Financial Services Bill

Debate between Baroness Hayter of Kentish Town and Lord Sassoon

Monday 26th November 2012 Lords Chamber

[Baroness Hayter of Kentish Town]

My Lords, I thank the Minister for introducing these amendments and I hope I am right in understanding that the backstop power is for the whole thing and not for individual cases. I see that the Minister is nodding in agreement that I have the interpretation right. I thank him for that now being an affirmative order if it was to be changed. I am confident that the public interest will not bring it back to this House, so I am quite relaxed about it.

The other amendments aside from the first one relating to the backstop power are about ensuring some independence on the issue of warning notices, or in the case of Amendment 97ZA in the name of my noble friend Lord Eatwell and myself, on the whole disciplinary process. This amendment would ensure that a properly constituted and independent determinations panel would be responsible for dealing with all cases presented by the FCA or indeed by the PRA. As I explained in Committee, that is in effect the procedure introduced for the Pensions Regulator in 2004. It is seen as robust and independent, and it has indeed turned down some of the cases that have been taken to it. I would have to say, of course, since I was a member of it, that it was effective. It has been a useful way of ensuring that there is confidence that when cases are brought by staff, they are well scrutinised.

As the Minister has said, the government amendments in this group other than the first one on the backstop go some way to answering our concerns. However, I do not think that they go quite far enough, although I guess that we should be grateful for some movement. They introduce a degree of independence to the consideration of a case brought by FCA or PRA staff, but they fail to ensure the continuance of the RDC to give its statutory backing. We hear what the Minister says about the statement of the current FSA on what the future FCA will voluntarily choose to do, but I hope that the Government do not at some point in the future rue the day that they failed to protect the RDC’s existence and independence. For the moment, however, perhaps the noble Lord could confirm the Government’s commitment, not just that of the FCA, to the continuance of the RDC.

[Lord Sassoon]

My Lords, I think that I can probably be briefer than I had intended in responding to these amendments. I will confirm again that the backstop power is, as my noble friend has characterised it even though it may not be what he would like to see, a “gone for ever” backstop. However, I hope it will give comfort that we will keep under review the way this important new power is operated.

On Amendment 97A, I am grateful to my noble friend Lord Flight for saying in terms that he is reassured by the effect of Amendments 97ZA and 97ZB, to which I spoke at some length, so I will not go over that ground again. The issue about the difference between the FCA and the PRA here is a simple one. We see the FCA as being the regulator that would issue these types of warning notice and to which the new power applies, and we do not actually see the PRA doing it. That is why we have constructed things as they are and we can rely on the approach of the RDC continuing as we have discussed. But if the PRA were to get into the warning notices business, which we do not anticipate, there are provisions in the Bill that would cause it to look at how it would construct an independent process that might take it down an RDC-type route.

I am not sure whether the noble Baroness, Lady Hayter, was expecting me to say more about Amendment 97ZZA because we have agreed that we went over this ground on 15 October. I am grateful to her for what she said about the government amendments, so unless she would like me to go on at some length, I think that we have probably done it justice. However, I am grateful for this short debate.

Financial Services Bill

Debate between Baroness Hayter of Kentish Town and Lord Sassoon

Monday 12th November 2012 Lords Chamber

[Lord Sassoon]

Yes, I can confirm that. The information may come from a whole range of sources. Obviously, consumer complaints could be one source, but I know that the noble Lord postulated a circumstance in which there was no consumer complaint. It will clearly be going in regularly to review how a firm operates and conducts its business. That will be another source of information. I am sure that it will regularly compare products on offer, one against another, and if there are outlying products, that is another source of information. There is a whole range of sources of information. The key thing here is that we have in the FCA a regulator that does not have to be concerned, as the FSA does, with all the considerations of prudential regulation and supervision and can therefore take a much clearer approach. As we discussed, there are specific product intervention powers, which the FSA does not have.

The noble Lord helpfully raises the general background. We are putting the FCA in a much better position to tackle those issues proactively. Specifically, Amendment 25D would insert a factor that the FCA would have to consider when advancing its consumer protection objective. Namely, it would require the FCA to have regard to,

“the general principle that, where consumers properly repose trust in a firm’s discretion and are vulnerable to the exercise of that discretion, the firm has a duty to act in the consumer’s best interests”.

As I reflected in Committee, this is a cleverly worded amendment and the motivation behind it is noble, but I am still not convinced that it would result in firms acting in the way that the amendment is intended to ensure.

I am clear that the best way for the regulator to ensure that firms act in the best interests of their customers is through detailed, clear and unambiguous rules. Noble Lords have already highlighted the FSA’s “treating customers fairly” principle, under which it has carried out important work to protect consumers. With the renewed focus on consumer protection which I have just highlighted, the FCA will be empowered to go further. The precision attached to rules offers a much more effective shield for consumers than a broad duty, which will be near-impossible for the FCA—or, indeed, firms or consumers—to interpret, given the breadth of interests of different consumers at different times.

Moving to Amendment 26B, we return to the thorny question of fiduciary duty. Amendment 26B is drafted to reflect the recommendations of the Kay review in this area. The Government are in the process of responding formally to the recommendations of the review, and I hope that the House will concede that it would be inappropriate for me to pre-empt that response. I assure my noble friend Lord Stoneham of Droxford that we are taking the Kay review recommendations very seriously and that they will receive a substantive response.

I reassure the noble Baroness, Lady Hayter of Kentish Town, that the regulatory framework that we are establishing will enable the FCA to consider to what extent current regulatory rules in this area support these standards, if they advance its objectives. However, I am concerned that there are aspects of this amendment which would not have the effect that we desire. In particular, the proposal that the regulator gives guidance as to what is the effect of common law, notwithstanding what we have heard, seems very dangerous to me. It risks absolving firms of the duty to consider their role and duty under common law and places the burden on the regulator to outline how the common law applies. Seeking to codify common law in guidance in this way also means that the scope for the common law to develop and adapt to reflect changing circumstances—which is, of course, one of the great virtues of the common law—may be impeded. As a general point of principle, this amendment is unnecessary, because the FCA is empowered to issue such guidance as it sees fit.

The last amendment in this group, Amendment 45A, is another that we have seen before. It would require the FCA and PRA to have regard to,

“the principle that authorised persons should act honestly, fairly and professionally in the best interests of consumers who are their clients”.

Of course firms should act in this way. The right way to ensure that is to empower the FCA, when firms do not act in that way, to act under its consumer protection objective, with strong mechanisms in place to ensure that it co-ordinates effectively with the PRA when it does.

I agree that we want financial services firms to act in a way that puts customers first. It is precisely for this reason that we are creating the FCA as a focused conduct and business regulator. I maintain that the regulatory framework that we are putting in place will lead to better outcomes for consumers, with a focused regulator empowered to act and armed with substantial new powers to ensure that it does. On this understanding, I ask the noble Baroness to withdraw her amendment.

[Baroness Hayter of Kentish Town]

My Lords, I thank the noble Lord, Lord Stoneham of Droxford, and my noble friend Lord Peston for their support. When my noble friend Lord Peston spoke of vacuous statements, it slightly reminded me of the Simon Hoggart test of everything: if one says the opposite of a statement and it is absolutely meaningless, then maybe the statement was not worth saying anyway. If one says the opposite of “firms should act in their clients’ best interests”—that is, “firms should act in their clients’ worst interests”—it shows that this is an important statement and is worth considering.

The uncertain and rather confusing reply from the Minister is not the one he should have given. His reply is not good for the industry, it is certainly not good for consumers, and it is not good for UK plc, which needs this industry to be thriving and therefore trusted. He is not right in saying that detailed rules are the answer; they did not work before. Treating customers fairly—that phrase that some of us know very well—is not the answer either, because it did not work before. A broad duty is needed.

In these amendments we ask for what we believe to be the common law position, and what the Kay report recommended. Why the Government could not have responded to that report by today so that we could have known whether this could be in the Bill I do not know; they have had it since July—I had a holiday, I do not know if the Government did. In these amendments we ask for what every other profession has to offer its clients or patients. It is what consumers, whether savers or borrowers, expect from their providers—that authorised persons, managing other people’s business, have a duty to act in their clients’ best interests. This means avoiding conflicts of interest, acting in good faith, not profiting unreasonably at the expense of customers without their knowledge and consent, and a duty of confidentiality. It is not that painful. This needs to be in the Bill: first, to make sure it happens; and secondly, to empower the FCA. I feel sure that noble Lords will support this move, and I therefore wish to test the opinion of the House.

Financial Services Bill

Debate between Baroness Hayter of Kentish Town and Lord Sassoon

Monday 12th November 2012 Lords Chamber

[Lord Sassoon]

My Lords, I spoke about the role of the Parliamentary Commission on Banking Standards when discussing the previous group of amendments. I am sorry that the noble Lord, Lord Barnett, doubts the seriousness with which the Government intend to take its recommendations. It is a joint commission of the two Houses—something that any Government would take extremely seriously. We acted to initiate the setting up of the commission so I am disappointed that the noble Lord seeks to tweak my tail on this one. When it comes to a legislative vehicle, I could not have made it plainer that we have already published a draft Bill. The Financial Services (Banking Reform) Bill is on its way. That provides potentially a perfect legislative vehicle if there are things that come out of the commission, as no doubt there will be, that require legislation. The issues raised by Amendments 25C, 25E and 26C are firmly within the remit of the commission and it would be wholly inappropriate for us to jump the gun in a semi-considered way rather than waiting for the magisterial output of the commission in a short time.

Amendment 26D would add a new paragraph (f) to proposed new Section 1D(2) to be inserted in FiSMA 2000 under this Bill. It refers to,

“the fairness and integrity of policy and conduct of those directing or operating in the financial markets”.

That is on the same theme but seeks to place specific emphasis on issues of integrity and fairness by making changes to the FCA’s objectives. As we have heard from my noble friend Lord Phillips of Sudbury, Amendment 27A would specify that, in considering the effectiveness of competition, the FCA may have regard to the extent to which the,

“methods or culture of any competition may undermine the integrity objective”.

I sympathise with the amendment to the extent that it is clear that when the FCA considers taking action, it will need to consider all its objectives. Recent events have demonstrated how important it is that the regulator has a mandate to take action to protect and enhance the integrity of the UK financial system.

The Government have given the FCA the three operational objectives, as we have been reminded, of competition, consumer protection and integrity so that it determines the right balance between them in individual cases. The regulator cannot unduly prioritise any one objective and neglect to consider the others. My noble friend Lord Hodgson of Astley Abbotts has already given another construction, which perhaps is more balanced, of proposed new Section 1B(4) and I am grateful to him for that.

This is a complex interaction of provisions. In one case we are talking about a competition objective but also, in the context of proposed new Section 1B(4), a duty designed to ensure that the FCA considers competition as a means to, and in the context of, delivering other objectives. But that needs to happen only as far as it is compatible with the integrity and protection objectives. I believe that it is a keenly balanced series of interlocking provisions here, of which these are only two. Of course, there are further elaborations of just what the integrity objective and the other objectives involve. Further, it is important to “have regard to” under this new section. I believe that the balance is right and that there is no need to adjust the structure of the competition objective to require the FCA to consider integrity in the way proposed here.

Similarly, the FCA’s integrity objective will come into play when the FCA is exercising its general functions in relation to conduct. While it must think about whether competition is working in the interests of consumers, I do not believe that it is for the FCA to police the markets to establish and enforce what fairness is. I do not believe that fairness should form part of the explanation of the term “integrity”. It is a separate issue.

There are other issues about the interrelationship between the two new authorities. Proposed new Section 3D requires the PRA and FCA to co-ordinate their functions in areas of common regulatory interest where one may have relevant expertise or wherever one may have a material adverse impact on the objectives of the other. This means that, while it is right that the PRA must focus on its safety and soundness objective, where its actions may impact adversely on consumer protection it will have to listen to the FCA, which has a strong consumer protection objective.

In summary, I accept the wider point about the importance of these issues. As this short debate has teased out, these issues are very complicated. They are best addressed through the Parliamentary Commission on Banking Standards. In the light of that, I ask the noble Baroness to withdraw her amendment.

[Baroness Hayter of Kentish Town]

I thank noble Lords for their support on the amendment. I actually think that the Minister is wrong. This is not complicated; this is about integrity. The noble Lord, Lord Hodgson, had it right. We are not talking about how to impose rules. We are talking about something within the people who work in this industry. The problem is that the significant influence function has not worked. Sir Fred Goodwin was appointed under it. It was not working, it has not worked, and we need something different. We need it in the Bill.

The Minister talked about the report of the Parliamentary Commission on Banking Standards and what is going to come out of that, but that was not set up when the Bill was written. Would the Minister have accepted the code and the amendment on professional standards if Libor had not happened and if a banking commission had not been set up? The Bill was intended to mean no more failures and no more of that behaviour. We are talking about integrity. I had not planned to divide the House on this. However, as the Government have just voted against a code of conduct, I am so tempted now to put it to them that we should vote on professional standards to see whether they really want to say that they have a Financial Services Bill to make changes to the way we regulate but they do not want professional standards in that. For once in my life I will resist temptation. I beg leave to withdraw the amendment.

Financial Regulators: Examinations

Debate between Baroness Hayter of Kentish Town and Lord Sassoon

Monday 22nd October 2012 Lords Chamber

[Lord Sassoon]

My Lords, the House can of course be assured that the FSA would not seek to recruit, let alone retain, any individuals who were not competent to carry out their duties. What I said in my first Answer was that, at the end of the probationary period, an assessment is done, so it certainly does not wait until the end of the first annual assessment.

[Baroness Hayter of Kentish Town]

My Lords, in his Answer, the Minister talked about technical qualifications. Surely, given where we are after LIBOR and everything else, we need a code of conduct that also covers ethical issues. Qualifications are needed for that not just, as is proposed, under LIBOR. Does he not agree that it should be provided in the Financial Services Bill for everyone working in banking?

[Lord Sassoon]

My Lords, I am sure that they take account of the judgments that need to be made on the ethical front, but they should not be in the Bill before the House.

Financial Services Bill

Debate between Baroness Hayter of Kentish Town and Lord Sassoon

Monday 15th October 2012 Lords Chamber

[Lord Whitty]

My Lords, since my noble friend is a bit lonely on the Front Bench just now, I intervene very briefly to support her on this. Quite often in regulatory structures the sector regulator is very nervous of referring anything to the competition authorities because it regards that as part of its failure. Under the terms of this amendment, it would be part of the process that was available—I will not say normally, but if necessary—to the FCA to refer things to the competition authority, having itself examined the structure of the market with its concurrent powers.

I am very mindful of an equivalent sector—namely, energy—where one of the problems has been that Ofgem has always refused in effect to refer the structure of the energy market to the competition authorities, even though, I happen to know, at the time the competition authorities or the members of the Competition Commission were very anxious to look at it. We might have to change the form of words slightly but I think this is the better formulation—that the FCA has concurrent powers but that it is not seen as a complete departure for a case to be referred to the competition authorities themselves and that the process is not prolonged.

[Lord Sassoon]

My Lords, I can see that the noble Baroness is delighted that I am on my feet. I listened to the very clear and detailed arguments that the noble Baroness, Lady Drake, gave in an earlier session, to which we have come back today. I may not always respond there and then but I listen very carefully to everything that is said. However, I do not want to raise the expectations of the noble Baroness on this one.

This amendment seeks, as we have heard, to give the FCA a power to make a market investigation reference to the Competition Commission. I am sure that the Committee is aware that the Joint Committee that scrutinised the draft Bill recommended that the FCA should be given concurrent market investigation reference powers. However, noble Lords will also be aware that the Treasury Select Committee, in its report on the FCA, concluded that the case for the FCA to have market investigation reference powers has not yet been made, and that the issue should be reviewed when the FCA has bedded into its new role.

Having considered the matter very carefully, the Government have adopted the proposal of the Treasury Select Committee. The FCA’s competition objective will require it to keep the markets it regulates under review and it may of course perform its own competition analyses as part of that. The evidence-gathering and analysis carried out by the FCA will support any subsequent intervention by the OFT. For example, on a referral from the FCA, the OFT may have sufficient evidence to launch a market investigation reference almost immediately. There is precedent for this in the OFT’s response to the report of the House of Lords Economic Affairs Committee on the audit market. In the light of the evidence collected by the committee, the OFT felt able to consult on a reference to the Competition Commission without conducting its own market study.

As the Government have made clear in their response to the Treasury Select Committee, we will review the question of the FCA competition powers when it has bedded in to its new role, five years after it comes into being. I hope that with that reassurance, and confirmation that we are following the Treasury Select Committee’s recommendation, the noble Baroness will feel able to withdraw her amendment.

[Baroness Hayter of Kentish Town]

My Lords, I thank my noble friend Lord Whitty for his support for the amendment. His experience in this field is much greater than mine. I am surprised by the Government’s lack of interest in the relationship between the OFT and the FCA, given its new competition powers. In an earlier debate, the Government would not even agree to an MoU between the FCA and the OFT. I am pleased that the Government will keep the matter under review and therefore accept that there are some issues here. Part of the concern is that, with the merger under the other Bill of the OFT with the Competition Commission, those organisations, as all organisations are when they get together, will be tied up with working that out just at a moment when the FCA has these new competition powers and perhaps would like to use them in the way described. I beg leave to withdraw the amendment.

Financial Services Bill

Debate between Baroness Hayter of Kentish Town and Lord Sassoon

Monday 15th October 2012 Lords Chamber

[Baroness Hayter of Kentish Town]

Perhaps the noble Lords will let me make my case and explain that. As was suggested by the noble Lord, Lord Flight, the purpose of my amendment in the next group is to address this issue and I hope that it will get support from across the House. It is about a different way of dealing with this and bringing to that independence a much higher hurdle for exactly the reasons that noble Lords have been talking about. I hope that when we come to that amendment it will receive wide support because I share the view about a greater degree of independence and separateness being needed. Nevertheless, transparency is a particularly important issue which we, as consumer representatives, feel was very restricted by Section 348 of FiSMA and the FSA’s interpretation of this. I shall in a moment explain why we do not support the amendments of the noble Lord, Lord Flight, in the present group.

Amendment 185B concerns warning notices in respect of procedures and referrals to tribunals and other issues. It would remove the requirement to consult with those about to be named before any warning notice is published. I find it hard to see why this requirement is in the Bill. It does not affect other walks of life. In criminal cases, ordinary people do not get consulted before they are arrested or charged but their names will be released. “Consultation”, I fear, is code for, “Let the lawyers loose”—I apologise to noble Lords who are lawyers—and risks injunctions, stalling and long legal arguments. Why should the person who is to be named be given special rights? If it is right to publish, why should there be a block on publication? I hope the Minister will be able to justify that, given that tremendous consultation goes on already with the firm involved before one is even at the stage of a warning notice.

On the amendments in the name of the noble Lord, Lord Flight, as I say, we have sympathy with bits of them because of the lack of a second eye, independence and separateness, if you like, from the investigators within the regulation. The Bill empowers the regulators to publish the fact that a warning notice has been issued. This is of particular interest to the issue of misleading financial promotions. For consumers, it is a significant increase in transparency to know which ads have not only been looked at by the regulator but have been seen to be sufficiently misleading for consumers to know that an ad—which they may still have; they may have cut it out of a magazine or remember it from the television and it may still influence their purchase of a product—is under review. There could be considerable consumer detriment if the ad is still in their minds and they have not had a signal that the regulator is worried by it. That is one of the most important things to consumers.

At an earlier stage of the Bill, the Government were not motivated to accept our worries about reliance on “buyer beware”—caveat emptor—but how can consumers shop around if the ads on which they are basing their choice of products are perhaps going through what can be quite a lengthy procedure? It can take very many months, and an advertising campaign can be quite short, and all that time consumers do not know that procedures are taking place that might affect their choice of product.

In other areas, we know fairly quickly. If action is taken against a food factory suspected of contaminating food, we as consumers want to know immediately, and the Food Standards Agency lets us know straightaway when it is taking action. Similarly, if a garage had fixed a coach’s brakes and was accused of doing it less than satisfactorily—some of us are grandparents—I would not want my grandchild to be on a coach where the garage was already up before the Health and Safety Executive for not having done repair work properly. Similarly, as a shareholder, I would want to know whether BP did have some liability for pollution in the Gulf of Mexico before I parted with money to invest in that company.

There can be ongoing detriment if serious accusations are made and the people involved in parting with their money, as consumers or investors, do not know about it. I am not sure it was right that we heard nothing about LIBOR and the behaviour of banks until that first case was settled. Was it right that Equitable Life went on selling products even when there was a case pending? Many of the difficulties that arose were consequences of that ongoing sale. The first time these names came out there would be a lot of coverage in the press, but once we got over that hurdle—once we had got used to it and grown up—consumers are quite able to know the difference between an accusation and a finding. Keeping those hearings in the dark is quite against consumer interest.

We hope that the Government will not accept these amendments, but that in the next group they will be rather more sympathetic to a different approach to dealing with how these decisions are taken. For the moment, I hope that they can support my amendment but hold fire on the others.

[Lord Sassoon]

My Lords, this has been a particularly interesting debate. These are very important matters because we are talking about important new powers that the Bill gives to the regulators.

Of course I have some sympathy with what my noble friends are saying, but we have to recognise that the starting point is that there has been a huge amount of detriment over the years caused by the mis-selling of financial services. To talk in dramatic terms about human rights and people being proved guilty before they had had a chance to go through natural justice and so on is painting the picture from a completely wrong starting point. To be fair to my noble friend Lord Flight, who kicked off this group of amendments, those are not remotely the terms in which he came at this, so I do not bracket him in this. However, we have people who are quite properly setting out their interests but talking as if somehow everything was fine. It was not fine before.

Certainly the regulators equally fell down on the piece, and we may be giving them a power that is difficult for them to handle. I recognise that, and I will deal with that as I go through the argument. However, I think that we must start from a recognition that things need to change and that we have to think whether we can do better than trying to sweep things up after people have lost very significant amounts of money. We need to tilt the balance slightly in these matters, but I completely agree that there need to be safeguards in place and that whenever you create a new power for a regulator, there are dangers if that power is not properly exercised.

--- Later in debate ---

[Lord Sassoon]

My Lords, let me stress again that we are not backtracking at all. Our commitment to the new policy instrument remains extremely firm. It may be that the industry will come to take the view expressed by the noble Lord, Lord Peston. We will see. I have been struck by not only our debate this afternoon but our conversations in the run-up to it that because we are taking such a bold step, which I believe to be the right one and which I believe that the FCA will exercise properly, we should have the reserve power, which we do not have in the Bill, should things not turn out as I and the noble Lord, Lord Peston, expect.

I hope, on the basis of that explanation of our intention, that my noble friend will feel able to withdraw his amendment.

[Baroness Hayter of Kentish Town]

My Lords, would that happen by an order that would come back to this House, or would it just be by Treasury decision? That is a big power to take away without parliamentary scrutiny.

[Lord Sassoon]

My Lords, I said that we intend to come back to the House on Report with a power to reflect the concerns that have been expressed. As to how the power will operate, noble Lords will see a draft of what we are considering in good time before our debate. For a power of this importance, I would expect it to be in secondary legislation subject to the affirmative procedure, so there will be an opportunity to discuss the repeal in this House, but let us see it when it is drafted.

--- Later in debate ---

[Lord Sassoon]

I am sorry that I have not been sufficiently clear. Yes, that is exactly what I am saying. In fact, I am saying more than that. Within the very similar provision for FiSMA, that is exactly what the FSA did. Not only can it do it but it has a track record of having done that. I think we should trust it to do whatever is appropriate again.

[Baroness Hayter of Kentish Town]

My Lords, I am extremely disappointed. We come back to “may” and “must”, which my noble friend mentioned. He has just had a birthday and he is still talking about “may” and “must”. If the FSA had not put on its website that it would not continue with this, perhaps our trust that it would continue with the RDC would be greater.

I confess that I have some form on this. In 1981, I worked on a Royal Commission on criminal procedure which tried to persuade the police that they should take their cases to an independent prosecutor. The Committee will not be surprised to hear that they did not want that to happen. In the Labour Party, it used to be the NEC that took cases against individuals. We were taken to court and told that we could not do that, so I ended up on the disciplinary committee to ensure that that was separate and independent of the National Executive Committee of the Labour Party. The barristers did not get it right and for a time the Bar Council used to use the same body to discipline its members and was taken to court. It had to set up the BSB complaints committee—that is another declaration of interest as my partner was vice chair or something of that—to ensure that there was that independence among the people who were presenting the cases and those hearing them. Whether there are two panels—one to see whether there is a case to answer and one to hold a hearing—is an issue of detail which I did not go into. I think that is for regulator. To trust the regulator, who is, if you like, the prosecutor—I do not like using the word “prosecutor” but perhaps we can bear it for the moment—to decide what sort of committee will challenge its evidence, seems to me not quite the correct way to approach this.

Financial Services Bill

Debate between Baroness Hayter of Kentish Town and Lord Sassoon

Wednesday 25th July 2012 Lords Chamber

[Baroness Hayter of Kentish Town]

My Lords, I support the amendment with, predictably, an interest in ensuring that Wales is well represented on panels. Too often these westerly people are forgotten, especially as they have rather less of a financial sector. The needs of Welsh citizens are perhaps greater, given how poorly served they are in rural areas. The financially excluded, many of whom are found in Wales, are also poorly served by financial services. I thank my Scottish friend, my noble friend Lord McFall, for his concern for my country and, I am sure, for Northern Ireland.

I turn to Amendment 128 in this group, which provides that the panel should represent households using products. That seems to be key, if only to emphasise the importance of the financial services sector to the whole community. In effect, it is a public utility with some of the same obligations on the industry to provide a universal service even in non-profitable areas. It is equally important to ensure that users of the less profitable services are part of the system of regulation or its scrutiny. It is individuals and families who often rely most heavily on the financial services, even if they do not feature on a CEO’s radar.

Perhaps I should fess up at this point that I was vice-chair of the Financial Services Consumer Panel, so I am acutely aware of the absolute necessity of a broad range of experienced views and backgrounds on the panel. The new panel would deal with a range of issues that impact on a wide variety of consumers. That is part of the reason we so need a panel, because consumers are not a homogeneous group. Their needs, capabilities, life experience and expectation, as well as their interaction with the sector, cannot easily be slotted into a “consumers” box and ticked off by the regulator. The panel would need to draw on the policy, research, intelligence and expertise of those people long embedded in the consumer world, who bring with them in-depth knowledge and understanding of consumer behaviour, consumer detriment and—equally important—consumer law, debt management, credit, insolvency, complaint handling, redress, retail sales, the financial world and possibly even Europe. I am particularly pleased that the noble Baroness, Lady Wilcox, who is very experienced in consumer matters, particularly when speaking on redress, is in the Chamber at the moment. However, aside from that expertise, the panel will also need some streetwise input, perhaps from people less exposed to the intricacies of regulatory regimes, Europe, consumer law and research, but who know what the world feels like from less exalted heights than the portals of Canary Wharf.

I now turn to the major issue, which is Amendment 136ZA standing in the names of my noble friend Lord Eatwell and myself. It is about the need to balance the caveat emptor principle—buyer beware—with an equal responsibility on those advising or providing services to consumers to act in the “best interests of clients”. We have heard of the challenge facing consumers in judging whether a company is prudentially secure, or whether the product they are buying is fit for purpose, presents value for money or even covers the risk they assume it will. Added to that, as mentioned earlier today, the very pricing of products, their complexity and people’s lack of understanding of their own risks, let alone the risks inherent in products, makes it very hard for consumers to have the knowledge to take responsibility for the choices they make. The level of risk left with consumers is often unclear. The meaning of “guaranteed” or “tracker” may differ quite substantially from their common-use meaning. Consumers often bear a level of risk unknown to them and seldom explained; they are effectively making choices blindfold.

In an ideal world, of course, we support the responsibility principle. Markets are made to work by consumers shopping around and driving up standards. However, in this market, with those long-term “credence” goods, opaque structures and the asymmetry of information, we need to reintroduce some trust and transparency by balancing consumer duties with provider duties. It is an industry beset with low levels of compliance and high levels of complaints; there are no agreed standards for complex long-term products, so it is hard to expect consumers to adopt a higher degree of responsibility than is already legally acknowledged.

I have concerns, therefore, that by writing consumer responsibility into the Bill, new section 3B(1)(c) appears to “up” the existing situation. In law there are no obligations placed on consumers other than to act honestly. It is not clear what a greater emphasis on consumer responsibility might achieve. Why impose this possibly new principle of consumer responsibility without any countervailing responsibility on the service provider? Amendment 136ZA expresses the need for that balance, at the point where the industry might otherwise grab hold of this wording and say, “See—it was their responsibility and their choice”. The noble Lord, Lord Turner, whose chances of becoming Governor of the Bank of England I might now damage by quoting him approvingly, said yesterday that people,

“doubt banks’ values; and they doubt whether banks have their interests at heart”.

He went on to say that the boards of directors and managers must introduce,

“effective controls against dishonest behaviour”,

in order to change the perception of bankers. This amendment seeks to ensure that providers act in the best interests of clients, which would be just one way of guaranteeing the good behaviour for which the FSA chair awaits. Why should only consumers accept responsibility for their own decisions? Why not regulated firms, and authorised firms? It is as if the Bill’s draftsmen are at pains to ensure that consumers should have only themselves to blame. If this phrase “consumer responsibility” is to mean more than the current legal position, then the Minister needs to explain that to us. If it is only common law, then why include it?

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, I will take Amendments 122 to 127 and 128 first of all. As the noble Lord, Lord McFall of Alcluith, has explained, these would require the FCA to appoint persons representing the constituent parts of the United Kingdom to each of its consultative panels. The role of the panels is to provide a forum for focused consultation. I believe that the current provisions, which require the persons appointed to be representative of consumers and practitioners in particular sectors, provide the right focus here. To do this requires the FSA now, and the FCA in the future, to seek a diverse range of panel members. I am satisfied that the FSA already takes account of these matters in making appointments. For example, as a matter of practice in making appointments to the consumer panel, which is done through a fair and open process, the FSA aims to make sure that the panel as a whole not only encompasses a broad range of relevant expertise and experience but also represents the constituent parts of the UK. That is as it already is.

The FSA also looks for some geographical spread in the smaller business practitioner panel membership, where that is possible. The large retail firms that sit on the other practitioner panel, by definition, tend to have a large geographical spread that they bring to the table as national firms. Diversity in terms of geographical spread of representation can, therefore, be achieved in the existing model where members are appointed to represent the interests of consumers and practitioners rather than to represent parts of the UK.

For these reasons, although it is important to have on the record how this operates now and how I would expect the FCA to operate in the future, I would be concerned that these amendments could reduce the effectiveness of the panels as forums for focused consultation on the issues which matter most to those most affected by the FCA regulations. I would not want in any way to either dilute or change the focus of the panels on what they are ultimately there to represent.

--- Later in debate ---

[Baroness Hayter of Kentish Town]

My Lords, I shall speak in support of Amendment 128AB in the name of myself and my noble friend Lord Eatwell. I shall also speak to Amendments 128AAA and 130ZB. Accountability means not just listening, but a dialogue: a conversation which hears and responds, and gives written reasons for disagreements. As the noble Baroness, Lady Noakes, said, they will not always agree, but that is quite healthy: we just want to know why. It has really worked very well with the FSA panels under the old Section 11. The proposal would just take that forward and continue it in the new Bill. This encourages transparency and forces the panels to think very hard about what they say and to do their homework well. It also makes the regulator consider submissions carefully and set out where and why they have problems, either with the analysis or with the conclusions. This adds to the openness of the regulator’s thinking, but also to that of the panels, so that consumers and practitioners can also track the record and impact of those who purport to represent their interests, and know how well they are impacting on the regulator’s work. I hope this is one of the areas where the Minister is able to “say yes”.

[Lord Sassoon]

My Lords, to manage expectations before the break I attempted to say that I was not going to be as accommodating all through the day. In qualitative terms I will be as accommodating, but I can only work with the material that is in front of us. In this case, it is possibly a matter of explanation and reassurance. I hope that some, if not all, of the matters here are going to be covered satisfactorily.

Amendment 127ZA to which my noble friend Lady Noakes spoke would mandate some quite complicated arrangements for the Bank of England to consult the markets practitioner panel of the FCA, in certain cases. I do not make a comment about the drafting, but the general arrangements here would be quite complicated. In addition, the markets practitioner panel would also have the ability to request information from the Bank, but only via the FCA and only for the purpose of assisting the FCA. I had not been quite sure what the amendment was trying to achieve, but I now understand from my noble friend that it is a matter of strengthening the co-ordination between the Bank and the FCA in relation to market infrastructure, as well as strengthening the consultation arrangements in relation to infrastructure matters. I understand why this is important, but will attempt to explain why I believe it to be unnecessary.

There is of course nothing to stop the Bank of England consulting the markets practitioner panel or any other panel, or their members or anyone else. It is worth remembering that. It is also important to bear in mind—it may be more important in this case—that the Bank of England will be regulating only a very small number of institutions in this highly specialist area. That really is the key point. I suggest that there is not a lot to be gained by trying to institutionalise consultation arrangements in this way because of the small number of specialist players.

The Bank will indeed be able to consult each of the entities that it regulates individually, should it wish to do so. That is of course an inconceivable position for most of the other subsectors of financial services, where a panel arrangement is therefore necessary to corral views efficiently. I am not sure what a requirement to consult the markets practitioner panel would necessarily add here. More generally, the Bill already introduces a requirement for the Bank and the FCA to have a memorandum of understanding relating to infrastructure regulation, while there is of course nothing to stop the Bank and the FCA working together in any way that they want, subject to the framework of the Bill.

I think that panels are not required in this area. I hesitate a bit because my noble friend Lady Noakes may come back at me on the settlement question. I accept that on that aspect I should possibly take a bit more time to reflect on my noble friend’s views, just to make sure that all angles have been covered in what I have said and in what has been indicated by the Bank and the FCA, so far as it is relevant to them. However, specifically on settlements, I appreciate that I might reflect a little further.

I turn to Amendments 128AAA, 128AB and 130ZB, the first two of which require the FCA to provide a statement in writing to any panels it establishes where it disagrees with any of the representations. Amendment 130ZB would make a similar provision for the PRA. I note that these amendments replicate the existing provisions in FiSMA. It may help if I explain the thinking behind why the Government consider it right to depart from the existing approach in FiSMA. It is because the Bill imposes a general duty on the regulators to publish responses to the representations they have received, which is wider than the current requirement in FiSMA. The regulators must respond to all representations, rather than simply those with which they may disagree. That was a conscious change because it did not seem right that the only responses the regulators should have to give to the panels are where they disagree with them.

We do not want to promote an antagonistic relationship between the regulators and any of the panels that they may establish. We have also required the regulators to publish their responses to help inform public understanding and enhance accountability. I reassure the Committee that this duty will, in practice, require the regulators to give their reasons for rejecting or departing in any significant way from a recommendation of one of their panels. With those explanations, I hope that my noble friend will feel able to withdraw her amendment.

--- Later in debate ---

[Baroness Hayter of Kentish Town]

My Lords, I trust that the first amendment in this group, moved by the noble Lord, Lord Flight, will not find favour in the Committee as it would substantially weaken the thinking, role and responsibility of the PRA.

First, it would exclude consideration of those currently excluded altogether from financial products, especially in insurance but also in banking. Unless the regulators take exclusion from financial products seriously, we will be failing in our duty to a large section of our community. Our regulators should act in the interests of the whole community, not just those who are already within the charmed circle.

Secondly, there may be issues of promotion and advertising of financial services or products—indeed, to the sophisticated as well as to the earlier group—which must be taken into consideration by the regulators.

Thirdly, it is now acknowledged, including by your Lordships’ House, that regulation should cover future as well as present consumers so that it can take account of changes in consumer needs, the environment and product development. This is the case with, for example, legal services. The Legal Services Act 2007 specifically adds in,

“those who are using (or are or may be contemplating using)”,

legal services.

Amendment 141 in the name of my noble friend Lady Drake is clearly an essential addition to the Bill if those who have bought with-profits policies are to have any confidence in their outcome. The funds must be husbanded in their interests, the profits must be shared according to the policy’s rules, profits must be justly distributed and any discretion must be used fairly and equitably.

There is surely not a word about this amendment with which the Minister could argue. As John Kay wrote in his report this week:

“Financial intermediation depends on trust and confidence: the trust and confidence that savers who invest funds have in those they choose to manage these funds”.

Amendment 141 is part of recreating that trust and confidence, and we are happy to support it.

[Lord Sassoon]

My Lords, let me first speak to government Amendment 140E. When considering the regulation of discretionary payments in with-profits business there is no easy split between prudential and conduct issues. The Bill deals with this by giving the PRA sole responsibility for issues relating to discretionary payments. The FCA remains responsible for all other conduct regulation. However, under the Bill as drafted, use of “includes” in new Section 3F(1) could be interpreted to suggest that the PRA is responsible for other elements of conduct regulation as well. This amendment simply clarifies the drafting, by removing the implication that the PRA could be responsible for other conduct issues.

I turn to the non-government amendments in this group. Amendment 128BH would remove the reference to those “who may become policyholders” from the PRA’s insurance objectives. However, I can assure my noble friend that the inclusion of this reference to future policyholders is both deliberate and important. It is there for completely different reasons from those advanced by the noble Baroness, Lady Hayter, with whom I agree in rejecting the amendment but for much narrower and more technical reasons related to the nature of a with-profits fund.

Let me give an example of what we are thinking about here. If one considers the scenario where the PRA is considering whether a with-profits insurer should be permitted to make a very large distribution to its policyholders, and if the PRA is only required to consider the interests of current policyholders, it might be inclined to allow the distribution. However, that might leave insufficient assets in the fund to ensure that policyholders coming into the fund—if it is operating on a going-concern basis—obtain fair and adequate payments from the fund.

I should reassure my noble friend that the reference to those becoming policyholders does not require the PRA to go out in some proactive way to protect those who have no current plan to take out a contract of insurance, but who might at some point decide to do so. The PRA is only obliged to provide an appropriate degree of protection and what is appropriate will depend on the facts of the case. In this case, it is the needs of a person who is about to sign on the dotted line for a with-profits policy who needs to be assured by the regulator that the fund to which they are about to subscribe is appropriately strong according to the rules. This provision allows for that.

Amendment 141 would require the PRA to regulate with-profits funds on the basis that the fund should be managed for the purpose of distributing profits to policyholders, as opposed to any other purpose. This is an important issue and I welcome the opportunity to set out broadly how with-profits will be regulated under the new system. It might be worth just pointing out to the noble Baroness, Lady Drake, that new Section 3F—the “With-profits insurance policies” section on page 31 of the Bill—makes it quite clear that the PRA must secure an appropriate degree of protection for policyholders. That is very clear. It is different from the looser wording, to which she referred, about the insurance objective “contributing” to securing protection. It is clear that the language in new Section 3F for with-profits is stronger than in new Section 2C on the insurance objective. That is an important background to the consideration of this amendment, and a point to which the noble Baroness drew attention.

When regulating a with-profits firm, the regulator is concerned with ensuring that the firm recognises a proper balance between the different interests in the fund. These interests include one that is highlighted in this amendment—the interests of with-profits policyholders to the distribution of profits made by the fund. However, there are other legitimate interests in a with-profits fund. They include the interests of the members of the insurer in the case, for example, of a mutual. In a proprietary firm, the shareholders also have an interest in the profits to be distributed. There are also considerations to be balanced between different types of policyholder. I do not suggest for a minute that the noble Baroness seeks to disapply all these other interests in the with-profits fund. Maybe she does—no, I see that she does not. I am glad about that as we would be fundamentally rewriting the law. That would be the effect of the amendment.

I am grateful to the noble Baroness for bringing up this issue. I must say that a balance needs to be struck between the interests of current policyholders, who will be keen to see all available funds distributed, if they are distributed to them, and the interests of future policyholders, which we have discussed, who will pay the price of excessive generosity to previous generations of policyholders. There is also the overriding concern to ensure that the fund remains solvent and able to make distributions.

As I said, under the Bill, the PRA is required to secure an appropriate degree of protection for with-profits policyholders in new Section 3F, and it will have to take all of these factors into account. Although the factors to be taken into consideration are complex, in essence the objective of regulation remains the same for with-profits as for any other type of business. The objective fundamentally is to ensure the firm’s safety and soundness, while ensuring its proper conduct, including the fair treatment of consumers. In asking the Committee in due course to support the Government’s amendment, I ask my noble friend Lord Flight to withdraw his amendment.

--- Later in debate ---

[Lord Sassoon]

No, my Lords, of course it is not because it is the Bank of England and it says that it has to have discretion. This is government legislation and the Government are presenting a Bill that we believe is appropriate to the new financial architecture. Of course we consult the Bank of England, the FSA and all sorts of other people. We have also had the input of the Joint Committee. My noble friend is quite right to challenge me on this but I am quite clear on it. As I have tried to explain, it is understandable but simplistic of people to read across that there are panels now that would like to continue to be engaged with both new regulators. I can understand where the panels come from and why, as I have explained, since consumers have a considerable interest in the decisions taken by both bodies, consumers superficially may say, “Actually, we would like to be engaged directly with both”.

[Baroness Hayter of Kentish Town]

My Lords—

[Lord Sassoon]

If the noble Baroness will allow me a moment, the PRA is a very different animal. We risk, in some of this discussion, slipping into a frame of mind of thinking that the FCA and the PRA are somehow going to be two peas popping out of the same sort of pod. They will be very different regulatory and supervisory bodies with very different mandates and very different numbers of firms that they are regulating. It would be quite wrong to have a one-size-fits-all approach to consultation in these circumstances.

[Baroness Hayter of Kentish Town]

But consumers are not asking for this superficially. It is their money that is being looked after and overseen by bits of the PRA, and they make a very serious request. As I said, we are relaxed about it not being a specific panel, but the existing panels should have a right to be heard. It is simply not enough to depend on the FCA, whose chief executive comes from the industry—as does its new chair, with 27 years in banking and enormous experience. However, they do not represent the consumer interest.

Finally, my fear is that if there is no right to be heard, consumers, and maybe practitioners as well, will retreat to the other way of getting a hearing: to go to the press. One of the great things about the consumer panels is that you very rarely hear about them because they have a back-door entrance. They can go in and have early dialogue. Deny them that and I am afraid that we will revert to the other way, which is an open dialogue through the press.

[Lord Sassoon]

I understand all that and I know very well that the consumer panel in which the noble Baroness played an important part has had and continues to have an extremely important role. It is not as if the PRA will not be consulting consumers and the public; it must consult publicly on draft rules, for example, and that would involve consulting not just practitioners. Generally, however, the FCA will be the expert on consumer issues and it is right that it should be the primary channel to focus the PRA’s approach.

I repeat that the PRA will be a supervisor with a much more firm-specific, prudential decision-making focus—as opposed to the FSA and the FCA, which will have a much broader rules-based approach. We are talking about very different animals. Indeed, it is worth recognising that, if we are talking on the practitioner side, the FSA tends not to consult the current practitioner panel on firm-specific prudential decisions any more than I would expect the PRA would or should. The dynamic is very different. Therefore, for the reasons that I have given and will continue to give in going through the rest of these amendments, and for the reasons that my noble friend Lord Flight put very clearly in relation to consumers, I believe that what we have put in the Bill is right.

I believe that we are at Amendment 129A. There is no more that I can usefully say on that amendment, so I will move on to Amendment 129B, which would require that the PRA’s consultation arrangements should include industry panels and, where appropriate, a panel representing insurance policyholders. I should start by being clear that where the PRA consults on issues with particular impact on insurers, the Government agree that it should ensure that it engages with insurers in order to understand their views. Such consultation might be done as part of its general consultation under new Section 2K or through consultation on specific rules. Regarding consultation with insurance policyholders, as I have said, where consumer interests are engaged, the PRA will be provided with advice and expertise by the FCA. The Government do not expect it to be necessary for the PRA to make specific arrangements for consulting policyholders any more than other consumers.

Amendment 130ZZZA would require the PRA, as part of its consultation arrangements under new Section 2K, to establish a panel for policy debate with senior representatives of firms and to consider the cumulative impact of regulation by the PRA and the FCA. Policy debates about regulation take place in many forums—for example, between regulatory authorities at the European level, in the FSB and at the IMF, and of course in your Lordships’ House. However, I do not think that it would be right for the PRA to be engaged in policy debate with those that it regulates. Regulated persons are free to make representations to the regulator. There are mechanisms for this is in the Bill. However, to enshrine in legislation the idea that firms should enter into a policy debate with the regulator is contrary to the concept of judgment-led regulation. The PRA will listen to firms but it will form a view based on its own regulatory objectives and priorities, not on the commercial objectives and priorities of firms.

On the second element of the amendment, I agree that the PRA should consider cumulative regulatory burden. It will do this as a matter of course when it considers proportionality under the general duty to co-ordinate. There are already numerous opportunities for industry to comment on the effectiveness of co-ordination. In particular, the PRA and the FCA are required to include in their annual reports an account of how they have complied with the general duty to co-ordinate. Industry and the general public will be able to make representations, for example, at the annual general meeting of the FCA, and as part of the PRA’s annual consultation on the effectiveness of its strategy.

Amendment 129ZD would amend new Section 2K to require that:

“When carrying out a consultation, the PRA”,

should,

“have regard to the desirability of ensuring a broad representation of practitioners and consumers”.

I have some sympathy with the sentiment. I agree that, in order for the PRA to regulate effectively, it will need to consult widely. For example, if it is considering putting in place a new framework for the purposes of supervising credit unions, I would expect it to form a comprehensive view of the sector by talking to credit unions, large and small, based in different parts of the United Kingdom. Where appropriate, I would also expect it to talk to academic experts and other interested parties. However, I do not think that this needs to be underpinned with a specific provision in legislation. The PRA will need to consult effectively if it is to deliver its statutory objectives, and it will be held to account by Parliament for doing so. New Section 2K already requires the PRA to consult the full range of PRA-authorised persons and not just those who are practitioners.

Amendment 130ZZA would provide that the arrangements for consulting PRA-authorised persons may include consultation with persons with specialist knowledge of PRA-regulated activities. Again, I agree entirely with the sentiment. As the Government have made clear, the PRA will consult expert individuals when developing policy. It need not rely solely on industry experts, but also those in academia and other experts. At present, new Section 2K makes express reference to consultation with industry because industry will be directly affected by regulation. It is appropriate to recognise that fact in the Bill, while making it clear that the PRA may decide how to engage with them. But consulting industry is different from consulting “persons with specialist knowledge”. The PRA may of course consult such individuals, whether as part of a public consultation or for a specific purpose, if it will help it to better deliver its objectives. It might also wish to consult all sorts of other categories of person—for example, international organisations such as the FSB and Basel committee. It seems unnecessary to include that level of prescription in the Bill.

Amendment 130ZAA would clarify that the PRA is not to be deemed to be accountable to those firms that it regulates. I am glad that my noble friend has raised this point, as it is an important one. The Government and the Bank of England have been absolutely clear that the PRA should not be seen as accountable to those it regulates. We agree. Firms are accountable to the regulator, and the regulator is accountable to Parliament. However, the lines of accountability are clear in the Bill, and it is not clear what such a declarative statement would add.

Finally, Amendment 130ZZB would require the PRA to report annually on its consultation activities. The Government fully agree with this intention, and indeed the PRA is already required to so do as part of its annual report by new Schedule 1ZB, in paragraph 18(1)(c) on page 186.

I come back to the fundamental point. We have considered carefully the separate consultation requirements for the two regulatory authorities. I understand all the concerns, some of which I hope I have been able satisfactorily to address. But others have consciously been left on the table, reflecting the very different nature of the beast, which the PRA will be as a focused regulator with its small community and one very clear objective. On the basis of that rather long canter through the group of amendments, I ask my noble friend to withdraw his amendment.

Financial Services Bill

Debate between Baroness Hayter of Kentish Town and Lord Sassoon

Wednesday 25th July 2012 Lords Chamber

[Baroness Hayter of Kentish Town]

My Lords, along with most other speakers, I support the amendment moved by my noble friend Lady Drake. As I have argued in Committee before, it is no good having a competitive market for banking and insurance—not that we have one—if consumers effectively cannot enter the market, if they cannot identify what they need and if they cannot get value for money. As we have heard, all sorts of people find it challenging to know what services are suitable for them. How else could HSBC have sold bonds designed to be held for five and more years to 2,500 with an average age of 83? It is a little like people trying to sell PPI to my noble friend Lord McFall, or Barclay, HSBC, Lloyds and RBS mis-selling interest rate swaps to 28,000 businesses.

My hope is that Amendment 117 will give the FCA an explicit mandate to put a stop to unfair overdraft charges, excessive fees and complicated price structures, all of which hinder competition, which is probably why I think the amendment belongs within this area. The FCA has to be able to tackle hidden charges if it is to promote effective competition, given that, as we have heard, individual consumers simply cannot do this for themselves. If we, as consumers, buy a theatre or an airline ticket, there is a pernicious little booking fee—at least we can see it. I have just had to pay £2 on a £10 ticket to go to the Noel Coward Theatre, which seems a bit high. At least we can see such a charge and we can choose whether to pay it or not to go to the theatre, but that is not the case with bank charges.

A recent Which? survey found that 60% of those polled said that they paid what they felt to be an unfair bank charge and half paid a charge which they thought was disproportionate to whatever benefit they received. It is not clear, from the current language in the Bill, that the FCA will have the necessary mandate to tackle hidden charges. I know—and my noble friend Lady Drake quoted it earlier—that the Financial Secretary in the other place said that the FCA had,

“the powers and the mandate to intervene on matters of price and value for money”.—[Official Report, Commons Financial Services Bill Committee, 1/3/12; col. 261.]

The Financial Secretary argued that the FCA does not need these bespoke powers, given that it can take action under the competition and consumer protection objective. However, a Queen’s Counsel advised Which? that the current wording of the objective could allow the industry to challenge the FCA’s mandate to tackle hidden charges, which could lead to a repeat of those failed and expensive test cases to which my noble friend referred. Any such uncertainty would make the FCA very risk-averse; it would be reluctant to take action for fear of being challenged. Unless the FCA has a really clear, unambiguous mandate to tackle hidden charges, I can share its reluctance to be at risk of legal challenge from the industry. Therefore the Bill must give this power to the FCA; it is absolutely key to promoting competition. At present there is insufficient responsibility on firms to ensure that products are appropriate for the consumer in terms of meeting their needs, accessibility and reasonable value for money, as Consumer Focus argued to the Joint Committee. The Council of Mortgage Lenders said that the regulator,

“should have an appropriate degree of protection for consumers and should reflect a differential approach not only between market and retail consumers, but within the retail market itself”.

The amendment is simple; and can only promote confidence in the industry. Who, after all, could argue with appropriate services and value for money? Not even, I think, the Minister. We need to get back to trusting the banks and the pension providers, as the noble Lord, Lord Lucas, said. Therefore we trust that the Minister will accept Amendment 117. In the words of my noble friend Lord Barnett, it can do no harm; it can do good.

[Lord Sassoon]

My Lords, this has been an interesting and wide-ranging debate to kick off today’s Committee session. I will deal first with the amendment on its own terms and then pick up some of the wider important points, although perhaps they may not be directly relevant to the key reason why I cannot accept it.

As we have heard, this amendment seeks to add a new have-regard to the FCA’s competition objective. I know that it has been promoted by the consumer group Which?. As we have heard, it drives at the same issues as a number of amendments discussed in another place—namely, that the FCA should have, in the words of Which?—which were quoted by the noble Baroness, Lady Hayter of Kentish Town—an explicit mandate to,

“put a stop to unfair overdraft charges, excessive fees and complicated pricing structures where they hinder competition”.

I agree, of course, with what lies behind this amendment. Consumers should have access to the right financial services and products; they should be able to buy in the confidence that they know what they are getting and what they are paying for. That must be clear and transparent; there ought to be no place in financial services for a culture where consumers are kept in the dark.

However, let me put on the record what the Government have said a number of times before—both in publications and during discussions in another place—which is that if the FCA finds problems in pricing, charging or in the ability of the consumer to obtain value for money that cause it concern, it will have the mandate and the powers to act. It has the mandate both under the effective competition and the consumer protection objectives, a point that has been made by a number of my noble friends and other noble Lords in this debate. It can apply its extensive regulatory toolkit in pursuit of price intervention, should it think it appropriate to do so. The FCA does not need new powers nor do its objectives need expanding. We simply do not agree with Which?’s legal analysis. Fundamentally, it is a narrow legal point.

Having said that, a range of important issues have been raised which I will spend a minute or two addressing. The noble Baroness, Lady Drake, in introducing this amendment, talked among other things about the OFT bank charges case. It is important that the Committee understands that the powers available to the FCA are far broader than those available to the OFT at the time of the bank charges case. The OFT was in fact relying on the Unfair Terms in Consumer Contract Regulations. I suggest it is incorrect to draw a line somehow between what the OFT was or was not able to do and what the FCA will be able to do, because the FCA has much wider powers.

In terms of what the FSA can do now and what the FCA might do in future, first, as we discussed in Committee on previous occasions, the FCA will have additional product intervention powers. The noble Baroness I think gave an example of a low headline price to attract new customers that is then offset by high ancillary charges. That is a very good example—and one that I might have given if challenged—of precisely the sort of situation where the FCA might well intervene and where the FSA has already begun to take a similar approach, as set out for example in its consultation paper on the mortgage market review. I do not think there should be anything between us there.

Looking more widely, I think the noble Baroness said at one point that the FCA “must” be required to have regard to ease of access to value for money. However, the amendment does not achieve this—it simply adds to the list of matters to which the FCA may have regard. Linked to that, I can assure my noble friend Lord Trenchard that the have-regards listed in this new Section 1E are of course not exhaustive. The FCA is not precluded from taking other matters into account in assessing the effectiveness of competition. That takes me to the point made by the noble Lord, Lord Barnett, where we would get into difficulties. The easiest thing would be to say, “I agree with the sentiment behind this, let’s put it in”. One of the arguments in favour of putting it in is that the FCA would be vulnerable to legal challenge if it is left out. However, as I have clearly stated, our legal analysis is simply different—I have not seen what lies behind Which?’s legal analysis but we disagree on that. If we were to go down the line of putting in a longer list of have-regards, we get more and more into the difficulty of suggesting somehow that the list is exhaustive and that the FCA cannot do things that are left off the list. Potentially, the more we add to the list, we risk getting into legal difficulties that we are not in at the moment, because the FCA will have all the legal powers it needs. The noble Lord, Lord Barnett, put it as a reasonable challenge, as he always does to me, but I think there is a danger in going down the route of this amendment.

Financial Services Bill

Debate between Baroness Hayter of Kentish Town and Lord Sassoon

Wednesday 18th July 2012 Lords Chamber

[Baroness Hayter of Kentish Town]

Is that it?

I will start with a small correction. The Minister said that these amendments arose from LIBOR. If he had picked up my hints when I anticipated him—code for “That’s what his friend said in another place when it was going through Committee in March”—he would know that two of these amendments predated LIBOR.

[Lord Sassoon]

Just to be clear, I said that these relate to concerns that have arisen in connection with the recent LIBOR scandal. Of course, they arise in relation to the conduct of the industry more generally. I fully recognise that and I did not in any way exclude that from my remarks.

[Baroness Hayter of Kentish Town]

Not purposefully; I did not mean it like that. But these amendments are built on many other things. I thank those who have contributed to this debate—the noble Baroness, Lady Kramer, as well as my noble friends Lord Peston, Lord Davies and Lord Barnett. On a small issue, if there are new requirements on the Treasury website today, perhaps they could be shared with Members of the Committee.

I think the Minister gave us the ammunition that we are asking for. In talking about his role as chair of a training organisation or an accreditation organisation, he said that he wished more banks did structured training. That is the point we are trying to make. Because they do not all do it, we want it mandated. He also said that there will be a higher entry bar for new approved persons. But this is not just about people coming into this industry; something needs doing now. That is also what these amendments are about.

Most worrying, however, is that there was no reference to a code of conduct. That is why I was slow to get to my feet; I was awaiting another page. Obviously, the Government do not feel that is needed in this industry for financial professionals on whom we rely as clients and consumers. It is highly regrettable that the one thing the Minister did not bother to answer on was the need for a code of conduct. I do not know what it is about that that he cannot accept. I do not know why he cannot accept the demand for proof of competence. As was made clear, there need not be one proof of competence for everyone in this field; there can be a range of them. We are not asking for a single mandate; we are asking for the FCA to come up with a regime that would have competence requirements.

Finally, my question, like that of my noble friend Lord Barnett, is this: what will improve without such amendments? If this is just the FSA becoming the FCA, will we see anything different? I believe we need some signals about a code of conduct and raising standards. This may be something we need to return to later but for the moment I beg leave to withdraw the amendment.

--- Later in debate ---

[Baroness Hayter of Kentish Town]

I am not quite clear, despite all the noble Lord has said, how conflicts of interest will be dealt with. This is not about timely advice or all those other things he mentions, but it is absolutely central to the issue of duty of care.

[Lord Sassoon]

To be absolutely clear, the regulators—and the FCA in particular—will have very clear powers to make any further rules on top of those that already exist in the FCA’s rulebook in order to deal with conflicts of interest. I can be completely clear and unequivocal on that point. The powers are there and further rules can be made in this area if the FCA at any point regards them as necessary.

--- Later in debate ---

[Lord Sassoon]

My Lords, I am sorry to say that this is one of those groups of amendments where I do not think that the Committee’s time will be well served. I have repeatedly made public and private offers to the opposition Front Bench to talk to us in the Bill team at any time about any of their amendments. Not once in the process of this—now long—Committee stage, or before it, have the Opposition taken up the offer of talks to discuss amendments.

[Baroness Hayter of Kentish Town]

My Lords—

[Lord Sassoon]

If the noble Baroness will let me, I will complete my sentence before letting her in. She herself began by saying that these amendments are defective, and that is indeed the case. As I shall explain, however, they also do not reflect one or two of the simple facts of the situation. Although there is, of course, a proper concern in this area, if the party opposite were prepared to discuss those facts, we might not be talking about some of these amendments in the way that we are.

--- Later in debate ---

[Baroness Hayter of Kentish Town]

My Lords, that offer has not come to me. I was at one meeting with the Bill group and asked whether I had access to the Bill team, but I have yet to be given its e-mail address. I had an e-mail from the team about one of our amendments earlier this week, and I have written to it on another issue. I have not had repeated offers. I have talked to the FRC about this amendment, and it knows all about it. I am therefore slightly surprised by the Minister’s comment.

[Lord Sassoon]

My Lords, I believe that I made the offer in the last Committee session, on the Floor of the House. Hansard will record when I last made the offer in this Committee. I cannot speak to every member of the opposition Front-Bench team but I have made the offer repeatedly to the noble Lord, Lord Eatwell. Indeed, I know that the Bill team has made quite clear to the opposition research team how it can be reached. I make the offer again because I think that there are many things around which we could clear the ground, and that would be helpful for everybody. I can quite understand that there may be issues here, but there are many interested parties who put forward all sorts of good ideas for amendments which, on scrutiny, might not be reflective of the situation as it exists.

Let me help the noble Baroness with a couple of the facts of the situation. First, the FCA has already brought in a rule with which she may be familiar but to which she did not allude: rule 2.2.3 of the current Conduct of Business Sourcebook. This requires UK-authorised asset managers to put statements of commitment to the stewardship code on their websites, or—if an asset manager does not commit to the code—to provide its alternative investment strategy there. I would of course expect the FCA to carry forward this important rule in its own rule book. So I would suggest to the Committee that the suggestions underpinning the discussion we have just had—the contentions around the lack of joined-upness—are not reflected in the way in which the FCA Conduct of Business Sourcebook already explicitly refers to the stewardship code.

I agree with the noble Baroness completely about the need for an MoU. However, what she does not do in her speech this evening is to recognise that the FSA already has an MoU with the FRC. I believe that it covers all the relevant matters. We have discussed the subject of MoUs before. The Bill provides explicitly only for MoUs between the key players in the regulatory system: the Bank of England, the FCA, the PRA and the Treasury. We have discussed why that should be. That does not mean that there will not be—and are not already—MoUs between the new regulators and other bodies; we have talked about the OFT, and there is already an existing MoU with the FRC.

So I understand where the noble Baroness is coming from in this group of amendments. I believe that the matters are already properly accommodated within the Bill. I wish that we could have had a discussion about this outside the Committee, but I am glad to have now got that on the record. I would ask the noble Baroness to withdraw her amendment.

[Baroness Hayter of Kentish Town]

My Lords, it would not be very satisfactory not to consider such an important issue in Committee. Concern about it is shared not just by the FRC but by the ICAEW, which last night again expressed its support and its belief that the issue is important. As the Minister will know, there are vital and urgent requirements to improve client asset audits. Those can be undertaken only by regulated professionals overseen by their recognised professional bodies, such as the ICAEW, and these are overseen by the FRC rather than the FSA. So this is key stuff. This is not—this will sound awful but I will say it—“a little discussion with the Baroness, who does not really understand it but can be well briefed outside this House”. I think that that was the tone of the Minister’s comments. I am speaking on behalf of organisations such as the ICAEW, which feels very much that it has a key role to play, which it wants to play, in the regulation of this industry. We know that we need improved rules and guidance about how auditors should work. We know that this is in the hands of professional bodies, not the FCA. If there is already an MoU with the FSA, it seems to me that there will be one with the FCA. So I do not think that writing it in legislation will cause a revolution, nice though that would be. There are important issues of discipline in the hands of ICAEW and other professional bodies overseen by the FRC. It would be inadequate for those to be free-floating and not in the Bill. For the moment, however, I beg leave to withdraw the amendment.

Financial Services Bill

Debate between Baroness Hayter of Kentish Town and Lord Sassoon

Tuesday 10th July 2012 Lords Chamber

[Baroness Hayter of Kentish Town]

My Lords, this side of the House has already acknowledged the role of competition in serving the consumer. Indeed, we could do with rather more of it in the retail banking sector. A rather more creative vision of competition could address some of our concerns in that regard. For example, Age UK has suggested shared branches which offer a perfectly competitive environment, ease of comparison, and switching from one customer to another within the same location. We are wholly in favour of a competitive environment for the benefit of consumers.

That being so, I obviously support most of the amendments in this group. However, I ask the noble Lord, Lord Flight, why the first amendment is needed, given that it seems to put competition as a brake on the FCA. I worry what the driver is behind this. I hope it is not to protect bankers’ bonuses, given there are still some in the City who seem to believe that high wages and bonuses are a vital aspect of what makes the UK competitive in this sector. I would instead call on the coalition programme, which says the Government will bring forward detailed proposals for robust action to tackle unacceptable bonuses in the financial services sector. Amen to that, although I am rather sad that—I think it is today—the Chancellor of the Exchequer is in Brussels voting against such an amendment.

Or is the amendment drafted because there is a feeling that regulation is too burdensome? I hope it is not for that reason, but the Prime Minister has form in this regard. In 2008, he said he thought that the problem of the past decade was too much regulation. The current Chancellor also said, in 2006, that financial regulation was,

“burdensome, complex and makes cross-border market penetration more difficult … and it threatens the global competitiveness of the City of London”.

I hope that the Prime Minister and the Chancellor of the Exchequer are now grown up enough to accept that it was too little rather than too much regulation from which we suffered.

I hope it is not—maybe we can get some assurance on this—the idea that international competitiveness should trump consumer protection. The noble Baroness, Lady Noakes, was much more concerned about the wholesale market. I think she will also understand the concern of consumers that this might trump the consumer protection aspects. Although we very much want this to be an internationally competitive industry, we do not want it at any price. We do not want a race to the bottom for moving wherever regulation is cheapest or less obvious.

In respect of Amendment 104A in the name of the noble Baroness, Lady Noakes, I know that Martin Wheatley, the CEO designate of the FCA, is very unkeen to have this duty. He does not think that in its intervention it is the function of a regulator to have to have regard to that as well as to consumer protection, and is concerned that it would create a set of conflicts. He said that,

“to have a specific UK competitiveness competition point can only lead to compromises in regulation”.

Perhaps the Minister can indicate whether the Government have the same concerns. Perhaps the “no regard” comment of the noble Baroness, Lady Noakes, is a better way of describing this, rather than making it trump some of the other aspects. I imagine the Minister will say something similar, because I know the Government, in responding to the Treasury Select Committee on this issue, while recognising the importance of a competitive sector, do not feel that these words would add much to the Bill.

Amendment 129 in the name of the noble Lord, Lord Flight, is rather easier. It requires the PRA to consider the desirability of promoting the UK’s competitive position within financial services. We have no argument with that. London First I know is particularly supportive of this, stressing also the stability of regulation in financial services, which means no more change after this.

Amendment 110 in the name of my noble friend Lord McFall refines the FCA’s objective so that the integrity of the UK’s financial system includes the confidence that it generates within the UK, as well as in foreign financial markets. This would encompass consumer confidence, which would clearly be vital in rebuilding trust in savings and investment, so we are happy to support this amendment.

Finally, Amendment 139A in the names of the noble Baroness, Lady Noakes, and my noble friends Lord McFall and Lady Cohen of Pimlico provides that the objectives of both the PRA and the FCA should include consideration of the capacity of the sector to contribute to the UK’s economic growth, also supported by the CBI. As the coalition programme said:

“We want the banking system to serve business, not the other way round. We will bring forward detailed proposals to … create a more competitive banking industry”.

I am pleased to say that this is one element of the coalition programme that, again, we are very happy to endorse. Given that, sadly, growth continues to flatline under this Government, if ever there was a time to ensure that these new and powerful institutions focused on job creation, this surely is it, and we happily support that.

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, this group of amendments seeks to ensure that the FCA and the PRA consider the impact that their actions could have on the competitiveness of the UK financial services sector or on the growth of the wider economy. We clearly all recognise the importance of a thriving financial services sector to the wider UK economy. Equally, we all agree that the financial services sector needs an appropriate level of regulation, and I recognise that this is a difficult balance to achieve. I hope we would all agree that in the run-up to the financial crisis this balance was wrong.

In resolving the balance, I listened very carefully to the concerns raised at Second Reading and I have also carefully considered the representations from the industry, including from the London Stock Exchange. I am going to explain why I feel that these amendments go too far, but I want to make it clear to the Committee that we are looking at alternative options to address noble Lords’ concerns that excessive regulatory action may unduly impact on the ability of the financial services sector to contribute towards the prosperity of the wider economy, and we will conclude on this ahead of Report. I see one puzzled face. I always try to be helpful to the Committee, and we brought forward some major concessions on each of the first two days. This is a very difficult area. I cannot accommodate all the concerns but I say up front that we want to see what we can do on this ahead of Report.

As these are important amendments, I shall try to do justice to them by talking through each of them relatively briefly. First, Amendment 104A, in the name of my noble friend Lady Noakes, would require the FCA to have regard to the same competitiveness principle as the FSA is currently required to do. The FSA’s report into the failure of the Royal Bank of Scotland made it clear that this competitiveness principle severely impacted on its ability appropriately to regulate the financial services sector. I have said this before but I hope that the Committee will understand why we cannot similarly constrain the FCA, and for this principal reason I am unable to accept this amendment.

Amendment 101A, tabled by my noble friend Lord Flight, would go further by requiring the FCA to carry out its general functions in a way that did not harm the competitive position of the UK financial services markets. As identified by the noble Baroness, Lady Hayter of Kentish Town, this would operate as a brake on the FCA’s actions—along similar lines to the economic growth brake on the FPC, which we have already discussed. It would prevent the FCA from taking any action if that action could be seen as damaging to the UK’s competitiveness. I have already raised the negative impact of the FSA’s competitiveness “have regard”, so it would be impossible to accept an amendment that went even further in preventing the FCA from taking regulatory action to protect consumers, enhance competition and ensure integrity.

--- Later in debate ---

[Baroness Hayter of Kentish Town]

I think the noble Lord, Lord Turner, and other noble Lords have made the point about how often this particular definition of risk and reward did not align with the interests of consumers, or, indeed, often with employing organisations. There is nothing wrong with rewarding risk, but when that is not aligned to other people’s interests, that is to the detriment.

[Lord Sassoon]

I completely agree, which is why we only very recently brought forward proposals including mandatory shareholder votes on board pay. There is, and will continue to be, a big agenda here on which this Government have been working very actively but which the European Parliament proposal would, I suggest, work against. That is why we are fighting hard in Europe, as we do on all matters, to get a result that is more desirable for the health of our industry.

I will just say a few words about Amendment 139A, which is another very important one. It would require both the PRA and FCA to consider the impact on the financial sector’s ability to contribute to the UK economy in the medium or long term, having regard to the principle of proportionality. The PRA and FCA must consider whether their actions are proportionate. That will act as a check on the FCA acting in a way that is excessively burdensome, which would prevent a subsequent negative impact on economic growth if there was not a greater benefit from taking the action. Similarly, if the PRA is being proportionate, it would be difficult to envisage a situation where the firms that it supervises could be required to be too safe or too sound.

I have listened to the valid points made by my noble friends Lady Noakes and Lady Kramer, and the noble Baroness, Lady Cohen of Pimlico, and I understand their concerns. It is essential that the UK financial services sector is not excessively constrained in its ability to contribute to economic growth. As I said at the beginning, in advance of Report, I will consider whether a more explicit consideration of the wider economic impact of the actions of the regulators should be included in the Bill. I should stress that in making changes there must be nothing that would seriously encroach on the regulators’ ability to take the action that may be necessary in furtherance of their objectives. Particularly in the light of that assurance I ask my noble friend to withdraw his amendment.

Financial Services Bill

Debate between Baroness Hayter of Kentish Town and Lord Sassoon

Tuesday 10th July 2012 Lords Chamber

[Lord Sassoon]

My Lords, this is a large group of minor and technical government amendments that I hope we can dispatch very quickly. The amendments address a number of technical issues such as updating the Bill to accommodate changes in European law made since the Bill was introduced, amending some rogue references to the FSA in FiSMA, making consequential amendments to enactments that have been passed since the Bill was introduced and making other technical improvements. I am happy to discuss them, or write in more detail, if any Member of the Committee would like to discuss them. I beg to move.

[Baroness Hayter of Kentish Town]

I will just say that I am very happy to accept the assurances from the Minister that, first, these are technical amendments and, secondly, that he would be very brief in what he said today. I have tried to see whether I could speak for longer than he did. I have not been through every amendment but did look at a sample. Each one I sampled was, indeed, technical and minor.

Financial Services Bill

Debate between Baroness Hayter of Kentish Town and Lord Sassoon

Tuesday 26th June 2012 Lords Chamber

[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—

--- Later in debate ---

[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.

Pensions

Debate between Baroness Hayter of Kentish Town and Lord Sassoon

Thursday 21st October 2010 Lords Chamber

[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.