Financial Services Bill

Debate between Lord De Mauley and Lord Peston

Wednesday 18th July 2012 Lords Chamber

[Lord Peston]

My Lords, I very much agree with my noble friend Lady Hayter and with the noble Lord, Lord Flight, that competition is the best means of consumer protection. There are occasional counterexamples, but overwhelmingly that is what matters. However, it occurred to me while listening to the noble Lord’s reply that I do not now know which is the primary body in dealing with competition in the financial intermediary sector. Is there a straightforward answer to that? If I had been asked to guess, I would have guessed that it must be the new Competition and Markets Authority, because its remit is about competition, whereas the FCA’s remit is not. Can we have an answer to that? If we do not know the answer, could we be told the next time we meet who is the prime mover in this?

[Lord De Mauley]

I am pretty sure that the noble Lord is correct in his analysis, but if there is any change to that, I will write to him.

--- Later in debate ---

[Lord De Mauley]

That is right, my Lords. In fact, when we debated the previous group of amendments I spoke about the deliberations that the Department for Education is going through on that exact point, so I thank my noble friend for that.

The FCA will set the conduct-of-business regime within which firms will operate and the requirements with which they will have to comply. Just as the FSA does today, placing firms under detailed obligations to assess the suitability of products for individual clients, as well as specifying that warnings must be given to consumers who express an interest in buying a product that does not appear appropriate for their needs or their tolerance of risk. In addition, these requirements specify which risk factors must be highlighted in the case of specific products—for example, income withdrawals or the purchase of short-term annuities.

However, none of this means that it is the FCA that should be required to have regard to the need to educate consumers about the unavoidability of risk. The FCA is not a consumer education body—that is the role of the Money Advice Service—and neither is it an interlocutor between firms or advisers and consumers. So I cannot agree with that amendment.

The noble Lord, Lord Barnett, asked what an appropriate degree of protection would be. “Appropriate” is used to allow the FCA to differentiate between the different needs that consumers may have. The detail is set out in the FSA’s rules and will be transferred into the new FCA’s rules. I will not offer to send the noble Lord a copy of them because I suspect they might be quite voluminous, but if he would find it helpful I am sure I could send a reference to that particular point in them.

[Lord Peston]

Before the Minister goes on to the next amendment, my noble friend Lord Barnett’s and my amendment, if I may draw his attention to it, appears in a clause that is headed “The consumer protection objective” and refers to the FCA. How can the Minister make the illogical leap of saying that that does not concern the FCA? It says categorically in the clause that it concerns the FCA; its acronym appears under the consumer protection objective, in the words,

“the FCA must have regard to”.

It therefore seems entirely reasonable that the FCA should have regard to what my noble friend and I have suggested. You cannot possibly say that someone else should have regard to it, when the FCA is clearly a body that must do so.

[Lord De Mauley]

My Lords, I hope I have explained that the FCA is doing that through its conduct-of-business regulations and that the issue of education is dealt with in the ways that I have explained.

[Lord Peston]

As a matter of elementary logic, though, the Minister cannot wriggle away and say that the FCA is doing it some other way. This amendment is about consumer protection and the FCA must have regard to that. I would like an answer to why the Minister will not accept an amendment that says that the FCA must have regard to it in this specific way.

[Lord De Mauley]

My Lords, I think that I have said that the FCA has regard to it, but I cannot go much further than I have.

--- Later in debate ---

[Lord De Mauley]

I am sorry that the noble Lord is confused. I do not see the confusion that he does. Perhaps I may move on to Amendments 105A and 106.

[Lord Peston]

I would still like a rational answer to what I have put to the Minister. The least he can do is to say that he would like to think about it and come up with the right answer. Apart from anything else, it would do him a world of good.

[Lord De Mauley]

My Lords, I think that I have given the right answer but I am happy to write to the noble Lord, Lord Peston, if I can express it in a way that he might find more acceptable.

On Amendments 105A and 106, it is important to note that if we are to create the conditions in which consumers can make better choices for themselves, we need to address some of the asymmetries of information between consumers and providers that still prevail in financial services. I think that that is a point that noble Lords are making. That is why the Government added new subsection (2)(c) to new Section 1C, which will be inserted by Clause 5, before the Bill’s introduction to the parliamentary process. This provision requires the regulator to consider,

“the needs that consumers may have for the timely provision of information and advice that is accurate and fit for purpose”.

This provision complements the FCA’s new power to require firms to withdraw a financial promotion and disclose the fact that it has done so, as well as a new power to disclose at an early stage to the public that disciplinary enforcement action has commenced against a firm or individual. The FSA will carry out a root-and-branch review of transparency and disclosure on the part of firms and the regulator to be completed ahead of commencement of the Bill.

I agree with many of the points made by the Committee in terms of the improvements that we want to see, but I do not agree that Amendments 105A and 106 are necessary. I argue, for example, that referring to information being “fit for purpose” is, in modern idiom, a better way of achieving the aims that we all share. “Fit for purpose” is an umbrella term that includes, for example, information being legible, intelligible and appropriately presented. Information could not be fit for purpose if it was not also those things.

“Fit for purpose” is also broader and allows the regulator to differentiate between the needs of different consumers, to adapt its approach and perhaps to place additional requirements on firms where it considers this necessary. There may be requirements that we cannot anticipate at this point. Using a broad term such as this therefore gives flexibility and allows the regulator to be responsive to changing circumstances and market conditions. Being too exhaustive in the Bill could be unhelpful. However, it is also not appropriate, as the detailed requirements will be set out by the FCA in its rulebook.

I therefore argue that Amendment 105A is unnecessary, as fit for purpose already captures information being intelligible and appropriately presented. Amendment 106 could restrict the FCA’s ability to design a regime on the provision of information to consumers, as “intelligible” is a narrower term than “fit for purpose”.

Financial Services Bill

Debate between Lord De Mauley and Lord Peston

Tuesday 10th July 2012 Lords Chamber

[Lord Peston]

My Lords, I support my noble friend’s amendments. I was particularly struck by her parting remark, which concerns a point that has bothered me a great deal during our deliberations up to now. The voices of the financial institutions are being heard loudly and at great length in your Lordships’ House on this matter. I do not criticise them for that—they have interests that they wish to see served—but we have interests of a different kind; namely, that we must be dispassionate. In particular, therefore, if the voices of consumers—which means ordinary people—are not heard at all, then something has seriously gone wrong with why we are bothering to try to reform the financial system anyway. If I were asked why we would take the Adam Smith view of everything, I would say that, ultimately, the whole economy exists for the sake of the consumer, and not for the sake of businesses. Businesses exist for the sake of the consumer. To have any doubt of the absolute necessity that the consumer’s voice is heard is to be mistaken. I therefore rise strongly to say that that voice should be heard mandatorily, and not if it just suits the body that takes the decisions.

[Lord De Mauley]

My Lords, this group of amendments, which go to the issue of consumer protection, deals with the Financial Policy Committee’s use of its powers of direction and recommendation in relation to the Financial Conduct Authority. These powers are the key means by which the FPC will seek to implement macroprudential policy. I should say at the outset that we wholeheartedly agree with the noble Baroness about the importance of consumer protection, which indeed is why we are creating a dedicated consumer protection regulator in the FCA.

In the case of directions, noble Lords will be aware that the scope of the FPC’s power will be determined by the Treasury. Under new Sections 9G and 9K of the Bank of England Act 1998, as set out in Clause 3 of this Bill, the FPC will be able to direct the PRA, the FCA, or both, to implement “macro-prudential measures” that have been prescribed by the Treasury by order, subject to parliamentary scrutiny.

Amendment 46 seeks to limit the FPC’s ability to make such a direction if it would conflict with the FCA’s consumer protection objective. I understand the general motivation behind this amendment. Indeed, it would not be appropriate for the FPC to issue directions to the regulators without regard for whether they conflict with the statutory objectives of those regulators.

However, let me assure noble Lords that safeguards are built into the Bill to prevent this. Specifically, new Section 9E, as set out in Clause 3 of this Bill, provides that the FPC must, in exercising its functions in relation to the FCA, seek to avoid doing so in a way that would prejudice the advancement of the FCA’s operational objectives, including consumer protection.

This provision is contingent on the FPC being able to achieve its own objective for financial stability. That is right, given that financial stability must necessarily take precedence if the new regulatory system is to address the flaws revealed by the crisis. However, this places a clear obligation on the FPC to take into consideration the FCA’s objectives before acting, and, in subsection (2), to find a way to minimise any possible conflict. In addition, of course, the presence of the chief executive of the FCA as a voting member of the FPC means that the views of the FCA—and therefore of consumers—will be represented and taken into account.

More generally, I suggest that such conflicts are unlikely to arise often. In practice, it is likely that most of the FPC’s directions will be directed at the PRA, so there will not be significant potential for conflict to arise between stability and consumer protection. It is also worth saying that what really is in the interest of consumers is financial stability. If the FPC were to be given a tool, implemented through the FCA, the Treasury would take care to design it in such a way as to minimise the potential for conflict between financial stability and consumer protection.

Amendments 49 and 52 deal with the role of the Financial Services Consumer Panel in relation to directions made by the FPC to the FCA. Amendment 49 would require the FPC to take account of representations from the panel before issuing a direction to the FCA. The FCA will already be required to consider representations from the consumer panel with regard to its general policies and their compliance with its objectives under new Section 1R of FiSMA in Clause 5 of this Bill. This duty will continue to apply when the FCA is acting under direction from the FPC, so the panel will have ample opportunity to make its views known.

Amendment 52, which would require FCA-specific directions to be reported to the consumer panel, is rendered unnecessary by the Bill’s general provisions for openness. For example, under new Section 9J, to be inserted in the Bank of England Act 1998 under Clause 3, directions must be reported to the Treasury and, where appropriate, laid before Parliament. Under new Section 9R, the record of FPC meetings must specify decisions taken, including the decision to give a direction or to make a recommendation.

Likewise, the inclusion of recommendations within new Section 9R means that Amendment 67 is not necessary either. The amendment would require recommendations made by the FPC to the FCA to be reported to the consumer panel, but the general reporting requirement is already in place under new Section 9R. Even without these provisions, we would expect the FCA to keep the consumer panel—indeed all the statutory panels—aware of relevant decisions made by the FPC. However, the provisions that are already in the Bill provide a guarantee of openness. I therefore hope that the noble Baroness will feel able to withdraw her amendment.

[Lord Barnett]

Before my noble friend replies, perhaps I may add my support. The Minister’s reply enhances my concern about the depth of work being given to the Bank of England under this Bill. The Minister referred to the FPC, the FCA, the PRA and the MPC. I suggest that the Government look at all the initials that they are using in these clauses. They are somewhat confusing and might even confuse the new governor. The Minister’s reply briefly exposes the extent and breadth of this Bill. The reply to one modest group of amendments is, to say the least, somewhat comprehensive. I am sure that it might not be easily understood by many Members, let alone by people outside this House.

We are told now that consumer protection is to be decided by the Treasury and not by the Bank of England, which is being given powers under all those initials. It will be decided by the Treasury. Has it nothing else to do? Will the Bank of England have nothing else to do? The whole Bill needs to be looked at afresh, and I would not be at all surprised if, before we get to the end of it, it is not all withdrawn and started again.

[Lord Peston]

Just to supplement my noble friend’s intervention, am I right that the Minister is trying to tell us in a nutshell that there is no problem whatever with consumer protection in connection with these amendments and that everything will be all right, as Dr Pangloss might put it?

[Lord De Mauley]

My Lords, I am saying that the concerns to which the noble Baroness’s amendments relate are addressed as the Bill stands.

Trade Unions: Ballots

Debate between Lord De Mauley and Lord Peston

Thursday 31st March 2011 Lords Chamber

[Lord De Mauley]

Yes, my Lords.

[Lord Peston]

My Lords, I do not think that the Minister has even understood the Question that has been put to him, but consistency and rationality are not exactly hallmarks of the present Government. Does he recall that the threshold amendment that we are talking about was passed in your Lordships’ House on the basis of a full argument? Why is there a different set of criteria here, given that your Lordships voted for a threshold in the first place?

[Lord De Mauley]

My Lords, I hear what the noble Lord says. I suggest that we have had a fair amount of debate on the subject over recent months and I suspect that more may be occasioned in the future. There is little precedent for thresholds being applied to referendums in the United Kingdom. There was no threshold in the referendums on Scottish and Welsh devolution in 1997, the Belfast agreement or the Greater London Authority in 1998, or in the north-east referendum in 2004. Also, no threshold is specified for mayoral referendums under the Local Government Act, despite very low turnouts having been seen in practice in some cases.

Barnett Formula

Debate between Lord De Mauley and Lord Peston

Monday 7th June 2010 Lords Chamber

[Lord De Mauley]

My Lords, I have just said that we recognise the concerns expressed by the Holtham commission, and the Government are listening to what noble Lords are saying.

[Lord Peston]

My Lords, I was under the impression that the Liberal Democrats were part of the Government. I know that we need to sort out the protocol, but they really have to get used to what they have sold their souls for. They really do.

May I ask the noble Lord, with all lack of respect to my noble friend Lord Barnett, whether it is not about time that the Barnett formula was simply allowed to die? Should we not let it rest happily in its grave until we can come back to invent a new formula?

[Lord De Mauley]

My Lords, the dulcet words of the noble Lord, Lord Davies, when he was a Minister answering almost an identical question, were along the lines that the Barnett formula is simple, robust, and it works. The coalition, on the other hand, and as the noble Lord, Lord Peston, implies, recognises that there are concerns over the allocation of funding. But, as I said, there are other priorities.