Financial Services Bill

Lord Peston Excerpts

Monday 26th November 2012 Lords Chamber

[Baroness Hayter of Kentish Town]

My Lords, I thank the Minister for what I think he thought was reassurance on this amendment. Nevertheless, he will not be surprised to know that I still find it regrettable that it makes permissive, rather than obligatory, the publication of names and details where a firm has been obliged to withdraw a misleading advertisement rather than withdrawing it voluntarily.

At the very least we seek an assurance from the Minister that the default is publication, with non-publication being the exception, rather than each finding of misleading ads having then to consider whether publication of the fact should proceed. Otherwise, it is a complete reversal of what I think the Government seek to do. Had the Government accepted my amendment earlier, which would have introduced a code of conduct for financial services, we may have had to rely much less on this, because there would have been fewer ads to withdraw.

I will take only two seconds here. I was very interested to read on Thursday that the Chancellor of the Exchequer accepted the need for professional standards to keep banks’ behaviour in check. It is a shame that he did not tell his noble friends beforehand, otherwise perhaps the Minister could have accepted our amendments. Perhaps, in compensation, the Minister will take a moment when replying to indicate what sort of organisation the Chancellor envisaged should be set up to ensure professional standards in the banking industry.

This is of course relevant to the Bill because it is about preventing bad behaviour, whereas the amendment that the noble Lord has just moved is about dealing with something after the event. For the moment, will the Minister assure the House that the default position will be to publish the findings on misleading promotions, with details being withheld only in exceptional circumstances?

[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.

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[Lord Peston]

That is totally—going back into the history of economic thought—to misunderstand the most fundamental contribution that Adam Smith made to economics, which is that it is the consumer who matters and not the firm. The noble Lord and several other noble Lords on that side have spent a large part of the debate on this Bill deciding that the firm was what mattered. The fact is that the consumer is what matters, and the consumer needs to know that there was a problem in principle even though it turns out that there was not a problem in fact. I think the noble Lord is also arguing that one is not allowed to speak twice because we are on Report—I thought he was shaking his head when I got to my feet again—but I had not yet finished. However, I am finished now.

[Lord Sassoon]

It did go through my mind to ask my noble friend Lord Newby to assure me that we were back on Report—because we went back into Committee mode for a bit last week—so I am grateful to the noble Lord, Lord Peston, for confirming that we are indeed on Report.

As I said in our previous discussion on professional standards, and as the noble Baroness knows full well, the Joint Committee of the two Houses is working away on this—indeed, I think it is sitting again this afternoon; I am looking around to see who is here and who is not in their place—and it will come forward with its suggestion as to what would be the appropriate body for professional standards.

Sadly, although professional standards are enormously important and they absolutely need to be raised in the industry, that does not mean that we do not need the construct that we are talking about in this clause. However, I can confirm to the noble Baroness that I expect that the default will be to publish and that there will be only limited circumstances, of which I have described one—although I cannot think of many others—in which it would wish not to publish. Indeed, other provisions in the Bill require the FSA to have regard to the desirability in more general terms of publishing as a back-stop.

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[Baroness Garden of Frognal]

I think that the rule applies also to the mover of the amendment.

[Lord Peston]

I am sorry; I am a bit lost on the procedure here. I was under the impression that if someone was moving an amendment he could be asked any number of questions and reply to them. When did we invent a rule that said that we could not ask questions and ask the person moving the amendment to answer them? I am not convinced that we are not making a new rule here. By the way, that is not my speech, which I am about to make.

[Baroness Garden of Frognal]

My Lords, on Report the mover may reply to any questions at the end but does not reply individually in the course of the debate.

[Lord Peston]

I hate to prolong this but I am not certain that that is right. How are we to conduct the clarification of the amendment if we do not get an answer to an early question in order to ask a later one? I am totally lost as to how we are handling this. We should not forget that this is an immensely complicated Bill and many of us have had great difficulties dealing with it. I have a question for the noble Lord, Lord Flight, just to clarify matters and it may be that someone else will build on that, but we are being told that we cannot do that. That does not seem to be a very helpful way of dealing with this Bill.

[Baroness Garden of Frognal]

I am sorry to intervene again on the noble Lord, Lord Peston, who has many more years of experience of this House than I do, but this is not the form that Report stage takes. The mover may reply to questions at the end of the debate, but the debate does not go backwards and forwards in the way that it does at other stages of the Bill.

[Lord Stewartby]

My Lords, I must be very brief and I shall speak only once. I want to say something in support of my noble friend Lord Flight, who made a very strong case. I have never been able to understand why financial advisers alone have no longstop for their potential liability in future years. I hope that this opportunity of having legislation which is relevant can be taken to set that right.

[Lord Peston]

Perhaps I could just ask my question now, please. When the noble Lord, Lord Flight, talked about financial advisers, was he talking only about people who advise and receive a payment for their advice, or does his amendment cover those who give advice without payment?

[Lord Flight]

My Lords, if I am permitted—

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[Lord Peston]

My Lords, Report is a very late stage of a Bill. I must confess that one of the benefits of my noble friend’s amendment is that I realise yet again that I do not understand a vital section of the Bill. Before elaborating on that, I will say that I entirely agree with the noble Viscount, Lord Trenchard, that competitiveness in this area, as in virtually every other area, is of the essence. If we are interested in protecting the consumer, the best way of doing that is with competition between the suppliers of whatever is being supplied.

My noble friend’s amendment is about co-ordination of the FCA and the competition authorities. My difficulty—and I am sure that I am at fault, and not the drafters of the Bill—is that this whole section of the Bill does not seem to be specifically about the relationship between, in this case, the regulator and the competition authorities, or about the provision of financial services. I am puzzled, and so the Minister replying from the Front Bench could help me a great deal if he explains why subsection (5), lines 33-35, refers to,

“the supply or acquisition of any goods or services in the United Kingdom or a part of the United Kingdom”.

In other words, it looks as if this is a directive to I do not know who, to do with competition throughout the economy. It does not say “through the acquisition of financial services”, let alone my noble friend’s additionally vital point: financial services and banking services. I therefore make a plea for clarification of what this is about.

The central question is that although we favour competition, the one area we do not favour is competition between the regulators and the competition authorities. If there is one area where competition would not be appropriate, it is that one. They need to get their act together and decide who does what. What bothers me is that, even within the context of my noble friend’s amendment, it is not clear what the memorandum of understanding would have as its basic principle. Wearing my economics hat, I am inclined to say that when it comes to competition the dominant authority should be the competition authority. I am not sure whether my noble friend took that view, or whether he left it as an open question, but it is certainly something on which we need to take a view.

I can find no other way of interpreting the Bill, because it is all about advice to the regulator. My reading of the Bill is that the role of the competition authority is to warn the regulator that what you are doing may distort, limit and damage competition generally. In other words, the lead body in this is the competition authority. I put these as statements, but they are meant to be put interrogatively. In order to understand this section of the Bill, I would like to know the answers to my questions. Who is to take the lead on this? Who has most responsibility to promote competition, and who must therefore take heed of the other if what they are doing will damage competition?

I am sorry that this is all a bit convoluted, but I am not to blame for that. What is to blame is that this Bill is a mess, as my noble friend Lord Barnett and I keep pointing out. It was drafted too quickly, it has not been thought through, and there is no better example of that than this section.

[Lord Phillips of Sudbury]

My Lords, I understand why this amendment has been brought forward. My concern is that the FCA has three operational objectives under new Section 1B(3) to be inserted into FiSMA; namely, consumer protection, integrity and competition. I am not entirely satisfied that Amendment 86A necessarily protects the integrity objective. I have been concerned throughout the Bill that, as between these three objectives, integrity is the absolute necessity of any financial market and has been woefully lacking in recent years. If the Minister has a view on whether Amendment 86A respects the integrity objective, I am sure that the House will be grateful to know the Government’s view. Otherwise, I am concerned on that basis.

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[Lord Barnett]

My Lords, this whole section implies that the regulator is not necessarily the OFT. I thought that the regulator of the Competition Commission was the OFT. I am now totally bemused as to whether the OFT or the FCA is the main regulator.

[Lord Peston]

The FCA is the regulator.

[Lord Barnett]

The FCA is the regulator but the OFT is referred to throughout this section of the Bill. Now, under new Section 140A, we have the FCA as well. This new section is headed, “Interpretation”, which should be interpreting for us—although I am blessed if I am interpreted in that sense. Consultation between the bodies must be sensible. I assumed that that would happen and I assume that the Minister will tell us that this amendment again is unnecessary and therefore should not be in the Bill. The officials should reply to this debate because only they understand what is being talked about because they drafted it. I assume that the Minister was not responsible for the drafting: he has enough to do without drafting a Bill of this size.

Who is the regulator here? If it is the FCA, what is the OFT doing? Perhaps the Minister will tell us. Who is the lead regulator? Is it the FCA, as is implied here, or the OFT? I am totally confused but, no doubt, he will be able to explain everything because it is written there in front of him.

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[Lord Peston]

I am having great difficulty remembering what the rules are. If the Government meant that, why did they not say it? The subsection refers to “any goods or services”, not “any financial services” or “only financial services”. I assumed that it had a meaning, but the Minister is now telling me that it does not. Is he sure that he wants to give the answer that he is giving?

[Lord Newby]

My Lords, I am sure that the phrase has a meaning, and I like to think that it is the meaning that I just ascribed to it. I will look at it again, and if I find that I have misled the noble Lord and the House, I will write to him. As with so much of the Bill, this is an extremely technical section. However, I am assured and believe that it relates only to the financial services sector.

I referred to the comments of the noble Lord, Lord Borrie, about the importance of allowing the competition bodies to take the lead in certain cases. That in part answered the question of the noble Lord, Lord Barnett, about who was the main regulator. The main regulator is the body that is best capable of dealing with each issue. In some cases that will be the FCA, and in others, it will be the OFT or its successor. For the time being, the OFT and its successor and the FCA will have powers in this area. The logical thing is to let them exercise those powers in the way that will use their experience most effectively.

[Lord Peston]

The Minister does not seem to have answered my other main question. The title of the new section is,

“Advice about effect of regulating provision or practice”.

It refers to advice that the competition authority gives to the regulator; that is what the section is about. Am I right in my interpretation that the section is about the activities of the regulator in damaging competition, rather than about the activities of financial services providers? I sought clarification from the Minister on whether the words in the new section mean what clearly they say about advice from the competition authorities to the regulator. That is what it says.

[Lord Newby]

And, my Lords, that is what it means.