Financial Services Bill

Debate between Lord Phillips of Sudbury and Lord Peston

Monday 26th November 2012 Lords Chamber

[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.

Financial Services Bill

Debate between Lord Phillips of Sudbury and Lord Peston

Monday 12th November 2012 Lords Chamber

[Lord Peston]

My Lords, I rise to support both of these amendments in the names of my noble friends. I think that my noble friend Lady Hayter is right to place all of this in the context of the experience of the past few years. The general proposition on which our discussion must be based is that, if the financial services sector misbehaves, we all suffer—not merely those who buy financial products directly, but everybody in the country. I use the word misbehave advisedly. Systemic risk and systemic events do not appear as if by black magic but result from the way that people who work in the financial sector conduct their business.

Why do they occur? They occur because of the way that people in the sector do things. The solution to the problems must be found partly through regulation, as the Bill recognises. On the one hand, we must bring in regulation to deal with some aspects of this matter. On the other hand, improved behaviour by the enterprises operating in financial services is not merely required but urgently required, as I think my noble friend said. Until recent events emerged I, for one, was not aware of the lack of professionalism and the seeming total unconcern with ethical standards on the part of people in the sector. Whenever I reflect on it, I still find it astonishing that apparently decent people behaved like a bunch of crooks, not to put too fine a point on it. They did not mis-sell products by chance; they deliberately mis-sold them.

Clearly, something must be done. My noble friends are right to see the Bill as the ideal vehicle for doing something, and for tabling amendments to it that would actually achieve something. The object is not to damage the sector, as it is a very important one that earns a lot of money for our economy, but to make it fitter for purpose, if I may use a cliché. My noble friend Lady Hayter is entirely right when she says that as a minimum—I underline “minimum”—there must be a code of conduct which is mandatory and enforceable. I was not clear whether she had in mind all sorts of penalties rather than just the most draconian of all of saying, “You cannot work in this sector again”. Perhaps she will clarify that when she sums up.

I hope that the Government understand all this. Certainly the public understand these problems. I also hope that the Government do not play their usual card and tell us that these amendments are not necessary because buried somewhere in some bit of fine print is an inferior version of what they do. In my judgment these amendments are necessary and the sooner we get them on the statute book, the better.

[Lord Phillips of Sudbury]

My Lords, I have amendments in the next group and so will keep most of my comments on this aspect of the Bill until then.

I wholeheartedly endorse what the noble Baroness, Lady Hayter, said in moving this amendment and, indeed, what the noble Lord, Lord Peston, has just said. The problem for all of us, most particularly my noble friend the Minister, is to try to contrive a state of affairs for the future which is fundamentally different from that which has prevailed hitherto. I think everybody in the House agrees that we cannot go on as we have done. The City of London, which has been the jewel in our economic crown, is now so tarnished and undermined by its own conduct that its future is far from certain. I have been involved in the City of London since 1964. It has strayed so far from its own mottoes of “My word is my bond” and “May God direct us” as to become almost laughable—indeed, “tragic” is a better word.

Financial Services Bill

Debate between Lord Phillips of Sudbury and Lord Peston

Wednesday 25th July 2012 Lords Chamber

[Lord Peston]

My Lords, this is a very important amendment. It is important in its own right, but it also exposes what is fundamentally wrong with this Bill, which is that it is based on an economics model of the rationally informed consumer.

No one doubts that there are large numbers of rationally informed consumers out there, able to take optimal decisions, but a vast amount of research has been undertaken in recent years that shows that there are considerable numbers of consumers who are not best described as part of the rationally well informed model. Indeed, one can go further. I have seen research papers that show that even for what one might call brilliant consumers, the complexity of the instruments they are dealing with is so great that it would take them several years to do all the calculations required to make an informed decision. Therefore, what is wrong with this part of the Bill is its fundamental philosophy of the rationally informed consumer.

The other point to bear in mind is that the objective of the financial intermediaries that this applies to is not, in any sense, to be helpful to anybody. Their objective is to make money. What they are looking for are instruments, some of which are so complex—like CDOs, and so on—that you have to be a genius to understand what they amount to in the first place. There are several other examples of that that have got my head spinning.

What this leads us to is a matter that arose the last time that the Committee met and the subject of duty of care was raised. You will not find anything like that in this Bill or any of the philosophy behind it. What is required in the Bill is that everybody acting as a financial intermediary should be instructed that they have a duty of care. That duty of care should involve presenting information in a way that quite ordinary people can understand and pointing out the perils of all the mistakes that can be made.

I myself am not that rational a consumer in this regard. As for the idea that I would look at every bank and work out the optimal one that I should deal with, I take the view that there is more to life. If I end up paying rather more for any financial intermediation that I am involved with, I have to bear that cost because there are other things I want to do with my time. Then again, I am not badly off and I can afford to do that. But very poor consumers need something much more. I repeat that what needs to be in the Bill is the equivalent of a duty of care on the part of all financial intermediaries dealing with ordinary consumers and an acceptance of responsibility for what they are offering them.

[Lord Phillips of Sudbury]

My Lords, I support the purport of the amendment moved very effectively by the noble Baroness, Lady Drake, and supported entirely fairly by the noble Lord, Lord Peston. I confess that for 26 years I tried to deal with the British public’s legal problems as the legal eagle on the “Jimmy Young Show”. I suppose that I take a particular interest in the effect of legislation such as this on the ordinary consumer. There are a number of practices at large these days in what I call big business that leave the individual consumer way behind in terms of any fairness of dealing. The big battalions will call in aid lawyers, often paid on a conditional fee basis, and it is frankly terrifying if you are a small bloke and have a dispute with a large company. You will quickly be given the clear indication by the large company that if you do not buckle and pay up you will be crushed. I put that a little dramatically, but not much.

As it happens, I have been dealing with one of the large energy companies lately over a disputed electricity Bill. I have been astonished at the general tenor of the dealings and the way in which it so organises its affairs that if I were not an old fart of a lawyer I would easily have been overborne by its tactics and approach.