Financial Services Bill

Baroness Hayter of Kentish Town Excerpts

Tuesday 20th November 2012 Lords Chamber

Moved by

[Baroness Hayter of Kentish Town]

77AA: Clause 11, page 65, line 22, at end insert—
“( ) In seeking to ensure an appropriate degree of protection for consumers, the PRA and FCA shall—
(a) require banks to provide clear and prominent warnings to consumers where deposits are not covered by the Financial Services Compensation Scheme; and(b) make and maintain effective arrangements to consult consumers on the prominence and method of such warnings.”

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[Baroness Hayter of Kentish Town]

My Lords, this amendment stands in the name of my noble friend Lord Eatwell and myself. It relates to passporting and, in particular, where a UK-authorised bank works in another EEA member state. Our concern, as we raised in Committee, is about adequate protection for consumers in those EEA states. This amendment would require the relevant authority, be it the FCA or the PRA, to require banks to make clear, prominent warnings to consumers where their deposits are not covered by the Financial Services Compensation Scheme. It is fairly obvious that it is vital that consumers know precisely and clearly whether their deposits would be covered by this compensation scheme and the extent of such coverage.

In Committee, the Minister assured us that it was sufficient for such a requirement to be in the regulator’s rule book. We have considered this further and we would beg to differ. It is such an important area of consumer protection and really important for the confidence in our banks that we must ensure that every depositor knows the security of their deposit. Furthermore, given that we saw a range of views in Committee on where and how such warnings to customers should appear, it is important that consumers themselves are consulted on this so that the most effective method of communication is used. I beg to move.

[Lord Phillips of Sudbury]

My Lords, I am generally sympathetic to Amendment 77AA, but what would the consequences be of a breach of its provisions?

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[Lord Newby]

I will check what I said, but it may have covered what the noble Lord is looking for. If it does not, I shall write to him with the relevant wording.

[Baroness Hayter of Kentish Town]

My Lords, I am sorry that the Minister did not listen to what I said, which was the reverse of passporting. It was about the passporting of our banks into EEA countries. I was interested in the protection of customers in those areas who are served by the UK banks that are being passported there but would be regulated here. Our regulator should therefore cover that. That is a different issue from the one that the Minister has answered. If he would check on that, I would be quite happy for us to revert to the matter at Third Reading. I am interested in consumers wherever they happen to dwell, such as the consumers in EEA areas being served by our banks. I am therefore worried about their lack of coverage by our compensation scheme, which should be brought to their attention. If I could leave the Minister to clarify that, at this stage I beg leave to withdraw the amendment.

Amendment 77AA withdrawn.

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Moved by

[Baroness Hayter of Kentish Town]

77AB: Clause 12, page 67, line 12, at end insert—
“( ) In the event of a prohibition order being made, the FCA and PRA shall—
(a) publish an explanatory statement regarding the decision; and (b) include the individual on an updated list of those subject to prohibition orders to be presented on HM Treasury’s website.”

[Baroness Hayter of Kentish Town]

My Lords, this amendment stands in the name of my noble friend Lord Eatwell as well as mine. It is about transparency and we have moved from passporting to prohibition orders, with a big jump to Clause 12. The amendment would ensure that, when a prohibition order is made, the regulator publishes its reasons and the individual's name appears on a list of people subject to prohibition orders on the Treasury website. The purpose of this is both to promote good practice, by making it clear what constitutes bad practice, and to enable investors and others easily to identify who has been subject to such an order.

As was clear in Committee, the issue did not really divide us. At that stage, I quoted Matthew Hancock as saying in another place,

“the principle that prohibition orders on people who are not fit and proper persons should be published is crucial … Prohibition must not only be a sanction for past irresponsible behaviour, but a deterrent for future irresponsible behaviour … the point of prohibition is not only … to stop the actions of those who have … committed acts that make them not fit and proper, but to demonstrate the bounds of behaviour that are deemed responsible and reasonable”.—[Official Report, Commons, Financial Services Bill Committee, 6/3/2012; col. 384.]

The then Minister, Mr Mark Hoban, agreed that prohibition is both a punishment and a deterrent.

When we discussed this in Committee, the noble Lord, Lord Newby, replied in this House along similar lines, saying that,

“regulators ought to give explanations of their actions and I do not think anyone would dispute the need for the identity of persons subject to prohibition orders … to be made known”.—[Official Report, 8/10/12; cols. 860-61.]

However, he felt that the existing duty on the FSA to maintain such a list was sufficient. We disagree with regard to the list of those prohibited. Investors and borrowers here and abroad would be more likely to see the Government as a source of such information, and we would therefore like HMT, via its website, to have a role in this.

With regard to the first part of our amendment, it is crucial, if the findings of a case are to help influence the future behaviour of other firms and authorised persons, that they can read and understand exactly what was alleged and why it was found to have transgressed acceptable behaviour. Hence there is the need to publish reasons. I beg to move.

[Lord Newby]

My Lords, as the noble Baroness says, we discussed this at some length in Committee and, to a certain extent, I am afraid I can only repeat what I said then. I repeat that FiSMA already requires the FSA to maintain a publicly available record of individuals subject to prohibition orders. The relevant subsection simply says that the register must include a record of every,

“individual to whom a prohibition order relates”.

and provides that the register must include the name of the individual and,

“details of the effect of the”,

prohibition order.

The FCA will keep these records in future and the Bill, in paragraph 17 of Schedule 12, also requires the PRA to assist the FCA in keeping the record up to date, including by notifying the FCA of every prohibition order that the PRA makes. The principal effect of the amendment would be to move these records from the FSA website on to the Treasury website. The noble Baroness said, in effect, that the Treasury website would almost command more respect or be more likely to be looked at for this purpose. We disagree with that. The Treasury website sets out government policy, not records of regulatory decisions. The logical place to go for a record of a regulatory decision is to the regulator. We think that it would be confusing if investors expected to go to the Treasury website rather than to the regulator’s website to get the relevant names and other information. In our view, it would be contrary to the noble Baroness’s stated objective of ensuring clarity and transparency. I am afraid I cannot give her much comfort. We believe that what we are doing meets her requirements and that those are better met by doing it via the regulator’s website rather than via the Treasury website.

[Baroness Hayter of Kentish Town]

I thank the Minister for that response. I have a query that is not so much on the website. I think he said that the list was kept along with details of the effects of the prohibition order, which I assume means that this person cannot do this, that, or the other. We were asking for the reasons. I hope that he will look at this, even if there is only a recommendation back to the regulator. It is really important that the allegation and the reason why it was found proven is there as guidance for others. I hope that he will look at that and reassure me that the reasons are there, not just the effects of the prohibition order. With those comments, I beg leave to withdraw the amendment.

Amendment 77AB withdrawn.

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Moved by

[Baroness Hayter of Kentish Town]

79AA: Clause 17, page 75, line 7, at end insert—
“( ) The Treasury must lay before Parliament a copy of any statement published under this section.”

[Baroness Hayter of Kentish Town]

My Lords, we reach the last amendment of the evening, which stands in the names of my noble friend Lord Eatwell and myself. It is short, sharp and clear. The Bill allows for FCA statements of policy relating to its use of disciplinary powers to be provided to anyone, for a fee if necessary; to be given to the Treasury, presumably for free; and to be published as appropriate. Noble Lords will have noticed that the one body not automatically to receive the statement is Parliament. This amendment would correct that oversight. I beg to move.

[Lord Newby]

My Lords, no one disagrees with the proposition that certain important reports and other documents that are produced under the new regime should be laid before Parliament. A good example of this view is to be found in Clause 80 under which, if the Treasury in future receives a report relating to an inquiry or investigation carried out under the provisions of Part 5 of the Bill, it must publish the report and lay what it publishes before Parliament. Since these reports concern inquiries or investigations in connection with possible regulatory failure or on other matters relating to the public interest, this is clearly the right approach. It enables Parliament to consider the matter and, where appropriate, call upon Ministers or the regulators themselves to give an account of their actions. Indeed, the Government are so committed to ensuring parliamentary accountability in this area that they have tabled Amendment 107D to ensure that any direction that the Treasury gives regarding these investigations is also laid before Parliament.

However, the statement of policy issued by the FCA under new Section 88C is not a report of that kind. It is more like the guidance issued under FiSMA, although it is really guidance for the regulator itself rather than for regulated firms. This explains why the FCA must follow the procedure in Section 88D before it issues a statement, which is essentially the same as the procedure when the FCA issues guidance to firms set out in new Section 139A. The Treasury must be notified of any new FCA guidance or changes to existing guidance but it has never been thought necessary for the Treasury to lay that guidance before Parliament, although it will be available on the FCA website.

The approach that we are taking not only follows the general FiSMA model but it is the same approach that is taken in other regulatory legislation. For example, Section 38 of the Competition Act 1998 requires the OFT to prepare and publish guidance on the appropriate amount of any penalty imposed for abuse of a dominant position. It must get the Secretary of State’s approval for it but there is no obligation to lay it before Parliament. Equally, Section 392 of the Communications Act 2003 requires Ofcom to prepare and publish a statement containing guidelines on the penalties that it may impose under that Act or other legislation, except the Competition Act 1998. Again, though, Ofcom is not required to lay that before Parliament.

All we are doing is following normal procedure. We do not think that this kind of guidance should be laid before Parliament because it is guidance to the regulator and will be available on the regulator’s website. In those circumstances, I hope that the noble Baroness will feel able to withdraw her amendment.

[Baroness Hayter of Kentish Town]

My Lords, I thank the Minister for that answer and, via the Minister, I thank his Bill team because they have clearly done some interesting research for us in areas beyond HMT.

Ministers have probably not made the right call. There will be an increased requirement for transparency and Parliament is becoming more interested in questions of guidance, particularly in relation to disciplinary matters. My guess is that there will come a time when more of these will come to Parliament, because saying that it is normal practice and we can go on as before is not necessarily always the right view. We will get there, even if it is not in the Bill, but for the moment I beg leave to withdraw the amendment.

Amendment 79AA withdrawn.