Financial Services Bill

Lord Eatwell Excerpts

Monday 8th October 2012 Lords Chamber

[Lord Sassoon]

That the House do now resolve itself into Committee.

[Lord Eatwell]

My Lords, I rise to raise an important issue concerning the conduct of the Committee stage of the Bill. On 3 October—last Wednesday—I wrote to the noble Lord, Lord Sassoon, in these terms:

“The Wheatley study on the future of LIBOR has produced a series of conclusions with which the Labour Party is broadly in agreement. I congratulate both Martin Wheatley and his team for their achievement, and the Government for initiating this investigation.

I note from the statements of Treasury ministers, and from the Treasury website, that it is the Government’s intention to implement the Wheatley proposals by means of amendments to the Financial Services Bill. No such amendments have been tabled as of yesterday”.

That was 2 October, and indeed no amendments have been tabled as of today.

“I presume that such amendments will involve predominantly clauses that have not yet been debated (as suggested by reference to particular FSMA clauses in the Wheatley Report itself)”.

The Wheatley report refers to the first clause that we will debate today.

“However, it is possible that you will also need to introduce amendments to clauses already debated, in which case it would be entirely inappropriate to introduce such amendments at Report. Given the importance of these issues it is imperative that the House have the opportunity to debate these matters in the freedom of Committee, rather than under the constrained rules of the Report Stage.

May I therefore have your assurance that should the Government, as a consequence of the Libor scandal and of the recommendations in the Wheatley Report, plan to introduce amendments to clauses 1 to 5, or at some later stage, amendments to clauses at that time already debated, that you will re-commit the appropriate clauses, hence ensuring that the House of Lords has the scope for full debate”.

It has since become clear that the Government intend to introduce on Report all the entirely new material presaged in the Wheatley report. The noble Lord, Lord Sassoon, wrote to me on 2 October—the day before I wrote to him which was somewhat mysterious. He said:

“I do not believe that it is necessary to recommit the Bill, and see no reason why a substantive debate on the relevant clauses at Report stage would offer insufficient opportunity for scrutiny by the House.

Re-commitment would risk unnecessarily delaying the implementation of both these important reforms to LIBOR setting processes, and of the equally urgent reform of the UK’s financial regulation regime which we have been debating through the Committee sessions to date”.

The noble Lord’s reply does not take into account what I actually asked for. First, I was not asking for total recommitment. I was asking only for the clauses which deal with entirely new material from the Wheatley report to be recommitted. Secondly, I believe very strongly that with respect to financial regulation it is not an issue of quibbling about delay but of getting it right. These enormously complex matters deserve the iterative consideration which is possible only in Committee. I remind noble Lords that on Report they can speak only once. Thirdly, it is quite wrong to deny this House the opportunity to consider entirely new and complex material within a Committee setting. I would therefore ask the noble Lord, Lord Sassoon, to reconsider his rejection of my proposal that the relevant clauses be recommitted.

If he is unwilling to do that, perhaps I may make a constructive proposal. Either he or the Chief Whip, who unfortunately is not in her place, should give an assurance that the rules of Report will be relaxed for consideration of what might be called the “Wheatley” clauses when they are introduced.

[Lord Barnett]

I warmly agree with my noble friend on the Front Bench, and it gives me an opportunity to refer to the noble Lord, Lord Sassoon, himself. In the Recess I read with regret that he proposes to retire at the end of this year. He and I have had a few exchanges across the Floor and I will miss them, but I look forward to continuing with those exchanges until the end of the year.

Not only do I agree with my noble friend in the points he has made about the Bill, what is even more important is that the whole Bill should be dropped for the moment. There is no hurry for it and much of it will cause great damage to financial services in this country. As the noble Lord, in his new position, is no longer going to be quite so subservient to the Chancellor of the Exchequer, I certainly hope that he can tell us the truth, drop the Bill for the time being and, as my noble friend has suggested, come back to the House with a new one.

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[Lord Peston]

My Lords, we make the obvious point that getting it right is not the same as doing it quickly. We ought always to bear that in mind in your Lordships’ House. There is a straightforward solution to this. One is my noble friend’s suggestion for Report. Since I assume, particularly given the Leader of the House’s remarks, that we are not imminently in danger of being abolished, that we are still a self-governing House, we can therefore decide, if we wish to, one of two things: either my noble friend’s proposal, with which I strongly agree, that we would simply have Committee stage rules at Report stage for what is being proposed; the alternative is not to end the Committee stage until the Government can get their tiny mind around the Wheatley proposals and come up with their amendments.

I have read the Wheatley report. The proposals do not strike me as being intellectually very demanding—nowhere near as difficult as deciding on a railway line. Therefore, the noble Lord ought to respond positively instead of adopting this negative approach and remind himself that we will get only one chance to get this right. We ought to make sure that we do not bungle it.

[Lord Eatwell]

My Lords, I should make clear that I said that the Labour Party was broadly supporting the conclusions of the Wheatley report; not the Government’s policy because we do not know what that is yet. We look forward to seeing it. Perhaps we will support it; perhaps we will not. On the substantive matter, I welcome what I saw was the noble Lord’s support for a degree of flexibility at Report, referred to also by my noble friend Lord Peston. If it could be agreed in due course by the usual channels that for the Wheatley clauses a Committee-style procedure be permitted and the House agreed to that, then I think we could proceed with due speed.

Motion agreed.

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[Lord Barnett]

My Lords, I always like to be enlightened. I agree with my noble friend and I have a tendency to agree with the noble Lord, Lord Sharkey. However on this occasion I do not. I must apologise to the Committee. This matter is no doubt explained somewhere in the huge volume of papers we received at the outset, including the two volumes of the Bill. I must have missed it. I thought I was relatively assiduous in looking at this Bill. No doubt the noble Lord, Lord Sassoon, will tell us where it is. I am sure the officials with whom the Government generally agree—although not on every subject in the world, I understand, and sometimes they even prosecute or suspend them—must have explained what the noble Lord has failed to tell us. I hope either the noble Lord himself or the noble Lord, Lord Sassoon, will explain it more fully. I for one do not understand it.

[Lord Eatwell]

My Lords, although I agree with the noble Lord, Lord Sharkey, that it is enormously important that we improve the flow of funding to small firms, particularly given the complete failure of the Government’s attempts to improve the funding through banks to small firms, I believe that we should approach this proposal with great care. The problem with crowd funding is that crowds can often be subject to hysteria. We have seen hysterical funding levels in what might be deemed to be fashionable or popular companies: lastminute.com comes to mind, as does the recent launch of Facebook. In both cases, excessive hysteria associated with the popularity of the particular company led to investors losing quite a lot of money.

However in the SME sector, the fundamental problem for small investors is the risk to which they are exposed. They will necessarily have significantly less information than they would from a listed company. Given that lack of information, and the high mortality rate of small and medium-sized companies—thankfully they have a high birth-rate as well—it is likely to lead to a lot of not-very-well-off people losing significant sums of money.

[Lord Sassoon]

My Lords, I will put some things to one side before I deal with the main substance of my noble friend’s argument in this short and interesting debate around crowd funding. First, for the help of the noble Lord, Lord Barnett, there is indeed no Section 417 because crowd funding has been introduced into this Bill by my noble friend Lord Sharkey. I am sure that in due course he will table a Section 417 which will make us all a lot clearer about the definition. However, for the interim benefit of the noble Lord, Lord Peston, and rather than me banging on about what crowd funding is and boring the rest of the House, I draw his attention to the FSA guidance on this topic put out in August this year. It gives a helpful short introduction to what it is all about.

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Moved by

[Lord Eatwell]

149AA: Clause 9, page 42, line 28, at end insert—
“( ) The regulators must co-ordinate their procedures for, and provide clear and detailed guidance on, the processes for applying for, varying and cancelling permission that are applicable to authorised persons regulated by both PRA and the FCA.”

[Lord Eatwell]

My Lords, I will speak also to Amendment 149AC. Both amendments concern the process of applying to carry on regulated activities. I am sure that the Minister is aware that there is considerable disquiet at the moment about the very long delays associated with the application to carry on regulated activities. Undoubtedly this is having a deleterious effect on competition in financial services, and on what we might call the reformation of the financial services industry.

No doubt these delays are partly as a result of the fact that the legislation that will cover these organisations is in process, and therefore the appropriate officials at the FSA feel somewhat constrained in their ability to make decisions on what can sometimes be quite sensitive and contentious issues. None the less, those delays are very unfortunate. The two amendments are designed to facilitate the process of application and to ensure that it will be rather more efficient when the duties are passed over to the FCA and/or the PRA on what I have noticed is, rather unfortunately, All Fools Day.

Amendment 149AA calls for co-ordination between the FCA and the PRA when processing applications for permission to carry out regulated activities, in particular giving clear and detailed guidance—something that is not always in evidence at the moment—on applying for, varying or cancelling permission. I am particularly concerned about applying for permission.

It is important that when the responsibility is split, as it must inevitably be between the regulator responsible for risk, the PRA, and the regulator responsible for conduct of business, the FCA, the co-ordination between them when dealing with new applicants is as clear, transparent and carefully guided as possible. Amendment 149AA achieves exactly that—at least that is what it seeks to do—and if it does not achieve it, perhaps the noble Lord will tell us how he intends to achieve the same objective.

Amendment 149AC seeks to modernise and future-proof elements of the application process. The Bill does not refer to decisions previously made by the European Union regulatory authorities when referring to non-EEA firms and the weight to be attached to opinions on any non-EEA firms wishing to operate in this jurisdiction. The European Union regulatory authorities are going to be the major regulatory rule makers in this area, so leaving them out at this stage will limit and inhibit operation of the Bill in the future. We know that the European authorities will become important in this respect. Surely it is therefore imperative that some weight be given in the Bill to their opinion when non-EEA firms are likely to be offered the privilege of acting within this jurisdiction. I beg to move.

[Baroness Kramer]

My Lords, I want to speak very briefly to Amendment 150B in this group. As your Lordships will know, the Bill amends Section 55 of FiSMA. Section 55Q as now in the Bill refers to the,

“Exercise of power in support of overseas regulator”.

I would like the Minister to clarify the definition of “overseas regulator” because neither I nor some of those who are much more sophisticated than me in trying to understand regulation are fully certain whether that definition would include an agency or instrumentality of the European Union such as the three supervisory authorities—the ESMA, the EBA and the EIOPA—which have direct regulatory powers in their own right. All I am asking for at this point is some clarification as to whether these EU agencies or instrumentalities are encompassed in this and if they are not, why not.

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[Lord Eatwell]

My Lords, I welcome the noble Lord, Lord Newby, to the consideration of the Bill but I suggest that he has failed to take the point of Amendment 149AA. His argument consisted of two points. First, he argued that there was sufficient requirement for the PRA and the FCA to work together in giving permissions under new Sections 55E, 55F and 55G. Secondly, he argued, extraordinarily, that it was not the task of the Bill to require either the PRA or the FCA to publish guidance on these matters. One of the great failures in the current process in giving permissions is the inadequate guidance which firms have in preparing their permissions. It is one reason why the permission process has become so extended and has so limited the development of competition in financial services which we would all like to see. In particular—

[Lord Newby]

What I said was that at present the FSA does make guidance available on its website. The new regulators intend to do the same. For that reason, I did not think there was a need for an express requirement in the Bill to do so.

[Lord Eatwell]

They may intend to do lots of things, but it would be nice if the Bill could actually require them to do so in this particular case. However, the more important point I would like the noble Lord to help me with is that Amendment 149A requires the collaborative activity of the FCA and the PRA to publish guidance for applicants, so that an applicant is not caught between two stools, continuously going backwards and forwards between one and the other in the application process. If this is already in new Sections 55E, 55F, and 55G, can the noble Lord point out to me precisely where this requirement appears?

[Lord Newby]

The PRA and FCA are under a duty to co-ordinate covering all their functions, including those related to authorisations. They are under a duty to set out in their MoU how that co-ordination will be delivered. Therefore, the noble Lord’s concern that there will not be adequate co-ordination, and that even if there were, it might not be readily available to regulated or would-be regulated firms, is mistaken. There is recognition that there is a potential problem, obviously, with two regulators, but the Bill and the MoU seek specifically to address those problems.

[Lord Eatwell]

Pushing things into the MoU is unsatisfactory, particularly when the noble Lord pleaded in aid new Sections 55E, 55F, 55G, and so on. It does seem that there is a problem with the whole current application process. Anybody who has been involved with, or been approached by, people involved in the application process knows that as it stands it is not working very well. Once we have two regulators responsible for the approval of applications, there is the possibility that it will work less well, which will not be good for the health and vitality of financial services, particularly banking, in this country. However, we will no doubt return to this matter at a later stage. In the mean time, I beg leave to withdraw the amendment.

Amendment 149AA withdrawn.