Financial Services Bill

Lord Peston Excerpts

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.

--- Later in debate ---

Lord Flight: My Lords, this amendment is not of huge importance but the point is this: the power in the new Section 9G(2) enables the FPC to issue directions which will require the PRA or FCA to exclude or modify existing procedural requirements under FiSMA, and this is likely to include the requirements on the PRA and FCA to consult on new rules. While I accept that under certain emergency circumstances it may be necessary and correct so to do, this should clearly not be a common occurrence, and this amendment seeks to limit the power to dispense with or modify these procedures by requiring a subsequent explanation and justification if they are so modified.

[Lord Peston]

My Lords, I was hoping that the noble Lord, Lord Flight, would speak at much greater length on this matter, because I find this whole section of the Bill very difficult to understand. The notes on clauses—I do not know whether noble Lords have bothered to take a copy—are about the worst I have seen in my life. They simply repeat the clauses, with no explanation whatever. Therefore, I would like to ask, via the Minister—I am not sure how one does this in Committee —whether the central point here is to deal with an emergency where the emergency is such that you cannot wait? The noble Lord, Lord Flight, has not given us an example. I have had great difficulty thinking of one. Perhaps he could tell me later what particular sort of emergency he has in mind. The great stock market crash of 1929 is a relevant event from the point of view of financial instability. I am sure the noble Lord, Lord Flight, knows that Irving Fisher, then the world’s greatest economist, said at the time that there was no danger whatever of the stock market crashing, it would go on rising considerably.

If that situation repeats itself, our intervention would be too late. That is the problem. The real point is, technically, whether we could ever be early enough. Therefore, I just want to make sure that I fully understand what the noble Lord, Lord Flight, is saying, when he recommends this amendment, which otherwise sounds fairly sensible to me.

[Lord Stewartby]

My Lords, I would like to add a word to what the noble Lord, Lord Peston, has said, in particular to ask my noble friend Lord Flight about the frequency with which this situation is likely to happen. Would it be an exceptionally rare event, because that may affect the way in which one approaches it?