Financial Services Bill

Baroness Noakes Excerpts

Tuesday 6th November 2012 Lords Chamber

[Lord Eatwell]

My Lords, this amendment refers to an oddity in the drafting of new Section 9T(1)(a). The Bill requires the Financial Policy Committee to review each direction that it makes over the relevant period, which is 12 months, other than,

“a direction revoked before the end of the review period”.

I do not understand this business about leaving out directions revoked before the end of the review period. Suppose the direction has been a great success but was enforced for only 11 months. Or suppose the direction was a great failure but lasted for only 11 months. Should not these directions be reviewed? Can lessons not be drawn from them just as much as from directions which are in force for 12 months? Why would you have a direction that has been revoked from which we are not allowed to draw lessons but a direction that has been kept in place from which we are? This is too limiting in a novel area of economic policy from which we should seek to get all the information and draw as many lessons as we possibly can, whether or not a direction has been revoked within the relevant period. I beg to move.

[Baroness Noakes]

My Lords, what the noble Lord, Lord Eatwell, has said is entirely sensible. I cannot see the distinction between those directions which have been made and continue in force and those which have been made and revoked. This is about public communication, the directions being made and their effect. The information that we gain from a revocation must be at least as good as from the making of a direction.

[Lord Sassoon]

My Lords, the amendment reflects a slight misunderstanding of the purpose of the reviews that we are talking about in new Section 9T of the Bank of England Act, as inserted by Clause 4. The purpose of these reviews centres around live actions and requiring the FPC regularly to look again at all live actions—in other words, at the directions and recommendations that still have effect—and to review whether or not the action is still needed. That is a rather different matter from the admittedly important question of reviewing past actions and learning lessons, which is not the subject of the clause.

The idea behind the new section is to ensure that FPC actions do not remain in place if the circumstances which originally merited them have disappeared or changed substantially. Of course, we would expect the FPC as a matter of course to keep its past actions under review and revoke them once they are no longer needed, but new Section 9T ensures that this will be the case by creating a formal requirement for the FPC to review regularly all of its live directions and recommendations.

Amendment 7D seeks to remove the wording in subsection (1)(a) which provides that the FPC need not review directions that have already been revoked. The provision is appropriate because once a direction has been revoked there is no need for the FPC to review it to determine whether it is still needed; the direction is already defunct. It is as simple as that.

The concern of the noble Lord, Lord Eatwell, lies clearly in the importance of the FPC evaluating the impact of its actions. I can reassure him that mechanisms already exist elsewhere in the clause to address this issue. First, new Section 9S requires the FPC to set out for each of its actions an explanation of its reasons for believing that the action is compatible with its objectives and associated “have regards”, including where practicable an estimate of the costs and benefits of the action. Secondly, subsection (4)(b) of new Section 9W requires the FPC to include in each financial stability report an assessment of how its actions have succeeded in achieving its objectives. Finally, the new oversight committee of the court has an explicit remit to oversee the FPC’s performance and can undertake or commission a more comprehensive review of the FPC’s past actions or approach where appropriate.

I am confident that the FPC’s actions are already subject to extensive mechanisms of oversight and evaluation and, as I said at the outset, that the amendment reflects, perhaps, a slight misunderstanding of what the purpose of the specific provisions in new Section 9T is all about. I hope that on the basis of that explanation the noble Lord will feel able to withdraw his amendment.

--- Later in debate ---

[Lord Eatwell]

My Lords, Amendment 7F picks up an amendment that I moved in Committee and promised to return to on Report, concerning the establishment of a financial stability advisory panel.

I will not go through the whole argument of different forms of financial stability arrangements as between this country and the United States and so on, but I will deal with one central issue: we want people of very high quality advising and reflecting on financial stability issues. The appointed members of the Financial Policy Committee are crucial but there is going to be some difficulty in identifying them satisfactorily because there will be a number of conflicts of interest in the financial services industry that will be difficult to manage.

We can overcome that difficulty by creating an advisory panel that does not have powers, as such, to make decisions, but which can advise on a variety of areas, including the success of measures taken and general effectiveness, by presenting a report to the oversight committee—not the “Supervisory Board”, as mistakenly referred to in the amendment as printed on the Marshalled List. We could gather together a wider group of people who felt it to be their responsibility to follow carefully the actions of the Financial Policy Committee and to express their views even if they have significant conflicts of interest, because these could be taken into account in the assessment of their views. Of course, they are distanced from any actual decision-making, unlike the appointed members of the Financial Policy Committee, who are right at the heart of decision-making.

Given that we are dealing with an area of policy which, as I have said already this evening, is novel, we are going to encounter entirely new problems. We will probably make some mistakes. We want to be able to assess a very wide horizon of experience around the world, where the European Union, the United States and other major jurisdictions are introducing financial stability committees of one sort and another to deal with the issue of macroprudential regulation. An advisory committee could be a valuable supplement to the information and assessment to which the Bank and its committees have access. I beg to move.

[Baroness Noakes]

My Lords, we do not need to hardwire this into legislation. If the FPC thinks that it needs some form of advice from other parties in relation to most of the matters mentioned in subsection (3) of the amendment of the noble Lord, Lord Eatwell, it can arrange it. Similarly, if the oversight committee thinks that it needs any assistance from outside parties in relation to matters mentioned in paragraph (e) of subsection (3) of the amendment of the noble Lord, Lord Eatwell, it can arrange it. I do not see why these matters need to be enshrined in law. If there are gaps within the resources available to the Bank, it can supplement them, or it may have them sufficiently internally. The statute does not need to deal with these matters.

[Lord Sassoon]

I completely agree with my noble friend Lady Noakes. This amendment was debated in Committee, as the noble Lord, Lord Eatwell says. The gremlins seem to have been getting into one or two of these amendments. He has already pointed out that this has been retabled in the previous form that it was in and should refer to the oversight committee and not the supervisory panel.

Putting that aside, the nub of this is that I am puzzled and disappointed that the noble Lord, Lord Eatwell, does not agree that the oversight committee that we have already created will have responsibility for carrying out the function of performance evaluation referred to in this amendment, and that the oversight committee will have a wider-reaching role looking over the entirety of the Bank’s financial stability remit. That is surely better than an advisory panel with rather limited and specific terms of reference.

I am also disappointed that the noble Lord, Lord Eatwell, feels that an independent oversight committee led by non-executives would be either inadequate or insufficient to hold the Bank to account. I cannot see how it is better to create a committee chaired by an executive of the Bank who would simultaneously be a member of the FPC, responsible for providing advice to the FPC and expected to assess its performance.

Of course, the Bill already creates in the FPC a committee on which the deputy governor for financial stability sits, together with external members, some of whom may indeed be academics. As we have discussed before, there is plenty of provision for either the FPC or the oversight committee to take on any additional expert, academic or other advice that it requires at any point. The FPC will have a statutory responsibility to assess risks to financial stability and to take action to mitigate them. If it wants to take advice it is entirely able to do so, but it should have the autonomy to do so on its own terms if it is to be properly responsible for financial stability.

In conclusion, the effect of the amendment of the noble Lord, Lord Eatwell, would be to create duplication of responsibilities, to blur accountabilities and to diminish focus. As such, there is no way that I could accept such an amendment and I hope that, on reflection, he will withdraw it.