Financial Services Bill
Baroness Hayter of Kentish Town Excerpts(12 years ago)
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Baroness Hayter of Kentish Town
My Lords, Amendment 46 stands in my name and in the name of my noble friend Lord Eatwell. I shall speak also to Amendments 49, 52 and 67, which similarly stand in our names.
These amendments seek to ensure that when the Financial Policy Committee gives directions to the Financial Conduct Authority in the interests of financial stability, it does so in ways that do not conflict with the FCA’s duty to uphold consumer protection, that the Financial Policy Committee must take note of any representations from the consumer panel, and that where such directions, or indeed recommendations, are given, the FCA reports back to the Financial Services Consumer Panel as well as to the FPC.
If we did not know before last week about the detriment that can affect consumers where their interests are ignored, we must surely know now. Consumer trust in this industry has taken a body blow, and it is really important that regulators never for a moment forget the end-user—the saver, the borrower, the lender. The Financial Policy Committee is clearly not a consumer-focused body. It will take decisions that have a huge impact on consumers but it will not have the expertise to do it well. The FCA’s consumer panel is meant to represent the consumer interest. Without these amendments, we are allowing the panel to be ignored. We know what happens when the interests of clients are not placed centre stage.
I argued at Second Reading that our regulation must be consumer focused or it will never do the job. These amendments would help to achieve that. The FPC will take decisions that impact on consumers. The Minister knows this. In Committee last week, he said that a direction or recommendation from the FPC,
“could have a serious negative implication for the safety and soundness of individual firms or for consumers”.
He went on to say:
“The FPC will not necessarily be aware of those negative implications on … consumers”.—[Official Report, 3/7/12; col. 675.]
Quite so. There will be no consumer input into or consumer voice in the FPC.
The Minister seemed to think that the FCA would be aware of possible impacts on consumers, but the chief executive officer of the Financial Conduct Authority is from the industry. He knows the industry and understands its interests and perspective, but that is not the same as voicing consumer protection issues. Let us consider a possible FPC direction, such as a cap on loan-to-value at 90%. That would trap an existing 95% loan-to-value mortgage customer with a particular bank. That is hardly consumer choice or competition. Just this time last week, at the annual public meeting of the Financial Services Authority, Adam Phillips, chair of the Financial Services Consumer Panel, said:
“We remain concerned about the predicament facing so called ‘mortgage prisoners’—those with interest only mortgages and those trapped on the standard variable rate because they are unable to meet the affordability criteria—and have urged the FSA to act quickly to mitigate this situation. We also hope that the lessons learned in this process will be considered by the Financial Policy Committee when developing its strategy for dealing with asset bubbles”.
But who will be there to bring such lessons to the FPC if the consumer panel has no access? Similarly, any increased capital requirements decided by the FPC could be passed on to consumers in an opaque way by increasing rates and/or fees. Sometimes, I can almost hear some people in the City saying to us consumers, “Now don’t you worry your pretty little heads about this. It’s really just for us big boys”. Those big boys are exactly the people who have created so many problems for savers and investors.
When the FPC is considering big issues, how will the voice of the consumer be heard against the grain of the industry’s interests? Perhaps “grain” is not the correct term. We have learnt this morning that, at the cost of £90 million, there are some 800 lobbyists—one for each Member of your Lordships’ House—working to ensure that the financial industry’s case is heard at the highest echelons, be they the Bank, the Treasury, this House or another place. Is it any surprise that the still, small voice of the user—whose savings fund this industry, we should remember—are rarely accorded much precedence?
By contrast, these modest amendments are to ensure that not for one moment should the overall regulatory architecture ignore consumer protection. They hard-wire the consumer panel into consideration of the FPC’s biggest weapon—direction. Do we really need reminding that unless consumer confidence and trust return, unless the interests of consumers are centre-stage, no amount of shifting deckchairs on the regulatory deck will make a blind bit of difference? These modest amendments will simply help to keep consumers in every decision-maker’s eye. I beg to move.
Lord De Mauley
My Lords, I am saying that the concerns to which the noble Baroness’s amendments relate are addressed as the Bill stands.
Baroness Hayter of Kentish Town
My Lords, I thank my noble friends Lord Peston and Lord Barnett, who between them have been teaching me economics for 40 years. It is very nice to have their support now. I also thank the Minister for his response. Unfortunately, he does not answer the major question. He says that they will mitigate problems from any decisions. Under this amendment, we were trying to say that consumers should influence those decisions. We keep putting things right when they have gone wrong and we want a voice in those decisions. I do not think that those questions have been answered by the noble Lord; nor has he taken up the point that the chief executive of the FCA, who does not come from the consumer movement, does not have the feel of it. That is fine; it is a different job. I think that we will want to return to this matter, because clearly it is key to the Bill. For the moment, I beg leave to withdraw the amendment.
Financial Services Bill
Baroness Hayter of Kentish Town Excerpts(12 years ago)
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Lord McFall of Alcluith
My Lords, the MPC is obliged to publish minutes of its meetings, but the Financial Policy Committee has just been asked for a record. In the other place, Mark Hoban, the Minister, pointed out that,
“the FPC also produces what it calls a record of its meetings, which is a very full account of the debates that go on in the FPC, and we will expect a similar process to be undertaken for the court’s meetings”.
What is good for the MPC should be good for the FPC as well.
As a veteran of Labour Party constituency meetings during the 1970s and 1980s, I really know the difference between the record of a meeting and the minutes. There can be many battles behind the scenes on that. This is not as arcane debate as we think it is.
When the Minister replied in the other place during the passage of the Bill, Chris Leslie, the opposition spokesperson, said:
“I just want to be clear about what the Minister is saying. Is he saying that when the Bill comes before the other place for consideration he will accept retrospective reviews and publication of minutes or that he will simply consider it?”.
The Minister replied:
“We are clear that we want to see the court’s minutes published”.
The chairman of the Treasury Committee, Andrew Tyrie, then asked a further question:
“when he says that he is committed to the publication of the court’s minutes, does he mean the publication of the full minutes or only a summary record of them, which it appears is what was proposed before”.—[Official Report, Commons, 23/4/12; col. 766.]
That question has still to be answered. This amendment is put down for the sole purpose of eliciting that information.
Baroness Hayter of Kentish Town
My Lords, I will speak to the amendment standing in the name of my noble friend Lord Eatwell and myself while supporting Amendment 12, moved by the noble Lord, Lord McFall. I am sorry to do so in his absence, but I particularly welcome Amendment 144, in the name of the noble Lord, Lord Sassoon, to which I very happily added my name. The Government responded speedily to a request for the FCA’s minutes to be published, following, I am sure, my intervention at Second Reading and for no other reason. I am pleased about that because it was as late as February that the Government saw the publication of board minutes as a matter for the FCA board rather than for legislation. However, we believe that publication is particularly important when considering the difficulty faced by those seeking to represent the long-term interest of consumers, be they savers, borrowers or debtors, as they follow every twist and turn of a regulator’s wide remit. The minutes are invaluable to lay out the narrative of the FCA’s focus.
The regular publication of minutes is undoubtedly a matter for public policy and therefore correctly in the Bill rather than being for the board itself to decide. After all, it is its work that will be scrutinised by this openness. I know that the Government’s move will be welcomed by Which? and the Financial Services Consumer Panel, as well as by the wholesale market players, for whom the FCA is of particular importance.
However, consumers’ interests go further than the FCA, important though that is. The vital work and the decisions undertaken by the Bank, the FPC and the governor can only benefit from greater debate by, and input from, a range of commentators, be they the press, academics, market participants, representative organisations, other regulators or indeed users. Publication both improves the internal thinking through the debate that it generates and has an important role in accountability. The Government have described the FPC as,
“a powerful new authority sitting at the apex of the regulatory architecture”.
It is therefore beholden on us to ensure that the mechanisms to ensure the FPC’s democratic accountability are commensurate with the strength of its powers. This starts with transparency and the beginning of a new culture of democratic dialogue.
The Treasury Select Committee report of 19 October is already familiar to us and will become more familiar. It argued for the need for clear transparency both in the publication of the remit and in the FPC’s responses. It said:
“There should be the presumption that ex-post reviews would be published, except where confidentiality needed to be maintained”,
in which case a redacted version could be published or publication delayed. It also said that,
“the Chairman of the Treasury Committee should be shown an unredacted version of the findings with an explanation of the reasons for non-publication”.
We endorse that recommendation. The committee also stressed that,
“The date of publication should then”—
in other words, if it has been withheld—
“be reviewed periodically until such a time as full publication would not endanger confidentiality or financial stability”.
I turn to the issues mentioned by my noble friend Lord McFall. Mark Hoban in the other place agreed that there was,
“a clear need for the Bank’s accountability arrangements to be strengthened through the publication of the court’s minutes”.
He agreed that the Government would consider this further when the Bill came to this House for its scrutiny. However, he made it clear that he wanted to see the court’s minutes published, as well as retrospective reviews,
“so that Parliament and stakeholders can hold the Bank to account for the way in which it has used its powers not just when it comes to the Financial Policy Committee”,—[Official Report, Commons, 23/4/12; col. 766-67.]
but more widely. We welcome those sentiments and hope that the Minister will now be able to signify his support for the amendments, which I think are in line with the recommendation of the Minister in the other House.
Lord De Mauley
My Lords, in its report on Bank of England accountability, the Treasury Select Committee indeed recommended that the court publish minutes of its meetings. In its response to the Treasury Select Committee, the court accepted this recommendation in principle and agreed to begin to publish a record of its meetings once the new structure was in place. By putting this requirement into the Bill, as we propose to do through government Amendment 97, we ensure that this important transparency mechanism will remain in place.
As the Treasury Committee itself recognised, the court is likely to discuss extremely sensitive matters that are unsuitable for publication—for example, the provision of emergency liquidity assistance to an ailing bank. Therefore sub-paragraph (3) of new paragraph 12A establishes that the record must not contain any information whose publication would be against the public interest. I am pleased to see that Amendment 12, tabled by the noble Lord, Lord McFall, contains a similar provision. However, in a divergence of opinion, perhaps similar to that discussed by my noble friend Lord Sassoon in the previous group, the Government do not agree that the court should be required in all cases to notify the Treasury Select Committee of the reasons why information might have been withheld for public interest reasons from publication.
When the Bank takes actions that involve risk to taxpayer money, such as liquidity operations indemnified by the Treasury, it is the responsibility of the Treasury rather than the court to ensure that the relevant parliamentary committees are informed, on a confidential basis if necessary. There are already formal and informal mechanisms in place for this to happen, including in the new crisis management MoU. When a court discusses sensitive matters that are not related to public money, I do not see the value in creating a bureaucratic requirement for the court to notify the TSC, or to keep under review material that it excludes from meeting records, with a view to publishing it at a later date. Of course, the court may publish information on discussions that were originally excluded from the record at a later date if it believes it appropriate to do so.
The same arguments apply to Amendments 72 and 86 in the name of the noble Lord, Lord Eatwell, in relation to material excluded from the records of FPC meetings and meetings between the Chancellor and the governor. There is also widespread agreement that the Financial Conduct Authority should publish a record of its board meetings. The future leadership of the FCA has agreed to this. We have therefore brought forward Amendment 144, which makes similar provision for the FCA. Indeed, the FSA will publish in early August a record of its June board meeting, consistent with the provisions proposed.
Amendments 70 and 80, tabled by the noble Baroness, Lady Hayter, attempt to include the word “minutes” in other places in Clause 3 where the word “record” is used. That goes to the point made by the noble Lord, Lord McFall. The specific word used is not important. I hope we can agree that what is vital is ensuring that the record provides a clear public account of decisions taken by the court, the FPC and the FCA, and of the rationale and arguments that were put forward by members in favour of and against each decision. Sub-paragraph (2) of proposed new paragraph 12A, which sets out what the record must contain, ensures that that will be achieved for the court. Identical new provisions cover the FCA under Amendment 144. New Section 9R(2) similarly sets out precisely what the FPC’s meeting record must contain.
I move on to Amendment 85, which was also tabled by the noble Lord, Lord Eatwell, and the noble Baroness, Lady Hayter. Subsection (5) of new Section 9U requires the Treasury to consult the Bank before publishing the record of the meeting between the governor and the Chancellor. That will ensure that the Bank’s views about whether material is suitable for publication will be taken fully into account. The noble Baroness can be assured that the Treasury would not publish any material which the Bank believed was sensitive.
Amendments 20, 59, 60, 71, 77, 78, 83, 84 and 85 are generally speaking to do with websites. Transparency and openness are a critical part of any regulatory system. Transparency of decision-making is a vital aid to the public understanding of regulatory actions. In all cases where the Bill provides for certain documents to be made public, including those affected by amendments in this group, I would of course expect the publications to be made available on the relevant website. That is because the internet is at present the primary method for the public to access this type of material. However, I ask noble Lords to accept that technology advances at a tremendous pace. Fifty years ago, neither the internet nor websites existed. It is impossible to foresee how far digital communication will have advanced in the next five years, let alone 50.
As well as publishing documents on their websites, the Bank, the Treasury and the FSA already make use of Twitter, Flickr, YouTube and RSS to communicate with the public. Any one of these, or some other new form of media, may become the most widespread way to communicate with the public in the future. That is why we should not make provision in the Bill for specific types of communications media that may be superseded sooner or later. That is in line with the long-standing principle of future-proofing new legislation. While I think we agree on the principle of transparency and openness, I hope that the noble Lord will be persuaded to withdraw the amendment.
Let me reassure noble Lords that this should not be taken to imply that the new authorities will not make use of the internet to promote transparency and openness. The interim Financial Policy Committee has already published two financial stability reports and a record for each of its five meetings on the Bank’s website, with the latest record to be published on 6 July. In addition, last year the Bank published on its website a public consultation on macroprudential tools. I have no doubt that this will continue, but in general I contend that it is sensible to allow the publishing authority to decide in what manner to reach interested parties most effectively, which is why I hope noble Lords will understand why I cannot support Amendment 82, which seeks specifically to remove this discretion from the Treasury. I hope that noble Lords will accept government Amendments 97 and 144 and be prepared not to press their own.
Baroness Hayter of Kentish Town
Did the Minister mean to refer only to the Treasury Select Committee? Our amendment related to the decision taken not to publish and whether only the chair of the Treasury Select Committee would be informed of the reasons. He did not actually comment on this.
Lord De Mauley
I think I have an answer. The point is that the principle is as I outlined, whether it is an individual or the committee.
Baroness Hayter of Kentish Town
My Lords, we support Amendment 21, moved by my noble friend Lord McFall, and his comments on women’s representation. It was within this century that I joined the Board for Actuarial Standards, and I was the only woman there. It is extraordinary for some of us to find that we are still fighting for that goal. Not only did they put lots of women on the board after me, which I think was a good thing, but the new chair who took over yesterday is also a woman.
I shall speak particularly to the three amendments standing in the name of my noble friend Lord Eatwell and myself, which cover two particular issues: one is to correct the composition of the FPC itself and the other is to deal with pre-appointment hearings. On the composition of the FPC, we should first recall that the FPC’s work will impact throughout the economy, on the financial sector itself but also on businesses large and small, and on consumers. The latter categories need to have confidence that there is someone on the FPC who understands their interests and is speaking up for them. As Mark Hoban said in the other place, we need,
“more challenging voices in the board room, not fewer”,
and that must be equally the case with the FPC. So merit is a clear necessity but, as we said on an earlier amendment, so is a range of backgrounds, experience, interest and knowledge, whether from the wholesale markets, insurance, deposit-takers or others. So too, as was mentioned by my noble friend Lord McFall, is the voice of consumers, be they SMEs, businesses or indeed individual consumers. The FPC may have a role in loan-to-value decisions, for example, but the consideration of the FPC of this has to have input from those who are further down the food chain who will feel the impact of any change in policy.
On the question of pre-appointment hearings by the Treasury Select Committee, I argue that there is less market sensitivity over these than could possibly be the case even if we accept it in the case of the governor. There would be much less for these appointments. Indeed, when challenged on this very issue in the other place by Chris Leslie, Mr Hoban was quite unable to give any examples of where this might be an issue. Mr Tyrie made the point in the other place in April that as the Treasury Select Committee intends to hold hearings anyway, and if the person failed to find favour with the Treasury Select Committee, it would probably be pretty untenable for that person then to take up their appointment, because without the confidence of Parliament it is hard to see how they could do their job. It would therefore be sensible to engage with the Treasury Select Committee earlier in the appointment process.
The FPC has a vital public role to play. It acts on behalf of the nation—including Scotland, for the moment, so maybe we could have it there so long as it chooses to stay in the United Kingdom—so it needs the confidence of people’s elected representatives, which the Treasury Select Committee pre-appointment can of course help.
Lord Sassoon
My Lords, no change is being proposed to the membership of the MPC, which will remain with five internal and four external members. The third—the new deputy governor—will not join the membership of the MPC. Let me press on.
Baroness Hayter of Kentish Town
I will not hold the Minister for too long. He has stressed, and it was stressed in the other House, the independence of the Financial Conduct Authority, but of course there is a veto—the financial regulator is able to override the Financial Conduct Authority. It is, therefore, independence up to a point.
Lord Sassoon
My Lords, I am sure that we will come back to that point later on in our discussions. I would, however, absolutely refute any idea that the FCA will not be independent of the Bank of England. It will be completely separately constituted; there will be a number of links, of which the noble Baroness mentions one, but I would not characterise that as in any way impinging on the independence of the FCA.
That was the first reason for rejecting these amendments. The second reason is that the change suggested would create a committee of 13 members, a committee so large that it could prove to be unwieldy, which could obstruct effective discussion and decision-making. There is a genuine risk that having too many external members without sufficient time or space within the meetings to put their points across effectively could undermine their ability to provide an external viewpoint and challenge, which I know the Committee wishes to see. In addition, of course, these points are even more relevant to the amendment proposed by my noble friend Lord Flight, which would increase the size of the FPC to 15 members, or 16, if one includes the Treasury representative.
Thirdly, I do not agree that the Bank executives on the FPC should be in a minority. Ultimately, both the MPC and the FPC must be Bank committees if we are to hold the Bank to account for the decisions that they make.
On the amendments that relate to the experience, knowledge and potential interests of external FPC members, I assure your Lordships’ House that the Chancellor will take great care to ensure that the independent members of the FPC are sufficiently qualified and experienced to provide diverse and effective expertise and challenge to the FPC’s decision-making. Finding strong candidates with breadth as well as depth of experience will clearly aid the committee in achieving its objectives.
Specifically on Amendment 24, the Government recognise the importance of the contribution of the different constituent parts of the UK to the financial services sector. The sector is often wrongly characterised as being confined to the City of London. This is plainly wrong. Regional issues and intelligence already form an important part of the Bank’s policy-making process. The Bank has 12 agencies in a national network across the United Kingdom that assess economic conditions in their regions. This feeds into the policy-making process.
On appointments to the FPC, the Bill already requires the Chancellor to be satisfied that the candidate has knowledge or experience that is likely to be relevant to the committee’s functions. This will include relevant experience within the financial services and regulatory sectors, not only within the constituent parts of the UK but internationally. All four of the current independent members of the interim FPC have experience in financial services as a practitioner or a regulator.
I should add that while we have been having this discussion, my Front Bench has had a ratio of two women to every man. Therefore, I certainly appreciate, as do the Government, the importance of appointments that recognise gender diversity. It will be an important consideration when deciding on external members of the FPC. The Government believe that there are certainly many credible and expert female candidates out there for permanent FPC appointments. We will continue to encourage women to apply for future vacancies on the FPC.
The noble Lord mentioned the importance of having consumer views on the FPC. I agree that it will be vital. I accept that it took a long time with the FSA. It is fully recognised that we must have a broad spectrum of views, experiences and relevant knowledge if the FPC is to deliberate in an even-handed way. However, consistent with arguments over the size of the FPC, it will never be possible to ensure that all interested groups are represented on it at all times. We need to be clear about that.
On Amendment 27A, I reassure my noble friend Lord Flight that, in appointing external members, the Chancellor will be very mindful of the need for those people to offer a genuinely external and independent perspective. However, some familiarity with the workings of the central bank may well prove useful for external members, so I would not want completely to rule out individuals with some experience of working for the Bank becoming members of the FPC. For the sake of clarity, I add that there is no requirement for the FPC’s external members to be members of the court. One current member, Michael Cohrs, was subsequently appointed to the court, but there is no requirement for that to be the case. Nor is it the general case at the moment.
Amendments 26 and 27 deal with the role of the Treasury Committee in appointments to the FPC. As I have said at some length today—I will not labour the point—the Government strongly support the Treasury Committee’s role in holding hearings with individuals who have been appointed as members of the MPC, and now the FPC, before they take up their appointment. However, for the reasons that I gave earlier, those hearings should not take place before the appointment. In one case, just as with the appointment of the governor, the decision is that of Her Majesty on the advice of the Prime Minister and the Chancellor. In the case of the FPC and the MPC, it is rightly a decision for the Chancellor to take. There are risks in the rather febrile environment that we have had for a number of years now—risks that arise from market speculation about the balance of the committee and where the candidates may be coming from. So, yes, there should be pre-commencement hearings, but pre-appointment hearings would create the potential for danger and damage, which we should not entertain.
The Government place paramount importance on finding strong candidates for the FPC. I can reassure the Committee that future appointments of new independent members to the FPC will follow a process similar to that used to appoint MPC members, including an open, public competition. This, in addition to the pre-commencement hearings held by the Treasury Committee, will ensure that qualified and experienced candidates are appointed to the FPC, while avoiding the uncertainty that could arise from holding those hearings before the appointment is finalised.
On the basis of that short and focused debate, I ask the noble Lord, Lord McFall of Alcluith, to withdraw his amendment.
Financial Services Bill
Baroness Hayter of Kentish Town Excerpts(12 years, 1 month ago)
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Baroness Hayter of Kentish Town
My Lords, I start by thanking the Joint Committee for its work in scrutinising this legislation. Three of its members spoke in the debate. I join others in welcoming the maiden speech of the noble Lord, Lord O’Donnell. When we come here, we all think that we have joined the most exclusive club in London but there is a more select one—that of former Cabinet Secretaries. In his notable speech today, the noble Lord showed himself a great initiate to that club, and he can now wear the tie.
I also particularly note the speech of my noble friend Lord Barnett, who referred to the “sexy bits” of the Bill. I have to say that I have not yet found these but I will now go back and look a little harder. I particularly thank the right reverend Prelate the Bishop of Durham, the noble Lord, Lord Sharkey, and my noble friend Lord Whitty for reminding us of those people who are denied access to financial services and of the areas where they are not available. We need to remember them.
The aim behind the Bill is laudable. It is to reform the regulatory system to avoid a repeat of the financial crisis. Amen to that, not least because the impact of failures is borne by the taxpayer and the consumer, as the noble Lord, Lord Flight, noted. We need to reduce the risk of failure without stamping out innovation, and to have effective mechanisms for dealing with any crisis or failure. However, the delivery of the Bill is poor. Unless it is amended, it will fail to achieve that end. There are problems with both the architecture and consumer protection.
On the architecture, Europe was noted by the noble Baroness, Lady Valentine, and the noble Viscount, Lord Trenchard. Despite the increasing importance of the new European Systemic Risk Board and the three ESAs having the powers to override our regulators on occasion, our new regulation does not map with theirs. While Europe cuts by area, with one for banking, one for securities and markets, and one for insurance and occupational pensions, the Bill cuts between prudential and conduct. This means that the FCA will sit on one body—that for securities and markets—with the PRA sitting on those for banking and insurance and pensions. No doubt some agenda items will cut across FCA and PRA responsibilities, with different officials sliding into the hot seat at different times.
As AXA has warned:
“There is a significant danger that the new structure will diminish the UK’s capacity to influence European regulators as”,
our,
“new … bodies will be organised along different lines to the European Supervisory Authorities”.
Our European Union Committee warned about this last July but the Government’s response was simply an MoU between the Treasury, the Bank, the PRA and the FCA. There was no recognition of any problem by the Government, despite their commitment to,
“ensuring that the UK authorities … take a leadership role in the ESAs”,
over the problems outlined by the committee.
I turn to the Financial Reporting Council, which gets no mention at all in the Bill, despite its role in the corporate governance of banks, the stewardship code and the setting of standards across much of the financial industry, including on issues that affect the work of accountants, actuaries and auditors, as has been mentioned today. Therefore, we should like to see a requirement for an MoU from the FCA and the PRA to the Financial Reporting Council. The PRA, in particular, will lead in the ESAs on the rulebooks, including binding technical standards.
I turn briefly to the Bank as it has been well covered today. Professor Julia Black has described it as,
“about to become the most powerful central bank in the world”.
The noble Baroness, Lady Kramer, referred to the “sun king” and the noble Lord, Lord Tugendhat, to the lavish powers that it will have. In another place, David Ruffley said:
“Not since the creation of the Bank of England … has its senior management and Governor had so much power … one cannot have enough scrutiny of this big beast that the Bank will become as a result of the Bill”.—[Official Report, Commons, 23/4/12; col. 746.]
The Institute of Chartered Accountants has also called for the greater accountability of the Bank to Parliament and the public. Therefore, we will need the amendments suggested by noble friend Lord Eatwell and foreshadowed by the chair of the Treasury Select Committee in the other place, Andrew Tyrie. That deals with architecture.
Turning to consumers, there are undoubtedly things in the Bill that we welcome, not least the power to ban toxic products; the exposure of misleading financial promotions; the publication of warning notices; the supercomplaints regime; and the move of consumer credit to the FCA. I thank the Government for those. However, there are some problems, one of which is in the architecture of the FCA. To quote the words of Andrew Tyrie again, it will be the poor relation—not least because of the PRA’s power of veto over it.
Secondly, there is insufficient transparency of the FCA. We all want to see its minutes published and its chief executive subject to pre-appointment scrutiny, as was mentioned by the noble Lord, Lord Northbrook, and the Treasury Select Committee. We also need to see retained the FiSMA’s current Section 11 requirement for the FCA to give reasons when it rejects the advice of the consumer panel.
The Prudential Regulation Authority will deal with some issues that will have serious consumer implications, yet there will be no consumer input to it. It will be responsible for with-profits policy and the reattribution of orphan estates; perhaps for reserving for mis-selling with all the implications that that would have for the readiness to make redress; possibly for decisions affecting loan-to-value mortgage rates; and even, possibly, free banking rules in so far as its putative head, Andrew Bailey, has proposed outlawing these. Yet there is no consumer input to the PRA. Why is there no right for the views of the consumer panel to be heard on relevant PRA remit, along the lines suggested by my noble friend Lord Whitty, or even a consumer panel, as recommended by the noble Lord, Lord Northbrook, this evening?
On the content as it affects consumers, the competition objective for the FCA is very welcome but it does not solve all this industry’s shortcomings, because this is a failing market. There is ongoing reliability in the Bill, which was mentioned unfortunately by the noble Lord, Lord Flight, on consumer responsibility, on buyer beware—caveat emptor—and the general principle that consumers should take responsibility for their decisions.
However, there are serious flaws to that. First, if consumers or their representatives have no say in, and cannot know about, the prudential security of a firm, how can consumers take responsibility for their choice of provider and not just of product? Secondly, how can consumers exercise caution over products, given the nature of this market? Recently, in an extraordinary statement, Philip Hammond of the Cabinet said he believes that consumers who borrowed too much during the economic boom must “accept responsibility” for their part in the financial crisis. He said that banks were not the only ones responsible but that those who took out loans, spent on credit cards or accepted large mortgages were “consenting adults”.
Perhaps he needs reminding of those daily, very attractive approaches that we as consumers were getting all the time to extend our credit. Every time our credit card debt got anywhere near the limit, it was automatically revised upwards without our knowledge. Banks sent out credit card cheques and mortgage companies approached borrowers to increase their loans. Now, we learn, bonuses depended on that.
The Financial Services Consumer Panel warned repeatedly about self-cert mortgages. We knew that they were being given to people whose income, encouraged by the lenders, was exaggerated on the application form. These lenders were giving unsustainable loan-to-income, unsustainable loan-to-value and interest-only advances, despite the protests that we were making—I was on the Financial Services Consumer Panel—to the FSA and the culprits. The idea of consumer responsibility taking the blame seems a little wide of the mark.
The other problem about caveat emptor is that it works in a properly functioning market where the informed consumer can make choices. It is not like that in this market where we have vulnerable consumers and new entrants. These are not repeat purchases, so it is very hard for us as consumers to learn about them. There is often long-term outcomes, so we cannot work out which are good products. There is an inability to shop around. We simply do not know enough about prices, risk, assumptions behind the products and the likely outcomes to make informed choices. There is also a real asymmetry of information.
We must make, along the lines mentioned by my noble friend Lord Borrie, real changes to the information supplied to consumers. To make it fair, clear and not misleading is not a bad start, but information is not enough. There are so many imperfections in the market that we simply have to step in. Warm words about treating the customer fairly will not suffice without a fiduciary duty along the lines set out by my noble friend Lady Drake, which would require anyone dealing with a customer to exercise that fiduciary duty—not to be in a situation where personal interest and duty of care to the client conflict, not to profit at the expense of the client, and generally to give undivided loyalty. That has to be accepted and enforced and must enter the culture, training and rules, and it should apply as much to pension investment funds as to the retail market. Indeed, the ICAEW wants the FCA to give as much attention to the conduct of the wholesale markets as it does to consumer protection. So perhaps fiduciary duty should extend far and wide.
On culture, we need regulation focused on consumers and their long-term interests, but that needs a culture change to put consumers centre stage and for them not to be seen as a means of generating high earnings for others. Consumers pay for regulation and compliance, but they also pay for failures—but somehow they never seem to walk away with golden handshakes when all has gone wrong. We need a regulatory regime designed to protect middle and lower-middle income people, because the opportunity for them to get ripped off is so high. We need regulators with the right nose for what is going on—people to interrogate data, listen to the warning and have the right feel for what the risk dashboard is highlighting. The Chartered Insurance Institute said:
“It will be the judgements undertaken by supervisors, and the conduct of firms, that will make the difference between regulatory success or failure”.
The noble Lord, Lord Sassoon, said that the judgments of expert supervisors will be at the heart of the new system. Amen to that—but we need to supervise those supervisors.
That brings me to the questions of transparency and accountability. We need greater accountability and parliamentary scrutiny than is envisaged in this Bill. The proposed macroprudential tools must be via superaffirmative orders, as suggested by the noble Baroness, Lady Noakes, and the noble Lord, Lord Northbrook, and there must be proper input from the Treasury Select Committee and our own House.
We need a successful financial industry. We need it to stimulate innovation and help to create jobs and growth; we need it to facilitate borrowing and to help people to change savings into investment and hence income for their future. That needs confidence as well as good regulation—the latter depending on the culture of an organisation and its participants as well as on the numerical results. A continuation of bankers’ bonuses; excess profit-taking; no care for the clients whose savings drive all this; irresponsible risk-taking; and rewards for failure have surely had their day. We look forward to enabling this Bill, as it aims to do, to make regulation work for the whole country.
Pensions
Baroness Hayter of Kentish Town Excerpts(13 years, 9 months ago)
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Lord Sassoon
My Lords, I am grateful to the noble Baroness for raising this important topic. Some 450,000 annuity policies are written every year, with around £11 billion in annual premiums. I am aware that the Pension Income Choice Association has recently met my honourable friend the Financial Secretary to discuss its proposals. We encourage consumers to shop around under the open market option and we welcome all suggestions as to how this can be made more effective.
Baroness Hayter of Kentish Town
My Lords, given the importance of this issue, particularly for those with small pots of money, can the Minister assure the House that nothing in the spending review will undermine the plans for a generic financial advice service to help those with small pots, for whom the choice of a good annuity is so important?
Lord Sassoon
My Lords, I can confirm that we want to push on with our proposals for financial education underpinning choices about retirement savings and other important financial services. The Consumer Financial Education Body has been asked by the Government to work up its plans for an annual health check. It publishes a guide on retirement savings. I certainly take the point very well.