Financial Services (Banking Reform) Bill

Debate between Lord Blackwell and Lord Turnbull

Tuesday 8th October 2013 Lords Chamber

[Lord Blackwell]

My Lords, I must express some reservations about the arguments put forward by the noble Lord, Lord Turnbull. It is not that I do not understand the significance of having continuous and effective review of these ring-fencing procedures, but it seems to me that we have set up, with a lot of time in this House and the other place, a regulator that has learnt in that legislation and its constitution and objectives many of the lessons of the past, and we have entrusted that regulator with maintaining the stability of the financial sector and enforcing this legislation, if the Bill is passed. I think there is a danger in seeking to replace the regulation of an industry by an independent regulator with what might be in danger of turning into regulation by parliamentary committee. Parliamentary committees have many virtues and values, but they cannot engage dispassionately in the same evaluation of detailed analysis and commercial information that a regulator can, and they are more likely to be swayed by current opinions of the day. I pay tribute to the work of the commission on which the noble Lord, Lord Turnbull, and other noble Lords sat, which did an excellent job. I worry about the possibility of moving away from regulation by independent regulators, which are deliberately made independent of the Executive, towards regulation by parliamentary committees.

[Lord Turnbull]

The noble Lord, Lord Blackwell, referred to the fact that this might become a parliamentary committee. I think it is very clear that this would not be a parliamentary committee. The person who chairs it should,

“act independently of the Treasury, the PRA and the FCA”.

It would be much more like the Vickers commission.

[Lord Blackwell]

I thank the noble Lord for that clarification. I was responding to the fact that the amendment suggests that the chair should be approved by the chairman of the Treasury Select Committee. That would certainly alleviate some of my concerns. Nevertheless, the main point is that if we have an independent regulator, we should trust that regulator to do the job we have asked it to do. That does not prevent Parliament, or any Select Committee of Parliament, conducting its own reviews at any time it wishes, or appointing other reviewers if the circumstances require it.

I must just add that my concerns on that would be even greater if this was required to happen at two-yearly intervals, as suggested by the noble Lord, Lord Eatwell, rather than at five-yearly intervals, because the task of the regulator with a permanent body looking over its shoulder would then become almost untenable.

--- Later in debate ---

[Lord Turnbull]

I referred to the second reserve power, which would allow that where, in the commission’s view, it was felt that not just a single bank but the banking sector as a whole was not respecting the constraints of ring-fencing and the scheme was basically not working, it could move by steps to full separation. Of course, this second reserve power was predicated on the assumption that there will be a fundamental review of the kind that some of us have been arguing for. If all that we have is the PRA-led review of the kind that the Government have been seeking, we would certainly not have a sufficiently strong basis. However, the review we are seeking is based on a view of the world in which, first, there is continuous innovation and, secondly, other jurisdictions are making changes—notably in the EU. At some point that, combined with the behaviour of a banking sector, may lead to the conclusion that there should be a further change. Deciding that this scheme is not working does not necessarily lead you to full separation; it could lead you to something else, such as tightening the regime or some other modification.

We have had this argument about the review. However, then you get to the real crunch, which is that even if there is agreement on the review, and the review says that ring-fencing needs to be changed in some way, this amendment says that the further action that has been identified and recommended by a son of Vickers could be implemented under the powers of this Bill. That is the fundamental disagreement. The Government argue that that means that you are doing something completely different. I argue, first, that getting legislation is not an easy thing to do—you have to compete for time; and, secondly, that not being able to implement the conclusions of such a review reduces the effect of the deterrence and increases the opportunity for lobbying. In any case, the Government would have the last say in the scheme that we have devised. Therefore, if there was a recommendation from a Vickers mark 2, the Government would not be forced to act on it: they could decide that they did not want to act on it and did not have to accept it. Equally, if they wanted to, they would be able to. The position is asymmetrical. Since the Government have a veto, they cannot be railroaded into a policy that they do not want. However, if it is a policy that they do want, they have the power to accept it and act accordingly. That is the basis of Amendment 23, which refers to this power, and of Amendment 117, which states that you cannot exercise this power until a fundamental review has taken place.

[Lord Blackwell]

Could the noble Lord explain the drafting of Amendment 23? As I understood his explanation, it was that this would be a contingent power that the regulator could enforce if necessary. The way the amendment is drafted, proposed new Section 142VA gives the impression that it would be a requirement regardless of any other condition. Perhaps the noble Lord will clarify how it will become contingent on the regulator deciding that it is necessary.

[Lord Turnbull]

If the drafting does not say that, we will have to amend it. The clear intention is for this to be a power and not a requirement. I beg to move.