Financial Services Bill

Debate between Lord Hodgson of Astley Abbotts and Lord Peston

Monday 26th November 2012 Lords Chamber

[Lord Peston]

Partly because of the noise I did not quite get all the argument that the noble Lord was putting forward. Is his argument that the FCA thought there was a problem, got involved, then heard some cogent reasoning from the firm concerned and therefore felt that there was no need for this to become public knowledge? That, I think, is the noble Lord’s argument, but there is one bit that troubles me. Would firms—and consumers, for that matter—not benefit if they knew about the problem and discovered that there was a good case for not proceeding with it? In other words, one of the things that we lose from not making what happened public is that, outside of this, no one gets to learn anything from what happens. Can I persuade the Minister just to respond to that?

I agree with my noble friend on the Front Bench, of course, that if we had had a code of conduct in the first place, along the lines that she suggested, we would not have a problem anyway.

[Lord Hodgson of Astley Abbotts]

I understand that my noble friend on the Front Bench is saying that you would not need to publicise it because there was no problem. All you would be doing is raising concerns in the minds of the consumer about a problem that in fact did not exist, because the regulator was satisfied by the explanation it had received from the firm in question. It would be entirely inappropriate to raise questions about a firm’s probity and behaviour when there was no problem in any case and the regulator was convinced of that fact.

Financial Services Bill

Debate between Lord Hodgson of Astley Abbotts and Lord Peston

Wednesday 24th October 2012 Lords Chamber

[Lord Peston]

We are indebted to the noble Lord, Lord Hodgson of Astley Abbotts, for raising these matters, although we discussed similar matters last week under the guidance of the noble Lord, Lord Flight, and my noble friend Lady Hayter. The central question here is our fear—fear in the relevant sector as well—that the regulators damage our financial services sector rather than improve its performance. I think that is the theme that lies behind these matters. I have two questions, but I am bad at reading amendments, so I want to be certain about them. Presumably the new subsection proposed in Amendment 192A would come before subsections (1) to (7) in Clause 74. Am I right that it would be the lead-in?

[Lord Hodgson of Astley Abbotts]

Yes.

[Lord Peston]

It would establish the principle which everything else must follow. That is fine; I understand what the noble Lord is saying. That leads me to ask two central questions. In Clause 73, and I think in something similar earlier, subsection (2) refers to “Relevant events” that occur in relation to,

“(b) a person who is, or was at the time … carrying on a regulated activity”.

What worries me as a matter of logic is whether we will end up with the regulator having to investigate him or herself. If these people have not met the standards, who is responsible? They are partly, of course, but this would also be an indication of regulator failure. To my way of looking at it, we have a part of the Bill that is totally bizarre. From a logical point of view, the answer to the question “Quis custodiet ipsos custodes?” is that the regulator is the custodes himself, if you like. I would certainly welcome an analysis from the Minister in his reply which shows that we are not seriously involved in a logical contradiction here.

My second question is whether the fact of an investigation of the kind we are discussing is to be in the public domain. In other words, will it be publicly known that the regulator is investigating one of the things going on here? It may be that I have not read it properly, but is not that itself potentially enormously damaging, again a point that was raised last week? I should like the answer to these two questions. It may be that Treasury officials will have to do a bit of thinking about this part of the Bill when they are not thinking about the logical nature of “may” versus “must”. As I have pointed out before, there is a vast philosophical literature on this. How much of it they will have time to read, I do not know. However, the central point is to get a rational response to the amendment moved by the noble Lord, Lord Hodgson.

[Lord Davies of Oldham]

My Lords, I am grateful to the noble Lord, Lord Hodgson, for identifying this issue, but I must say that if noble Lords opposite do not think that the nation is expecting a Bill and eventually an Act of Parliament that tightens up regulation in the wake of the circumstances we suffered four to five years ago, then all I can say is that such a position is not tenable. The noble Lord, Lord Hodgson, is indicating that the principles of the regulator should be expressed in these terms. Who can be against the principles of fairness? Of course we want and expect the regulators to act fairly, but let us remember that they may be acting under a direction from the Treasury because something has gone wrong. The idea that the first thing the regulator must do is consider the principles on which it must act rather than in fact investigate the nature of the problem, as it has been instructed by the Treasury to do, seems to put the cart very firmly before the horse.

In responding to this amendment, I am sure that the Minister will have some warm words for his noble friends who have spoken in favour of the amendments, but I hope that he will defend the basic objective of the Bill. I shall give way to the noble Lord.

Financial Services Bill

Debate between Lord Hodgson of Astley Abbotts and Lord Peston

Monday 15th October 2012 Lords Chamber

[Lord Peston]

My Lords, in supporting my noble friend’s amendment, I say that I am a strong supporter of the European Union, and that I hope one day to live in a country where the Government is also a strong supporter of our membership of the European Union—something that has not been the case for many years. I refer not just to the present Government but to the previous one. However, although I regard myself as a supporter of the European Union, I am well aware that often it drips into areas that are none of its business. When I first saw the amendment, I thought: what possible grounds are there for the European Union to consider supporting charities, let alone setting limits on how they can be supported? I assume that this is a probing amendment, although my noble friend has not told me so. Really the European Union has no business to be in this field; that is the message we would like to get over.

[Lord Hodgson of Astley Abbotts]

My Lords, my Amendment 187CA in this group relates to another aspect of the operation of the Financial Services Compensation Scheme. The current wording by which the scheme operates gives it a lot of discretion in the way that the costs of the scheme are allocated. Section 213(5) of FiSMA states:

“In making any provision of the scheme … the Authority must take account of the desirability of ensuring that the amount of the levies imposed on a particular class of authorised persons reflects, so far as practicable, the amount of the claims made, or likely to be made, in respect of that class of person”.

There are two get-outs.

I make it clear that this is not about restricting the rights of consumers to obtain compensation. It is a critical and essential part of maintaining proper confidence in our financial system that there are proper and appropriate ways for people to claim and get compensation for mis-selling or other malfeasance. However, the amendment is about ensuring that the polluter pays. It has become more difficult in recent years to trace the allocations and levies made by the Financial Services Compensation Scheme to the particular class of persons and businesses to which they have been applied. Often, there appears to be a shifting of the pea around the plate, with a disproportionate share landing on those perhaps least able to complain. I hope that my noble friend will listen to the amendment with sympathy. The funding system must reflect the differences in risk and instability posed to the public and to the wider economy by firms and the financial products they offer.

I make it absolutely clear that my amendment does not enforce an unacceptable level of correlation. The words “as far as practicable” will remain, and will therefore provide the scheme with a degree of flexibility—a get-out, if you like. However, the additional words, “take account of the desirability of ensuring”, are too woolly. They lead to situations where people feel that the scheme is not operating fairly. Therefore, I would like to see those words replaced by the single word, “ensure”, as a means of ensuring that the Financial Services Compensation Scheme penalises the polluter and not the wider financial community.

Financial Services Bill

Debate between Lord Hodgson of Astley Abbotts and Lord Peston

Wednesday 18th July 2012 Lords Chamber

[Lord Hodgson of Astley Abbotts]

My Lords, my noble friend has moved a very interesting amendment. We may be in danger of confusing two issues. The noble Baroness referred to impenetrable language. I quite accept that, but that is a question not of financial literacy but of improving the form in which the communication is made. To try and deal with financial literacy is a much narrower issue than impenetrable language. I support her entirely, but I would also add the form and content. How often do we get a letter from our credit card company saying that it is going to amend the terms in which the credit card is offered? It is four pages of closely packed print and what do we do but drop it straight in the waste paper basket. However, the company has complied with the requirement. In those cases, the famous phrases “less is more”—less information, better focused—is what we should be all about.

That is an important point though not exactly what my noble friend was driving at. I think my noble friend was driving at something designed to deal with people at an earlier stage of their life. In particular, it has relevance to Amendment 104C, in the names of the noble Lords, Lord Peston and Lord Barnett, about the unavoidability of some risk. One of the issues that has somehow got about in the world is that we can actually insulate people from risk. When we have financial literacy lessons, we need to emphasise to everybody that there is no product anywhere that does not carry some level of risk. I am looking forward to hearing the two noble Lords on this issue in a few minutes. I have only one question on my noble friend’s amendment. Who pays for all this?

[Lord Peston]

Is the noble Lord going to answer that first?

--- Later in debate ---

[Lord Peston]

Sorry—Andrew Haldane. I am not good on these things. Names are one of my Alzheimer’s problems. Mr Haldane says, in a typically short paragraph of his brilliant lecture:

“This evolution in the topology of the network”—

that is, the network of financial intermediaries—

“meant that sharp discontinuities in the financial system were an accident waiting to happen. The present crisis is the materialisation of that accident”.

Financial literacy means being able to understand those two sentences. I am not a bad mathematician but even I had difficulty with the topology of networks. That is the problem in this area. What you can teach at the level at which the noble Lord, Lord Flight, wants to teach, is very little indeed. As I said, that does not mean that we should not do it, but we should not delude ourselves that we can produce a financially literate population because most people simply do not have the mathematics to understand this kind of work. I cannot believe that anybody could write a non-mathematical explanation of what Andrew Haldane said.

Nothing I have said should stop us from trying—I am not going against the noble Lord, Lord Flight, on this—but financial literacy is not the easiest thing to achieve.

[Lord Hodgson of Astley Abbotts]

Does the noble Lord not agree that two or three basic things could be taught relatively easily? The first is the impact of inflation and how it affects the value of savings. The second is the impact of compound interest and the costs and returns of borrowing. Those two subjects do not require the brilliant mathematics of which the noble Lord alone is capable. Quite realistic, real-life examples could be given to people in their final two or three years at school.

[Lord Peston]

I have had a little experience of this. In my younger days in the Treasury we tried to persuade senior Treasury officials that capital investment projects ought to be dealt with by discounted cash flow. We were talking to senior officials who were brilliantly clever, but it was nearly impossible to teach them even about compound interest. When we had taught them compound interest, they had no idea how to convert it into discounting. Again, I am not saying that we should not teach compound interest in schools—quite the contrary. All I am saying is that it is not easy.

Protection of Freedoms Bill

Debate between Lord Hodgson of Astley Abbotts and Lord Peston

Monday 12th March 2012 Lords Chamber

[Lord Hodgson of Astley Abbotts]

My Lords, I participated in the Second Reading debate in November. I have not participated in the stages since, although I have read the proceedings in Hansard with some care. I intend to ask my noble friend to reject these amendments but, before I turn to the substance of my remarks and because this is such a difficult and emotional subject, I hope the House will permit me a brief diversion.

At Second Reading, I made it clear that I thought the activities of those who preyed on children—or vulnerable adults, as the noble Baroness has just said—were repulsive. That was the word I used then and I use it again this afternoon. I went on to argue for the need for proportionality and the measurement of effectiveness and impact and so forth. Therefore, I was very disappointed when the noble Lord, Lord Rosser—I am pleased to see him in his place on the Front Bench—said in his winding-up remarks:

“It is all very well wanting to reduce regulation, as clearly the noble Lord, Lord Hodgson of Astley Abbotts, does, but not if it is at the expense of someone else’s safety”.—[Official Report, 8/11/11; col. 219.]

I regard that as a cheap shot. I am happy to be told that my judgment is wrong, that my understanding of the law is wrong or that the practical implications of what I am proposing are wrong, but I am not prepared to be told that I put the reduction of the regulatory burden before the safety of children. That was unfair.

The noble Baroness, Lady Howarth, gave the House a graphic explanation of her work in this area. I will just add my own few words. My wife’s cousin is a forensic pathologist, and he undertakes for the noble Lord’s department post-mortems of the most searing kind. I talked to him about his work and I asked him if he did not find it rather macabre. He said, “Not really, because I am a detective. Some detectives will crawl across the carpet looking for clues in the fibres. I am finding the clues in people, and I am therefore able to convict the guilty and let the innocent go free”. Because I am squeamish, I also say, “Isn’t it rather strange to be dealing with corpses?”. He said, “By the natural order of things you get used to it but when we have a child brought into our post-mortem room, there is a palpable change in the atmosphere, the tension and the behaviour of the team”. Whatever I am saying about the need to not accept these amendments, it is not because I think that children should not be protected. That forensic pathologist’s stories of the things he has seen are harrowing beyond belief.

On 6 February 2012, the second day on Report, in moving his amendment, the noble Lord, Lord Bichard, said,

“first, that we cannot create a risk-free society; secondly, that the steps we take to minimise risk should be proportionate. For those reasons, I very much sympathise with and support the Government in seeking to strike the right balance in this very difficult area”.—[Official Report, 6/2/12; col. 107.]

I say amen to that. I entirely agree with the noble Lord. I further agree that getting the balance right is exceptionally difficult.

However, I argue that to some extent the Government have already got the balance right, which is why I shall ask my noble friend to resist this amendment. I do so for three reasons: first, it changes the relative importance of judgment as opposed to process; secondly, there is a bandwagon effect in this whole area, which will result from some of the wording of the noble Lord’s amendment; and, thirdly, there is the danger that this amendment will contribute to the further atomisation of our society.

On judgment versus process, I follow some of the remarks made by the noble Earl, Lord Erroll. When I was taking evidence on the preparation of the report Unshackling Good Neighbours, it was astonishing how many people saw the official check as the beginning and end of the matter. There is health and safety, and other areas, as well as the CRB. Too often, individuals did not wish or saw no reason to use or trust their individual judgment. My fear is that the more we push the process forward, the less people will feel that they need to use their judgment and intervene, because they feel that it is someone else’s responsibility.

Strangely, in the briefing we received from Fair Play for Children, some of that attitude reveals itself. It states:

“We also point out the possibility that the person, in applying for another post within the organisation, might find himself subject to scrutiny against the barred list, and barring revealed. That places employers at that stage in an invidious position of having had such a person working for them with children and then having to comply with statute to refuse the new job”.

I cannot for the life of me see what is “invidious” about this. It is about a proper, disciplined and clearly run business. If a person changes his job and has different responsibilities involving further exposure and involvement with children, at that point the employer is entitled to say, “I am afraid this is not something which you can become involved with because of the role you are now undertaking”. When I read that the,

“day to day supervision is a reference to such day to day supervision as is reasonable in all the circumstances for the purpose of protecting any children concerned”,

I believe that the Government have got the balance about right.

On the bandwagon effect, subsection (4) of the new clause proposed under Amendment 5 in the name of the noble Lord, Lord Bichard, states:

“Guidance produced for the purposes of subsection (3) … shall recommend that such organisations as described, should seek to obtain a relevant enhanced criminal record certificate as a matter of best practice”.

The noble Lord may think that he will cut down the number of criminal records checked but, faced with the matter of best practice, individuals running charities, voluntary groups and sports clubs will face ever greater pressure to obtain an enhanced criminal record certificate. It will be argued that this is needed to be on the safe side. Charities have groups of people which depend on CRB checks, so they are not going to say it is not needed; rather they will say that, for access, it is best practice.

We saw lots of examples in the evidence given to us before we completed our report, Unshackling Good Neighbours. It is tragic to see how many people, rightly or wrongly, are put off from volunteering because they do not want to be CRB-checked. In many cases they did not need to be CRB-checked, but the authorities thought they should be in order to be on the safe side. The University of Oxford has advertised for students to help invigilate in its museums. The job requires sitting in a room or corridor and watching the exhibits so that visitors cannot remove or destroy them. But they now have to be CRB-checked. It is hard to see how the job falls within the requirements of a CRB check but, to be on the safe side, that is what the university wants to do.

Last, I turn to the atomisation effect. Social scientists say that our society is becoming atomised, as they call it, and social media mean that we live increasingly isolated lives. The noble Lord, Lord Bichard, in an interesting article in the House Magazine this week, talks about how social media provide the opportunity for grooming, and I agree with him absolutely on that. I said in my speech at Second Reading that this is one of the most difficult areas we have to tackle going forward. However, if we are not careful, we will enhance the selfish gene which lies within all of us. People say that they see no reason to help their town, village, street or community. To reverse this trend and encourage people to reconnect and get involved, we need to welcome them, not treat them as criminals.

It is a fact, thank goodness, that a fractional minority of people seeks to prey on children. The overwhelmingly vast majority of our fellow citizens are decent, law-abiding and want to do their best. It is with these people in mind that I urge my noble friend not to accept these amendments.

[Lord Peston]

Is the noble Lord saying that if we accept these amendments, there would be no net increase in the number of children who would be protected?

[Lord Hodgson of Astley Abbotts]

I cannot prove a negative, and that is one of the difficulties of arguing either for or against any form of regulation. You cannot prove what will happen. I suspect that there will be no net increase in the risk to children. I suspect that but I cannot prove it, just as the noble Lord cannot prove the contrary.