicity. There are far too many "clever" products with lots of twists and turns that the ordinary consumer cannot possibly be expected to understand, or even be interested in.

The Barclaycard credit card advertisements which were promising zero per cent borrowing was an example of that.

Very often making it different means making it complicated - and this turns off consumers.

The problem is that the world as a whole is getting more complicated. It's not just financial services firms who want better educated customers.

I'm a school governor and we want parents to pay more attention to what the school is doing. I have also worked on the board of a housing association and we had many initiatives to encourage tenants to pay more attention to their housing.

There are so many things happening. There's simply not enough time for people to pay attention to all the things they should be paying attention to.

What is lacking is an over all view of citizenship and what people should be spending their time doing; ordinary members of the public, like financial services firms, cannot react to all the initiatives in which they are asked to participate at the moment.