Financial Services Bill

Debate between Lord Deben and Lord Sassoon

Tuesday 6th November 2012 Lords Chamber

[Lord Deben]

The noble Lord really must not interpret what I said in a way that is convenient for his argument and then blame the noble Lord, Lord Sassoon, for speeches that I have certainly heard and with which I agree. All I am saying is that the noble Lord’s idea that somehow or other, unless this is in here, nobody will take any notice of growth at all and that everyone will want a kind of sterile system is just not true. Nor is it sensible.

[Lord Sassoon]

I really do not want to prolong this too long, but the idea that somehow financial stability is the same as a sustainable fiscal position is really stretching the concepts a bit far. However, there we are.

Financial Services Bill

Debate between Lord Deben and Lord Sassoon

Monday 15th October 2012 Lords Chamber

[Lord Deben]

I hope the Minister remarked in my comments that my major criticism of regulators was that they did not intervene in a whole series of areas where they should have. My argument was that if it is in the public arena when they do intervene, the public will be even more convinced, as the history shows, that everything else is going okay. In fact, the regulator has fallen down again and again. Many of the worst examples—the ones that he and I would be most cross about—are those where the regulator has not intervened.

[Lord Sassoon]

Perhaps my noble friend could listen to the argument. He said that he has asked for examples on a number of occasions but there has not been a single case where the FSA could say, “This would have been a useful power”. I have a long list of examples that the FSA could no doubt have given him. It includes the Winterflood market abuse case, where it tackled an illegal share ramping scheme, with warning notices issued in April 2007 but decision notices not issued until June 2008; the case of Gary Lester, a fraudulent mortgage broker, in 2008 to 2010; the Swift Trade market abuse case; and Atlantic Law and Greystoke. I could go on. I am sorry if my noble friend has been led to believe that there are no examples. The FSA can certainly give me examples. Of course it is important that there should be examples.

I have made one or two remarks about the general situation—which is that the Government believe that a new power is merited and that we need to recognise that we are trying to deal with detriment to the users of financial services here while affording proper protections to market participants. However, before I come back to some broader points, let me address the amendments themselves.

The first two amendments, Amendments 183A and 187A, seek to reverse a very specific change that the Bill makes to FiSMA, namely shortening the period for making representations after a warning notice has been issued from 28 to 14 days. We made this change in close consultation with the regulator, which noted that in many cases the 28-day window is not required at all. This may be because a case is straightforward and does not require such a long time for representations to be put together, because a person admits to the contravention or because that person does not respond at all. In such cases, having a mandatory 28-day period has the effect of unnecessarily slowing down the overall enforcement process, which is not in the interest of credible deterrence and the regulator’s efficient use of its time and resource. That is why we have moved to a starting point of 14 days.

I fully agree that firms should have adequate time to make representations. Although 14 days is the new minimum, it is important to note that it remains at the regulator’s discretion to specify a longer period—for example where it knows a case is particularly complex. The regulator may decide to extend the period from the outset. The decision whether to extend the period will of course be governed by the principles of natural justice and Article 6 of the European Convention on Human Rights concerning the right to a fair trial. I hope that that gives some reassurance to my noble friend on the narrow point; that is, it is not a blanket 14 days.

I am conscious that, in moving to the wider issue, we risk straying into the areas covered by the amendment of the noble Baroness, Lady Hayter of Kentish Town, which we are going to debate next, but I repeat that my starting point is very much the same as that of the noble Baroness; namely, we need to provide the regulators with this new power but to make sure that it operates proportionately.

Amendments 185A, 185B and 186 are all concerned with the new power for the regulators to disclose the fact that they have issued a warning notice in respect of disciplinary action to a firm or individual. Amendment 186 probes an important issue relating to the disclosure of warning notices; namely, whether the new power should apply in respect of individuals or approved persons. There are two reasons why we included warning notices issued under Section 67 in the list in new subsection (1ZB). First, the warning notices concern what are very clearly disciplinary matters, relating as they do to contraventions or knowing involvement in rule breaches or contraventions of EU requirements, so it is consistent that they should be included here. Secondly, it is important to remember that this is a power, not a duty, and that the regulators will be required to consider whether disclosure would be unfair to the person concerned.

Amendment 185B seeks to remove the requirement to consult from the power. I recognise that allowing warning notices to be disclosed is a major step change in regulation. It must be underpinned by proper procedures and safeguards. Consultation with the firm or individual concerned is key, because it is an important way in which the regulator can assess whether disclosure would be unfair and consider the possible impact of its actions. But I want to be clear that a requirement to consult the person affected does not mean that the FCA needs to seek their consent. That is clear and there is no getting away from it.

Amendment 185A seeks to delete the entire new power and revert to the current arrangements in FiSMA. I restate that the power to disclose warning notices is a key part of our vision for the FCA. It enables the FCA to regulate in a more proactive and preventative way. I have given a number of examples where, in its judgment, these powers would have made a difference in the past. They make transparency and disclosure a key pillar of its regulatory approach and enable it to have a credible enforcement function and deterrence strategy.

I do not agree with my noble friend Lord Flight about the read-across from the Standard Chartered case. I certainly agree with him and my noble friend Lord Deben—my noble friend Lord Hodgson of Astley Abbotts also touched on this—that there are real dangers in terms of the knock-on consequences which the FSA and the FCA will have to take into account, but that general proposition, which of course the regulators in the UK will have to take account of, does not make valid a direct comparison with the Standard Chartered case in the US. The power proposed in this Bill is substantially different in scope, safeguards and proposed application from the power used by the New York DFS in respect of Standard Chartered. I think that my noble friend recognises some differences, but our analysis is that the safeguards are materially different. So, yes, the FCA will have to take into consideration the impact of its notices, but I do not agree that we should pray in aid the specific details of the Standard Chartered case. It is important to be reminded and have on the record what my noble friends say—which is correct. For listed companies in particular, the share prices can and will react very negatively in these circumstances. If subsequently it happens with tax announcements that are somehow back-tracked and have been over the years by HMRC or the Treasury, the first effect on a share price is often much more negative than subsequently, when some decision or tax policy announcement is reversed. I take that point and I am sure that the FCA will be very mindful of it as it makes those decisions in the future.

A number of other points have been made by noble Lords. As to the more specific challenge of my noble friend Lord Deben about what would happen if the regulator got it wrong, there is a general danger which the regulator needs to bear in mind before putting out a notice. Where the regulator decides to take no further action after it has made public the fact that it has published a warning notice, it has discretion to publish the fact that it has issued a notice of discontinuance if the person to whom the warning notice relates consents to that issue. Where the regulator has made public the fact that it has issued a warning notice but then decides that a case will not proceed to a decision notice, it will also make public the fact that a notice of discontinuance has been issued.

There are various other questions about delay and injunctions. I do not agree that the power as drafted will cause overall delays to the enforcement process. The Bill does not require publication of the warning notice or of a decision whether or not to be published to be taken, challenged or appealed et cetera in order for the enforcement process to keep going. The only delay will be to the publication rather than to the action itself. That may not have been the point that the noble Baroness, Lady Hayter of Kentish Town, was making, but just to be clear: if it was, the underlying enforcement process keeps on going.

Of course, the FCA might face injunctions to prevent publication and that is part of the protection in the injunction process. We also stress that, without a requirement to consult the firm or individual in question, it is more likely that that firm would seek emergency injunctions preventing publication as a knee-jerk reaction. Therefore, we have the consultation duty and the final decision is taken by the FCA. There could be an injunction process, but we think that the right balance has been struck.

I could go on for a long time on this, but let me conclude. I hope that my noble friends will listen to the next bit, because I hear that, although we believe this is an important power, the question is whether it will be exercised properly and whether any further protection is needed. We are taking a bold new step in an untested direction and it has to be used responsibly. For that reason—and listening to this debate—I can say that we intend to return to this issue on Report in this one very specific way: that is, to make provision for a power for the Government to repeal the new warning notices power if at some point in the future the Treasury considers that the power or use of it by the regulators is, or may be, contrary to the public interest. This does not weaken in any way our commitment to this policy, or our belief that if used responsibly, which we expect it to be, the new power will form a vital part of the FCA’s regulatory toolkit.

I hope that what I have just said provides my noble friend with some reassurance that we will be mindful that the power is used in a responsible way which is in the interests of the greater good. Should that not be the case, we will act under a power which we intend to bring forward on Report.

Autumn Forecast

Debate between Lord Deben and Lord Sassoon

Monday 29th November 2010 Lords Chamber

[Lord Sassoon]

I am grateful to my noble friend for pointing out the changed direction of travel since the new Government came in. I do not want to wade into a Cambridge argument. As a mere Oxford man, I always found my economics professors rather more cheery in their outlook, but perhaps my memory is clouded.

[Lord Deben]

Will my noble friend not allow the noble Lord, Lord Eatwell, to get away with the idea that this year is Labour’s year? The fundamental change is that we have confidence; under them, we would not have had confidence. We would not have been able to pay our bills and we would have found ourselves in much the same position as Ireland.

[Lord Sassoon]

I am very grateful to my noble friend; his analysis is absolutely right.