Financial Services and Markets Bill

Debate between Baroness Kramer and Lord Carrington of Fulham

Report stage
Thursday 8th June 2023 Lords Chamber

[Lord Carrington of Fulham (Con)]

My Lords, I will add my two cents’ worth to encourage the establishment of a Joint Committee. I cannot believe that having a committee in each House of this Parliament would work effectively, for all the reasons that the noble Lord, Lord Eatwell, has suggested. The committees of this House and the other place are grossly underresourced in any case. We need a committee looking at something as detailed and complex as this which operates in the way that the Public Accounts Committee in the other place is set up, is dedicated to look at regulation and has the resourcing to double-guess not only the regulators but the advisers who advise them, so that it can stand up and come to its own opinion. In the small time that the members of those committees are able to dedicate to the committee, with all the other duties they have as parliamentarians, it should be able to analyse the evidence and come up with sensible, and inevitably highly technical, solutions.

I have some experience of the committees of both Houses. I chaired the Treasury Select Committee, donkey’s years ago, and I served on the Economic Affairs Committee here for some time. Neither of those committees has the resources to be able to undertake this kind of task. It needs a completely new structure. Possibly the only model we can look at is the PAC, which has the National Audit Office advising it very closely. I am not suggesting we should set up a national audit office for regulation, although I know my noble friend Lord Bridges has suggested such a thing. We need to make sure that whatever is set up is properly resourced. I recognise that it is a matter for both Houses to decide how they do that, but we have to be absolutely clear that both Houses can do that only if the financial resources are made available by His Majesty’s Treasury and the Government to enable them to do so. It will be a decision to be taken by His Majesty’s Government and my noble friend the Minister to ensure that the resourcing is available.

It is a necessary step. However, it is a step and almost certainly not the conclusion. Once we have experience of regulating the regulators, we will be able to judge what other changes are needed to make sure that the regulation is effective and that financial markets in London are regulated in a way that is effective and convincing for participants in those markets on a global basis.

[Baroness Kramer (LD)]

I congratulate the noble Lord, Lord Forsyth, on being so persuasive. The Government have listened carefully to his advice and have come forward with amendments that are identical in their outcome, even if perhaps they have found a more effective or legally acceptable way to set out the wording. I am sure that that is a step forward, but I want to join the chorus.

I had the privilege of being on the Parliamentary Commission on Banking Standards, which in effect was a Joint Committee of both Houses. It was very much driven by the Government, who set it up in the first place, and it was properly resourced. From the work we did over the two years, there are two lessons to be drawn. One is that, with that resource, you can genuinely produce the evidence and go into the detailed questioning that is necessary to expose what may not have been obvious from a superficial or limited inspection; in-depth was possible because of the resource that was made available. The second lesson is that as a Joint Committee—I am very attracted to Joint Committees, as they avoid the duplication that others have talked of—that commission received a degree of respect and significance that is probably not available to a committee that is the creature of one House but not the other. The joining together of the forces of both Houses was meaningful.

Bank of England and Financial Services Bill [HL]

Debate between Baroness Kramer and Lord Carrington of Fulham

Wednesday 11th November 2015 Lords Chamber

[Baroness Kramer (LD)]

My Lords, in response to the noble Lord, Lord Carrington, of course the FSA failed in its task as the problem developed over the several years leading up to the financial crisis of 2007-08. But I think it is very wrong to claim that the Bank of England did not also fail during this period, despite its access, as he reasonably said, to very extensive market intelligence. One of the frustrations of this House was that although the FSA recognised its failure, I am not sure that even up to this day the Bank of England has ever accepted that it played its role in an inadequate way during that period. Indeed, that has been part of the problem in putting remedies in place because, as many have said, a change in culture is an essential part of that process.

[Lord Carrington of Fulham]

The noble Baroness is failing to understand that there was a strict separation between the role of the Bank of England and the FSA, and there was no communication between them at the level which ought to have allowed that information to be passed. That was part of the problem. There was a great separation between the two. If the Bank of England understood what was going on, it did not see it as its job. If the FSA knew there was a problem but did not have the information, it could not communicate with the Bank of England. Bringing the two together—bringing the regulator together with the central bank and, I emphasise, with the Treasury as well—will find a solution.

[Baroness Kramer]

My Lords, I find it extraordinary that there is an argument that the Bank of England knew what was going wrong but sullenly kept its mouth shut because the constraints gave the key responsibilities to the FSA. We have to break away from that sort of cultural notion that one observes only the very narrowest interpretation of responsibility when we are talking about an organisation such as the Bank of England. I agree that that culture tends to continue. That is one of the frustrations and concerns that we have, particularly with the removal of the oversight committee, which is the one challenge to that ongoing attitude. Let us set that aside for the moment, although I find it a constant frustration not to recognise that the Bank of England did not act when it certainly had an opportunity to lay on the table the many problems it now says it saw with such clarity.

I go back to the underlying issue, which is that the PRA has been a success. The PRA has been absolutely key in establishing the kinds of regulations that have made the Bank safer for the future, setting standards for regulatory capital being an important part of that. In addition, in the period before we had the PRA, it was virtually impossible to get a new bank licensed in this country. We have had Metro Bank but essentially no new bank for 150 years. People had to find an existing banking licence, buy it and go for some sort of change of purpose. The PRA was a leader in changing that whole culture and recognising the importance of bringing in challengers and new players. Had it stayed tightly within the existing Bank family, which had resisted that approach over and over again, I very much doubt that we would have seen that kind of change. So the experience we have had since setting up a PRA which has some distance from the Bank—a small distance, I fully acknowledge, but separate responsibilities governed under company law—has been that it has brought forward change in a way that is not part of the history of the Bank. I am very concerned at the potential for losing that.

The noble Lord, Lord Carrington, also suggested that if we changed the existing structure it would not allow a proper flow of information from the Bank of England to the PRA. But look at the membership of the PRA: we have crossovers in deputy governors, and I believe that the Governor of the Bank of England is the formal chair of the PRA. If these individuals are unable to remember the meetings that they were exposed to and the memos that they read when they wore one hat, and bring that information into the meetings they have when they play their role within the PRA, I frankly find that extraordinary. As far as I understand it, there is no problem of information flow—and if there is, we would very much like to hear from the Minister what the instances are, where there has been that kind of breakdown, and why an individual involved in discussions in one particular part of his or her job has been unable to remember those discussions when participating in another part of it. Those are quite serious allegations. I would like to hear from the Minister where this communication has so badly broken down when it is quite frequently the same individuals who are involved.

--- Later in debate ---

[Lord Carrington of Fulham]

My Lords, I had not intended to intervene on this amendment, and before I speak, perhaps I had better remind the Committee of my interests as set out in the register. I think that everything has been said about the natural justice and injustice of the reverse burden of proof, particularly on this side by the right reverend Prelate the Bishop of Southwark. I do not want to take that line because the argument is clear; rather, I want to add two practical thoughts. The first is that if there has been wrongdoing in a financial institution, I do not think that anyone in this House would support the guilty parties getting away with it, however senior they are in the organisation. The question is not whether they should get away with it but whether the powers exist to enable the regulators, and then the proper prosecuting authorities, to take appropriate action. I remind the Committee that the PRA has very extensive powers. If the authority considers that there has been malfeasance in a financial institution, it is able to go in and trawl through the records of that institution in great detail, to the extent of looking at email trails.

[Baroness Kramer]

I believe that the noble Lord, Lord Carrington, is referring to the FCA, but regardless of that, he has mentioned email trails. Is he aware that the absence of email trails was a fundamental part of the regulator’s decision that it was not able to pursue a single case to senior management level? There was an absence not only of email trails but of any other record which would enable pursuit of a trail from the bottom upwards. The evidence for that is very clear in the transcripts of the Parliamentary Commission on Banking Standards.

[Lord Carrington of Fulham]

I have not read those transcripts, but I have some experience of both the PRA and the FCA, and I can tell the noble Baroness that those powers exist for both bodies. If they do not, or if they need enhancing, I would be the first to say that that should happen

[Baroness Kramer]

I am sorry to keep bobbing up and down, but the point that was made was that those in charge are very careful that there is no email trail and no written trail. That is one of the points about the reverse burden of proof: in effect it requires senior managers to allow an email trail to exist, or indeed some sort of audit trail, because they would be in a position where they would be required to demonstrate that they had taken reasonable steps. When the burden shifts back to the regulator, the regulator is completely stymied at the point where all conversations and exchanges take place in an environment where there are no minutes, no emails, no memos and no existing trail.

[Lord Carrington of Fulham]

I will come on to that in a moment; that is the second point I wish to make. The first point is that the power does exist for the PRA—and, indeed, the FCA—to be able to go and investigate what has happened inside a financial institution in very great depth and in very great detail.

The consequence of the reverse burden of proof would be to make the situation to which the noble Baroness referred even worse. An organisation which knows that there is individual liability where they have to prove that they did no wrong will have lawyers crawling all over them to make certain that at every move, nothing is recorded, nothing is said and nothing is minuted which would put them in a position where they could do anything other than deny all culpability. That is what would happen—and to some extent does happen. But I can reassure the House that destroying email trails is extraordinarily difficult. In most institutions, email trails survive through even the greatest attempts to wipe the hard drives clean. I can assure the noble Baroness that if the PRA wishes to find evidence and has the resources, the determination and the suspicion, it will find the evidence to bring the prosecutions it needs.

London Underground: Industrial Action

Debate between Baroness Kramer and Lord Carrington of Fulham

Monday 10th March 2014 Lords Chamber

[Lord Carrington of Fulham]

To ask Her Majesty’s Government what assessment they have made of the impact on the economy of the industrial action on the London Underground in February.

[The Minister of State, Department for Transport (Baroness Kramer) (LD)]

My Lords, the Government have not made such an assessment. Responsibility for London Underground, including industrial disputes, is a matter for the Mayor of London and Transport for London. The industrial action last month was regrettable and will undoubtedly have had a significant economic impact, but there is no straightforward or standard way of quantifying this.

[Lord Carrington of Fulham (Con)]

I am grateful to my noble friend for that response. Does she agree that the major damage caused by the strike was not monetary, but in terms of the aggravation, frustration and inconvenience caused to the poor benighted citizens of London? This raises the question of whether it is not time to reconsider whether strikes in public sector monopolies should be made illegal, or at the very least whether trade unions should be required to get a vote of two-thirds of the workforce in favour of action before calling a strike.

[Baroness Kramer]

My Lords, I join in celebrating the heroism of Londoners in coping with such situations, which are very stressful and inconvenient. Last autumn, the Department for Business, Innovation and Skills announced a review of industrial disputes, and we hope to hear more detail on that shortly. At this moment in time the two sides in the London Underground issue are in negotiation and are due back at ACAS on 4 April. I think that this is a good time not to pour petrol on flames.