Financial Services Bill
Lord Blackwell Excerpts(12 years, 7 months ago)
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Lord Blackwell
“( ) the need to balance protection for consumers against the desirability of consumers having affordable access to appropriate products with appropriate information or advice or both”
Lord Blackwell
My Lords, in moving Amendment 25F I should ask the House to take note of my interests as set out in the register. The purpose of this amendment is to make it explicit that the FCA is able and, indeed, required to balance the absolute objective of consumer protection against the desirability of ensuring that the costs and risks of regulation do not result in customer detriment by discouraging providers from serving customers with products from which they can benefit.
The context of this amendment is the retail distribution review, which is coming into force shortly and to which my noble friend Lord Flight referred earlier. In my view, this quite properly moves the industry from selling investment products through often hidden commissions and ensures that independent advice is truly independent, high quality and paid for through a transparent fee. While my noble friend Lord Flight raised a number of practical issues, I am supportive of the aims of the RDR. Clearly, industry practices in the past led to some customers being sold inappropriate products and paying high commission charges without being clear about the size of those charges, how they were levied or how they might influence the advice they were receiving. The new regime should, on the whole, lead to those who want advice being clear what they are getting and what they are paying.
However, one consequence of higher standards is that those with relatively modest amounts to invest, or with relatively modest pension pots to turn into retirement income, may find that the cost of advice is prohibitive. By modest I am talking about people with tens of thousands of pounds, at and above the population average, not just those on low incomes or from disadvantaged communities. We are talking about a large part of the population finding the cost of advice prohibitive. Yet such people, while they have the need to invest, are less likely to be financially sophisticated and need the most help and guidance—particularly as they approach retirement.
It is important that the industry is therefore able to do its best to support those customers by providing information and guidance that helps individuals to understand their options, weigh up the risks and, where they do not want to take or cannot afford personal advice, come to their own decisions about which investment is best for them. We are talking here not about exotic investment products but simply, for example, about whether to stick to a cash ISA or purchase one with potentially higher long-term returns, or a decision about what kind of annuity to purchase—a decision that an increasing number of ordinary citizens will face over the coming years as direct benefit plans decline and more direct contribution pension plans mature. It is clearly up to the industry to provide the best information and guidance it can to help these customers, but, inevitably, without personalised advice and the full fact find and high costs that go with it, there will be some customers who make the wrong decisions.
The aim of this amendment is to make it clear that the FCA can and should balance the objective of protecting consumers in these circumstances against the risk that placing too high a bar for consumer protection will discourage providers from seeking to serve this market, for fear of the compliance risk that they take on. Of course we should want high standards of protection for everyone against deliberate mis-selling or plain negligence, and there may well be many customers who are better off doing nothing than being encouraged into inappropriate products, but there needs to be a balance to enable those providers who seek to act responsibly in providing information and guidance to do so with some confidence that the compliance risks are acceptable.
Lord Blackwell
My Lords, I am grateful to the noble Lords who have spoken to my amendment and to my noble friend the Minister for his response, in particular for his statement that he and the Government are sympathetic to its aims. It is a very difficult issue. As he and I recognise, full advice based on a full fact find is a very expensive process. Only a small proportion of the population with significant assets would sensibly be able to afford that scale of advice and the costs that go with it. My amendment concerns the larger group of people who will not have personalised advice and will need to rely on what the Minister called generic advice, and which I described as guidance and information, where people will have to make their own decisions based on the information provided for them.
The essence of my amendment was not focused on more people having access to personalised advice—while that would be desirable, the costs speak against it—but on ensuring that where providers are trying to serve the market through generic advice, guidance and information, the level of protection that consumers can expect reflects the reality of the level of information and guidance that they can be provided with, and that the industry is not discouraged from entering into that market because of the potential costs of compliance. I note my noble friend’s comments that he believes this is adequately dealt with in the Bill. I am not completely convinced, but I will go back and read his comments and look at the Bill again before Third Reading. I encourage him and his colleagues to do the same to see whether there is a better way of resolving this difficult issue. In the mean time, I beg leave to withdraw my amendment.
Financial Services Bill
Lord Blackwell Excerpts(12 years, 7 months ago)
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Lord Blackwell
My Lords, it is difficult to disagree with the objective of appropriate codes of conduct in this industry but I am left wondering what the amendment adds to the state of current regulations. As the noble Baroness will know, there is a regime of approved persons in the industry and to be an approved person, and to hold any position of responsibility in financial services, you are required to behave in accordance with a fairly clear code of conduct which covers many of the things that this amendment seeks to introduce. Before calling for the writing of yet another code, it would be helpful if the noble Baroness could explain what she thinks is omitted from the current code for approved persons, or whether it is an enforcement problem and, if so, how that would lead to better enforcement than currently exists under the approved persons regime. Otherwise, we are in danger of rewriting the same words over and over again.
Lord Barnett
My Lords, I strongly support my noble friend in her amendment. The noble Lord, Lord Blackwell, seems to be replying for the Minister, telling us why it is not necessary. Is it harmful to have this amendment in the Bill? If so, let him tell us how rather than asking whether it is necessary. As I would have expected, the case has been made very well indeed by my noble friend Lady Hayter and supported elegantly and eloquently by my noble friend Lord Peston. I hope the Minister will not take any notice of the noble Lord, Lord Blackwell, when he replies.
Financial Services Bill
Lord Blackwell Excerpts(12 years, 7 months ago)
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Lord Myners
The words proposed by my noble friend take us a little further in the right direction. I would like to go a great deal further but am more than happy to support my noble friend’s amendment.
Lord Blackwell
My Lords, despite the cogent words of the noble Lord, Lord Myners, I share the confusion on this side of the House about what these amendments are intended to do. Everyone agrees that it is vital that there should be strong oversight of the governor and the executives of the Bank by the non-executive directors and that we have proper accountability and scrutiny. But what is proposed here is a court that will have a clear and very sizeable majority of non-executive directors. The amendments proposed by my noble friend earlier made it clear that all the members of that court would be directors, and would be directors in common, sharing responsibility for the decisions of the Bank. However the non-executive directors would be in a majority, and if those non-executive directors disagreed with what the executives proposed, they could make that clear in the court and they would have the majority to hold sway.
According to these amendments, the court, involving all directors, would be able only to propose policies and then a sub-committee of the board of only the non-executives would then go away and approve them. That seems to turn corporate governance on its head. Either we have a supervisory board of non-executives, which is a totally different structure, or we accept that the Court of Directors is indeed the Court of Directors and should, with all its members, accept responsibility. What we have here is a very sensible proposal for an oversight committee of non-executive directors that will play its role in allowing non-executive directors to review and scrutinise offline, but to report to the full court, as is normal in any governance process. All directors must share equal responsibility in the end for the decisions of that organisation.
Lord Nickson
My Lords, I apologise for the fact that I have not taken part in the proceedings and I did not intend to do so today. I am completely out of date in that my experience goes back a long way. When I was the chairman of a Scottish bank, which belonged to an Australian bank, Fred Goodwin, as chief executive, reported to me, before he went to RBS for five years. We got on very well. I am quite thankful that he went to RBS and that I did not have responsibility at the end.
I completely sympathise with the points of view that have been put from the government Benches. The principles are exactly the same. It is impossible to conceive that one would appoint a majority board of non-executive directors along with an executive. They have the responsibility for oversight. You might have a sub-committee, but I would be very surprised if any candidate for the position of governor would actually accept it having power over the non-executives in the Court of the Bank of England. Therefore, I think that the amendment is nonsense in practical terms. Although I may be out of date, I strongly believe that it should be rejected.
Financial Services Bill
Lord Blackwell Excerpts(12 years, 8 months ago)
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Lord Sassoon
My Lords, I am very happy to accept the spirit in which the noble Lord, Lord Davies of Oldham, has spoken to the amendments in the name of his noble friend Lord Tunnicliffe. However, the rather hesitant and apologetic tone in which he presented them would make it all the more surprising if I were to say that they found favour with me. They do not, but I will take them seriously because although they replicate amendments that were debated in Committee in another place, of course we as a Government should respond to them.
Why do I believe that it would be a mistake to include the FCA as a full participant in the crisis management MoU? The issue goes right to the heart of what the new regulatory architecture is trying to achieve. The Government are committed to moving away from a tripartite model where accountability was confused and diluted, and responsibilities were overlapping and unclear. There cannot be an issue in the Bill that goes closer to the heart of it than the MoU. A key element in achieving the clarity of responsibilities that we need is making the Bank a single point of accountability for financial stability. We debated that, and it goes to the heart of the architecture. This will help to ensure clarity and focus of communication; it will reduce the potential for delay or confusion; and it will provide the best chance of delivering a timely and successful solution to a risk to public funds. The construction of the MoU, and who is and who is not a party to it, flows directly from that central part of the architecture which this Bill seeks to put in place.
Of course there will be occasions on which the FCA might need to be involved in discussions around financial crisis management. For example, the FCA might have a role in identifying how a scenario might impact on the interests of consumers and in suggesting what action should be taken to protect those interests. However, the FCA does not need to be one of the primary participants in the MoU for those interactions to take place. The legislation provides explicitly for this co-operation between the participants to the MoU and the FCA to be covered in the MoU. That is why, as I am sure the noble Lord, Lord Davies of Oldham, will have noted, paragraph 34 of the draft memorandum sets out that the Bank and the Treasury will involve the FCA and other organisations as necessary. Again, I fully understand and respect the substantive point made by this amendment but it is dealt with through the obligation in the legislation for the co-operation. It is backed up by a paragraph in the draft MoU and that is where we believe it should rest in a way that is compatible with this greater clarity of responsibilities that we have to get into the new system.
To underline the point, the FCA does not have a significant role in the crisis management itself. It is not responsible for responding to or managing serious threats to stability—that is for the PRA and the Bank— nor for prudentially regulating firms that are likely to pose a risk to public funds; a matter for the PRA. Therefore, the FCA does not need to be a primary participant in the crisis MoU alongside the Treasury and the Bank of England. Indeed, I would suggest to the Committee that, if the FCA were included in this way, it would force the FCA to be a participant in meetings and discussions where it had no clear role.
The approach taken by the Bill is the most sensible solution. It ensures an appropriate level of FCA engagement in crisis management, without requiring the conduct regulator to get involved in aspects of crisis management where it has no remit or expertise. I would hope that, on the basis of this explanation of the rationale for the position, the noble Lord would feel able to withdraw the amendment.
Lord Blackwell
Before the noble Lord responds, clearly one area where the FCA has particular responsibilities are competition issues relating to the industry. Can my noble friend put on the record that, if a competition issue is raised in a crisis management situation, there will be an explicit expectation that the FCA would be involved it that?
Lord Sassoon
My Lords, I believe that paragraph 34 of the MoU is sufficiently widely drawn that the MoU will provide for the Bank and the Treasury to involve the FCA in that circumstance. However, we do not specify, and it would not be right to specify, the particular circumstances because the competition and other remits are made clear in the general objectives and obligations that the authorities are under. I do not believe that there is any lacuna in that respect.
Financial Services Bill
Lord Blackwell Excerpts(13 years ago)
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Lord Sharkey
I shall speak briefly in support of Amendment 35, in particular the inclusion of the requirement to promote the Government’s objectives for growth and employment. I emphasise the importance of promoting a healthy and flourishing SME sector in achieving those objectives. The report of the noble Lord, Lord Young, last month, Make Business Your Business, noted that 50% of private turnover, excluding financial services, and 60% of private jobs are provided by SMEs, but SMEs still face great difficulty in finding funding.
The Breedon report of March this year estimates that by 2016, there will be a shortfall of between £26 billion and £59 billion in finance needed by SMEs for working capital and growth. The Government need to take direct action further to improve the supply of finance to the SME sector, in particular in our deprived communities. SMEs in those communities attract only 4% of all investment in SMEs and are in areas where unemployment, especially youth unemployment, is likely to be high.
There is another urgent reason for providing finance to the SME sector. That is to do directly with job creation. The Kauffmann Foundation, a highly respected United States think tank, published a study in July 2010 entitled, The Importance of Startups in Job Creation and Job Destruction. I will have more to say about the findings of the report later in the debate, but its most striking findings were that in the 28 years it surveyed, all net new jobs came from start-ups and that during recessionary years, job creation in start-ups remained stable while net job losses in existing firms were highly sensitive to the business cycle.
That surely has lessons for the UK. If the Government are to succeed in creating the right number of new jobs, they must strongly and actively promote not just SMEs but the start-up subsector of SMEs. To have the appropriate effect, they must do that particularly in our deprived communities. Without such strong and directed promotion, the growth and employment objective is in danger of remaining just that—an objective.
Lord Blackwell
My Lords, I apologise to the House that I was unable to contribute to the Second Reading debate. The fact that all these amendments recognise the interlinking of financial stability policy and the wider economic objectives is a major step forward. However, the amendment proposed by the noble Lord, Lord Eatwell, is mistaken in its wording. It is a fallacy to believe that monetary policy and financial policy can be conducted orthogonally, independently of general economic and fiscal policy. The two inevitably interact, and it is fallacious to believe that we can have a government Chancellor of the Exchequer in one corner deciding on a fiscal policy and an independent bank deciding on monetary policy in complete isolation—and, if necessary, disagreeing and conducting an alternative economic policy.
We are in this situation only because the previous Government separated monetary policy from the independence of the Bank of England in 1997. Until that point, the assumption was that the Chancellor of the Exchequer and the Government were accountable to Parliament and to the electorate for economic policy in the round. The Governor of the Bank of England certainly had a crucial role in advising the Prime Minister and the Chancellor of the Exchequer on monetary policy.
At the end of the day, however, a common policy was agreed that ensured that monetary policy and fiscal policy were aligned to the same objectives. They might be the right objectives, they might be the wrong objectives, but at the end of day the Government and the Chancellor of the Exchequer were accountable to Parliament and to the electorate for those decisions. The idea, as the noble Lord said, that at times you want a Bank of England or a financial policy committee to pursue a policy that is at odds with government policy is mistaken and misrepresents the way in which these functions ought to work together.
I therefore much prefer the wording of my noble friend’s amendment, Amendment 35A. Although I agree with much of what the noble Baroness, Lady Kramer, has said, my noble friend’s amendment has the great advantage of simplicity, and I support him in that.
Lord Peston
My Lords, I criticise both Amendments 35A and 35 on the grounds that they are both illogical and make no economic sense, to put it as bluntly as I can. I am amazed, however, at the intervention by the noble Lord, Lord Blackwell, just now, because he comes to the wrong conclusion. How can he support Amendment 35A on the basis of his analysis of interlinking?
Let me start with Amendment 35A. If you asked anyone why you would want to achieve what is in paragraph (a), the answer would be, “Because it makes the economy work better”. It is not wanted for its own sake, as far as I can see, because it involves a total confusion of means and ends. Therefore, sensible economics would delete the words—a favourite activity of my noble friend Lord Barnett and me—“subject to that”. All that is required is the word “and”—forget the “subject to that”.
The same applies to the amendment in the name of the noble Baroness, Lady Kramer, et al. What she wants to achieve is desirable; no-one would doubt that. However, if we ask, “Why do you want to have a stable and sustainable supply of finance to the economy?”, the answer is, “Because it makes the economy work better”. We cannot assume that the Government’s economic aim is to make the economy work worse; quite the contrary. My view is therefore that I would be reasonably happy with either of the amendments if “subject to that” was taken out, but in no other circumstances.
If I can, I will go back to the Monetary Policy Committee, which the noble Lord, Lord Barnett, and I have criticised for years now because of the “subject to that” clause. It gets around this dilemma by ignoring “subject to that”. I have said in this House before that in my judgment the MPC breaks the law under which it was set up, because there are now real inflationary dangers. You do not have to be a Friedmanite to say that expanding the quantity of money, which is what monetary easing is, is immensely dangerous when it comes to the future inflation rate of this economy.
Somehow or other, most members of the MPC—I am not certain that they all do—ignore that bit of the subject, go ahead with quantitative easing and forget their inflation objective, even though they are not achieving it. These two amendments might well be equally innocuous. Maybe in practice the whatever it is called—I am still having trouble with the acronyms but I think I am talking about the FPC—will become totally cynical and forget the subject of that bit at certain critical times. It would be better if the three little words “subject to that” were taken out; and then, to be perfectly honest, I do not care which amendment we agree to.
Economy: Deficit Reduction
Lord Blackwell Excerpts(13 years, 6 months ago)
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Lord Sassoon
My Lords, the Government are on track to meet the fiscal mandate which was set by my right honourable friend the Chancellor. The mandate requires the Government to bring the cyclically adjusted current balance into balance at the end of five years. The Opposition may not like it but that fiscal rule means that there is an ability for us to be flexible in the face of very difficult economic conditions; it means that we can preserve the infrastructure expenditure, which is so important, to underpin long-term growth; and it means that the automatic stabilisers can operate. If the noble Lord, Lord Barnett, is suggesting that we should abandon all of that, I wonder what his policy would be.
Lord Blackwell
My Lords, does my noble friend accept that the primary reason for our current deficit is the fact that public expenditure as a percentage of GDP grew from less than 40 per cent to close to 50 per cent in the first 10 years of this century? Will he confirm that the Government’s primary focus is therefore to get public expenditure back down below 40 per cent, where it can be supported by an affordable level of taxes?
Lord Sassoon
I certainly agree with my noble friend that we inherited the worst peacetime deficit situation that this Government have ever known, and that getting the budget back into balance is indeed the priority of this Government.
International Monetary Fund
Lord Blackwell Excerpts(13 years, 7 months ago)
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Lord Sassoon
The IMF does and will continue to play a pivotal role in these systemic issues. There was no agreement at the G20 for an increase in resources for the IMF because, understandably, the US and other key non-European countries want to see the euro area core’s willingness to contribute to the eurozone crisis before they commit. Meanwhile, the IMF has $400 billion available to lend, but I agree with the noble Lord that there is an urgent need to resolve all these interlinked matters.
Lord Blackwell
My Lords, does my noble friend agree that it is undesirable for the IMF or indeed any other agency to fund the debts of any particular country unless that country has a sustainable plan to restore its international competitiveness?
Lord Sassoon
I very much agree with my noble friend. The IMF’s lending programmes are indeed conditional on programmes of that kind.