18:15 - The House divided: - Ayes: 225 / Noes: 266 - Question accordingly negatived.
20:01 - The House divided: - Ayes: 218 / Noes: 271 - Question accordingly negatived.
John McDonnell
I understand where the hon. Gentleman is coming from but we have tried that and it has not worked. We sought under the recent Companies Act to increase the responsibilities on directors, but unfortunately we were unsuccessful. The evidence that came to the London Mining Network report, which I shall send to the hon. Gentleman, clearly shows that the existing system is not working, and this Bill provides an opportunity to enhance the powers of the regulatory authorities in this country.
My hon. Friend the Member for Wigan will not push the amendment to a vote. I understand why, although I am a bit more proactive on these matters. May I suggest to the Minister that the Government usefully look at the report and bring together the relevant representatives, including the existing authorities and the new individuals who will sit on the various authorities when the Bill has gone through, to discuss where we go from here? How do we ensure that we have an effective mechanism that includes the monitoring of corporate ethical behaviour within companies that are listed in this country and that gain all the advantages from that, such as reputational advantage, but that are doing our country a disservice through their operations in the developing world?
The Financial Secretary to the Treasury (Mr Mark Hoban)
I am grateful for the opportunity to reply to this debate. The hon. Members for Wigan (Lisa Nandy) and for Hayes and Harlington (John McDonnell) have raised some very important issues and there is a lot of truth in what they say. The reputation of the UK listing regime depends partly on the behaviour of companies, and we need to think about that quite carefully. However, there are other forums in which these issues should be explored—I do not believe that the Financial Services Bill is the place for it. In the regulatory reforms we have brought forward, we have tried to be very clear about the responsibilities and focus of the new regulators, the Financial Conduct Authority, the Prudential Regulation Authority, and the macro-prudential body the Financial Policy Committee.
Matters of stewardship and corporate behaviour are predominantly the responsibility of the Financial Reporting Council, which is responsible for the stewardship code and corporate governance issues. I encourage both hon. Members to engage with the FRC on this issue. Of course, it is not only the FRC that is relevant. The hon. Member for Hayes and Harlington talked about the mining sector, and the Government are engaged in that debate. We are a strong supporter of transparency in the extractive sector and we are pressing for requirements to be placed on EU extractive companies to disclose the payments they make to Governments. That is flowing from the accounting and transparency directives. We are also very supportive of the extractive industries transparency initiative, under which companies publish the payments they make to companies in resource-rich countries, so we are aware of the need to increase transparency.
Lisa Nandy
I am grateful to the Minister for giving way, but I urge him to speak to his colleagues, particularly in the Foreign and Commonwealth Office, because this amendment is supported by a wide range of organisations. They include investors and members of the business community, as well as non-governmental organisations that represent those whose lives have been so appallingly blighted by some of the companies that my hon. Friend the Member for Hayes and Harlington (John McDonnell) and I have been discussing.
Mr Hoban
The hon. Lady makes a good point, and if my colleagues in the Foreign and Commonwealth Office are not reading this debate carefully I shall certainly raise the matter with them and ensure that they think carefully about their role. I encourage her to speak to the FRC about these issues.
Mr Andrew Love (Edmonton) (Lab/Co-op)
The Treasury Committee interviewed members of the Financial Reporting Council this morning. They explained to us that their powers are about implementing or explaining and that they do not have powers to deal with companies that break the rules in this regard. Would it not therefore be appropriate to involve a body such as the FCA, which really could deal with implementation?
Mr Hoban
As my hon. Friend the Member for Wycombe (Steve Baker) highlighted, there is a responsibility on directors and there are criminal sanctions for criminal behaviour. We need to be very careful that we do not duplicate powers that already exist elsewhere and that we do not confuse the role of the regulators. It was the Treasury Committee that highlighted some of the problems in the existing regulatory system with the confusion of roles and remits. We want to be very clear in these reforms about what we seek to achieve.
The FSA—and in future the FCA—has a role to play. The FSA supports the FRC’s stewardship code through mandatory requirements on asset managers to disclose the nature of their commitment to the stewardship code or to explain their alternative investment strategy. Those powers will transfer to the FCA.
John McDonnell
I hope that what the Minister just said was helpful. Is he saying that the stewardship role that he envisages for the FCA will include an element whereby judgments can be made about behaviour in terms of corporate ethics?
Mr Hoban
I am saying that what we need to ensure in terms of the stewardship code, and what the FCA does, is to require asset managers to disclose the nature of their commitment to the stewardship code or to explain their alternative investment strategy, so the obligation is on asset managers rather than necessarily on companies themselves to disclose their adherence to stewardship matters.
John McDonnell
All right, I will not be a pain any further. To be frank, that does not move the matter on. The Minister need not give an answer on this tonight, but it would be incredibly helpful if he or one of his colleagues met my hon. Friend the Member for Wigan (Lisa Nandy), me and representatives from the London Mining Network to talk this issue through because there is clearly a gap between the different institutions, which corporate ethics seem to fall down when it comes to their being pragmatically adhered to.
Mr Hoban
I am always loth to offer meetings on behalf of colleagues, because it has happened to me, but the hon. Gentleman may wish to approach the Minister with responsibility for consumer affairs, who is also responsible for corporate governance and the role of the FRC. That might be the most productive furrow to plough.
On amendment 38, the hon. Member for Nottingham East (Chris Leslie) is absolutely right that we have heard it before. It is identical to amendment 150, which we discussed at some length in Committee before rejecting it. I do not think his arguments today were any more persuasive than they were a few months ago. I know that he will find that personally disappointing but I am sure he will get over it. In short, the objectives of each authority are broad enough to enable them to make the rules suggested in the amendment.
More generally, these issues are better considered in other forums, including those concerned with governance across the corporate sector. I also point out gently to the hon. Member for Nottingham East that the Department for Business, Innovation and Skills recently consulted quite widely on executive remuneration and that it included in that consultation both the suggestions that have been made, neither of which received significant support. [Interruption.] The hon. Member for Nottingham East says that it depends whom we consulted but it was an open consultation. Views were encouraged from across a wide range of bodies, including investor organisations, and I am sure that institutions such as the TUC and others would have taken part. I know that the Treasury Committee is also looking into this matter, so perhaps the hon. Member for Edmonton (Mr Love) can illuminate us about the conversations he has had this afternoon with Baroness Hogg.
Mr Love
I thank the Minister. What we were told today was that remuneration committees draw from a very select pool and are heavily influenced by the argument that their chief executive has to be at or above the average of all chief executives and that comparisons are made directly with the United States, which may be inappropriate. It was also made clear to us that we should widen that pool. One suggestion of how that could be done was to put an employee on the remuneration committee. If that is not acceptable, how is the Minister going to address this problem?
Mr Hoban
That is why the Government have embarked upon a consultation to look at ways to enhance the accountability of boards to their shareholders, looking particularly at the issue of executive pay. That is a welcome move and the Government will shortly respond formally to the responses to that consultation. I agree with the hon. Member for Nottingham East that shareholders must play a more powerful role in these issues, and in recent months they have put across their views more powerfully.
The hon. Member for Nottingham East spoke about the disclosure of voting patterns. As he mentioned, there is provision for such a power in the Companies Act 2006. The previous Government made it clear that they would use the power only if market practice did not improve. The outcome of the stewardship code has been to encourage institutional investors to vote more and to disclose that. The latest Investment Management Association survey of institutional investors shows that 66% of those surveyed now publish their voting records. That is up from 21% in 2004. Professor John Kay, in his review of equity markets and long-term decision making, is considering the issue and will report in the summer.
Let me move on to Government amendments 7 and 8 and Opposition amendment 73. Amendment 8 makes two minor technical corrections and allows firms and the Financial Ombudsman Service to make referrals to the FCA on matters of mass detriment. Amendment 7 deals with super-complaints. The new provision in the Bill for the FCA to receive super-complaints from designated consumer bodies has been widely welcomed. I am grateful for the scrutiny provided in Committee and in particular for the arguments made by the hon. Member for Makerfield (Yvonne Fovargue), who is in her place, who tabled an amendment in this connection.
It has never been the Government’s intention that the super-complaints mechanism could be made available to bodies whose purpose is to represent professional investors, but the debate in Committee highlighted the fact that the drafting would allow that. The amendment therefore revises the definition of “consumer” used in the super-complaints mechanism to exclude representatives of authorised firms.
Amendment 73 seeks to require the Government to introduce a provision allowing for collective proceedings for small and medium-sized firms and to give them access to super-complaints. The amendment has created confusion in the minds of hon. Members about the rights currently available to businesses to make complaints. Paragraph (b) of the amendment suggests that small and medium-sized businesses cannot make complaints. That is not the case, but I shall return to that.
I deal first with collective proceedings. The Government are consulting on a range of proposals to make it easier for consumers and small businesses to bring private actions in competition law, including on whether to extend to businesses the current right of consumers to bring a collective action following a breach of competition law, and whether to make it easier to bring such actions. We should take the opportunity to learn from the outcome of that consultation and reflect on what the implications might be for the financial services sector before proceeding to legislation. It would not be appropriate to legislate today in haste, without having consulted.
On access to super-complaints, the provisions in the Bill will not prevent bodies representing small and medium-sized enterprises which fit the relevant definition of consumers from making super-complaints. Within the new statutory framework the issue of what type of consumer body should have access to super-complaints is complex and will require more detailed criteria than can be set out in the Bill. These criteria will be of interest to parliamentarians and to organisations seeking to become super-complainants. I can therefore announce to the House that the Treasury will publish draft criteria for consultation later in the year.
On paragraph (b) of amendment 73 about the rights of small and medium-sized businesses to make complaints to the FSA, there has been much discussion about the mis-selling of interest rate hedges. I do not want to comment on that directly, as it is a matter for the FSA. However, I can point out that the FSA already has a powerful toolkit that can be very effective. That includes its powers to establish industry-wide or firm-specific redress schemes under section 404 of FSMA, which was recently used in the case of Arch Cru. The FSA is consulting on such an arrangement to help people who lost out as a consequence of the issues at Arch Cru.
The FCA will have the powers that the FSA already has to refer firms to enforcement, to use supervisory measures, to agree with or require a firm to undertake the necessary remedial action, including carrying out a past business review, and the payment of redress, or obtaining redress for firms through their use of their restitution powers under section 384 of FSMA. There are therefore provisions in place that will help the FSA to tackle complaints of mis-selling that businesses as well as consumers have brought to it. I hope that provides the clarity and reassurance that my hon. Friends are looking for.
My hon. Friend the Member for Warrington South (David Mowat) picked up in his interventions the confusion that amendment 73 has created. The FSA has the power to take action to help businesses which feel that they have been mis-sold products and to ensure that restitution can take place.
Steve Brine (Winchester) (Con)
I am listening carefully to what the Minister says, and I agree that paragraph (b) has caused some confusion and may have planted some hope that did not need to be planted in some of my constituents, who have some sympathy with amendment 73, as do I. The Minister said that the FSA or FCA has a toolkit at its disposal, and I am sure it has been listening carefully to what he has said at the Dispatch Box this afternoon. Will he consider writing to the FSA to make that crystal clear, giving clarity to Members and constituents listening to the debate today?
Mr Hoban
I would not say that amendment 73 sowed seeds of hope. Rather, it sowed seeds of doubt by suggesting that those powers were not available. Of course they are available. I have written to hon. Members in respect of Arch Cru and also about interest rate swaps recently, setting out the work that the FSA is doing in this regard. It is looking carefully at the sales practices of a number of institutions in respect of interest rate swaps and will take action, as appropriate. I can reassure my hon. Friends and those who take a close interest in these matters on behalf of their constituents and businesses in their constituency that the FSA has the powers that it needs to tackle these issues properly and fully and to get to the bottom of them.
Mike Freer (Finchley and Golders Green) (Con)
Sadly, I am none the wiser. I have three constituency cases in front of me on this very issue. Two of them include a letter from the FSA which clearly states that this is a matter for the courts to decide and is not part of its remits under the complaints procedure. Can my hon. Friend clarify why the FSA is telling constituents that it is a matter for the courts, but he says it is a matter for the FSA?
Mr Hoban
There are two issues here. There is a route through the courts that any type of consumer, whether retail or a business, can use if they have been mis-sold a product. That is a normal commercial right. What the FSA has identified as a consequence of the number of complaints on the issue that it has received from businesses is that it needed to undertake more work. It started that work in mid-March. It was looking at products that were sold in the run-up to the financial crisis, and as a consequence of its investigations it believed that more work was needed to establish the scale of the problem and to determine what action should be taken.
There is nothing contradictory about the letter that the FSA sent. Thanks to the efforts of a number of hon. Members who raised with the FSA the concerns of businesses in their constituency, it recognised that they were not just isolated examples and that there was a wider issue that needed to be addressed. Its powers under FSMA enable it to address the problem in the right way. That is a welcome step forward by the FSA.
Mr Love
Looking at the issue from a small business perspective, small businesses are not allowed, as the amendment proposes, to take collective action on these matters through the courts, which is frustrating. They feel that the FSA is not responding to them adequately. There are great delays in the system. The Minister has commented on the legal aspect of collective actions currently going through. May we have some reassurance today that the FSA will act more promptly in dealing with these matters?
Mr Hoban
As a consequence of the reforms that we are introducing, we are giving the FSA, and now the FCA, tougher powers to tackle these problems. The FSA has a much-reduced appetite for risk and a more interventionist approach to tackling matters where there appears to be consumer detriment. Some people feel very uncomfortable with this, but it is right for the FSA to act vigorously in defence of consumers and to take the necessary action to ensure that consumers get a fair deal. The Bill takes that one step forward and that is why we have been keen to ensure that we give the FCA more powers, which it has demonstrated the appetite to use.
Amendments 5 and 6 require the FCA and the PRA to publish a statement explaining how they consider making the proposed rules compatible with the principles of regulation set out in new section 3B. Given the important framing role of these principles, I agreed with the suggestion made by the hon. Member for Nottingham East in Committee that the Bill should be explicit about the regulator’s duty in that regard, and I committed to tabling the appropriate amendments when the Bill returned to the House. I am sure that the hon. Gentleman will be keen to support them.
Amendments 13 and 14 are minor and technical and are designed to maintain a position currently provided for in FSMA whereby the FSA is not required to make rules for the FSCS that provide cover over all regulated activities. The amendments ensure consistency with section 214(1)(g), which provides that the scheme may in particular provide for a claim to be entertained only if it is the type of claim specified by the scheme. These are technical changes and I hope that hon. Members will support the Government amendments and reject those tabled by the Opposition.
Chris Leslie
I am sorry that the Minister has not reacted to the importance of the issues in the amendments that we have tabled today, particularly when it comes to the need for small firms to have a greater capacity to complain or to make collective proceedings when there is lack of clarity about their capability to do so. The issues were raised not only by the Opposition; Government Members also felt it necessary to clarify these issues. The Minister should at the very least have committed to write to hon. Members so that they could pass on to the businesses in their constituencies a clear route map for communicating some of these questions, such as interest rate swap mis-selling. All we sought was that small firms that feel aggrieved should have their concerns taken seriously as consumers of financial products, but hopefully the point has been made in the debate.
I am sorry that the Minister felt it necessary to reject our amendments on stewardship issues. It is not good enough for the Government to rebut such questions. The Prime Minister had plenty of warm words in January when this issue was high on the media agenda, but we have seen precious little action subsequently. The Government are not taking the stewardship issue seriously and it is important that they do so, particularly with regard to the remuneration committees of some of the largest corporations and our banks and the idea that these obscene bonuses and excessive pay packages can continue to roll on. As my hon. Friend the Member for Edmonton (Mr Love) said, the remuneration committees are self-perpetuating. Would it not be a good idea to broaden them out and try to put an employee voice on their panel, and make sure that they appointed consultants in a way that did not conflict with their own management’s vested interests?
After we have voted on amendment 40, which we debated on day one of Report, on the need to regulate some of the excessive high-cost credit arrangements, I will press to a Division amendment 38 on remuneration committees, because it typifies one of those areas on the stewardship agenda where we need to see action most swiftly. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 22
Rules and guidance
Amendment proposed: 40, page 80, line 2, at end insert—
‘(2A) The FCA may make rules or apply a sanction to authorised persons who offer credit on terms that the FCA judge to cause consumer detriment. This may include rules that determine a maximum total cost for consumers of a product and determine the maximum duration of a supply of a product or service to an individual consumer.’.—(Stella Creasy.)
Question put, That the amendment be made.
Geraint Davies
This is about having the reliable and consistent measurement of data in order to measure the effectiveness of policies, rather than having to rely on looking at the website of whatever trade association we are talking about. That is the essence of this amendment and it is why I support it.
The hon. Member for Stone (Mr Cash) mentioned the Rochdale pioneers, and I am glad that he did so. At that time, the idea of co-operation, co-operatives and mutuals was forged very much in the fire of unbridled capitalism and an economic Darwinism that I know some hon. Members would like to see return in the so-called “spontaneous order” of things. In that unbridled free market, the weaker members of society were being crushed, and a collective, mutual ownership emerged, through mutual societies and co-operatives, that enabled normal people to share risks, benefits and ownership, and to reinvest surpluses in their mutual. That is why those organisations grew, and I am very proud consistently to a have supported them.
One of the questions that arises is: why has there been a slight falling away of mutuals over the past few decades? Partly it has been because the Conservatives pushed demutualisation to get quick profits for their friends, who are involved in the capitalist system to make quick profits. Then, in 2008, we have this tsunami and suddenly people wake up in the debris of this chaos realising that some of the surviving organisations are mutuals, and they rightly ask why that is. The answer, of course, is that the focus of mutuals—their raison d’être—is not about just reaching out to maximise profitability and taking irresponsible risks; it is about delivering services for their members, who have equal shares. As a result, the time of mutuals is back.
This is a time of enormous global financial turmoil. We all know about the risks from the sovereign debt of Greece, Spain and elsewhere, and the knock-on impacts of that. We also face a great deal of risk from German banks and other financial institutions that do not have the inherent solidity and risk management of the co-operative system. If the Government are serious about this, now is the time to move forward. The coalition Government have said that they will move forward, but they cannot even be bothered to measure the market share and the number of mutuals. So how seriously can we take them? The answer, self-evidently, is: not seriously at all. The top management consultancy McKinsey has the mantra, “If you can’t measure it, you can’t manage it.” That company knows that that is self-evidently the case, but we are saying here, “We don’t really want to manage it. We won’t measure it. It does not really matter.” That is what is coming across, and it is a great shame that it is.
Labour Members are saying, “Let’s paint a picture of how things are changing. Let’s try to use that to make progress and to actively encourage credit unions, housing co-operatives and so on.” Such organisations tend, by their very nature, to be locally owned, with local benefits for local people. That contrasts with the situation described by the hon. Member for Stone, whereby a member of the Royal Bank of Scotland may find that Santander has suddenly sent them part of their bill, and they wonder why that is and whether there is a risk from the Spanish contagion, linked into the Greek risk. Somebody was mentioning that sort of situation to me the other day, and of course it arises because of the global nature of these organisations.
People want the security and assurance of knowing that they can go to local co-operatives and be offered loans if they save, whereas they would be excluded from high street banks, which would say, “You’re too poor. We can’t give you an overdraft”, but if people were in a credit union they could get one. A lot of this is about risk management and stability, but it is also about ethics. We know that mutuals—the Co-op in particular—are trying to promote fair trade, sustainability and so on. If we are serious about encouraging risk management, and a better and fairer future for all our communities with mutuals, we should be serious about pushing forward the top line of this amendment—that to manage it, we should measure it. I very much hope that the Minister will accept this modest amendment.
Mr Hoban
We have had a wide-ranging debate on mutuality, and it has acted as a peg for discussion. As is clear from this evening’s contributions, we all recognise the strength of the mutual sector, its importance in providing choice and diversity, and the benefits it brings. A couple of times, however, Opposition Members seemed to elevate mutuals into semi-religious institutions. Let us be realistic about some of the issues that mutuals faced during the crisis. Some mutuals had to be bailed out by others, and the first use by the previous Government of the special resolution regime was on the Dunfermline building society. A number of mutuals strayed from their core business model, which had consequences.
One hon. Member—I think it was the hon. Member for Harrow West (Mr Thomas), who is no longer in his place—referred to mutuals supporting their branch network. I recall that one of the first Adjournment debates I replied to as a Minister was as a consequence of Nationwide closing a number of branches in south-east London. All mutuals face commercial pressures, which needs to be acknowledged.
Geraint Davies
What the Minister says is true, but does he accept that there is a differential outcome and that, on balance, because of the lower-risk structure, the mutuals do better than conventional capitalist banks?
Mr Hoban
It depends on risk management and the business model that mutuals follow. There is a different set of constraints around building societies, which helps to ensure their stability, but that does not mean that they are immune from some of the mistakes that have caused failure in the past.
The clear intention of the Bill—we discussed this at length in Committee—is to ensure that regulation does not discriminate against mutuality, or indeed any other type of ownership, simply because it diverges from the norm of public or private ownership. I believe that the Bill delivers that result. For example, in clause 22, new section 138K requires the Prudential Regulatory Authority and Financial Conduct Authority to analyse the impact of the proposed rules on mutual societies. This will help to build up a base of impartial evidence to allow the regulators to continue to assess whether mutuals are being treated appropriately within the regulatory system. It is important that regulators think through very carefully the impact that their rules will have, particularly on mutuals.
Jonathan Evans
My hon. Friend will recall coming to our all-party group on insurance and financial services, when we asked him some questions on these issues. In fact, the regulator thinks that the Financial Services Authority has changed its processes in order to recognise the specific position of mutuals. What it is that the Government have changed, other than their even-handed approach?
Mr Hoban
The new duty in the Bill goes beyond what the FSA currently does. It imposes a requirement separately to identify the impact of regulation on mutuals. Let me continue my remarks and set out some of the other things we have done to promote mutuality. As I was saying, the regulatory principle of proportionality also bites in this regard. If the regulators are taking action that impacts on one type of firm more than another, it should be done on the basis that the action is necessary and proportionate.
Let me highlight a number of ways in which the Government are promoting mutuality outside of this Bill. In January this year, the relevant provisions of our Legislative Reform (Industrial and Provident Societies and Credit Unions) Order 2011 came into effect, allowing credit unions to grow faster and compete better by offering interest on deposits and admitting corporate bodies like local charities and firms as members.
My colleagues in the Department for Work and Pensions recently commissioned and published a report on enhancing the sustainability of the credit union sector. It looked at some of the initiatives undertaken by the previous Government, how they have helped the credit union sector and how best to take that work forward. Important recommendations were made to the Government that will help to enhance the sustainability of credit unions and ensure that if there is further public sector investment in them it will be used to expand their base and ensure that they are sustainable.
The capital requirements directive, CRD4, includes a capital instrument that is available for use by mutuals and building societies. That was not on the agenda when we came into office two years ago. It is a consequence of the work that this Government have done with their European partners to ensure that that instrument can enable building societies to issue capital instruments so that they can expand and deal with some of the challenges they face. A number of Members of the European Parliament, as well as the Government, have been working to ensure that within CRD4 a particular capital instrument is available for the Co-op, which, because of the nature of its ownership, falls outside the instrument that is available to building societies.
The Prime Minister announced earlier this year that we intend to bring forward a Bill to consolidate most legislation governing co-operatives and mutuals. The industry greeted the announcement of this Bill warmly, and I believe it is important to bring forward this consolidation. Ed Mayo, the secretary-general of Co-operatives UK, stressed the importance of bringing together a series of nearly 20 Bills or Acts of Parliament, which will make it easier and cheaper to establish co-operatives and remove some of the ambiguity in the sector. Co-operatives UK is looking forward to working with the Government to bring forward this consolidation Bill.
Mr Love
The Minister has already admitted that credit union deregulation goes back many years. I was frustrated by the lack of progress under the previous Government; it has taken us a long time to get here. As for a consolidation Bill, I asked the Secretary of State for Business, Innovation and Skills why it was not included in the Queen’s Speech, given that it is a relatively modest and non-controversial measure—yet the Government could not give enough priority to it. Is there not some concern—
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. The hon. Gentleman spoke earlier and interventions are meant to be short, not to be another speech.
Mr Hoban
Consolidating something like 18 pieces of legislation is not a simple task. It needs to be done properly and well, and we would need to do it in conjunction with the co-operative movement, as well as with the Law Commission. Other pieces of legislation need to be implemented before the introduction of the consolidation Bill. It represents an important step forward, which is why it has been welcomed by people like Ed Mayo as a way of making it easier to set up mutuals in the future.
In the Government’s response to the recommendations of the Independent Commission on Banking, we committed to assess whether the Building Societies Act 1986 should be updated in line with the reforms to the wider banking sector. We want to work with building societies to identify the barriers to their growth. We will shortly publish a paper, alongside the White Paper on ICB implementation, as a consequence of that work, to identify where the Building Societies Act 1986 needs to be amended to enable building societies to take advantage of the opportunities that are out there.
I believe that this Government have demonstrated a clear commitment to promote mutuality and to diversify the mutual sector. Our commitment takes its shape in many forms—whether it be the new capital instrument, the protection given to members of Northern Ireland’s credit unions, legislation to help to take forward and grow credit unions, or the increased public investment in credit unions that should flow from changes to the model on which they operate. That demonstrates the practical concrete steps that the Government are taking to strengthen the mutual sector.
The information requested by the amendment is clearly widely available, if my hon. Friend the Member for Birmingham, Yardley (John Hemming) can Google it in a minute, and it will be maintained and kept. I do not think that this requirement to provide information, placing additional burdens on the regulator and the sector, is necessary. Actions speak louder than words and they speak louder than data. What this Government have clearly done is bring forward a series of measures to strengthen the mutual sector, which will be to the benefit of all our constituents.
Mr Hoban
I beg to move, That the Bill be now read the Third time.
It is worth stepping back at this point to look at why this is such a crucial Bill and why we must get it right. The UK banking system is emerging from the most serious financial crisis in over 100 years. It was a global crisis, but in the UK it highlighted fundamental dangerous flaws in the existing tripartite system of regulation. That system was put in place by the previous Government and designed by the shadow Chancellor—a system that, because of its flaws, failed its first major test.
The Bill addresses the most serious weaknesses in the system. Currently, all responsibility for financial regulation rests with the Financial Services Authority, resulting in an unwieldy remit across prudential and conduct-of-business regulation. The conflicts and challenges involved in that dual mandate were highlighted in the recent FSA report on the failure of RBS. The Bank of England is responsible for financial stability, but it did not have the tools with which to effect change, and the Treasury has no clear remit in a crisis, in spite of the immense threat to public funds in such scenarios. The confusion and lack of clarity in respect of roles and responsibilities triggered the asking of this question: who is in charge? The system’s structural flaws were compounded by flaws in approach. The FSA’s focus on tick-box compliance in the run-up to the financial crisis meant that insufficient time and resource was dedicated to thoughtful and challenging analysis of risk.
The Bill gives a clearer mandate to the regulatory structure and ensures that the regulators are equipped with the powers they need to tackle the problems both of today and, crucially, of the future. The Bill gives the Bank, through the new Financial Policy Committee, a much clearer mandate to protect financial stability and the ability to develop and use levers to fulfil that role. In Committee, we discussed at length the remit of the FPC and the tools that would be required, and I reconfirm what I said then: we will consult on the macro-prudential tools later this year, to ensure that there is full public discussion of them and their effects both in the outside world and here in Parliament.
In response to questions about who should be the prudential regulator, and recognising the close synergy between macro-prudential regulation—the task of the new FPC—and micro-prudential regulation, we have established a new subsidiary of the Bank of England: the Prudential Regulatory Authority. The PRA will have a new emphasis on a judgment-led approach to regulation. We will ask it to act proactively and to look ahead at problems that may emerge. The PRA will be empowered to act to tackle problems before they emerge, rather than waiting to clean up afterwards.
Andrea Leadsom (South Northamptonshire) (Con)
Does my hon. Friend agree that it is important that the PRA and the FPC consider the need for greater bank competition in the UK? Does he also agree that it is important that when the Bill moves into the other place consideration is given to any changes that might encourage greater competition through the new PRA?
Mr Hoban
The FPC’s remit does not cover the consideration of competition in the system. Its role is to consider stability and the threats to it. On the question of the Prudential Regulatory Authority, one of the challenges we need to accept is that, for a host of reasons, the failure of a bank is costly and expensive. We saw that in the UK with the response to the banking problems during the crisis, when a huge amount of public money was pumped into banks to prevent some of the problems that bank failure would create. Part of the responsibility for tackling the problem lies with the previous Government, who introduced living wills through recovery and resolution plans in the Banking Act 2009, work which is now being taken forward.
Of course, the Vickers report includes in its recommendations ways in which it will be easier to allow the orderly failure of a bank. Helping a bank to have an orderly failure where there is a problem will help to tackle the problem with barriers to entry. At the moment, the cost of failure is so high that the barriers to entry are proportionately higher. The regulators want to know that a bank is safe and to have huge confidence in that bank and they will require it to have high levels of capital because the cost of failure is so high. If we can tackle the barriers to exit from the banking sector, it will be easier to tackle the barriers to entry. That will help enormously in improving competition.
We have also given the Financial Conduct Authority an explicit objective of improving competition in markets. We have strengthened that objective, taking into account the work of the Treasury Committee and the representations of others, and I believe, as I think my hon. Friend the Member for South Northamptonshire (Andrea Leadsom) does, that competition plays an important role in improving outcomes for consumers. That is why we see competition as one of the key new roles for the FCA, which will be a specialist regulator of conduct and will have strategic objectives not just to promote competition but to focus on consumer protection and to ensure that markets function well and have integrity.
We have also listened to the widespread concerns about the regulation of consumer credit. The Bill gives us powers to transfer the responsibility for regulating consumer credit from the Office of Fair Trading to the FCA. That will bring significant benefits and will ensure that consumer credit is well regulated. The FCA has a wider range of penalties than the OFT and can take a wider range of enforcement action, which will help to reassure our constituents that we are tackling the issue of consumer credit properly and sensibly.
Mr Hoban
The hon. Gentleman makes an important point. I emphasise that it is the Bank of England that is getting more powers, as I do not think we should be personalising matters in the context of who within the Bank will get more power. It is the institution that will get more power. We have taken steps in the Bill to increase the accountability and transparency of the Bank. It is very important, for example, that the FPC, in explaining its actions, uses the financial stability report to communicate the risks it identifies and what its responses should be. I expect that the FPC will be held to account by business, the banking sector and this House. That is important but, as I said on our first day on Report, the Treasury Committee has raised a number of issues—I pay tribute to the work of the Committee and its Chair in highlighting them—and we will return to them in the other place.
It is important to get the arrangements for the governance of the Bank right. I believe that accountability and transparency should be at the heart of the regulatory system, which applies not just to the regulators but to some of the tools that we have given to them, which I think will help. For example, at the moment no one knows when a financial promotion has been withdrawn at the direction of the regulator, but that information will now be made public, which will help consumers to know which financial services firms push the boundaries with promotions. That is why we want to see the publication of warning letters. I know that that is controversial, but it is right that consumers should know when enforcement action is being proceeded with and that that information should be in the public domain. The powers we are giving to the FCA to ban toxic products are also an important strengthening of that regime. In a range of areas, we are changing not only the structure of the regulatory organisation of this country but the approach. Transparency and accountability are part of that, as are the increase in competition and the new powers that we are giving to the FCA.
The process of scrutiny has been constructive, I think, and I pay tribute to the Treasury Committee for its work. We also had pre-legislative scrutiny of the Bill by a Joint Committee of both Houses chaired by my right hon. Friend the Member for Hitchin and Harpenden (Mr Lilley). As we have developed the Bill, the way in which we have listened to the arguments being made inside and outside Parliament has demonstrated that we listen carefully to what is said and will amend the legislation as appropriate. We passed a number of Government amendments on Report that reflected comments that were made—even those made by the hon. Member for Nottingham East (Chris Leslie). That just shows that we are prepared to listen. The fact that there has been such widespread support for the Bill in the Commons demonstrates that our aim to ensure that there is widespread consensus behind our reforms to the structure and approach of regulation was achieved through the consultation process we adopted. That consensus is important. It demonstrates confidence in our proposed changes and shows that this Bill should receive its Third Reading.
I hope that the Opposition are not going to oppose Third Reading. If they do, it will demonstrate that they have not learned the lesson of the past—[Interruption.] The deputy Opposition Chief Whip says, “You never know,” from a sedentary position, but if the Opposition vote against this Bill on Third Reading people will wonder whether they are so wedded to the constructs of the past that they cannot move on. People will think that they are so wedded to the system put in place by the shadow Chancellor that they cannot move on and that they cannot recognise the flaws in both its structure and approach. If they choose to vote in such a way, the world will know that they have not moved on and that they have not learned those lessons.
The Government have looked at the financial crisis and the reforms that must be made. The structure we are proposing today will help to deliver better outcomes for consumers and to strengthen and improve the resilience of the financial system in the future. I commend the Bill to the House.