Financial Services (Banking Reform) Bill

Debate between Lord Phillips of Sudbury and Lord Desai

Tuesday 15th October 2013 Lords Chamber

[Lord Desai]

My Lords, I support what my noble friend Lord Eatwell said and speak in relation to what the noble Lord, Lord Lawson, said. People who are supposed to be responsible for the conduct of, as it were, their inferiors in the bank sometimes do not understand what is happening below them. Certainly, in the case of Baring Brothers the management did not understand what Nick Leeson was doing. This is a matter of competence. I very strongly support this amendment because we ought to have periodic examinations of people in charge of banks, and see whether they pass those examinations, because the profession is changing and they are way behind a changing business.

[Lord Phillips of Sudbury]

My Lords, I support very much what the noble Lord, Lord Eatwell, has just said. We need a clear and authoritative report from my noble friend the Minister as to who is right between the noble Lord, Lord Brennan, who is a highly distinguished lawyer, and those who are advising my noble friend. If there is any doubt about the matter, I see virtue in the amendments put down in the names of the noble Lords, Lord Brennan, Lord McFall and Lord Watson of Invergowrie. I commend the organisations that have helped to craft those important amendments. There again, the noble Baroness, Lady Noakes, seems to make a strong point. If on second thoughts the Minister cannot assure us that the amendment of the noble Lord, Lord Brennan, is superfluous, one would want him to assure the House that the noble Baroness’s concern is superfluous.

Financial Services (Banking Reform) Bill

Debate between Lord Phillips of Sudbury and Lord Desai

Tuesday 8th October 2013 Lords Chamber

[Lord Phillips of Sudbury (LD)]

My Lords, this must be the first time in parliamentary history for the amendments to a Bill to be more than three times the length of the Bill itself. Moreover, as others have said, the complexity of both the Bill and the amendments is quite barbaric. I must admit that when I put all the papers on my dining room table to try to make head or tail of them, they occupied 10 feet of space, including all the so-called explanatory documents. Having said that, I thank my noble friend Lord Deighton, who has at least listened to what was said at Second Reading. He has an open mind, which has undoubtedly led to the introduction of a lot of the measures in the amendments that we are now debating in Committee.

I thoroughly support Amendment 3, largely for the same reasons given by the noble Lord, Lord Higgins. We are groping around in an extraordinarily complex area of life and it is abundantly sensible to have these reviews—not just of ring-fencing but a series of reviews—to see how we are coming along and whether the suppositions we are making in the course of this legislation prove to be correct. I disagree with the noble Lords, Lord Eatwell and Lord Tunnicliffe. We need to give time for these new arrangements to bed down and show their paces. Frankly, in each case, four and five years are likely to be better than two years.

I will make a few quick points on the way in which Amendment 3 is put together. We will have an opportunity at the next stage to make changes to what is currently before us. A review panel formed of five persons is unnecessarily large. You might well get by better with three or even two people, so more thought is needed on that. I also note that there is a requirement that the PRA and the FCA carry out their independent reviews but that they publish a joint outcome. Proposed new Section 142J(4) says that they,

“must publish a joint assessment of the impact of the operation of their ring-fencing rules”.

However, they may not agree. You have at least to allow, in this terminology, that that may be the case. You cannot force consensus upon these two august bodies.

The other point is in relation to the appointment of the chair and the endorsement of the Treasury Committee of the House of Commons. It requires that the person appointed,

“is likely to act independently of the Treasury, the PRA and the FCA”.

We should provide that the person is likely to act independently, full stop. It is not only required that they are independent of those three bodies; general independence is required, and so I suggest that those words be excluded.

Finally, proposed new Section 142JA(3) states:

“The persons appointed to conduct a review must include at least one person with substantial experience”.

That is one person out of five. If we are to stick with five people—and I suggest fewer, or at least the prospect of fewer—it is not enough to have only one with experience of all this. This is an extremely complex area of life—there is no area more complex—and experience on the part of more than one person on this panel of reviewers is essential.

That was not quite my final point; I have another quick comment. Proposed new Section 142JB(4) states:

“The report must include … recommendations to the Treasury as to the provision that should be included in orders and regulations”.

It is not inconceivable that there may be no recommendations. Indeed, it is very conceivable that there may be more than one. Therefore the language of proposed new subsection (4) needs amending. I will leave it at that, but I commend the noble Lords who tabled the amendment in this group.

[Lord Desai (Lab)]

My Lords, I apologise for not speaking at Second Reading; I was out of the country. I support the amendment tabled by my noble friend Lord Eatwell. As many noble Lords said, ring-fencing will be a new experience. However, given what happened in the banking industry, and the damage it caused, we have to start the process with extreme care and great suspicion. Given time, I know that the banks will innovate ways of avoiding ring-fencing; that is the nature of the market in innovation. Therefore, before anything further happens, we ought to have early scrutiny of ring-fencing arrangements, as proposed by my noble friend. Later, if we wish, we may do the next review after four or five years, but the initial reviews must be done as early as possible and as toughly as possible, because if we are kind to the banking sector and it does the same thing again, the public will never forgive us.