Financial Services Bill

Baroness Kramer Excerpts

Monday 8th October 2012 Lords Chamber

[Lord Eatwell]

My Lords, I will speak also to Amendment 149AC. Both amendments concern the process of applying to carry on regulated activities. I am sure that the Minister is aware that there is considerable disquiet at the moment about the very long delays associated with the application to carry on regulated activities. Undoubtedly this is having a deleterious effect on competition in financial services, and on what we might call the reformation of the financial services industry.

No doubt these delays are partly as a result of the fact that the legislation that will cover these organisations is in process, and therefore the appropriate officials at the FSA feel somewhat constrained in their ability to make decisions on what can sometimes be quite sensitive and contentious issues. None the less, those delays are very unfortunate. The two amendments are designed to facilitate the process of application and to ensure that it will be rather more efficient when the duties are passed over to the FCA and/or the PRA on what I have noticed is, rather unfortunately, All Fools Day.

Amendment 149AA calls for co-ordination between the FCA and the PRA when processing applications for permission to carry out regulated activities, in particular giving clear and detailed guidance—something that is not always in evidence at the moment—on applying for, varying or cancelling permission. I am particularly concerned about applying for permission.

It is important that when the responsibility is split, as it must inevitably be between the regulator responsible for risk, the PRA, and the regulator responsible for conduct of business, the FCA, the co-ordination between them when dealing with new applicants is as clear, transparent and carefully guided as possible. Amendment 149AA achieves exactly that—at least that is what it seeks to do—and if it does not achieve it, perhaps the noble Lord will tell us how he intends to achieve the same objective.

Amendment 149AC seeks to modernise and future-proof elements of the application process. The Bill does not refer to decisions previously made by the European Union regulatory authorities when referring to non-EEA firms and the weight to be attached to opinions on any non-EEA firms wishing to operate in this jurisdiction. The European Union regulatory authorities are going to be the major regulatory rule makers in this area, so leaving them out at this stage will limit and inhibit operation of the Bill in the future. We know that the European authorities will become important in this respect. Surely it is therefore imperative that some weight be given in the Bill to their opinion when non-EEA firms are likely to be offered the privilege of acting within this jurisdiction. I beg to move.

[Baroness Kramer]

My Lords, I want to speak very briefly to Amendment 150B in this group. As your Lordships will know, the Bill amends Section 55 of FiSMA. Section 55Q as now in the Bill refers to the,

“Exercise of power in support of overseas regulator”.

I would like the Minister to clarify the definition of “overseas regulator” because neither I nor some of those who are much more sophisticated than me in trying to understand regulation are fully certain whether that definition would include an agency or instrumentality of the European Union such as the three supervisory authorities—the ESMA, the EBA and the EIOPA—which have direct regulatory powers in their own right. All I am asking for at this point is some clarification as to whether these EU agencies or instrumentalities are encompassed in this and if they are not, why not.

[Lord McFall of Alcluith]

I will briefly refer to Amendments 151 and 152. They oblige the regulator to have regard to those associated with a person who has applied for, or has been given, permission. We realise that proposed new Section 55R provides that when considering previous issues the regulator may have regard to the applicants’ relationship. I suggest that this provision should be mandatory rather than discretionary and that relationships should be defined as including family, business or other associations. It would bring more clarity to the interpretation of this clause.

--- Later in debate ---

[Baroness Kramer]

My Lords, I will speak to Amendment 173AAZA in this group and I will be brief. Your Lordships will recognise that this amendment is part of the family of amendments that we on these Benches have moved. Amendment 173AAZA addresses the issue of social enterprise. It gives the FCA the power to make general rules for social enterprises to advance the consumer protection objective and the competition objective, and for services to small and medium-sized businesses, to defined groups within the more deprived economic and social environment and for environmental purposes.

It is the contention on these Benches and through much of this House that the current organisations that provide financial services fail to meet the needs of important communities, especially small and micro-businesses and deprived communities, and very often they certainly do not provide the necessary financial services to environmentally-oriented projects. Part of the barrier to the entry of new organisations that could meet those financial needs is the approach of the regulator which is very much a one-size fits all approach. Throughout this Bill we have been calling for the regulator to have the power to deliver appropriate regulation. This amendment addresses those issues particularly around social enterprises and other organisations with a social objective.

We recognise that the Government are somewhat sympathetic to the issues that we have raised. This is a probing amendment but also a reminder that although we went away for the summer we have not dropped, and will not be neglecting, these issues as this Bill proceeds to its end.

[Lord Flight]

My Lords, three different sets of amendments that I have tabled are grouped together here and they cover rather different territories. I will be as organised as I can in presenting them.

Amendment 173AA is about fair process for product intervention powers. I understand, and have a deal of support for, the regulator being able to ban promptly products that are clearly undesirable. However, if additional product intervention powers are put in place, there ought to be legislative safeguards to ensure that the powers are used as a last resort and not regularly. Amendment 173AA seeks to put in place safeguards for the use of product intervention powers, such as those set out in the EU markets in financial instruments directive.

Many noble Lords may have noted that Martin Wheatley, the designate head of the FSA, had made statements about shooting first and asking questions later and had perhaps over-made his point. One of the issues I want to speak about on Report regarding the new regulatory order is that I have encountered reluctance by the industry to raise criticisms with the regulator for fear of unpleasant reciprocal action. I fear we are slightly swinging from an era where regulation was very lax to one in which there may not be enough open debate between the regulator and the industry.

My Amendments 173ACA to 173AE seek to remove the requirement to publish details of directions prior to the conclusion of the representation process. There is an analogous issue that will come up in due course with regard to warning notices. In a world where anything published is a label of guilt, I am inherently opposed to the publication of notices before there has been fair representation and a fair judicial process.

My Amendment 173AF covers slightly different territory. The Bill already gives the FCA the right to introduce rules without consultation where it would be considered that a delay would be prejudicial to the interest of consumers. This additional power, which my amendment seeks to block, is unnecessary and provides the FCA with excessive powers without appropriate checks and balances.

Amendment 173AG raises the issue that very little detail is included about what should be covered by the statement of policy. It would be better if the statement of policy were clear and transparent, particularly if there is no consultation on the specific use of the powers. Finally, the statement of policy should be used for production intervention powers generally.

I cannot find the appropriate notes. Amendments 187RA and 173AAC both cover completely different territory. As noble Lords will be aware, financial advisers are the only category of people who do not have protection from the statute of limitations for a period beyond 15 years. In practice, this means that if there are any outstanding issues when a financial adviser retires, there is no closure. There are many such situations. Sometimes issues may be with the ombudsman or the regulator from way back and there is no indication whether any action will be taken. This is a messy situation and it is ultimately unfair to financial advisers, and not helpful to clients, as it stops financial advisers being able to hand on or sell their businesses to others in the industry. I can see no really fair justification why financial advisers should not enjoy the same protection as those in other industries. I may add something further after the Minister’s response.