Financial Services Bill

Lord McFall of Alcluith Excerpts

Monday 8th October 2012 Lords Chamber

[Lord McFall of Alcluith]

I support my colleague’s comments on this clause. Only last week I received a text saying that there was £2,200 waiting for me to claim as a result of that; I think, therefore, that something needs to be done. In relation to PPI, only six weeks ago both the banks and the consumer organisations had a meeting to sort out the problem with claims management simply because they said that the Ministry of Justice is not fit to look at it at this time. There are big problems here for the Minister; there needs to be consultation. If he gave us an indication today that the department was engaging in that, it would give some reassurance to those who are plagued by claims management companies at the moment.

[Lord Sassoon]

My Lords, my comments on Amendments 147L and 147M will be brief, because we discussed both issues in some depth in earlier sessions of the Committee. Amendment 147L seeks to enable the activities of debt adjusting and debt management to be regulated under the Financial Services and Markets Act. I can reassure the Committee on this point. The effect of Amendment 147L is already achieved by Clause 6, which enables all activities currently regulated by the Office of Fair Trading under the Consumer Credit Act to be transferred to the FCA under FSMA. I hope that is a very clear answer and the direct reassurance for which the noble Lord, Lord Stevenson of Balmacara, was asking.

I will not be quite as brief on Amendment 147M; this continues to be an important area even though we have discussed it before. The amendment seeks to add the services provided by claims management companies to the list of matters that can be regulated under FSMA. I set out in some detail in a past session of the Committee why I do not believe that the activities of claims management companies should be regulated by the FCA. The key point is that claims management companies are not financial services firms. Yes, it is correct that a substantial proportion of their activity at the moment relates to financial services, but—as the noble Baroness, Lady Sherlock, has pointed out—they may move their focus of attention back to, or on to, something quite different in the future. However, that does not alter the fact that they focus on financial services at the moment. It does not alter the fact that they have no place in the scope of a regulator concerned with financial services and only financial services, which is what we are talking about here.

I agree, of course, with the noble Lord, Lord Stevenson of Balmacara, that there are a lot of detrimental practices in the sector that need to be tackled. I reiterate that work that is already under way to strengthen the existing regime for the regulation of claims management companies. Before the summer, I flagged that the claims management unit at the Ministry of Justice was doing work to strengthen the conduct of rules governing the sector. That work is proceeding apace and further steps are being taken. I will take back the noble Baroness’s comment about resources but I have no evidence that this work is being hampered by inadequate resources.

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Moved by

[Lord McFall of Alcluith]

148: Clause 7, page 40, line 8, at end insert—
“( ) a draft of the order has been consulted upon with such persons as the Treasury considers appropriate,”

[Lord McFall of Alcluith]

My Lords, I will be brief and precise on Amendments 148, 149 and 174 which require consultation by the Treasury on draft orders. Clause 7(3) provides for parliamentary control in relation to the proposed orders under Section 22 of the Financial Services and Markets Act 2000 and proposed new sub-paragraph (2) says that no order should be made before Parliament unless approved by resolution of each House. Given the complexity of the Financial Services Bill and the capacity for muddle and wrong-headedness by all Governments over the past years, I think there is a case for enlarging the consultation.

In the 1990s, we were in Opposition in the House of Commons and recommended pre-legislative scrutiny. A number of Ministers took up the concept and it worked. I remember being involved in a three-clause Bill in Scotland that related to raves—clubs where young people found themselves dehydrated and where a number of lives were lost. The main clause in that Bill was Clause 2. We did pre-legislative scrutiny and visited many areas of Scotland. We came back and the then Minister, the noble Lord, Lord Selkirk of Douglas, said that the Government had reflected on the matter and that Clause 2 would be removed and redrafted. The lesson is that politicians can frequently get things wrong. Why do we not get this right by taking a little bit more time and extending the consultation? That is the thrust of this amendment.

[Lord Peston]

My Lords, I am a bit puzzled about the wording in the relevant paragraph. Of course, I agree with what my noble friend says about consultation. However, can the Minister explain why the word “would” appears in line 5 rather than “should”? Even if the Treasury thinks the order would have the described effect, it must certainly believe that it should have the effect. What is the point of the order if it does not achieve what it is trying to achieve? I am a bit puzzled about the word “would”. My noble friend’s amendment would make much more sense if “should” were inserted instead of “would”.

That leads me to my attempt to get my mind around what would actually happen in this case. It is immensely difficult because the provision substitutes material in this Bill for material in legislation that we do not have before us, which is always a problem. However, if we ask ourselves, “When would any of this order-making process occur?”, presumably the answer would be that it would occur when various outside bodies say that this matter is not being regulated, but must be regulated. In other words, what precedes the consultation is the fact that it is not certain at all that the Treasury would take the initiative in this. It is the acting body and is therefore the one that has to act when it comes to producing the orders.

Therefore, the built-in logic behind the entire new paragraph is the consultation process. Indeed, it is also part of the spirit of the age. One can go further and say that not merely is consultation part of the spirit of the age, but that interested bodies would undoubtedly be aware of these orders. Even if the Treasury does not consult them, those bodies will ensure that the Treasury knows what they think because they will get in touch with the Treasury and say either, “What you are doing is a good thing and we would like to support you”, or, “You do not know what you are doing and you ought to do it in a different way”. What my noble friend is putting forward helps the Bill to become much more sensible in practical terms, and it would become a fortiori more sensible if we were allowed to amend the language by inserting “should” for “would”. I think that would make infinitely more sense.

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[Lord Sassoon]

On this occasion, I am quite confident in my use of the English language, even if the noble Lord understands the Bill better. Outside the Chamber we can debate who understands the Bill better. I am quite clear that “would” is the correct word here because it refers to something which is expected to have the effect of extending regulation. I shall not detain the Committee on what we are not discussing, so let us talk about what we are discussing.

Amendment 148 would require the Treasury to consult on the order made under Section 22 where it would result in an unregulated activity becoming regulated. The Government recognise the best practice established in this area by the Department for Business’s code of practice on consultation. I can assure the Committee that the Government will continue to observe the code wherever possible when conducting formal written consultations. However, I do not think that it would be appropriate to write this requirement into this legislation, as it is not written into many other pieces of legislation. Indeed, the Government generally consult on changes to the regulated activities order. I cannot find any case to date where the Government have introduced substantive changes without consultation. Having said that, it may not be appropriate in all cases: for example, if an urgent change needs to be made to bring an activity into prudential regulation that may cause a financial stability risk. For that additional reason, I think it would be wrong to require consultation.

Amendment 149 would require the Treasury to consult on the first Section 22A order and any subsequent orders which amend the scope of PRA regulation or which amend primary legislation. The Section 22A order sets out the scope of PRA regulation. Here, too, the Government agree—and I am happy to restate it—that it is preferable to consult, and indeed the Treasury will be consulting on a draft of the Section 22A order shortly. I do not think it is necessary to write such requirements into legislation.

It is also worth the Committee noting that both of these types of orders would be subject to the affirmative procedure in all cases. Parliament will always have the chance to consider these amendments, and to consider whether the Government have presented suitable evidence—through a consultation in the normal event—of the need for any change. I think that that backstop is an important point here.

I turn now to Amendment 149AB in the name of the noble Lord, Lord Davies of Oldham. He has tabled, I think, only one amendment out of the many hundreds that this Committee has already considered and because I made a concession on it, his batting order is going down from a 100% to a 50% success rate at a stroke. I agree with the noble Lord that orders made by the Treasury that amend Schedule 6 should be subject to the affirmative procedure as they concern changes to the PRA’s and FCA’s threshold conditions, which are the cornerstones of each authority’s regulatory approach. However, we have already provided for this. Clause 46(2), on page 130, includes orders made under Section 55C in the list of orders that should be subject to the affirmative procedure. Therefore it is a simple matter to understand that Amendment 149AB is not needed.

I move to Amendment 174, tabled by the noble Lord, Lord McFall of Alcluith. I will briefly explain the purpose of new Section 141A of FiSMA. It gives the Treasury and the Secretary of State a narrow and technical order-making power to amend legislation that makes reference to the rules of either regulator or to guidance issued by the FCA where the regulator has altered or revoked its rules. This is a sensible approach to ensuring that references to rules and guidance made by the regulator in legislation remain accurate and up to date.

It would not be appropriate to require the Treasury or the Secretary of State to engage in consultations before making amendments to legislation that are a direct consequence of changes to rules or guidance made by the regulator. This would cause unhelpful delays to the process of updating the affected legislation, causing possible confusion and uncertainty for firms and other persons affected. Of course, except in cases of urgency there will already have been consultation on the substantive changes being made to the rules or guidance, as this is required of the regulators.

I hope that with those explanations the noble Lord, Lord McFall, will feel able to withdraw his amendment.

[Lord McFall of Alcluith]

My Lords, it was not my primary aim to promote a deeper understanding of the English language but I did enjoy the exchanges. However, I now beg leave to withdraw the amendment.

Amendment 148 withdrawn.

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[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.

[Lord McFall of Alcluith]

I will briefly refer to Amendments 151 and 152. They oblige the regulator to have regard to those associated with a person who has applied for, or has been given, permission. We realise that proposed new Section 55R provides that when considering previous issues the regulator may have regard to the applicants’ relationship. I suggest that this provision should be mandatory rather than discretionary and that relationships should be defined as including family, business or other associations. It would bring more clarity to the interpretation of this clause.

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Moved by

[Lord McFall of Alcluith]

150: Clause 9, page 49, line 9, after “if” insert “after investigation”

[Lord McFall of Alcluith]

My Lords, there are 14 amendments in total here, and I will not be speaking to them all; but if I could characterise them, the three words I would use would be investigation, consultation and reasons for the Financial Conduct Authority. Underpinning that are the concepts of natural justice and the law of judicial review. Given the problems that the FCA has experienced with investigations in the past, both with the Royal Bank of Scotland and the HBOS decision, there are many questions arising from that, not least on the HBOS decision. The FCA needs to be clearer and have more consultation on its relations with financial service companies because the status of the FCA is at stake here. These amendments refer to FCA investigations and providing the reasons and the consultation for them.

[Baroness Hayter of Kentish Town]

My Lords, I rise to speak on the amendments in this group, and in particular on Amendment 165ZA, standing in the name of my noble friend Lord Davies of Oldham, and Amendment 170ZA in my name. As my noble friend Lord McFall has said, these amendments are essentially about transparency, before and after the event, and consultation. They are also about the publication of findings and reasons, including to Parliament.

Amendment 165ZA would require, where a prohibition order is made, that the regulator publish the reasons for this and that the individual appears on the list of people subject to prohibition orders on the Treasury website. This is key. It is not simply to promote good practice by making clear what constitutes the contrary, but also to enable investors and others easily to identify who has been subject to such an order.

My family recently had to check out a hitherto chartered accountant, only to find it impossible to discover from the ICAEW’s website whether he had actually been removed from the register—which, in fact, he had been. The institute finally said it would sell us a list of those who had been so removed, but it should not really be necessary to go through that to discover who has been struck off. We certainly do not want that sort of opacity from the new regulators.

The amendment is really about open access. I assume that it will not divide us across the Committee. On this very proposal, Matthew Hancock—admittedly before he was a Minister, albeit that he was very close to a certain senior one—in the other place said that,

“the principle that prohibition orders on people who are not fit and proper persons should be published is crucial … Prohibition must not only be a sanction for past irresponsible behaviour, but a deterrent for future irresponsible behaviour. That change in behaviour, by ensuring that sanctions are strong enough to change the culture within finance, is … extremely important. It is one of the key lessons from the financial crisis. … the point of prohibition is not only … to stop the actions of those who have … committed acts that make them not fit and proper, but to demonstrate the bounds of behaviour that are deemed responsible and reasonable within authorised firms”.—[Official Report, Commons, Financial Services Bill Committee, 6/3/12; col. 384.]

The then Minister, Mark Hoban, agreed,

“that prohibition is both a punishment and a deterrent, and that the risk of being deprived of one’s livelihood is a deterrent to those who transgress”.—[Official Report, Commons, Financial Services Bill Committee, 6/3/12; col. 387.]

Clearly, publicity is key to that.

Amendment 170ZA in my name requires the FCA to give a copy of its policy on penalties relating to the discipline of sponsors not just to the Treasury but also to Parliament. Clearly, this is about improving parliamentary accountability and scrutiny of the FCA, its reports and how it carries out its functions. It is not enough to leave the FCA or the Treasury to publish statements to the wider public without laying them before the public’s elected representatives in Parliament. Furthermore, we do not want the new regulators simply to become creatures of the Treasury but we want to submit their work also to parliamentary scrutiny.

The amendments in the name of my noble friend Lord McFall of Alcluith are similarly about openness and transparency. They require appropriate consultation by the authorities, proper investigation before action is taken and then explanations provided in due course. We commend these amendments to the Committee. There is also an amendment in this group in the name of the noble Lord, Lord Hodgson, which appears to make good sense. We look forward to the Minister’s response to that.

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[Lord McFall of Alcluith]

I beg leave to withdraw the amendment.

Amendment 150 withdrawn.