Financial Services Bill

Debate between Baroness Cohen of Pimlico and Lord Davies of Stamford

Tuesday 10th July 2012 Lords Chamber

[Lord Davies of Stamford]

I also strongly support my noble friend’s amendment, which was very well conceived and—if I may say so—very persuasively moved. I also agree very much with my noble friend Lord Liddle in the way that he approaches this problem. I think that there are four major issues on which the House needs to ponder carefully. The first is the emerging mismatch between the evolving structures in financial regulation on both sides of the channel. Something has already been said about that so I will not go into it any further.

The second issue is subjective, but I fear that it is very difficult to deny. It is our declining influence in matters of financial regulation and supervision around the world. Many of us can remember a time when the British were regarded as great experts in these things. We obviously were brilliant because we had such a successful financial services industry. Therefore, when we said something about financial regulation, supervision or the right way of creating a framework for a thriving financial services industry, whether it was said in Washington, New York, Brussels or Frankfurt, it was listened to with great attention. We naturally had a very strong influence. I am sorry to say that a combination of the Euroscepticism of this new coalition Government and our recent failings in financial regulation and supervision—one thinks of the failings of the FSA in matters of RBS and so forth, and now the terrible and very upsetting scandal of LIBOR fixing, which I will not go into any further—inevitably will, and is, undermining the influence that we used to have. That is a very worrying situation.

There is, thirdly, the competitive issue, which we will come on to in later amendments. It is quite clear that as the framework for financial regulation diverges between this country and the continent, there is always a danger of competitive advantages changing, and possibly not in our favour. One of the obvious examples of which people are well aware is the possibility of lower capital-adequacy ratios on the continent. Presumably, particularly in the light of the crisis that we have all been through, they will always be set at a fairly sensible prudential level. However, there may be significant differences—for example, in retail deposit insurance schemes—which would lead people to want to hold their accounts on the continent rather than here. All kinds of things could emerge from regulatory and supervisory initiatives that would change the competitive balance. We need to be very alert to that.

Finally, the jury is out on whether or not it is in the national interest for us to be part of the emerging European banking union. I can see a great many theoretical reasons why it might be very strongly in our interest to join, but I do not have the slightest hope of persuading colleagues in the House today of that. Indeed, I am happy to wait and see, but we need to keep the matter under review. The regular review which my noble friend proposes in this amendment is exactly the kind of procedure and discipline that we want.

All British institutions involved should be aware that they are being reviewed in this matter; that their collaboration and effective participation in European structures is being watched; that they are expected to use their influence as effectively as they can on our behalf; and that they should be very conscious of the role they are playing. All that is very important and we need to monitor the results. We need, a few years after it comes, to be able to look back over the record as revealed by these reviews and otherwise—quite pragmatically and open-mindedly, without dogmatism or emotionalism—and to take a rational decision on the best way of achieving the national interest going forward.

[Baroness Cohen of Pimlico]

I support the amendment proposed by my noble friend Lady Hayter. Not only are we poorly mapped on to the new European financial regulators, but we are poorly represented in relation to our weight in financial services in Europe. We are under-represented, in fact. We are where we are, but this is one of the areas on which, in a year’s time, it would be useful to have a review and to see how best we might change or adjust our position, either by adjusting our own institutions, or by hoping to make greater progress in Europe. However, financial services are key to this country. Immense amounts of regulation being debated in Europe at the moment, and we are not quite in the best position to be doing all this. I very much welcome the idea of a review in a year.