Financial Services Bill

Lord Sassoon Excerpts

Tuesday 10th July 2012 Lords Chamber

[Baroness Hayter of Kentish Town]

My Lords, this side of the House has already acknowledged the role of competition in serving the consumer. Indeed, we could do with rather more of it in the retail banking sector. A rather more creative vision of competition could address some of our concerns in that regard. For example, Age UK has suggested shared branches which offer a perfectly competitive environment, ease of comparison, and switching from one customer to another within the same location. We are wholly in favour of a competitive environment for the benefit of consumers.

That being so, I obviously support most of the amendments in this group. However, I ask the noble Lord, Lord Flight, why the first amendment is needed, given that it seems to put competition as a brake on the FCA. I worry what the driver is behind this. I hope it is not to protect bankers’ bonuses, given there are still some in the City who seem to believe that high wages and bonuses are a vital aspect of what makes the UK competitive in this sector. I would instead call on the coalition programme, which says the Government will bring forward detailed proposals for robust action to tackle unacceptable bonuses in the financial services sector. Amen to that, although I am rather sad that—I think it is today—the Chancellor of the Exchequer is in Brussels voting against such an amendment.

Or is the amendment drafted because there is a feeling that regulation is too burdensome? I hope it is not for that reason, but the Prime Minister has form in this regard. In 2008, he said he thought that the problem of the past decade was too much regulation. The current Chancellor also said, in 2006, that financial regulation was,

“burdensome, complex and makes cross-border market penetration more difficult … and it threatens the global competitiveness of the City of London”.

I hope that the Prime Minister and the Chancellor of the Exchequer are now grown up enough to accept that it was too little rather than too much regulation from which we suffered.

I hope it is not—maybe we can get some assurance on this—the idea that international competitiveness should trump consumer protection. The noble Baroness, Lady Noakes, was much more concerned about the wholesale market. I think she will also understand the concern of consumers that this might trump the consumer protection aspects. Although we very much want this to be an internationally competitive industry, we do not want it at any price. We do not want a race to the bottom for moving wherever regulation is cheapest or less obvious.

In respect of Amendment 104A in the name of the noble Baroness, Lady Noakes, I know that Martin Wheatley, the CEO designate of the FCA, is very unkeen to have this duty. He does not think that in its intervention it is the function of a regulator to have to have regard to that as well as to consumer protection, and is concerned that it would create a set of conflicts. He said that,

“to have a specific UK competitiveness competition point can only lead to compromises in regulation”.

Perhaps the Minister can indicate whether the Government have the same concerns. Perhaps the “no regard” comment of the noble Baroness, Lady Noakes, is a better way of describing this, rather than making it trump some of the other aspects. I imagine the Minister will say something similar, because I know the Government, in responding to the Treasury Select Committee on this issue, while recognising the importance of a competitive sector, do not feel that these words would add much to the Bill.

Amendment 129 in the name of the noble Lord, Lord Flight, is rather easier. It requires the PRA to consider the desirability of promoting the UK’s competitive position within financial services. We have no argument with that. London First I know is particularly supportive of this, stressing also the stability of regulation in financial services, which means no more change after this.

Amendment 110 in the name of my noble friend Lord McFall refines the FCA’s objective so that the integrity of the UK’s financial system includes the confidence that it generates within the UK, as well as in foreign financial markets. This would encompass consumer confidence, which would clearly be vital in rebuilding trust in savings and investment, so we are happy to support this amendment.

Finally, Amendment 139A in the names of the noble Baroness, Lady Noakes, and my noble friends Lord McFall and Lady Cohen of Pimlico provides that the objectives of both the PRA and the FCA should include consideration of the capacity of the sector to contribute to the UK’s economic growth, also supported by the CBI. As the coalition programme said:

“We want the banking system to serve business, not the other way round. We will bring forward detailed proposals to … create a more competitive banking industry”.

I am pleased to say that this is one element of the coalition programme that, again, we are very happy to endorse. Given that, sadly, growth continues to flatline under this Government, if ever there was a time to ensure that these new and powerful institutions focused on job creation, this surely is it, and we happily support that.

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, this group of amendments seeks to ensure that the FCA and the PRA consider the impact that their actions could have on the competitiveness of the UK financial services sector or on the growth of the wider economy. We clearly all recognise the importance of a thriving financial services sector to the wider UK economy. Equally, we all agree that the financial services sector needs an appropriate level of regulation, and I recognise that this is a difficult balance to achieve. I hope we would all agree that in the run-up to the financial crisis this balance was wrong.

In resolving the balance, I listened very carefully to the concerns raised at Second Reading and I have also carefully considered the representations from the industry, including from the London Stock Exchange. I am going to explain why I feel that these amendments go too far, but I want to make it clear to the Committee that we are looking at alternative options to address noble Lords’ concerns that excessive regulatory action may unduly impact on the ability of the financial services sector to contribute towards the prosperity of the wider economy, and we will conclude on this ahead of Report. I see one puzzled face. I always try to be helpful to the Committee, and we brought forward some major concessions on each of the first two days. This is a very difficult area. I cannot accommodate all the concerns but I say up front that we want to see what we can do on this ahead of Report.

As these are important amendments, I shall try to do justice to them by talking through each of them relatively briefly. First, Amendment 104A, in the name of my noble friend Lady Noakes, would require the FCA to have regard to the same competitiveness principle as the FSA is currently required to do. The FSA’s report into the failure of the Royal Bank of Scotland made it clear that this competitiveness principle severely impacted on its ability appropriately to regulate the financial services sector. I have said this before but I hope that the Committee will understand why we cannot similarly constrain the FCA, and for this principal reason I am unable to accept this amendment.

Amendment 101A, tabled by my noble friend Lord Flight, would go further by requiring the FCA to carry out its general functions in a way that did not harm the competitive position of the UK financial services markets. As identified by the noble Baroness, Lady Hayter of Kentish Town, this would operate as a brake on the FCA’s actions—along similar lines to the economic growth brake on the FPC, which we have already discussed. It would prevent the FCA from taking any action if that action could be seen as damaging to the UK’s competitiveness. I have already raised the negative impact of the FSA’s competitiveness “have regard”, so it would be impossible to accept an amendment that went even further in preventing the FCA from taking regulatory action to protect consumers, enhance competition and ensure integrity.

--- Later in debate ---

[Baroness Hayter of Kentish Town]

I think the noble Lord, Lord Turner, and other noble Lords have made the point about how often this particular definition of risk and reward did not align with the interests of consumers, or, indeed, often with employing organisations. There is nothing wrong with rewarding risk, but when that is not aligned to other people’s interests, that is to the detriment.

[Lord Sassoon]

I completely agree, which is why we only very recently brought forward proposals including mandatory shareholder votes on board pay. There is, and will continue to be, a big agenda here on which this Government have been working very actively but which the European Parliament proposal would, I suggest, work against. That is why we are fighting hard in Europe, as we do on all matters, to get a result that is more desirable for the health of our industry.

I will just say a few words about Amendment 139A, which is another very important one. It would require both the PRA and FCA to consider the impact on the financial sector’s ability to contribute to the UK economy in the medium or long term, having regard to the principle of proportionality. The PRA and FCA must consider whether their actions are proportionate. That will act as a check on the FCA acting in a way that is excessively burdensome, which would prevent a subsequent negative impact on economic growth if there was not a greater benefit from taking the action. Similarly, if the PRA is being proportionate, it would be difficult to envisage a situation where the firms that it supervises could be required to be too safe or too sound.

I have listened to the valid points made by my noble friends Lady Noakes and Lady Kramer, and the noble Baroness, Lady Cohen of Pimlico, and I understand their concerns. It is essential that the UK financial services sector is not excessively constrained in its ability to contribute to economic growth. As I said at the beginning, in advance of Report, I will consider whether a more explicit consideration of the wider economic impact of the actions of the regulators should be included in the Bill. I should stress that in making changes there must be nothing that would seriously encroach on the regulators’ ability to take the action that may be necessary in furtherance of their objectives. Particularly in the light of that assurance I ask my noble friend to withdraw his amendment.

[Lord Flight]

For the sake of clarity I thought the point that I was making regarding the FCA was that domestic competition is what matters for the consumer. The international institutional aspects which the FCA regulates are quite substantial.

The area that has been the real problem in the PRA and which has brought disgrace on the UK has been the banking sector, which has been largely the result of a cartel. That cartel was the result of regulation. Following Barings, it was made clear that the lender of last resort facilities were available only for banks judged otherwise too big to fail. Lots of lesser banks, such as Hambros, found that they were uncompetitive, so they closed and went away. We were left with a cartel, and when you have a cartel bad things always happen. In terms of the PRA’s ability to regulate and oversee the banking system satisfactorily, it is blindingly obvious that the UK needs a great deal more competition. It is not the sole cure of everything but it is very necessary.

The Government have taken the point and there is no point in putting the amendment to a vote. I hope that they will take note particularly of the need for greater competition in the banking industry as part of the vehicle by which the PRA can regulate better. I beg leave to withdraw the amendment.

--- Later in debate ---

[Lord Sassoon]

My Lords, I share many of the concerns raised in this debate. Access to financial services and access to lending for individuals and businesses are vital to our society. The question we have to ask is: who should be charged with tackling access issues? The FCA will be a conduct of business regulator with a clear objective concerned with creating the right conditions in which well functioning markets can meet the needs of consumers. Ultimately, the menu of products and services they offer to whom and at what price is a decision for firms themselves. The FCA is there to regulate the market, not to ensure that the market delivers a particular set of services or products.

Where the market fails to provide the services that consumers need, there may well be a case for intervention in the market to promote consumers’ access to financial services. The noble Baroness mentioned that issue in connection with the previous Government’s drive on basic bank accounts. That is rightly the province of government and action needs to be taken. However, I do believe that it is not a matter of regulation. It is a matter of social policy and it is therefore the responsibility of the Government. It is not the job of the FCA to prescribe that there should be universal provision and who should be required to deliver it. That is for the Government.

I will not detain the Committee with the great detail that I could go into of the actions we are taking to promote and extend access to financial services: to boost lending, particularly to small businesses; to nurture and encourage the mutual sector; and to help increase consumers’ capabilities and work with industry to make access to simple products possible. We have touched on some of these issues in considerable detail in the past. There are some areas which my noble friend Lord Sharkey specifically raised, such as bank charges. I draw his attention to the agreement we announced with the banks last November, under which the major personal customer account providers came forward with a new agreement to send text alerts when balances fall below a certain level, and to provide buffer zones and so on. The action there has been significant.

The provision of data is another area which has needed and continues to need attention. It has had some attention. Information is already regularly published concerning lending and the provision of loans and other services in deprived communities. For example, the banks that are members of the British lending task force have publicly committed to continue to publish subregional lending data on an annual basis through the BBA. I could point to a significant number of initiatives. These are things that the Government will continue to work on but they are outside the ambit of the Bill.

[Baroness Kramer]

Is the Minister aware of the mechanism that has been successful in the United States and how much that is tied to action by the regulator under the Community Reinvestment Act? It is the regulator that has driven that process forward, because only when conditions are met does it give permission for the banks to act in ways for which they need the regulator’s permission. Is he abandoning a tool that we know has been successful?

--- Later in debate ---

[Lord Sassoon]

No, we are not abandoning a tool; partly because in this country, of course, we do not have the tool. However, I think it would be perfectly feasible for the Government, essentially as a matter of social policy, to decide on any number of actions that might require the regulators to play a part in implementing them. I do not believe that anything in the Bill would rule that out. That is quite different.

The American example shows that the right way to go is through a focused decision by the Government or a specific piece of legislation that tackles this issue, which may then impose responsibilities on the regulator. That is quite a different matter from giving the FCA a very general power to take on itself a responsibility that is rightly the responsibility of the Government.

It will not surprise the Committee if I say, in respect of Amendments 102, 118AA and 121, which seek to give the FCA this new deprived communities objective, that for the reasons I have given I do not think they are appropriate and I cannot support them.

Amendment 104AA also seeks to ensure that the FCA has regard to the issue of consumers’ ability to access affordable and appropriate products that meet their needs. It does that by seeking to add access to the list of matters to which the FCA must have regard in discharging its general functions. The “have regard” provisions that are currently listed there include only financial crime and the regulatory principles. That is why I cannot support the amendment. I cannot agree that the FCA should be required to have regard to something that it is not responsible for. This is the important distinction between financial crime, for which the FCA is responsible and which is listed in proposed new Section 1B, and access, which is not.

Amendments 108A and 108B seek to ensure that the FCA considers access when advancing its consumer protection objective by adding,

“the ease with which consumers can access regulated financial services that meet their needs”,

to the list of matters to which it must have regard in assessing what constitutes,

“an appropriate degree of protection for consumers”.

I have already set out why I cannot support these amendments, which seek to give the FCA a formal role in promoting access, but I will remind the Committee of the kind of considerations that the FCA will take into account when advancing its consumer protection objective to help consumers. The FCA must have regard to consumers’ differing experience and expertise and to their needs for timely, accurate and fit-for-purpose information. The FCA must therefore consider whether vulnerable or marginalised consumers engaging with financial services may need additional information, protection or support. The FCA’s consumer protection operational objective provides the mandate for the regulator to design a regulatory regime that delivers this.

Amendment 117A seeks to make sure that the FCA takes into account consumers’ ability to access financial services in advancing its effective competition objective. Again, I cannot accept this as I am absolutely clear that it is neither necessary nor appropriate for such a have regard provision to be added to the competition objective.

I turn to Amendment 118A. I have explained why I do not think it right to give the FCA an access mandate. Where there may be a case for action beyond the FCA’s objectives, this is a matter for government, but that does not mean that the Treasury should be able to direct the regulator on how it should interpret and indeed advance its objectives, as Amendment 118A seeks to provide. This would fundamentally go against the Government’s intention that the FCA should be an independent regulator and would, I suggest, blur the boundaries between regulatory and social policies. I also do not think it would be appropriate to have a power in statute, as proposed here, to allow the Treasury to give the FCA greater powers to act in an area that is rightly a matter for the Government to deliver, or indeed to give the Treasury the power to impose requirements directly on industry. We would be blurring the lines of responsibility. As I have explained, there is a lot we can do and are doing to advance some of these important social policy issues. If it came to legislation that impinged on the regulator’s prerogative, it is right that any powers in this area should be considered as part of that legislation and Parliament should consider the consequences for the regulator at that time.

Finally, Amendment 112A seeks to add “and products” to the regulated financial services for which the FCA will promote effective competition. I will briefly try to reassure the Committee that this amendment is not necessary. We agree that products are important. In fact, the focus on the design and governance of products will be one of the key ways in which the FCA will be different from the FSA. The Bill contains enhanced powers for the FCA to regulate products and I look forward to discussing in due course the new product intervention power, which is provided for in Clause 22. However, the outcome which this amendment seeks to deliver is already reflected in the Bill. A product in the context of financial services is ultimately an agreement under which one person agrees to provide a service of some kind to another person, so products are captured in the definition of “regulated financial services” as used in the Bill.

In summary, we are sympathetic to the aims of my noble friend’s amendment and to a wide range of the concerns that have come up in this debate. We are taking action on a significant number of fronts in this area. However, these are not matters for the financial regulator in the way that they have been drafted and I ask my noble friend to consider withdrawing his amendment.

[Lord Sharkey]

I thank all those who have spoken in support of the amendments in my name or in support of their general intent. At the beginning of his response the Minister said that the FCA is a conduct of business regulator. I say to him that it is precisely the inadequate conduct of the banking businesses that we want the FCA to regulate. I note that in the Bill the FCA is already required to take account of the needs of different consumers. All the amendments do is make this more explicit and more directed. I am disappointed by what seems to me to be a very narrow perspective in the Minister’s response. I do not agree that responsibility for helping funding into deprived areas is not a matter for this Bill. I will withdraw my amendment but I will return to the matter on Report. I beg leave to withdraw the amendment.

--- Later in debate ---

[Lord Lucas]

My Lords, one of the reasons why the likes of Wonga charges high rates of interest is that its formula for doing business is mechanical. What is required in order to be able to offer proper rates of interest on small amounts of money to people who are not well off is trust, knowledge and community. That is what this sector sets out to provide. Armed with that, it is capable of giving a much better deal to borrowers without imperilling those who are lending money. It is a thoroughly worthwhile sector of the financial industry.

We need to ask the FCA not to promote it but, as the noble Baroness, Lady Hayter, says in her late revision, to enable it. The Government and regulation stand in the way. They give the big banks privileges which are not extended to small lenders. Some of them probably cannot be. I do not know that there is any way in which the £85,000 guarantee can be got down to these sorts of institutions. But they impose immense tax differentials so that you can end up not being able to offset losses if you have made them in community lending. As the noble Baroness, Lady Kramer, says, you can end up not knowing as a financial adviser whether you are allowed to mention these sorts of investments. We need a financial regulatory structure that gets out of the way, levels the playing field and gives these businesses a fair opportunity.

[Lord Sassoon]

My Lords, let me begin by saying that, as with the previous group, I wholeheartedly support the sentiment underpinning these amendments. The Government want markets which serve the wider economy, underpin growth and contribute to a more prosperous society as a whole. We want more proactive and judgment-based regulation, and we want the FCA to be tough and decisive in identifying and acting on bad practice in the financial services sector.

The Government have been very clear that they want social ventures to create positive change in our society and that to achieve this we need to make it easier for them to access the capital and advice they need. There is a growing social investment market which seeks to combine financial return with social impact. Investors are often willing to accept higher risk and a lower financial return because of the social value that their investment can make. However, as has also been noticed, the market is embryonic and needs support. The Government are committed to providing that support. In a moment, I will describe how we seek to do that. Before I do so, I will turn to some of the specific amendments to which noble Lords have spoken.

There are a number of reasons why I cannot support Amendments 104, 104ZA, 120, 137, and 139. First, where their intention is to promote social investment, that is simply not an appropriate role for the regulator. Although I agree with my noble friend Lord Phillips of Sudbury that the Government need to act in support of the social investment sector, we will not create a healthy UK financial services market, including for social financial services, by giving the FCA the job of taking forward what should be and is part of the Government’s wider social policy agenda. Let me be clear: the FCA’s job should be to administer a regulatory regime, policing it so that consumers are appropriately protected, regardless of what they invest in, that there is effective competition, and that markets are clean and operate with integrity.

Secondly, where the intention behind the amendments is to—

[Lord Phillips of Sudbury]

I am sorry to interrupt my noble friend, but he did make a provocative remark just now, I suspect without realising it. He said that I was asking in these amendments for the FCA to “take forward” the social investment market. That is not the case. These amendments are couched extremely carefully, and not in any proactive way. To take Amendment 104, they merely ask the FCA,

“so far as is compatible with acting”,

in accordance with “its operational objectives”, to take,

“account of the distinctive features of social investment”,

and not to inhibit the development of it. On no basis can that be characterised as asking the FCA to “take forward”. It is merely asking the FCA to note the particularities of this sector and not to impede it.

[Lord Sassoon]

My Lords, we will have to disagree on the construction of some of the words here. Taking some of the amendments in the group, I appreciate that some of them are couched in the way in which my noble friend has just elaborated. However, for example, Amendment 103 inserts into new Section 1B(4) the words “and society” at the end of a very critical recital of what the FCA must do. It says it must,

“discharge its general functions in a way which promotes effective competition in the interests of consumers and society”.

I accept that it is all driven with an override,

“so far as is compatible with acting”,

in a way that advances the consumer protection objective, but it would add something which is tantamount to asking the FCA to be proactive in driving forward the social objective.

[Lord Hodgson of Astley Abbotts]

I am sorry. The hour is late, but that simply cannot be the construction. As I explained in my remarks, I could not support the amendments of the noble Baroness, Lady Hayter, because it said “promote”. The four that I have signed up to, and the only four, are the ones which are entirely neutral, and all they are is enabling. With the greatest respect to my noble friend, who has dealt with us with courtesy and kept smiling despite the most enormous amount of provocation, the fact of the matter is that a lot of what he is saying is about investor protection in conventional investments. We are not talking about conventional investments here; we are talking about social investments, where the parameters are entirely different. The Treasury will persist in seeing it as a profit-making type of investment, as opposed to a profit and a social return. It simply cannot get it into its head that this is a different type of investment. It keeps writing for my noble friend speaking notes that do not recognise that difference.

[Lord Sassoon]

My Lords, one of the problems is that I am speaking here to a group of amendments. If we had longer or they were all degrouped, we could tease out one from another in more detail. I appreciate that some are more directive than others. However, perhaps I may move on to my second area of difficulty here. It probably will not help but I have a number of difficulties with this group of amendments.

Where the intention behind the amendments is to ensure proportionate regulation of this budding social investment sector, I reassure the Committee that the FCA will indeed take a proportionate and risk-based approach. Both regulators must take a proportionate approach to the regulation of small or socially orientated firms, particularly in comparison with large and complex banks.

My noble friend Lord Phillips of Sudbury referred to new Section 137R, which enables different rules to be made in relation to different authorised persons. I could also draw the Committee’s attention to new Section 1C(2)(a), which requires the FCA to have regard to the differing degrees of risk involved in different transactions. Another is new Section 3B(1)(b), which requires the FCA to have regard to the principle of proportionality. Therefore, I believe that there are appropriate layers of protection there without this series of amendments highlighting the social investment sector in the way that they seek to do.

[Lord Phillips of Sudbury]

My Lords—

[Lord Sassoon]

Perhaps I may finish this part of the argument and then of course I will let my noble friend come in again. I believe that this proportionate approach that I have described will be vital in supporting effective competition, as well as helping the social sector, and the requirement to make regulation proportionately has to be an important tool in delivering that. However, equally, consumers have to be reassured that if they deposit money with, or buy financial products from, socially oriented financial institutions, they will be subject to the same level of protection and security as would be the case with any other institution. My noble friend may come back and say that that is not what the words actually say. He compared the activity of the big banks with the very well meaning institutions—which I accept they are—in this budding sector. Nevertheless, we have to be very clear and careful in making sure that those who deposit money are subject to the protection that they would expect, regardless of whom they transact with. I believe that in this area the Bill as currently drafted will deliver a proportionate balance for both regulated firms and consumers. I will continue to listen to the full range of arguments on this important issue and we will continue with important strands of work.

My noble friend Lady Kramer referred to the ability of financial advisers to advise on social investments as an asset class. I agree that this is a concern. That is why it is one of several regulatory issues that are currently being considered by the Cabinet Office review. Therefore, there are other avenues through which these issues are being actively considered, as they should be.

[Lord Phillips of Sudbury]

I am grateful to my noble friend for giving way. I am sorry to detain the Committee at this time of night but this is an important group. My noble friend Lord Hodgson of Astley Abbotts made one extremely telling intervention. I recognise what a difficult task my noble friend the Minister has in piloting this incredibly complicated measure through this place. He called in aid—reasonably, because I myself referred to it—new Section 137R, which is headed “General supplementary powers”. I quoted from the first part of that new section in what I said. My point, which I do not think my noble friend has taken account of, was, and remains, that unless there are some indicators in the first part of the Bill as to the considerations that are legitimate for the regulator to take into account, being naturally conservative, it will not take them into account. It will not differentiate. The wording in Amendment 103 therefore adds “and society” to the part of the new section that instructs FCA as to what it must do. That section says:

“The FCA must, so far as is compatible with acting in a way which advances the consumer protection objective or the integrity objective, discharge its general functions in a way which promotes effective competition in the interests of consumers”.

The Minister objects to the addition of the words “and society”. Surely we have learnt over the past three years that the objectives of consumer protection, integrity and competition depend on a financial sector that, in promoting competition, does not just take into account the interests of its customers but also of society at large. Society is what social investment is about. It slightly gives the Government’s game away for the Minister to argue as he did. I repeat that this important section that he referred to, which gives the FCA and the PRA the power to make rules, seems to cut off the prospect that he afterwards says is there; namely, the power to differentiate between different types of financial organisation, including the social financial organisations.

I am sure this is a discussion we perhaps had better have outside the Committee. It is late at night. I am only registering—I think I have some support in this—disappointment that the Government are not construing their own provisions in a way that seems consistent with how my noble friend started when he said they were wholly behind the development of the social finance sector.

[Lord Sassoon]

I will keep saying it and no doubt we will have to disagree on this. On the narrow point of new Section 137R, that is a power to make different provisions. However, the other relevant provisions that sit with it are duties. There is a duty to act proportionately and a duty to have regard to different degrees of risk. When it sets rules, the FCA will have to explain and justify those matters in the consultation processes it goes though. It cannot simply escape from this.

I will again directly address the points made my noble friend Lord Phillips of Sudbury on Amendment 103. The same thing applies to Amendment 111. There are certain things that we can expect of the FCA and there are other things that would place entirely unrealistic expectations on it. When the FCA is assessing whether there is effective competition in a market, we can expect it to consider the needs of consumers and act on its assessment. However, the needs of society as a whole are another matter entirely. It is not, and cannot be, the responsibility of the FCA to consider, even in a passive way—which I agree is different here from the way that it is formulated in some of the other amendments—what the best outcome for society is at any given point. It simply does not have the mandate to do that. It would not have the expertise or the powers fully to act on its findings. This is not in any way to say that these are not important matters. It is simply that I contend, as with the previous group of amendments, that these are judgments not for the FCA but the Government. The Government will not shirk these judgments.

I have referred to a number of the initiatives that are going on and there are others that I could mention, such as the Treasury’s current review of financial barriers to social enterprise. Recommendations from that review will sit along with the community interest tax relief revisions that were announced at the Budget. There are multiple strands of work at the Treasury and the Cabinet Office that are aimed, among other things, at making it easier for investors to invest in community development finance institutions. Those must go on. They are not the proper province of the FCA.

--- Later in debate ---

[Lord Hodgson of Astley Abbotts]

The FSA currently has responsibility for one particular sector of the social enterprise movement—the industrial and provident societies. I suggest that the Minister asks his officials in the morning to ring the FSA and ask how many people are working in the industrial and provident society section. The answer is half.

[Lord Sassoon]

I am not quite sure what happens to the other half of this unfortunate person.

[Lord Hodgson of Astley Abbotts]

They only work part time.

[Lord Sassoon]

I understand. I will check on that but I hear what my noble friend says. The FSA is under pressure in a lot of areas. I stress again that I do not mean to say that there are no barriers. I have explained the ways in which we are looking at them but this is a Bill about the regulatory structure. There are other avenues through which the structure of the industry is being looked at, not least through the Bill that will enact the Vickers reform. In the most fundamental ways we are prepared to take on the structure of the industry. It is just that we want to keep this Bill and this architecture to what it is intended to be, which is about financial regulation and not about wider social issues, however important they are, even though there is great interlinkage with what we are talking about in the Bill.

I should do justice to Amendment 109, which is the last one that I have not directly touched on. It is another amendment over which I have some concerns. It seeks to ensure that the FCA considers social responsibility in advancing its market integrity objective. Social responsibility sits rather oddly alongside the other matters listed in new Section 1D that elaborate on what is meant by integrity. All the matters in the non-exhaustive definition of integrity in that section have a clear expectation of action associated with them. The FCA will act to prevent or root out and punish activities such as insider dealing or other market misconduct and abuse as well as money laundering, terrorist finance and corruption; it will test the reliability and robustness of computers and wider systems and controls to see whether it can guarantee the operational soundness, stability and resilience of the system, its orderly operation and the transparency of the price-formation process. These are all concrete actions, critical to ensuring that the financial system is effective in meeting the needs of people who use it and is, I suggest, rather different from social responsibility which very much stands out from that list.

Before I let my noble friend come in again, I want to repeat that determining what social responsibility is and how it should be delivered is a matter for the Government.

[Lord Phillips of Sudbury]

I am grateful to my noble friend for giving way and hope this will be my last intervention. In new Section 1D, the integrity of the UK financial system—which is of course crucial, because it is one of the FCA’s operational objectives—is said to include soundness, stability and resilience. In Amendment 109, I have suggested adding “and social responsibility”. The Minister asks what on earth social responsibility has to do with the FCA which is all about banking things such as stability and soundness and so on. My point is that we are dealing here with a financial sector that marches to a completely different drum. It is about social responsibility: that is its purpose. For that not to be an element in the section of the Bill which, in effect, defines integrity, first, does not face that reality, and, secondly, demeans it. Thirdly, I hark back to the matters which the two regulators have the duty to have regard to when making rules and so on. Lastly, I put it to the Minister that if we had social responsibility in this list, it would mean that in future the regulator could and indeed should look at, for example, mis-selling. Mis-selling is not a crime, it does not impact on the soundness, stability or resilience of the bank, but it is none the less a practice which I am sure he will agree has been powerfully damaging to all concerned. That phrase in this part of this section would, I believe, put the regulator on its mettle to look beyond the conventional issues and take account of the social impact of some of the practices of the banks.

[Lord Sassoon]

My Lords, I cannot agree with that construction of what is intended here. Mis-selling very clearly comes under new Section 1C, the consumer protection objective. We have, perhaps, teased out of this discussion that if we are talking about social responsibility in the sense that my noble friend intends and in the way he has described it, it is more linked to the consumer protection objective, rather than the integrity of the UK financial system. The difficulty may partly be in the different uses of “integrity”. We are not talking in new Section 1D about integrity in the direct sense of the behaviour of the individuals in the system. We are talking about the wholeness and stability and soundness of the financial system, which is why these particular factors are listed in Section 1D(2). They are linked to concrete actions that would be expected of the FCA, examples of which I have just given. We may be partly mixing up apples and pears here because I do not think that social responsibility fits into this clause of the Bill.

If my noble friend came back and tried to attach it to proposed new Section 1C, I would still argue that social responsibility is a matter for government. Social responsibility in the sense that he is talking about will go to the heart of what the Joint Committee will look at in response to the LIBOR scandal. The responsibility of the participants in the sector will be tackled in different ways.

I have tried to reassure the Committee—I can see that I may have given only partial reassurance—that the Government firmly believe that the financial industry should serve society. There is a big unfinished agenda and the Government will not shy away from driving it forward. The right way to do so is through different avenues but not through expecting the FCA to be responsible for these particular areas. I ask my noble friend to consider withdrawing his amendment.

[Lord Lucas]

My Lords, while my noble friend is doing that, perhaps he will say something about the effect that Amendment 103 would have in a practical sense. If faced with the words “and society” at the end of the subsection, how would the FCA’s decisions be different? Under what kind of practical circumstances would it make a difference?