Bank of England and Financial Services Bill [HL]
Lord Sharkey Excerpts(8 years, 7 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Parliamentary Secretary, Cabinet Office (Lord Bridges of Headley) (Con)
My Lords, I beg to move that this House do agree with the Commons in their Amendment 7—and on this, too, we have been in listening mode.
This amendment recognises the important role played by the Treasury Select Committee in its scrutiny of the Financial Conduct Authority and appointments to its top job. Through the committee’s programme of pre-commencement hearings it questions appointees to several posts before they start work. After appointees have started, as your Lordships will know, they appear regularly before the committee. The Government welcome this scrutiny of appointees.
Our amendment therefore ensures that the committee always has the chance to scrutinise a newly appointed chief executive of the Financial Conduct Authority before they start work. It provides that no one who is appointed as CEO of the FCA can start work until they have appeared before the TSC or three months have passed. This gives the TSC time to call them in, and once it has questioned the appointee in relation to the appointment, he or she can get to work. There is an exception to this if the appointment of a chief executive is made on an acting basis pending a further appointment; for example, where an appointment must be made urgently in response to a sudden vacancy. However, to appoint a permanent CEO, the Government must give the TSC the chance to hold a hearing.
As your Lordships will be aware, my right honourable friend the Chancellor and the chair of the Treasury Select Committee have reached an agreement that further reinforces the committee’s scrutiny role. This is set out in a letter from the Chancellor to the chair of the TSC, which has been published on the TSC’s website. It reads as follows:
“During the passage of the Bank of England and Financial Services Bill, we have considered the role of the Treasury Select Committee … in scrutinising the appointment of the Chief Executive of the Financial Conduct Authority … This scrutiny is important and welcome. I will therefore ensure that appointments to the Chief Executive of the FCA are made in such a way to ensure the TSC is able to hold a hearing, after the appointment is announced but before it is formalised. Should the TSC recommend in its report that the appointment be put as a motion to the whole House, the government will make time for this motion and respect the decision of the House. Additionally, I will seek, in a future Bill, to make a change to the legislation governing appointments to the FCA CEO to make the appointee subject to a fixed, renewable 5-year term. This would not apply to Andrew Bailey, who I recently announced as the new head of the FCA, but would first apply to his successor. I believe that these changes will reinforce the Treasury Committee’s important scrutiny role”.
This commitment, combined with this amendment, which ensures that the Treasury Committee always has the opportunity to hold a hearing with an appointee, serves as a strong recognition of the committee’s vital role in scrutinising the FCA and its CEO. I beg to move.
Lord Sharkey (LD)
My Lords, we support this amendment, but more precisely, we support this amendment with the commitments made in the Chancellor’s letter to the chair of the Treasury Select Committee. We are glad to see moves to buttress the independence of the FCA, and we think the amendment and the commitments will help do that. It is true that the FCA does need some help. In particular, it needs help in ending what is, or appears to be, interference by the Executive.
Recent times have not been happy. There was the early announcement of the non-renewal of Martin Wheatley’s contract; the Chancellor’s public announcement that Tracey McDermott was withdrawing her CEO application, before she had had a chance to tell her own people; and, then, the appointment of Andrew Bailey as CEO without benefit of a proper interview panel. I will not even mention that the search for the hard-to-find Mr Bailey cost £280,000.
To restore belief in its independence and its self-confidence and morale, the FCA needs to have a robustly and operationally independent CEO. We hope that this amendment and the Chancellor’s commitments will make that happen. This amendment and those commitments are of course the result—as the Minister has explained—of negotiations with Mr Tyrie, the chair of the Commons Treasury Select Committee. We would have preferred Mr Tyrie’s original amendment, which simply gave the Treasury Select Committee the power to approve, or not to approve, the appointment of the CEO of the FCA.
The government amendment, of course, does not go nearly that far. It simply says that the already appointed—although, I hope, not contractually bound—CEO must appear before the TSC before taking up his office. By itself, this is pretty feeble stuff. In fact, the important changes are not in this Bill at all; they are contained in the letter from the Chancellor to the chair of the TSC. The letter makes two commitments, as the Minister has explained. The first is that the Chancellor will,
“ensure that appointments to the Chief Executive of the FCA are made in such a way to ensure the TSC is able to hold a hearing, after the appointment is announced but before it is formalised. Should the TSC”,
as the Minister has said,
“recommend in its report that the appointment be put as a motion to the whole House, the government will make time for this motion and respect the decision of the House”.
Secondly, the Chancellor,
“will seek, in a future Bill, to make a change to the legislation governing appointments to the FCA CEO to make the appointee subject to a fixed, renewable 5-year term”.
This is all very cumbersome, and one must hope that the prospect of having your merits gently and tactfully debated in the Commons will not put applicants off. However, it is an improvement on the current situation.
There are some questions, though, and I would be grateful if the Minister could respond. Why are these two commitments not on the face of the Bill? Can the Minister confirm that the Chancellor’s commitment to ensure government time for a Treasury Select Committee Motion in the Commons is not binding on him or, more importantly, on his successors? Can the Minister say why the Chancellor will put the fixed term for the CEO into a future Bill but not the Commons vote on a Treasury Select Committee Motion? Will the Minister agree to consider incorporating both these elements into a future Bill? Finally, can the Minister assure us that any future selection process for the CEO of the FCA will involve the proper panel interviews, or at least something more closely resembling due process?
We believe that we need the protections and safeguards in this amendment and in the Chancellor’s letter. We believe that Andrew Bailey is a good choice as CEO and we wish him every success. We believe that both Mr Bailey and the FCA will benefit from less interference from the Executive and we support the amendment.
Lord Higgins
My Lords, as a former chair of the Liaison Committee in the House of Commons, which co-ordinates the work of the Select Committee system, as well as having been chairman of the Treasury and Civil Service Select Committee, I very much welcome the proposals put forward by the Government. Of course, there are various qualifications, which have just been mentioned, but I believe that this is a significant step forward and that it will improve the way in which the appointments system works within overall government. Therefore, I think that this is an excellent amendment and I heartily support it.
Lord Harris of Haringey (Lab)
My Lords, I declare my interest as chair of the National Trading Standards board and welcome this government amendment to put the funding of the illegal money lending teams on a stable footing. As the Minister said, the teams do an enormous amount of extremely important and valuable work. A recent prosecution dealt with an individual who was charging those unfortunates whom he was offering allegedly to help interest rates of 400,000% per annum. Figures I have for England and Wales show that the work of the illegal money lending teams has led to the writing-off of debts in excess of £55 million. So the work is value for money and extremely important. It is quite right that the funding of these teams should now be put on a long-term, sustainable footing and it is entirely proper that the legitimate part of the lending industry should make sure that those who operate illegally and prey on people who are in a state of considerable distress are dealt with appropriately.
Lord Sharkey
My Lords, this is a very good amendment and we support it. Until now, funding for action against illegal money lending has come mostly from BIS with occasional help from the Treasury reserve. As Harriet Baldwin noted in the Commons committee, this funding was constantly being questioned in spending reviews and she rightly saw the need to protect it from the depredations of Chief Secretaries. This amendment does that by changing the funding mechanism to a levy on consumer credit firms. These firms benefit from being within a robustly enforced perimeter and we welcome this change. We welcome the move to provide sustainable and stable funding for the fight against illegal money lending.
Lord Ashton of Hyde
My Lords, the amendment addresses the important question of how the banks are treating politically exposed persons, or PEPs, in the light of new global standards for anti-money-laundering and counterterrorist financing. I know that this issue has interested many noble Lords, directly and in respect of their families and close associates. I can tell the House that the Government share those concerns, which is why we have accepted this amendment to the Bill.
The Government intend to implement new money-laundering regulations by June 2017 at the latest. We will consult on the new regulations later this year. Organised crime, international corruption and terrorism cross national borders, so co-ordinating with our neighbours and Governments around the world is vital. We do this through the Financial Action Task Force, which revised its global minimum standards in 2012. At the same time as being robust, the UK’s anti-money-laundering and counterterrorist financing regime must be proportionate if it is to be effective and command public support. Resources must be focused on higher-risk areas and individuals, in line with accepted practice.
The Government have always encouraged banks to take a sensible and proportionate approach to this issue. They should apply appropriate “know your customer” measures that are tailored to reflect the risk posed by individual customers. I believe that several Members of this House and the other place have experienced difficulties with their bank accounts. No one should have their banking facilities refused simply because they have been identified as a PEP.
In addition to its focus on proportionality, the amendment addresses guidance on PEPs and the handling of certain PEP complaints. The Government will consult later this year on new money-laundering regulations and we will ask specific questions about the provision of guidance and the adjudication process. We will fully consider the letters that noble Lords have already sent to us on this topic when preparing our response to the consultation.
The Government’s anti-money laundering and counterterrorist financing regime is making the UK a more hostile environment for illicit finance. The amendment will ensure that a strong message is sent out about applying the rules in a proportionate and sensible manner and I commend it to the House. I beg to move.
Lord Sharkey
My Lords, as the Minister said, this House has frequently discussed the problems with the banks’ treatment of customers under their interpretation of the EU PEP rules. Each time we have done so, it has been quite clear that there are plenty of examples of banks frequently acting aggressively and disproportionately. It is quite clear that by unreasonably closing accounts, or threatening to, they cause real distress and the Government agree, as the Minister said, that the banks are ultimately at fault. In response to an Oral Question from my noble friend Lord Clement-Jones on 14 October 2014, the Minister, the noble Lord, Lord Deighton, said:
“I absolutely accept the criticisms that are made where banks behave disproportionately. It happens too often and we should work with them to fix that”.—[Official Report, 14/10/14; col. 115.]
It clearly has not been fixed and is probably getting worse as the banks anticipate the new EU directive.
Discussing this amendment on Report in the Commons on 19 April, Harriet Baldwin said that,
“if the transposition of the EU directive into domestic legislation is mishandled, a wide range of other people could be affected. It could adversely affect tens of thousands of people, including civil servants, city workers and even, as has been described, the families of armed forces officers serving our country abroad”.—[Official Report, Commons, 19/4/16; col. 853.]
The Minister was right to warn of this possibility.
On Sunday, the Sunday Times ran a large and prominent article on the case of Alan Charlton. Mr Charlton retired from the FCO three years ago after 35 years’ service. He is our former ambassador to Brazil. His bank threatened to shut down his account as part of what the paper describes as the bank’s “crack-down” on PEPs. It is a little ironic that the bank in question is HSBC, so recently fined $1.9 billion for being what the US Senate described as,
“a conduit for drug kingpins and rogue nations”.
It is a case of closing the wrong stable door.
Bank of England and Financial Services Bill [HL]
Lord Sharkey Excerpts(9 years ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Brown of Eaton-under-Heywood
With respect, as I understand it, this is a punishable offence; therefore it is a criminal offence. I certainly understand that it is proposed that this offence should be on the statute book to bring blame on those who commit it and lower them in the estimation of the public so that a conviction or finding of guilt under this provision would be to their considerable disadvantage. I have little doubt that Article 6 would apply to how one proves this breach of the law. There is nothing very new in this either. The golden thread that for centuries has been said to run through our law is that it is for those who accuse to establish a case against those who are accused.
Lord Sharkey (LD)
Is the noble and learned Lord aware that the Minister who introduced the Financial Services (Banking Reform) Act 2013 into Parliament certified that it was not in breach of the convention he quoted?
Lord Brown of Eaton-under-Heywood
That is by no means conclusive of the issue. However, for the most part I am not hinging my argument on the convention; it simply represents what I have already indicated is a common thread of our law—it is for those who accuse to prove. Generally, the burden of proving every ingredient, every element of any wrongdoing or offence—including the disproving of any legal defence to it—lies squarely on the prosecution.
Certainly, there are occasions when the law, including the European Convention on Human Rights, accepts a reverse burden of proof. However, in considering whether this is acceptable one must recognise that whenever an accused is required to prove a fact, as here he would be on the balance of probabilities, that permits him to be found guilty, even if the fact-finding tribunal has some reasonable doubt as to his responsibility. That is the whole essence of the burden of proof. Where there is a doubt, it is resolved in favour of he who stands to be criticised and held liable before the public. It is all very well to speak of the cultural impact of a change like this but the consequence is that in a case of doubt, because he has failed to discharge the reverse burden placed upon him, he is found guilty.
There is a great deal of law in all this, which I will not go through, but I will make just one or two points. First, there is all the difference in the world between the legal burden of proof and the evidential burden of proof. Realistically, the latter is of comparatively little importance. In relation to many defences, the evidential burden is said to be on the defence but this burden is found to be discharged whenever there is any evidence—basically, any evidence at all, wherever it comes from—which raises the possibility that such a defence may exist. For example, when somebody is accused of assault, if there is a suggestion that he may very well have acted in self-defence, the legal burden to disprove that immediately shifts back fully on to the prosecution. The fact is that courts—there are many cases to indicate this—do not like reverse burdens of proof and prefer this golden thread. It is by no means impossible, and I think it is quite likely, that under the 2013 Act—the one for which the certificate was given under the convention—that would be found to be consistent with the convention because the court would construe the legislation as involving not the legal burden of proof but the evidential burden of proof, in which case it would have precious little effect.
The legal burden of disproving guilt is only very rarely put on the defendant. It generally happens only in the case of statutory offences concerned with the regulation of conduct in the wider public interest, and generally in comparatively minor cases involving—I quote from an earlier judgment—
“no real social disgrace or infamy”.
That approach was applied in a trademark case where a trader in branded goods was required to prove that his sale of the goods did not involve any infringement of the trademark legislation. It was held to be in the nature of a regulatory offence with a minor degree of moral obloquy rather than a truly criminal case. Indeed, that was also the position in a case in this House in 2008 in which I was one of the judges. We held that it was not disproportionate to put the legal burden on employers to conduct their undertaking in such a way as to ensure that people were not exposed to health and safety risks. It was for them to establish on the balance of probabilities that it would not have been reasonably practicable for them to have done more than they had to achieve those requirements.
The effect of this amendment is conveniently and succinctly set out in paragraph 137 of the Explanatory Notes. It says that under the 2013 Act senior managers in the relevant area,
“are guilty of misconduct if there has been a breach of any regulatory requirement in an area for which they are responsible unless they can prove that they have taken reasonable steps to avoid the breach … This will be amended so that no senior manager will be guilty of misconduct unless the regulators can prove that the senior manager did not take reasonable steps to avoid the breach happening”.
I respectfully support the Government’s view that the offence being introduced by this legislation, prospectively from the coming March, should properly be considered to be not just a mere regulatory offence involving negligible obloquy—that is not how I understand that the bulk of those opposite would regard guilt of such an offence—but, rather, as constituting serious misconduct. It is the sort of offence, therefore, which should be fully proved and where any doubt as to whether it was committed should be resolved in favour of he who is accused.
Lord Sharkey
My Lords, I have a short checklist of points that I would like to make. I start by thanking the noble Lords, Lord Bridges and Lord Ashton, and their team for the very high levels of engagement on the Bill. That applies too to their officials and the officials of the Bank, especially Anthony Habgood and Andrew Bailey. It has all been extremely helpful and it has resolved some, but not all, of the questions that were raised in Committee. Clause 22 is one of the unresolved questions.
As other noble Lords have said, Clause 22 alters the SM and CR that Parliament agreed to in the Financial Services Act (Banking Reform) 2013. This Act put into law the unanimous recommendation of the Parliamentary Commission on Banking Standards. The commission’s report recommended that the PRA and the FCA should be able to impose,
“the full range of civil sanctions, including a ban, on an individual unless that person can demonstrate that he or she took all reasonable steps to prevent or mitigate the effects of a specified failing”.
The reason given for proposing this measure was that it would,
“make sure that those who should have prevented serious prudential and conduct failures would no longer be able to walk away simply because of the difficulty of proving individual culpability in the context of complex organisations”.
This is an issue that was settled by Parliament in 2013.
Mark Taylor, Dean of Warwick University Business School, former FX trader and an adviser to the Bank of England’s Fair and Effective Markets Review, commented on the situation in May. Mr Taylor said that bonuses are too high, there is little threat of jail for wrongdoers and bosses are not held responsible. He said:
“The problem is the incentives for cheating markets is massive. If you can shift a rate fractionally you can make millions and millions of dollars for your bank and then for bonuses”.
He went on to say that:
“Once senior executives feel they are personally at risk if the culture doesn’t change, and individual traders feel they are at risk of being put in prison, then you’ll get a culture change”.
The Parliamentary Commission on Banking Standards recognised all that, which is why it recommended the new regime. Parliament recognised all that, which is why it passed the new regime into law. This new regime was due to come into force at the end of March next year, but Clause 22 stops that. It replaces the new regime with a lighter version.
Over the course of the stages of this Bill and in discussion, the Government have offered a variety of justifications for reverting to a lighter-touch regime. There have been four main arguments to date. The first was that, since the Bill extends the supervising regime to all financial services, the tougher regime would bear down disproportionately on the smaller firms being brought under supervision. This is not a convincing or even coherent argument for relaxing the regime for systemically important players. It is an argument for a sensible two-tier regulation system—nothing more.
The second argument was that the prospect of the new, tougher regime was leading to individuals spending more time and resources mitigating the risk of being held personally liable for breaches on their watch. This was the whole purpose of the new, tougher regime.
The third argument, put forward by Andrew Bailey, was that noise around the tougher regime has been distracting future senior managers from complying with the spirit of other important aspects of the regime. Mandy Rice-Davies would have known how to respond to that.
The fourth argument I have heard made, entirely understandably—I heard it again this afternoon—was that the reverse burden of proof runs counter to our legal traditions. The Government have not pressed this argument strongly, but other noble Lords have at previous stages. I simply point out that there is ample precedent for this in English law and a helpful Law Lords ruling on where such measures are appropriate. The reverse burden of proof has been used in the Road Traffic Act 1988, the Health and Safety at Work etc Act 1974, the Bribery Act, the Terrorism Act, the Misuse of Drugs Act 1971, the Trade Marks Act 1994, the Criminal Justice Act 1988 and the Official Secrets Act, and there are other examples as well.
But in the past few days, the arguments have focused on a different aspect of the proposed change: that the rigorous specification of responsibility will make it easier to identify senior managers who are guilty of misconduct or unreasonably allow misconduct to take place. This argument was advanced forcefully by the noble Lord, Lord Bridges, in response to my Oral Question of 2 December, and by Andrew Bailey at a private meeting last week.
There is a very serious flaw in this argument. It assumes that it was previously impossible to identify senior managers with responsibility for misconduct. That is not the case. At the very least, board members and departmental heads carry, and have always carried, responsibility. That was not the problem. The problem was the evidence trail. This was, in all cases, so defective that all senior managers could say and did say, “I didn’t know”, and that was enough to get them off the hook.
As Tracey McDermott, the then director of enforcement and now acting CEO of the FCA, said in 2013 to the Parliamentary Commission on Banking Standards, the inability to impose sanctions on senior executives was first and foremost due to the evidential standard required to prove their liability. That is why the old regime produced no penalties against senior managers, and that is precisely why the regime proposed in Clause 22 will not do that either. It is absolutely no use having a detailed organisation and responsibility chain if there is no evidence trail. Barclays knew this when it sent some of its people out to buy a safe to keep incriminating documents out of sight and prevent an electronic trail.
Then there is the question of equality of arms. Banks are rich. They employ many very bright people on astonishing amounts of money; they can afford very expensive and extended legal defences; they have absolutely enormous resources. By contrast, the FCA is underresourced, underpaid, overstretched and outgunned. The G30 report of this year, Banking Conduct and Culture: A Call for Sustained and Comprehensive Reform, also noted this inequality of arms. The contest between the FCA and the banks is unequal, made more unequal by Clause 22. It is notable that the Government have fielded no one from the FCA to defend their proposed change. They have relied instead on Andrew Bailey, a Bank of England official.
The senior manager regime proposed by the Parliamentary Commission on Banking Standards and enacted by Parliament is there because both the commission and Parliament recognised the extraordinary failure to hold any senior manager to account. What this regime says is simply this: senior managers must show that they have behaved reasonably in doing the right thing. Senior managers must show the FCA the electronic and paper trails that demonstrate that they took reasonable action to do their jobs properly. The Government proposal scraps that. It says that the FCA must extract, if it can, this paper and electronic trail from the banks. Well, it will not be able to do that, for the same reasons that Tracy McDermott gave the Parliamentary Commission on Banking Standards in 2013.
If Clause 22 remains part of the Bill there will be no holding to account, no changes in banking culture for fear of being held to account, and no reason to expect a change in behaviour. We will be back where we started. We should remove Clause 22, and we on these Benches support this amendment.
Lord Turnbull
My Lords, looking back over the discussions on this issue, inside and outside this House, I cannot help feeling that an element of caricature has crept in. We are told that the Government have lost their nerve, caved in to bank lobbying and gone back to the failed status quo ante. At the same time, the debate has been excessively polarised, disguising the fact that there is substantial agreement on what I believe is the primary issue—tackling the problem of personal liability. The difference between us is what I think is a secondary issue: what does the reverse burden of proof add or detract from this proposal? Is this the only way in which the regime can be made to work?
The proposal in the Bill is not retracing these steps but moving forwards by introducing the SM and CR and the new concept of the duty of responsibility, which will fall on the senior managers. It tackles directly the difficulty with establishing personal liability and the Pontius Pilate defence: “It wasn’t me guv, I wasn’t there; I only read about it in the FT a couple of days ago”. That is actually true—that is what someone told the Parliamentary Commission on Banking Standards.
In future, senior managers will have to take responsibility for what goes on in the teams for which they are responsible and for the actions of the people whom they have appointed and thereby given accreditation. The code rule for senior managers says:
“You must take reasonable steps to ensure that any delegation of your responsibilities is to an appropriate person and that you oversee the discharge of the delegated responsibility effectively”.
That is absolutely clear and I still fail to see why the reverse burden of proof is the only way to get people to understand that.
Banking: Financial Crime
Lord Sharkey Excerpts(9 years ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Sharkey
To ask Her Majesty’s Government whether they expect senior managers to be held to account following the imposition of a £72 million fine on Barclays Bank for failing to minimise the risk that funds might be used to facilitate financial crime.
The Parliamentary Secretary, Cabinet Office (Lord Bridges of Headley) (Con)
My Lords, the Financial Services and Markets Act 2000 prescribes the regulatory framework under which action can be taken by the regulators against firms and individuals. Under this framework, decisions on whether to take enforcement action are for the regulators, and it is entirely right that they should be independent of government.
Lord Sharkey (LD)
The fact is that so far we have not managed to hold any senior managers to account. That is because the regulatory regime does not work, and it is precisely why we were due to replace it next April with a tougher regime. However, the Government are about to scrap the new regime before it starts and to go back to a lighter-touch regime. Can the Minister explain how the lighter-touch regime can do what the current regime cannot?
Bank of England and Financial Services Bill [HL]
Lord Sharkey Excerpts(9 years, 1 month ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Sharkey
Lord Sharkey (LD)
My Lords, this is essentially a probing amendment and I shall be brief. Clause 21(3)(c) amends Section 64B of FSMA 2000—the responsibilities of authorised persons in relation to rules of conduct—by omitting subsection (5). The subsection to be omitted says:
“If a relevant authorised person knows or suspects that a relevant person has failed to comply with any conduct rules, the authorised person must notify the regulator of that fact”.
This seems a perfectly straightforward, reasonable and clear duty to impose on the relevant authorised persons. Who could imagine or want a regime in which misconduct was known or suspected and there was no obligation to report the fact?
I asked the Minister at Second Reading why this obligation to report to the regulator was being abolished, and I wondered, of course, whose interest was being served by its abolition. The impact assessment helps here, in that it notes that,
“the removal of the SM & CR obligation to report breaches of rules of conduct should result in savings (mainly for larger banks and building societies) … This cost reduction should mainly benefit larger firms because of the large numbers of staff they employ”.
There is no mention of any other impact as to conduct or misconduct. The only impact listed is a financial benefit, mainly for larger banks and building societies. The Minister addressed the question in his letter to me of last week. He said that,
“the requirement for firms to report all suspected or confirmed breaches of the rules of conduct has proved to potentially be a very costly obligation for firms, especially the larger firms which employ large numbers of staff, as they have to put in place detailed systems and controls to ensure compliance …The regulators can ensure that they are notified of any information about employee misconduct in a more proportionate way in their rules”.
This raises more questions than it answers. How does the Minister know that the obligation to report misconduct is, “proving potentially very costly”? Who has told him so? What evidence have they provided? How was this evidence assessed? How did he guard against the obvious danger of special pleading? What independent views were solicited? Critically, how did he assess the cost benefit of removal of the obligation to report misconduct against the cost of unreported misconduct? Can the Committee see the evidence base for all this?
I note that the Minister defends the removal of the obligation to report misconduct by saying that there are other non-statutory ways the regulators can assure they are notified of misconduct. Does he mean the FCA general notification rules, SUP 15.3.1(3)? Do not these rules impose a non-statutory burden equal to that imposed by the statutory obligation that the Bill removes? If they do not, does that not suggest they are weaker, or has the Minister in mind new rules?
What all this means is that we are being asked to repeal a statutory safeguard without knowing what its non-statutory replacement may be. That seems an unsatisfactory situation. In addition to answering the questions that I have just asked, could the Minister at least postpone activation of this measure until Parliament has had a chance to assess whether the current FCA rules are likely to be as effective as the current statutory obligation—or, if there are to be new rules, could he introduce them via statutory instrument to give Parliament a chance to scrutinise them? I beg to move.
Lord Davies of Oldham
My Lords, I shall also speak briefly and, largely, to endorse the arguments put forward by the noble Lord, Lord Sharkey. The impact assessment does not give a rationale for why the Government have made this decision, which we seek at this point. It would be useful to understand the reasons for the decision having been taken; without such information, we are not quite clear as to the advantages. Who was consulted on this, and what are the benefits to consumers and regulators? Surely it would put more pressure on the regulators to identify wrongdoing. Have the Government conducted investigations that take any of this into account? The Minister has a chance to reassure both of us who have spoken in this short debate on the reasons for the Government’s position.
Lord Bridges of Headley
I am not saying that. I am saying that the process as a whole is potentially too onerous. I heed what the noble Baroness says, and of course whistleblowing is important. I shall continue, and we can continue to have this debate.
Finally, firms would need systems to ensure that the information is captured and transmitted to regulators, but it does not stop there. Having been notified of a suspicion, the regulators would have to decide whether to investigate and then, if appropriate, to consider what action to take. No doubt there would be many cases where there was only suspicion and nothing more and no action would be taken, but all cases would have to be investigated to some extent, and it would be difficult for regulators to do nothing at all once they had been notified.
Noble Lords should also note that, although the Government believe that an inflexible requirement to report all known and suspected breaches of conduct rules by all employees subject to them is inappropriate, the regulators can impose more targeted proportionate rules in this area if it supports the pursuit of their objectives.
The noble Lord, Lord Sharkey, raised costs. The costs in the impact assessment are based on the detailed cost-benefit analysis published by the regulators when they set out how they would implement the regime. I understand it is available on the FCA website, but I will write to the noble Lord and all interested Peers on this point. On that basis, I ask the noble Lord to withdraw the amendment.
Lord Sharkey
I thank the Minister for that answer and those clarifications. I cannot help feeling that removing the statutory obligation and replacing it with something that is still not yet entirely clear is perhaps not the best way of proceeding. However, under the circumstances, I beg leave to withdraw the amendment.
Lord Sharkey
“Unsolicited marketing of debt management services
The Treasury shall require that the FCA amend the rules in its handbook governing unsolicited marketing so that they apply to debt management services.”
Lord Sharkey
My Lords, I will be very brief. I know that the Committee is keen to move on to the simple and straightforward government amendments. This amendment is designed to do just one thing, which is to persuade the Government to ban cold calling in the service of debt management providers.
Cold calling lead generation and cold calling directly is banned for mortgages and has been for a long time. It was banned because it was felt that it generated high risk for consumers. Cold calling lead generation for debt management providers is a much higher risk for consumers. The FCA published its thematic review of debt management advice in June of this year. It makes extremely worrying reading.
The FCA acknowledged that debt management is one of the highest-risk activities in consumer credit. Its review found that: customers are not sufficiently made aware of the nature of the service being offered, including any fees they may be required to pay; customers are not being made aware, as is compulsory, that help in managing debt is available free of charge; the debt advice provided may not be in the customer’s best interests and debt solutions that are not suitable, affordable or sustainable are offered; customers are recommended or sold additional products that may not be in their best interests; the nature and level of fees charged by some fee-charging debt management firms is such that they affect the customer’s ability to make significant repayment towards their debt; and firms do not market themselves in a manner that is clear, fair and not misleading.
There is other stuff, too, about the lack of protection of client money. It is all extremely damning. I know that the Minister and the FCA are fully aware of this problem and of its scale. For example, StepChange, a free debt management advice company, had more than 500,000 people contacting it for advice in 2014 alone, which was a 56% increase on the number for 2012.
Lord Ashton of Hyde
My Lords, the Government share the concern of the noble Lord, Lord Sharkey, about long-standing problems in the debt management market. Indeed, I have had the pleasure of answering questions from the noble Lord on this subject, and had a subsequent meeting with him and officials from the Treasury. We agree that it is imperative that vulnerable consumers in this market are treated fairly by firms and provided with the services that meet their needs.
As the Committee will be aware, responsibility for consumer credit regulation, including debt management firms, transferred from the Office of Fair Trading to the Financial Conduct Authority on 1 April 2014. The ensuing, more robust regime is dramatically improving consumer protections. The Government have ensured that the FCA has wide enforcement powers to take action where its rules are breached. There is no limit to the fines that it can levy and, crucially, it can force firms to provide redress to consumers.
Debt management firms are in the first group of firms to require full authorisation, with the FCA thoroughly scrutinising firms’ business models and practices. Every debt management firm will have to demonstrate compliance with the FCA’s rules and principles, including the requirement to treat customers fairly. Firms which do not meet the FCA’s threshold conditions will not be able to continue in the market. Decisions on those authorisations are due to take place—the first ones by the end of this year.
The FCA has also introduced tough new rules to protect consumers in the debt management sector, and the FCA actively monitors that market. It has flexible rule-making powers and, if it finds further problems, it will not hesitate to take action. The FCA requires that all advertisements and other promotions must be clear, fair and not misleading, and it is able to impose tough sanctions where wrongdoing is found.
Regarding the noble Lord’s specific points about unsolicited marketing, the financial promotions regime applies to those providing debt management services. The FCA requires that unsolicited marketing by phone, text or email makes clear both the identity of the firm and the purpose of the communication so that the consumer can decide whether to proceed. This was highlighted by the noble Lord, Lord Sharkey.
The FCA also requires regulated debt management firms that accept leads from lead generators to satisfy themselves that business has been procured fairly and in accordance with data protection and privacy in electronic communications law. More broadly, in 2014 the Department for Culture, Media and Sport published its Nuisance Calls Action Plan. This set out the actions being taken by government, regulators, consumer groups and industry to tackle nuisance calls.
Importantly, the FCA has already committed to undertake a review of unsolicited marketing calls, emails and text messages from consumer credit firms, which will begin early next year. The Government believe that requiring the FCA to take a particular course of action before this review has taken place would limit the FCA’s ability to exercise its powers independently and would not necessarily achieve the desired result.
In answer to the question, “Why not act now?”, asked by the noble Lord, Lord Tunnicliffe—and I think that the noble Lord, Lord Sharkey, implied that even if he did not say it directly—it is worth noting that, if additional requirements for debt management firms were introduced at present, those firms would be required to alter their internal processes. That would cause disruption to the FCA’s ongoing authorisation process, which is due to begin producing results within the next couple of months.
I shall take advantage of the offer from the noble Lord, Lord Tunnicliffe, to write to him on the caller ID review timetable, because I do not have that to hand.
In summary, the authorisation process is well under way and will not take a year, and the FCA review of unsolicited marketing calls will begin early next year, so I submit that the noble Lord’s amendment is not appropriate at this time. I therefore ask him to withdraw it, confident in the knowledge that he will continue to hold the Government to account on this subject.
Lord Sharkey
I thank the Minister for that answer, a lot of which was, as I knew it would be, very encouraging. There remains just one issue. This is going to take some time, during which a substantial number of people will be exposed to risk. I think that that is unnecessary. The mortgages example suggests that we can, without interfering with the FCA’s processes, do something simple and quick now to stop this abuse. Having said that, I beg leave to withdraw the amendment.
Bank of England and Financial Services Bill [HL]
Lord Sharkey Excerpts(9 years, 1 month ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Sharkey
“Composition of the Board of the PRA
In Schedule 1ZB to the Financial Services and Markets Act 2000, after paragraph 9(b), insert “, and(c) the chief executive of the FCA.””
Lord Sharkey (LD)
My Lords, the amendment does for the PRA what Amendment 7 did for the FPC. I can be very brief—perhaps even audible. The amendment relates to the PRA in its current form, which we will try to maintain by opposing Clause 12. The Treasury briefing note sets out the current composition of the PRA as the governor, the CEO of the PRA, the deputy governor for financial stability and appointments by the court with the agreement of the Treasury, so as to ensure a majority on the board of external members. The Bank website says that five members of the board are Bank officials; that the board has a majority of independent external members, including the CEO of the FCA and five others.
The requirement that the PRA board has a majority of external members is an important provision. Its purpose is clear: it is to protect against and counter overwhelming influence by the Bank. Unfortunately, whether there is really a majority of independent board members is open to significant doubt. It depends on whether or not, as the Bank asserts, the CEO of the FCA can properly be described as either external or independent. As I said on Monday when discussing the status of her membership of the FPC, the CEO of the FCA has, at best, a qualified independence, not to be compared with the true independence of the truly external members. She depends for her job on the confidence of the Chancellor and of the governor. Her organisation is, in many respects, controlled—or can be controlled—or constrained by the Bank or its organs. The summary sacking of her predecessor, Martin Wheatley, by the Chancellor, with, no doubt, at least the agreement of the governor, is a clear and dramatic illustration of just how much independence the CEO of the FCA has when it comes down to it.
When I raised the same point in the context of the FPC, the Minister disagreed. He asserted simply that the FCA was a completely independent body. The evidence for this is pretty thin, as others have noticed. As recently as August, the Adviser Lounge ran an article headlined:
“Financial advice review shows FCA is not independent”.
It concluded that the regulator can be pushed, both formally and informally, into enacting the Minister’s will. It quoted an historical example. It noted that the former Housing Minister, Grant Shapps, intervened directly in the FCA’s mortgage market review consultation in December 2010—and Grant Shapps was not even a Treasury Minister.
We need to make absolutely certain that the PRA as currently constructed has a majority of truly external members. These members are the equivalent to non-executive directors; their externality is equivalent to independence. The CEO of the FCA, on the contrary, is not by any reasonable test entirely independent of the Bank. The amendment does not remove her from the board of the PRA but simply defines her as external. This means that, in order to ensure the board has a majority of external members, one more genuinely external member will have to be appointed. This is a perfectly simple, reasonable and precautionary measure. I beg to move.
The Parliamentary Secretary, Cabinet Office (Lord Bridges of Headley) (Con)
My Lords, I thank the noble Lord, Lord Sharkey, for provoking this debate. Unlike the noble Lord, Lord Tunnicliffe, I have not had the enjoyment of spending my morning looking at FSMA consolidated Acts, but I have been looking into this matter. I do not want to go on at length and repeat ad nauseam what I was saying on Monday. As the noble Lord, Lord Tunnicliffe, said, this comes down to a matter of independence. He is absolutely right to pinpoint that. Despite hearing the cases that he and the noble Lord, Lord Sharkey, mentioned, I remain in no doubt that the FCA CEO should be counted as an external member. She is not an executive of the Bank and the FCA is an independent body entirely separate from the Bank.
Noble Lords should also be aware that the legislation further reinforces external representation on the new Prudential Regulation Committee, as compared with the PRA. The majority of external members, as has been said, is increased compared with the PRA board with at least seven external members, at least six appointed by the Chancellor in addition to the FCA CEO, compared with only five internal members: four officers of the Bank and one appointed by the governor. So, for the PRC, external members will be in the majority by at least two. This compares with a requirement for a majority of one on the PRA board.
It could be argued that if you use the power to add an extra deputy governor to the PRC, that majority of externals is lost. I would argue that the power to add an extra deputy governor to court and to the committee requires secondary legislation, so Parliament will have its say. Furthermore, Clause 1 provides that if secondary legislation is used to add a deputy governor to the PRC, it may also provide for an equal increase in the minimum number of members appointed by the Chancellor of the Exchequer to ensure a continued balance of internal and external members.
I shall leave it at that. I hope that the explanation I have provided satisfies the noble Lord and that he will withdraw his amendment.
Lord Sharkey
I start by thanking the noble Lord, Lord Tunnicliffe, for his support, and for reminding us that if the Government get their way in Clause 12, we will need to revisit the provisions governing the number and the definition of external directors of the new arrangements. I remain unconvinced that the CEO of the FCA can in any reasonable way be described as independent. The Government seem to be relying on the force of simple assertion rather than evidence, but I am sure we will come back to this on Report. In the mean time I beg leave to withdraw the amendment.
Lord Sharkey
My Lords, Clause 12 abolishes the existing PRA. It defines the Bank as the new PRA, exercising its function through the PRC. The key questions here are why, and what is the benefit? I asked these questions at Second Reading. The Minister, in his letter to me, received last Thursday, answered by saying:
“Bringing micro-prudential regulation more fully into the Bank will support the Bank’s aim of installing a unified culture and flexible and co-ordinated working across its twin aims, aims of monetary and financial stability”.
That is very nearly weapons-grade corporate speak.
I invited the Minister at Second Reading to say what that means in plain English and to give concrete examples of how it would operate. I again invite him to do exactly that. I also invite him, having explained what it means, to say why it is better than what we now have. Andrew Tyrie asked the governor a similar question on 20 October at the Treasury Select Committee. He made the point that the PRA had been successful and asked why this change was needed if the PRA was not “broke”—if it wasn’t broke, why change it? The governor said that no one had made that point to him but he agreed that the PRA had been successful.
Clause 12 brings about a significant change. It brings the PRA directly into the close embrace of the Bank. Despite unevidenced assertions to the contrary, it must reduce the practical and cultural independence of the PRA, and this is absolutely not desirable. Doing all this without a convincing or even intelligible reason is surely the wrong thing to do.
The Treasury briefing paper for the Bill hints at another reason for absorbing the PRA into the Bank—that is, to conform with the governor’s “One Bank” strategy aimed at breaking down barriers within the Bank,
“that could stand in the way of a unified culture and impede flexible and coordinated working across the Bank”.
There are two worrying things about that statement. The first is the “One Bank” strategy itself. As my noble friend Lady Kramer said at Second Reading, the Parliamentary Commission on Banking Standards had many conversations about the importance of ensuring that,
“the Bank was not one single monolith and that there should be an opportunity for real challenge rather than groupthink”.—[Official Report, 26/10/15; col. 1073.]
The “One Bank” strategy appears to be in danger of doing exactly that—moving the Bank back to monolith status, suppressing opportunities for real challenge and recreating the conditions for groupthink.
The second worrying thing about the Treasury briefing note statement is the reference to breaking down,
“barriers that could stand in the way of a unified culture and impede flexible and coordinated working across the Bank”.
Leaving aside the question of whether a unified culture is always desirable, one has to ask, “What are these barriers?”. What barriers have been identified in the workings of the Bank with the PRA?
The position on Clause 12 is that the Government have simply not put forward any compelling reasons for the changes that it produces. We have seen no strong, or even fairly strong, or evidenced argument that either the current situation is unsatisfactory or that the proposed changes would be better. Absorbing the PRA into the Bank is an important and radical step. It should not be taken without strongly evidenced arguments. In the absence of such arguments, we are left with only weakening of the independence of a vital organisation, with no assurance of any real benefit. Like my noble friend Lady Kramer and my former noble friend Lord Flight, I would prefer to see the PRA more independent rather than less. However, if we cannot have a more independent prudential regulator, we can at least try to stop it becoming a less independent prudential regulator.
Lord Carrington of Fulham (Con)
My Lords, I refer noble Lords to my interests as declared in the register of interests. It seems to me that these clauses come to the nub of bank regulation in the Bill. The real question that we are looking at is whether it is better to have a stand-alone regulator or one which is integrated into the Bank of England, albeit with Chinese walls, a separate committee structure, independent directors and so on. To answer that question we have to consider why the FSA failed. The FSA was set up very much as a stand-alone organisation with its own rulebook, structures and independence from both the Treasury and the Bank of England, yet it completely failed to identify the problems that were building up in the banking system prior to 2008 and was unable to take action if it did identify those problems. However, there is increasing evidence that it was not even aware that problems were being created.
The noble Lord, Lord Sharkey, suggested that there are no problems with the PRA. That may well be true. Certainly, the PRA has operated well since it was created. I have had personal experience of dealing with people of excellent quality in the PRA and, indeed, of better quality than people in the equivalent posts in the FSA. However, I warn that the PRA has not been tested in the way that the FSA was. There has not been a major financial crisis since 2008. The PRA has not had to face the same problems. Frankly, we do not know whether the PRA would be able to cope with a crisis of the magnitude of 2008 or whether indeed it would suffer from the same problems that the FSA suffered from.
Lord Sharkey
“(2) The terms of the extension under subsection (1) shall not apply to those persons who fall within the definition of “relevant authorised person” in section 33 of the Financial Services (Banking Reform) Act 2013.”
Lord Sharkey
My Lords, last night at 6.39 pm, the detailed impact assessment for the senior managers and certification regime that is part of the Bill appeared in my inbox. At 6.41, it was withdrawn and, at 6.42, it or some version of it was sent again. This was all a bit confusing. But the real problem is timing. It is simply not acceptable to send us an important impact assessment the night before we debate the matter. I have not been able to give this impact assessment anything but the briefest of glances. We need more time to review and think about the contents, but we can now do that only on Report. When we agree the SM&CR issue on Report, could the discussion be held under Committee stages rules? Perhaps the Minister could nod agreement or write to me nodding agreement with that proposal.
Part 2 introduces two very significant changes. It scraps the reverse burden of proof regime for relevant authorised persons, which are defined in the Treasury briefing note as banks, building societies, credit unions and PRA-regulated investment firms. The Bill replaces the reverse burden of proof with a test requiring the regulator to prove misconduct, which is the position we were in before, during and for five years after the crash. In this period, and under that test, no senior manager was jailed and financial misconduct did not cease. The Bill extends this new regulatory regime to all sectors of the financial services industry.
The sections of the Bill that deal with these matters are very complex. I am sure the Minister will say that this amendment has technical defects, and I am certain that he would be right about that. However, we are in Committee and this is a probing amendment. I hope that the intention of the amendment is clear. It does not challenge the extension of a new, less onerous SM&C regime to the wider financial services industry. It seeks to preserve the existing SM&C regime for those currently classified as relevant authorised persons. That is, it seeks to preserve the reverse burden of proof regime for banks, building societies and PRA-regulated investment firms. This would create a two-tier regulatory system. It would allow the regulatory regimes to be proportionate to the risks involved. Those institutions that did, and still can, threaten our financial system would be subject to a tougher regime, but those who cannot or are on the balance of probability unlikely to would be subject to the new lighter regime proposed in the Bill.
In an article in the Evening Standard on 15 October, the highly respected City journalist Anthony Hilton made the case for such a two-tier system, writing that,
“all banks, insurers and securities houses are not all equal in the damage they can do; some are much more equal than others. By extension, rules and regulations designed to impose mild restraint on the giants of the industry can amount to damaging overkill when applied to the typical smaller firm. The answer is a two-tier system of prudential regulation whereby those firms with the potential to put the system at risk are subject to much more intrusive supervision … Guy Jubb, global head of Governance and Stewardship at Standard Life Investments, has suggested something similar for his world”.
A two-tier system is what this amendment seeks to create.
There was considerable anxiety at Second Reading about the Bill’s abolition of the reverse burden of proof regime. In his reply and in subsequent correspondence, the Minister set out the reasons for this reversal. The first is that since the Government propose to extend the regime to all financial services, in the interests of fairness and regulatory coherence it would be vital that the regime be rolled out consistently across the industry. He said:
“it would clearly not be proportionate to apply the reverse burden of proof across the financial sector, including to the small organisations that will now make up the majority of firms which will come under the regime, and which pose more limited risks to market integrity and consumer outcomes”.—[Official Report, 26/10/15; col. 1081.]
The Minister singled out credit unions as an example of the kind of small firm that would suffer disproportionately under the reverse burden of proof regime, which I remind the Committee has not yet come into force. Here, I entirely agree with the Minister. Credit unions should never have been in the category of relevant authorised persons in the first place and should be removed. However, I disagree with all the other aspects of the Minister’s argument. It entirely ignores the different risk potentials of the major institutions and the about-to-be newly regulated firms, except to say that it would not be fair to impose the stricter regime on the whole sector. It would not be fair, but the stricter regime for relevant authorised persons was made law for all the good and necessary reasons advanced by the Parliamentary Commission on Banking Standards and accepted by Parliament and the Government. These good and necessary reasons, well rehearsed at Second Reading, are still entirely valid. The facts have not changed. The reverse burden of proof is still needed.
In evidence to the Parliamentary Commission on Banking Standards in January 2013, Tracey McDermott, then director of enforcement and financial crime and now acting CEO of the FCA, stated that the inability to impose sanctions on senior executives was first and foremost due to the evidential standard required to prove their liability. She said that,
“the test for taking enforcement action is that we have to be able to establish personal culpability on the part of the individual, which means falling below the standard of reasonableness for someone in their position”.
That regime produced no convictions or charges against senior managers, and that is exactly where we will be again if we scrap the reverse burden of proof for senior managers in banks, building societies and PRA-regulated investment firms. The extension of the regulatory regime to less risky firms requires a lighter touch, but this does not imply that this same lighter touch should apply to much riskier organisations currently subject to the reverse burden of proof regime.
The Minister advanced two other reasons for removing the reverse burden of proof. The first is that, as Andrew Bailey asserted, it is leading to individuals and their advisers spending more time and resources on mitigating the risk of being held personally liable for breaches on their watch than on running their firms in a manner consistent with regulator’s objectives. This does not seem to fit with the details of last night’s impact assessment. It assesses the maximum cost benefit to large firms as 10% of current costs and as more likely to be 5%. This does not sound as though the lighter-touch regime will free much time or resources. In any case, Parliament’s intention was precisely that these people should spend more time and resources ensuring compliance with the rules. We know what happened when they did not do that. Mr Bailey went on to say that he sees the reverse burden of proof giving rise to a box-ticking mentality. Perhaps it may, but required behaviour often precedes and leads to cultural change.
Another point was raised by Mr Bailey. He said there has been noise around the reverse burden of proof that has been distracting future senior managers from complying with the spirit of other important aspects of the regime. He does not say how he knows he is not being gamed on both these points. I assume he would not deny that financial institutions attempt to game regulators and that he has been told of these things by bankers and others subject to the reverse burden of proof regime. How has he tested what he has been told? How does he guard against and discount obvious special pleading? Without this information, his arguments can have little force.
There is one other argument I have heard made, entirely understandably, about the reverse burden of proof: it runs counter to our strong legal tradition of “innocent before proved guilty”. There is ample precedent for this in law. The reverse burden of proof has been used in the Road Traffic Act 1988, the Health and Safety at Work etc. Act 1974, the Terrorism Act, the Misuse of Drugs Act 1971, the Trade Marks Act 1994, the Criminal Justice Act 1988 and the Official Secrets Act. The House of Lords, sitting as the Law Lords, dealt with the issue in Sheldrake 2004, UKHL43. It made plain that each statutory provision must be considered on a statute-by-statute basis. The decisive factor before the courts is whether the reverse burden is necessary to ensure that the offences remain workable. Without it, these offences were not workable. That is precisely why we need, and is the justification for, the reverse burden of proof. That has been said and is the case here. This argument has not been advanced in our discussions so far, perhaps because the Minister is familiar with the current status in law of other examples of the reverse burden of proof. As noble Lords will know, the Telegraph reported on August 29 that Sir Eric Pickles is considering using the reverse burden of proof in his unexplained wealth orders, which I assume are a precursor to undeserved wealth orders.
The fact is that none of the Minister’s reasons for abandoning the reverse burden of proof stands up to scrutiny. We need the reverse burden of proof regime for systemically risky organisations for the reasons advanced by the PCBS and others. Life has not got better, financial misconduct has continued and no senior managers have been punished. The regime that makes punishment not happen is the regime, effectively, that the Bill wants to restore to banks, building societies and PRA-regulated investment firms. Our amendment is aimed at preventing that. The amendment does not interfere with the extension of the regulatory regime. It tries to retain the already approved and enacted regime for riskier, systemically dangerous firms and allow the lighter regime for those firms that are less risky and not systemically dangerous.
We need to be able to hold senior managers personally and directly accountable. As Senator Warren said:
“If large financial institutions can break the law and accumulate millions in profits and, if they get caught, settle by paying out of those profits, they do not have much incentive to follow the law”.
I beg to move.
Lord Sharkey
I thank all noble Lords who have spoken in this debate. It has been a very good one. It is clear that there is a strong division of opinion on both the desirability of a two-tier system and the reverse burden of proof regime. As the Minister said, these issues are both absolutely central to the regulation of our financial services industry.
It still seems to me that Parliament was right the first time. After a thorough and comprehensive investigation, it was right to put the reverse burden of proof regime into law. It was right to conclude that, if we did not do that, we would remain unable to hold senior managers effectively to account.
We have two categories of financial service organisations—those that constitute, or may pose, a threat to our financial stability and those who cannot pose such a threat. I agree with the Minister that we need a proportionate regulation and that what is proportionate for one of these categories is not proportionate for the other. I accept the difficulty in drawing the line. However, I remind the Minister that we have already drawn the line. The previous Act drew a very clear line. I do not think that we have resolved anything today but it was good to have the arguments in play. I look forward to discussing this issue further on Report under, of course, Committee stage rules. I beg leave to withdraw the amendment.
Bank of England and Financial Services Bill [HL]
Lord Sharkey Excerpts(9 years, 1 month ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Sharkey
Lord Sharkey (LD)
My Lords, I will be very brief. This amendment would increase the number of non-executive directors of the FPC from the five proposed in the Bill to six. Exactly as with our proposal to preserve the NED balance on the court and our proposal to reject the abolition of the oversight committee, this amendment aims to preserve or strengthen the influence of the non-executive directors.
The Treasury has supplied a very helpful chart showing the current composition of the Bank’s governance structures. As things stand, the FPC consists of the governor, three deputy governors, the CEO of the FCA, one governor appointment—the executive director for financial stability—and four appointments by the Chancellor. These four people are the external members, the equivalent of non-executive directors. This means the FPC consists of five Bank officials, the CEO of the FCA and four non-executive directors.
The Bill before us changes this. It adds a deputy governor and one external member. In the words of the Treasury briefing note, it adds the latter to,
“maintain the existing balance between existing executive and non-executive members”.
Under the new arrangements, the composition of the FPC will be: six Bank officials, the CEO of the FCA and five NEDs. As the Treasury note says, this preserves the preceding balance, but it also highlights the position of the CEO of the FCA. We do not argue that she should not be a member of the FPC—on the contrary—but we are not convinced that she could be described as an external member, with the same independence of thought and action as the other truly external FPC members. Indeed, the Treasury note does not describe her as an external member. It simply lists her as “the CEO of the FCA”.
In many respects, the CEO is more like a Bank official than an external member. She depends for her job on the confidence of the governor and the Chancellor. What her organisation can or cannot do is in many respects controlled, or can be controlled or constrained, by the Bank or one of its organs. We saw what happened to the current FCA CEO’s predecessor: Martin Wheatley was summarily sacked by the Chancellor. I assume the governor, at the very least, did not oppose this. On balance, it would be entirely reasonable to conclude that the CEO of the FCA is not as independent of Bank influence as the truly external members of the FPC. In practice, that means that in the current and proposed FPC compositions, there will be a majority of Bank officials and Bank-dependent officials, and a minority of external members. We believe that that is unhealthy. We believe that accountability and scrutiny will be improved by having a more truly independent member on the FPC. It should also be true for the PRA, incidentally, and I will argue that case in Amendment 19. This amendment would raise the number of independent members of the FPC from the five proposed in the Bill to six. It does that to ensure a sufficiency of truly and unquestionably independent members on the FPC. I beg to move.
Lord Tunnicliffe
My Lords, I will try not to make this a habit, but I find the case persuasive.
Lord Sharkey
I thank the Minister for that response. There is no argument about the value of the CEO of the FCA being on the FPC. I fear that I was completely unconvinced by the argument that one more external member would make the FPC collapse into chaos and disorder; that seems a bit far-fetched.
The difference between us is whether the independence that the noble Lord maintains that the CEO of the FCA has is true independence. The test he seems to apply is simply that, well, the FCA itself is kind of independent, so she is obviously independent. In fact, the Minister did not mention my major concern, which is the influence that the Bank itself has over the CEO of the FCA. I give way to my former noble friend.
Baroness Noakes (Con)
My Lords, can the noble Lord explain why he thinks that the Bank has any influence whatever over the chief executive of the FCA? There are no provisions in statute that give any sense of influence, even, and I struggle to find where in practice you could point to where that influence could be deemed to exist.
Lord Sharkey
There are two partial answers to the noble Baroness’s question. The first is, as I mentioned, that the chief executive of the FCA can be summarily dismissed, presumably either at the instigation of the governor or at least with his permission and consultation—
Baroness Noakes
I ought to say two things to that. The chief executive of the FCA was not summarily sacked; as I understand it, he was informed that his contract would not be renewed, and there is a world of difference. As far as I am aware, there is no practical issue of the Governor of the Bank of England or any other senior official of the Bank of England having any locus in the decision whether to renew the chief executive’s contract. If the noble Lord has evidence of that, I should be happy to see it.
Lord Sharkey
The fine distinction between being summarily dismissed and not having his contract renewed temporarily escapes me, but I am sure that it will come to me. The point I am trying to make is that I believe that the Bank has influence over the CEO of the FCA. I was asking the Minister—because he did not deal with this—to explain why he clearly believes that it does not have influence over the head of the FCA.
I also point out, as I did in my initial speech, that the PRA itself can act to restrain and constrain the activities of the FCA, as I am sure the noble Baroness knows. The PRA is an organ of the Bank, so the actual independence of the FCA is somewhat compromised by that arrangement. That was the point that I was trying to make.
However, having said all that, and not being terribly convinced by the Minister’s arguments—I am sure that we will want to return to this later—in the mean time, I beg leave to withdraw the amendment.
Bank of England and Financial Services Bill [HL]
Lord Sharkey Excerpts(9 years, 1 month ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Sharkey
“( ) In section 1(2) (court of directors), in paragraph (e) omit “not more than”.”
Lord Sharkey (LD)
My Lords, I start by thanking the Minister and his officials for meeting us to discuss the provisions in the Bill. It was helpful and I look forward to further meetings between Committee and Report. The purpose of the amendment is to set the number of non-executive directors of the court of the Bank to nine. The helpful Treasury briefing note to the Bill is a little ambiguous in this area. It states on page 1 that, alongside these changes, the number of NEDs on the court will be reduced from nine to seven, although the legislation will leave flexibility for up to nine NEDs. But as far as I can see, there is no measure in the Bill to reduce the number of NEDs from nine to seven. I understand that this reduction is within the gift of the governor, who has simply decided that the number should be seven and not nine. As far as I know, there has been no consultation on this measure.
According to the Bank’s website as of this afternoon, the court has four executive members and nine non-executive members. The governor proposes to reduce the number of non-execs to seven, while at the same time the Bill proposes to increase the number of Bank officials on the court from four to five. Together, this would radically change the composition of the court. As I say, at the moment the court consists of four Bank officials and nine NEDs. The new structure would mean that there are five Bank officials and seven NEDs. This seems unsatisfactory and possibly even dangerous. The Bank’s tendency to groupthink is well known, and of course the Bank is famous for its intellectual humility and capacity for self-doubt. It is important that the tendency to groupthink and arrogance is resisted. The last two financial services Acts gave much more power to the governor than to the Bank but, at the same time, they provided for more robust oversight. The officials/non-executive director balance on the board is a critical part of that. It is absolutely critical if the court succeeds, later in the Bill, in abolishing the oversight committee and assigning its functions to the court itself, which I hope it will not. We will look at that later.
I pressed the Minister at Second Reading, and in a subsequent meeting, to explain why the number of non-executive directors is to be reduced, and I have had no real answer. I have heard something about administrative convenience and transition arrangements, whatever they may be, but that is certainly not a proper answer. I again ask the Minister why the number of non-executive directors on the court is being reduced.
A lot in the Bill seems to be aimed at reducing the influence of non-executive directors, and we will come to discuss the composition of the various sub-committees. A lot in the Bill seems aimed at reducing external influence on the Bank’s processes and deliberations. There is also a lot in the Bill that weakens the supervisory regime that the Bank is charged with enforcing, and we will come to all that. For now, our amendment seeks to maintain the balance of NEDs and officials on the court of the Bank. That is obviously vital if we are to avoid a repetition of groupthink and introspective and arrogant behaviour. The Bank will have five officials on the court—one more than it has now. We need to retain nine non-executive directors to be certain of strong, uncaptured, independent voices on the court. I beg to move.
Lord Ashton of Hyde
So clearly it was not a burning issue. As my noble friend Lord Flight said, no member of the court is from a regulated firm—that is absolutely true—which ensures no conflicts of interest. We think that that is the correct way forward. Of course, they bring a wide amount of experience and there are many members of the court whose description is a “former” director of relevant parties, including banks.
Finally, who made the decision to reduce the number from nine to seven? That was made by the Chancellor, on the advice of the non-executive chairman of the Bank. The proposed composition of the court, as recommended by the Treasury Select Committee, was a total of eight: the governor, two deputy governors, an external chair and four other external members.
Lord Sharkey
Does that not make the point that it would give a clear majority to the external members?
Lord Ashton of Hyde
It would also be considerably smaller than what we propose today—which is one of the problems brought up by noble Lords. We are not going with that exact number but we will have a majority of externals with the flexibility to increase those by two—something the noble Lord’s amendment would remove.
We agree that the ability for independent scrutiny and challenge should not be compromised. We think that with seven high-quality non-executive directors this will not change. There will still be a majority of external members on the court, well equipped to scrutinise the actions of the Bank and hold the executive to account. My noble friend Lord Bridges and I are happy to meet with the noble Lord, Lord Sharkey, if he would like to discuss this further, but in the mean time I hope that my explanation of the Government’s thinking will allow him to withdraw his amendment.
Lord Sharkey
I am afraid we have not heard any kind of compelling explanation as to why this reduction should take place or what its benefits might be. It is simply not enough to pray in aid, as the Minister did, the alleged size and efficiency ratio of commercial company boards. That is simply a category mistake. The Bank is not a commercial company. It has duties that no commercial company has, and it is more important in our national life than any private sector company.
The reduction proposed in the number of non-execs would completely change the culture in the court. But what is worse, as the noble Lord, Lord Eatwell, has said, there is simply no evidence to support the case for the reduction. Evidence may arise out of the consultation, but I am not quite clear about that—and that may need at some later stage a little more explanation. I am happy to take up the Minister’s offer to meet, but I am certain, too, that we will want to return to this issue on Report. In the mean time, I beg leave to withdraw the amendment.
Lord Sharkey
My Lords, I do not believe that Clause 3 should be part of the Bill. Clause 3 abolishes the oversight committee and transfers its functions and responsibilities to the court itself. This is a significant weakening of the oversight of the Bank. The oversight committee consists only of the non-executive directors of the Bank; there are quite deliberately no bank officials on the committee. Parliament arranged this in order to be certain that oversight was truly independent and to avoid the possibility of undue bank influence in assessing the performance of the Bank itself in its various roles.
There is an irony in the proposal to abolish the committee. As the noble Lord, Lord Eatwell, pointed out at Second Reading, the Court of the Bank was opposed to the original proposal to create a supervisory board. It was the Bank itself that proposed an oversight committee composed exclusively of non-executive directors.
The reasons given by the Government for the abolition of the oversight committee are extraordinarily weak. The Minister’s letter to me, received last Thursday, says about the oversight committee:
“The new oversight functions and transparency measures have been successful, but the extra layer of governance imposed by the oversight committee has proved unnecessary”.
It goes on to say:
“There is effectively an oversight committee overseeing the work of an oversight board”.
That is emphatically not the case. It was precisely because Parliament found oversight by the board to be unsatisfactory and defective that it introduced the non-executive director-only oversight committee.
In exercising oversight of the Bank there is a completely obvious difference between having that oversight carried out by the Bank itself sitting as five officials and seven NEDs, and having it carried out by an oversight committee composed only of non-executive directors. Anyone with experience of corporate governance in the commercial world would immediately recognise the difference and the danger to independent scrutiny in the current proposal.
The Minister also says:
“The non-executive chairman of the Court has found the division of responsibilities between the Court and the Oversight Committee difficult to operate and unnecessarily complex since, to ensure that the meetings are effective, the Oversight Committee has often required the presence and engagement of the executive members of the Court”.
As a reason for abolishing the oversight committee, this is very feeble. Does the chair of the court imagine that the oversight committee could function without calling on the executive directors? How could any oversight committee function without evidence from the executives it is charged with overseeing? Does the chairman not understand the obvious and critical difference between court executives being called to give account to a committee of nine non-executive directors, and these same court executives giving an account of their actions and decisions to a full court meeting of five bank executives and seven non-executives? When you come right down to it, the main reason advanced by the Government for abolishing the oversight committee seems to be that the chair has diary and scheduling issues.
Perhaps I should remind the Committee—although seeing those present in the Chamber this afternoon, I probably do not need to—that Parliament considered the oversight committee a vital part of the reform of the Bank’s structure of governance. It was intended to prevent a recurrence of groupthink and as a check on the tendency to arrogance. It was intended as a means of ensuring a cool, independent view of the Bank’s operation, as a means of ensuring proper scrutiny and transparency and, as the Minister says, it has been successful in doing exactly this.
The Government have made no meaningful case for abolition. Abolition would reduce oversight and transparency and reinstate the Bank’s influence over oversight itself. It would ignore all the reasons Parliament advanced for the establishment of the oversight committee in the first place and, in common with other measures in the Bill, it would increase the influence of the governor and the Bank in areas where Parliament has taken deliberate steps to decrease it. Abolition is a retrograde and dangerous measure. The Government have given no compelling reasons—in fact, hardly any reason at all—for abolishing the oversight committee. This clause should not stand part of the Bill.
Lord Tunnicliffe
My Lords, I support the noble Lord, Lord Sharkey, in his contention that the clause should not stand part of the Bill. This whole issue is about holding the executive to account. In these situations it is very difficult to make a speech which does not sound as though you are criticising the current executive and governor. Oversight mechanisms are in place for when things go wrong. They are largely irrelevant when things are going right but they are there in case they go wrong. I contend that the Government’s proposals significantly reduce the power of the non-executives to hold the executives to account.
Those of us who sat through those long days of Committee on the Financial Services Act 2012 will remember that the Government stated that they,
“fully recognise the importance of strong lines of accountability for the Bank, given its expanded responsibility and powers”.—[Official Report, 26/6/12; col. 184.]
I am not sure whether the Government took that view immediately in the debate, but it was the consensus in the Chamber at the time, after an enormous amount of discussion.
Anybody doing what you have to do in the modern world to see how the Bank functions and looking it up on the Bank’s website will find a very good page—except that we are about to change it all—labelled “How we are governed”, which says:
“The Oversight Committee of Court, consisting solely of non-executive directors and supported by an Independent Evaluation Office, reviews and reports on all aspects of the Bank’s performance”.
That is very convincing for anybody with a proper interest in the banking structure and all the various banking responsibilities. There is a process whereby people who know what is happening can call the executive to account.
Lord Bridges of Headley
My Lords, I thank all the noble Lords who have made very powerful contributions and thoughtful points.
I will not detain your Lordships with lots of history; you know it much better than I do. However, to remind the Committee how this came about, I will repeat something that has already been said. The Financial Services Act 2012 gave rise to the Oversight Committee, largely in response to recommendations made in the report Accountability and the Bank of England from the Treasury Select Committee in the other place. That report recommended that the court should be reformed into a board, with powers to conduct ex-post reviews of the performance of the Bank; that board members should be authorised to see all the papers submitted to the MPC and FPC; and that the board should be responsible for reviewing the processes of the Bank’s policy committees.
The Treasury Select Committee argued that the new board should be called the Supervisory Board of the Bank of England but, despite this name, the structure that was proposed was in fact a unitary board. As has been said, the Financial Services Act 2012 took steps to implement these recommendations, by creating a set of statutory oversight functions. However, instead of conferring powers on the court itself, the powers were conferred upon a new statutory Oversight Committee, made up exclusively of the non-executive directors.
Lord Sharkey
Would the Minister agree that it was the Bank itself that suggested that?
Lord Bridges of Headley
That is my understanding. If I am wrong, I will correct myself.
The noble Lord, Lord Sharkey, made his points very forcefully and I fear we may still have to have further discussions—if he can bear it—but let me restate the Government’s position. The problem now faced by the Oversight Committee is simple. As the noble Lord said, for the non-executives to hold the executive to account effectively, they need to meet together, not separately. There needs to be full and frank discussion between the governors and the non-executives on how best to exercise the court’s oversight functions. I am sure the noble Lord would agree that the challenge and recommendations of the non-executives need to be informed by in-depth knowledge of the Bank’s operations. Effective oversight needs to be carried out by the executive and non-executives in partnership, not in silos.
It bears repeating that the key powers of oversight, which are necessary and working, are not lost as a result of their transfer to the whole court. The court will continue to be able to commission reviews as it sees fit. Moreover, the non-executives will continue to be a majority on the court and will also continue to meet together as a group after each meeting of court, in line with best practice. As was discussed earlier today, court contains a high quality non-executive majority and is therefore well placed to oversee the work of the Bank.
It is entirely appropriate that court, as the governing body of the Bank, should be responsible for exercising these oversight functions.
Bank of England and Financial Services Bill [HL]
Lord Sharkey Excerpts(9 years, 1 month ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Sharkey (LD)
My Lords, this is a much shorter and simpler Bill than its two financial services predecessors, and I congratulate the noble Lord, Lord Bridges, on this welcome innovation, but, on the whole, it does not work to strengthen the regulatory framework put in place by those predecessors. On the contrary, and in very significant ways, it appears to weaken much of the work done in the past two Sessions.
There are four major areas of concern. The first is the abolition of the Bank’s oversight committee alongside the reduction in the number of non-executive directors on the court. There is also the role of the National Audit Office, the change in the status of the PRA and the changes to the senior manager regime and, particularly, the U-turn on the reverse burden of proof.
I shall start with the abolition of the oversight committee. The committee was recommended by the Parliamentary Commission on Banking Standards and was introduced into the Financial Services Bill by lengthy and detailed government amendments at the suggestion of the Bank. The very helpful Treasury briefing note to this Bill says that these new oversight functions have been a successful innovation, but it describes the oversight committee as an “unnecessary layer of governance”. As a reason for removing a key part of the Financial Services Act, this “unnecessary layer of governance” seems pretty weak. Will the Minister explain exactly how the existence of the oversight committee harms the bank’s ability to operate or how its existence as a separate body, as Parliament deliberately designed it, is damaging in any real or significant way?
The oversight committee consists only of non-executive directors. Its replacement, the court, has five bank officials and seven non-executive directors. This inevitably raises questions about robust independence, which was entirely the point of the non-executive director-only structure in the first place. The Bill reduces the number of non-executive directors on the court from nine to seven, although it contains the rather odd provision to allow restoration of the number to nine. There is nowhere any justification for the reduction in the number of non-executive directors from nine to seven: not in the Explanatory Notes, not in the HMT briefing note and not in the impact assessment. Will the Minister say why there is to be a reduction in the number of non-executive directors and why to seven? The abolition of the oversight committee seems certain to reduce the independence of oversight activity. The Government have presented no convincing reason why this committee should be abolished, and I am certain we will want to have a much better justification before agreeing to it.
The second area I want to discuss is the role of the NAO. The Treasury briefing note asserts that the purpose of this part of the Bill is to increase the accountability of the Bank to Parliament. There seems to be some significant disagreements on this. In evidence to the House of Commons Treasury Committee, the chair of the Court of the Bank of England, Anthony Habgood, said that the extent of the NAO’s proposed involvement had come as a surprise. That is a surprise in itself. Will the Minister say why Mr Habgood was taken by surprise? Was he consulted? Will he say whether the chair of the Court of the Bank of England is in favour of the NAO proposals in the Bill and whether he believes they will in fact increase the accountability of the Bank to Parliament? Certainly, Sir Amyas Morse, the Comptroller and Auditor-General and head of the NAO, does not think so. As the noble Lord, Lord Eatwell, said, the Financial Times reported on 11 October that Sir Amyas had,
“attacked ‘unacceptable’ government plans to increase transparency at the Bank of England, saying that they created a false impression of greater accountability”.
These are very important matters.
We welcome the prospect of increased public accountability of the Bank via the NAO, but it is not at all clear that that is what the Bill really offers. As the Financial Times pointed out, under the Bill’s proposals the Bank would have a veto over what the NAO could scrutinise. This would be the first time that a public entity could restrict the scope of a value-for-money study. It is very hard to see why the Bank should have this power of veto and fairly easy to see why it should not. At the moment, the NAO is responsible for the financial audit of the PRA. The Bill proposes to end that arrangement and hand over the financial audit responsibility to the Bank’s auditors. This seems a retrograde step and seems to signal a reduction in the independence of the PRA, which is the subject I want to turn to next.
The Bill proposes to end the PRA’s status as a subsidiary and make the Bank itself the Prudential Regulation Authority, exercising its functions through a new prudential regulation committee. The chief reasons given for this proposed change in the impact assessment are that it will,
“maximise the synergies between micro-prudential supervision and macro-prudential policy”,
and be,
“better able to exploit internal efficiencies by sharing knowledge, expertise and analysis”.
Will the Minister explain this in a little more detail and perhaps in plainer language? Will he give concrete examples of the synergies anticipated? Will he explain how internal efficiencies can be exploited in a way not possible under the current set-up?
Both the HMT briefing notes and the impact assessment assert that the PRA’s independence will be retained. The impact assessment says that the new PRC will have a majority of external members. However, the chart provided with the Treasury briefing note is open to a quite different interpretation. This chart says that the PRC will consist of the governor, three deputy governors, the CEO of the FCA, one governor’s appointment and at least six external Chancellor’s appointments. Unless one counts the CEO of the FCA as an outsider, which seems completely implausible after the summary sacking of Martin Wheatley, the outsiders are not in a majority. Would the Minister care to clarify this? Is he counting the CEO of the FCA as an outsider and, if so, on what grounds?
I now turn to the Bill’s proposal to make changes to the senior managers regime. I welcome the extension of the regime across all sectors of the financial services industry, as was recommended in 2014 by former members of the Parliamentary Commission on Banking Standards and by the 2015 Fair and Effective Markets Review. However, I am very concerned about the U-turn on the reverse burden of proof. This reverse burden of proof test has not even come into force-yet the Government are now proposing to abolish it before it does. The reverse burden of proof was a key recommendation of the Parliamentary Commission on Banking Standards, which said that it would,
“make sure that those who should have prevented serious prudential and conduct failures would no longer be able to walk away simply because of the difficulty of proving individual culpability in the context of complex organisations”.
The Government accepted this and wrote it into law. They were right to do that: the issue remains a serious problem.
Members of the House of Commons Treasury Select Committee, in February this year, investigating the scandal in which HSBC reportedly helped people around the world evade tax, were frustrated by senior executives, one after another, disclaiming personal responsibility. The Parliamentary Commission on Banking Standards was right to conclude that having a named executive with personal responsibility for key risks, accompanied by reversing the burden of proof, was essential to removing what it called this “accountability firewall”.
It seems to me that the Government have advanced three main arguments in favour of this U-turn. They are, first, that it was necessary because the Bill extends the scope of the senior managers regime to financial institutions for which the reverse burden of proof would not work. The Chancellor said that he wanted to avoid a dog’s dinner of a two-tier accountability system. This is very unconvincing. It is not obviously the case that a two-tier system would be problematic. In fact, a two-tier system may be necessary to keep the large, globally systemic financial institutions accountable.
The second reason, advanced by Harriet Baldwin in our recent meeting, was that senior bankers were losing focus on their real jobs because of the compliance burden imposed by the reverse burden of proof—presumably in preparation for it. We need to see the evidence for this. I assume that this is what the banks are claiming. Can the Minister say how these assertions have been evaluated? How do we know they are true and not the obvious special pleading?
The Minister also told us that the looming reverse burden of proof was causing senior managers to avoid the jurisdiction. This is a serious charge and I think we need to see evidence for it. Could the Minister provide us with some examples? The Bank has described the removal of the reverse burden of proof test as a matter of process rather than substance. I believe that is simply, straightforwardly incorrect. The issue of abandoning the reverse burden of proof is extremely serious and is central to the ability to hold bankers properly to account. I have no doubt we will return to this issue at later stages in the Bill.
There is one other provision in this part of the Bill that raises concerns: the removal of a senior managers regime obligation to report breaches of rules of conduct to the regulator. I can see no rationale for this in either the Treasury brief or the impact assessment. The impact assessment simply notes that this measure is likely to “mainly benefit larger firms”. Can the Minister say why this provision is in the Bill?
Our discussions of this and other changes to the senior managers regime will be helped, I think, by the full, quantified impact assessment covering these measures promised in paragraph 103 of the current impact assessment. Can the Minister assure the House that we will have sight of this further impact assessment well before Committee?
This is an unsatisfactory Bill. It undoes much of Parliament’s work on the previous two Financial Services Bills; it overturns a key recommendation of the Parliamentary Commission on Banking Standards; and it acts to reduce accountability and independent supervision. We have recently seen many moves in favour of the banks: we have seen changes to the banking levy and the sacking of Martin Wheatley, and we have heard talk of imposing a time limit on PPI claims. We should not let this Bill add to all that.
Lord Bridges of Headley
I certainly will do so, my Lords. Communication between us all will be very fruitful as we proceed. There are many technical issues here that we cannot perhaps do justice to on the floor of the House. It would be good to meet beforehand. I should also extend my apologies to the noble Lord, Lord Davies, because I believe he was unable to come to the briefing we had on this Bill, but that is my fault, not his. I am entirely in favour of good communication.
Lord Sharkey
Can I simply ask whether the Minister agrees that we will see the new impact assessment, promised in the current impact assessment, prior to Committee?
Lord Bridges of Headley
My Lords, I can agree that it is certainly being worked on. We will continue to work on it, and share and discuss the issues of the impact of these measures with the noble Lord. I absolutely agree that we need to make sure that the measures on the extension of the SM&CR, which is what I presume the noble Lord is referring to, are done in a proportionate and careful way. We must heed previous cases where that has not been properly, so I entirely agree on that.
Let me end by thanking your Lordships for your contributions today. I ask the House to give the Bill a Second Reading.
Deregulation Bill
Lord Sharkey Excerpts(9 years, 10 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Sharkey
“(2) Subject to subsection (7), the provisions of Schedule 21 other than paragraph 43 may not come into force until the Secretary of State has requested the Law Commissions to review the legislation to be repealed by those provisions and the three conditions set out in subsections (3) to (5) are met.
(3) The first condition is that the Law Commissions have reported on whether each item of legislation to be repealed by paragraphs 1 to 42, 44 and 45 of Schedule 21 is, or may be, of practical use; or is no longer of practical use.
(4) The second condition is that the reports of the Law Commissions under subsection (3) have been laid before each House of Parliament.
(5) The third condition is that the Secretary of State has, by regulations made by statutory instrument, removed from the list of legislation to be repealed in Schedule 21 any provisions which the Law Commissions have reported are, or may be, of practical use.
(6) A statutory instrument containing regulations under subsection (5) may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.
(7) The provisions of Schedule 21 come into force, notwithstanding that the conditions in subsections (3) to (5) have not been met, 12 months after the Secretary of State has requested the Law Commissions to review the legislation if the Law Commissions have failed to make a report within that period.
(8) In this section the “Law Commissions” means the Law Commission of England and Wales and the Scottish Law Commission.”
Lord Sharkey (LD)
My Lords, I note briefly that Amendments 67 and 72 are essentially technical and consequential.
With one significant difference, Amendment 41 is a repeat of an amendment discussed at some length in Committee. It deals with Clause 87 and Schedule 21, which bring about the wholesale repeal of a huge and hugely varied set of items of legislation, asserting that this legislation is no longer of any practical use. The Government have produced no evidence that these pieces of legislation are in fact no longer of practical use; they simply make that assertion.
There are 84 pieces of primary legislation to be repealed, including seven whole Acts. There are also eight pieces of secondary legislation, making 92 repeals in all. These numbers will rise in a moment when the Minister moves Amendment 42. At this very late stage in the Bill, government Amendment 42 repeals three more pieces of secondary legislation. It is clear that these new repeals will not be subjected to proper parliamentary scrutiny. Like all the other 92 items in Schedule 21, they were not, and will not be, discussed substantively either here or in the Commons, and that is the heart of the matter.
We have before us a proposal to repeal a very large number of items of legislation without any real parliamentary scrutiny and without access to the Government’s evidence that these items really are no longer of practical use. This seemed to the Joint Committee on the draft Bill, chaired by the noble Lord, Lord Rooker, and of which I was a member, to be unsatisfactory. In fact, the Joint Committee recommended that the items in what is now Schedule 21 be referred to the law commissions for independent confirmation that they were in fact genuinely no longer of practical use. We did that because we felt that:
“The skills, research and consultation needed to ensure that Parliament, external organisations and the public can be satisfied that a piece of legislation is genuinely obsolete strongly suggest that the Law Commissions are better placed to conduct that work than Government departments. Added to which, the independence of the Law Commissions from Government and their track record since 1965 reinforce the trust that Parliament places in the … Law Commission Bills”,
including statute law repeal Bills.
Amendment 41 proposes exactly what the Joint Committee recommended. It refers all the items in Schedule 21 to the law commissions for a safety check before they can be repealed. The Government disagreed with this proposal in Committee. To their credit, at no point have the Government attempted to argue that it is clear, on inspection, that all the legislation proposed for repeal is no longer of practical use; instead, they advance three main arguments.
Their first argument was that Schedule 21, in its original form, had gone through pre-legislative scrutiny. This is the case only if simply being in a draft Bill counts as scrutiny. The Joint Committee was required to work to a quite unnecessarily tight timetable. We did not have time to discuss the items in the schedule and nor did the Commons. The Government’s second argument was that many of the provisions in Schedule 21 came out of the Red Tape Challenge. It is not clear why this is an argument against referral to the law commissions. Leaving aside any scepticism about the rigour of the Red Tape Challenge, the truth is as the Minister acknowledged in Committee. The items chosen for repeal via the Red Tape Challenge had a political origin. This illustrates the point made by the Joint Committee.
Scrutiny by the law commissions has the advantage of being, and of being seen to be, absolutely independent. There can be no suggestion of political interest in any of the judgments about what is safe to repeal and what is not. The Government also argued that,
“government departments are key consultees for the Law Commission in seeking to make these kinds of repeals”.—[Official Report, 18/11/14; col. GC 146.]
So they should be. Again, this is not in itself an argument against referral to the law commissions. It simply emphasises the rigorous, wide-ranging and transparent analysis and consultation that the law commissions employ in assessing the case for repeal.
The Government made one other comment about the version of this amendment that we discussed in Committee. They rightly pointed out that it did not impose a duty on the law commissions to do anything with a referral to them and that it imposed no timescale for action. This amendment rectifies these defects. It says that if the law commissions have not reported on the items referred to them 12 months after referral, the repeals may go ahead anyway.
None of the Government’s arguments against this amendment in Committee seemed at all compelling. I do not for a moment doubt that the 95 items for repeal have been examined by the departments concerned. I do not doubt that in some cases there will have been consultation, but we do not know the depth or the rigour of these examinations and we do not know the arguments put forward in consultation. Critically, we do not know how these arguments were weighted by Ministers.
In Committee, I asked the Minister whether we could see any written reports on these proposed candidates for repeal before Report stage. I did not get that but I did get a detailed description of how departments assessed candidates for repeal and identification of some items that have been consulted on. I also got a detailed list of why the Government believe each item in Schedule 21 is safe to repeal. I did not get evidence, just summary reasons. That must have taken a considerable amount of work and I am very grateful to the Minister and his officials for that.
However, the problem with this information is that it is narrative. It is useful narrative and a useful summary but it is not evidence and cannot be properly interrogated. It also does not settle the worries about consultation. We still do not know how many consultations took place and with whom. We do not know the quality of these consultations, which is an issue of wider concern than just this Bill. Only a few days ago, your Lordships’ Secondary Legislation Scrutiny Committee published a report called Inquiry into Government Consultation Practice. The report looks at secondary legislation and some of its conclusions seem to have a more general context. In particular, the report notes that,
“a number of our concerns about the Government's approach to consultation are not allayed: and we are most troubled by an apparent absence within Government, in the Cabinet Office and in individual Departments, of a commitment to monitor consultation practice and to draw lessons of general application”.
There are reasons to worry about government consultations especially when we have no access to them.
The issue here is essentially one of principle. When it comes to wholesale repeals, who can we best trust to tell us that legislation is really no longer of any practical use? Is it the Government, via not only wholly transparent internal processes and a ministerial decision? Or should it be the independent law commissions set up by Parliament to do precisely this and which have a statutory duty to apply the three tests of external expertise, impartiality and independence? The Joint Committee thought it should be the law commissions.
We asked the law commissions how long they would take to certify whether or not the items in Schedule 21 were safe from repeal. They told us it would take between four and 12 months. The Government say that they are confident that it is safe to repeal the items in Schedule 21; they are confident that they are in fact of no practical use. So what exactly is the risk? What is the problem with a four to 12 month delay? What is lost by referral to the law commissions? Nothing is lost, but a considerable amount is gained. What is gained is trust, independent transparent scrutiny, and giving Parliament the confidence that repeal is safe via the mechanism that Parliament set up for that very purpose. Amendment 41 does what the Joint Committee recommended. I beg to move.
Baroness Andrews (Lab)
My Lords, as a Member of the Joint Committee I support the amendments of the noble Lord, Lord Sharkey, and commend him for the indefatigable way he has brought this issue back on Report. I can confirm that the Joint Committee was exercised about this failure, this deliberate resistance, by the Government to consider the Law Commission for all the reasons the noble Lord set out—transparency, reduction of risk and uncertainty and the opportunity to consider the repeals which were being recommended.
Let me take the House back to the first stages of this Bill, when there was something in the spirit of the original clause which was dropped from the eventual Bill, whereby the Minister was going to take upon himself the power to decide which legislation was or was not redundant and to recommend that a whole swathe of legislation should actually disappear from the statute book. Such was the reaction to that that the clause was wisely dropped.
As to the attitude towards the Law Commission, I do not quite understand the difficulty. As the noble Lord, Lord Sharkey, said, the Law Commission was absolutely clear that it would be able to deal with and expedite the passage of judgment on the repeals and it would give everyone the security of knowing that whatever was moved for repeal would have that additional scrutiny. That is not to cast aspersions on the ability of departments to make a judgment about what is or is not redundant legislation, but as we have got the Law Commission and that is part of its job, we should take advantage of that expertise and the scope to do that. On that basis, I certainly support the amendment.
The Advocate-General for Scotland (Lord Wallace of Tankerness) (LD)
My Lords, I thank my noble friend Lord Sharkey for moving this amendment. As the noble Baroness, Lady Andrews, said, my noble friend has indefatigably pursued this issue since beginning his membership of the Joint Committee. Like the noble Lord, Lord Stevenson, I take this opportunity to pay tribute to the committee’s work on the whole range of the Bill. I have been involved in only small parts of the House’s consideration of the Bill, but it is evident that the areas that I dealt with in Committee reflected the continuing interest of noble Lords who served on that committee.
With regard to this part of the Bill, the most controversial element of the original draft Bill concerned the more general order-making powers for the Secretary of State. As a result of the committee’s deliberations and recommendations, those powers were removed from the Bill as introduced into the other place.
I hope that I will have more information on the dogs issue before I sit down, but what I can say to the noble Lord, Lord Stevenson, now is that, following our debates in Committee, I did have a meeting with the noble Lord, Lord Trees. It is certainly my recollection that there is to be a consultation. If I can give fuller chapter and verse before I conclude, I will happily do so.
As my noble friend has indicated, Amendment 41 seeks to add conditions before the various items and provisions set out in Schedule 21 can be repealed or revoked. The main condition, as he indicated, is the need for the Secretary of State to ask the law commissions to review the legislation to be removed by these provisions and to report on whether the legislation to be removed has practical use, following which only those confirmed as redundant could be commenced. Perhaps I may say that the Government see the work of the law commissions as absolutely vital in keeping the law under review and recommending reform where it is needed. However, it is important to put this into context by saying that the statute law repeals work is just a small part of the overall work that is done by the commissions. The Government themselves have an important role to play in updating and tidying up both primary and secondary legislation as they develop policies and make new law. This is the role that they have exercised in relation to Schedule 21. If this work did not take place, the statute book would quickly become very unclear, inaccessible and outdated. There would also be an increase in the time and costs for those who use the law and an increase in the risk of their being misled by redundant legislation masquerading as live law.
If one reflects on this, one sees that in almost every piece of legislation there are repeals which the Government invite Parliament to approve. I was just flicking through the current Bill, and I think I am right in saying that, in Schedule 18, there are omissions from the Licensing Act 2003. Is the principle in the amendment that, before there can be any repeal of primary legislation, the Law Commission has to establish whether, because of what else is occurring in its place, it is no longer of any use? I do not know whether anyone has asked the Law Commission whether it sees that as an important part of its additional workload. To be consistent, the principle would have to be that any consequential repeals under general provisions in a Bill may well have to be referred. I am sure that that is not what my noble friend is proposing, but it is, by extension, the implication of what he is arguing here.
The law commissions were not established in order to replace the Government’s role in this area. The law commissions and the Government both have a valuable contribution to make to legislative housekeeping. Would requesting the law commissions to review legislation listed in Schedule 21 be the best use of their resources? I submit to your Lordships’ House that it would not, for two reasons.
First, we would be requesting the law commissions to duplicate the work already undertaken by government departments, because the actual technical work carried out by lawyers in departments and within the law commissions would be very much the same. The only difference in the general approach is that the law commissions would then conduct an open consultation, whereas government takes a more proportionate approach and tries to identify persons or organisations who would appear to have an interest in the proposal.
Secondly, in practice, the law commissions invite government departments to comment on repeal candidates, as departments have a responsibility for the legislation and policy area in question, as well, of course, as having specific inside knowledge and, no doubt, very good contacts with the various stakeholders and interested bodies. If the law commissions did undertake a review on Schedule 21, then departments which have already determined that the legislation no longer has a practical use would become key consultees in confirming whether the legislation no longer has a practical use. That does not seem to be a useful operation or a good use of resources.
My noble friend asked why the Schedule 21 items should not be referred to the law commissions. As I have indicated, Schedule 21 includes the sorts of items which departments routinely repeal and revoke as part of their legislative housekeeping roles. That complements the law commissions’ repeal work. Schedule 21 also includes secondary as well as primary legislation, while the law commissions’ repeal work has, hitherto, concerned primary legislation.
My noble friend also mentioned the Red Tape Challenge and suggested that items were chosen for political reasons. I accept that there is a political drive to try to tidy up the statute book and to do what we are doing in this Bill and have sensible deregulation but the point is—the heading of the schedule says as much—that these are provisions that are no longer of practical use. This sort of tidying up is an ordinary and useful part of the Government’s work.
When my noble friend proposed a very similar, although not identical, amendment in Committee, I argued that there would be no requirement for the law commissions to report on the legislation contained in Schedule 21, with the result that the obsolete law could simply remain on the statute book. I note that my noble friend has attempted to address this point by introducing proposed new subsection (7), but I have some difficulty in following the pattern through. The amendment requires only that a request be made by the Secretary of State to the law commissions to report on whether the provisions are redundant. The law commissions would in turn accept or decline the request.
If the intent is to provide a safeguard, then I am not quite sure that that will be carried out. If the law commissions either decline the request or fail to report to Parliament on the provisions within 12 months—and no doubt if they decline the request, Parliament will still have to wait for 12 months—the schedule will then simply be commenced. It is unclear exactly when the provisions are to be commenced if a request is accepted and the law commissions report to Parliament that the provisions are redundant. There does not seem to be a very clear way in which these provisions would be commenced.
My noble friend also referred to evidence and consultation, and he acknowledged the work that had been done by officials in going through all the paragraphs in Schedule 21 and indicating why they were there—whether they were redundant, had expired, had served their purpose, had been superseded by other legislation or were no longer relevant because they related to an activity that was no longer taking place. It is difficult to see what more evidence could be needed. For example, in paragraph 7, we believe that the provisions that have been repealed in the Industry Act 1972 no longer serve their purpose and are no longer relevant. That is because the Shipbuilding Industry Board (Dissolution Provisions) Order is not relevant because the board itself has been dissolved. I am not sure what more evidence you can actually get than the fact that the board no longer exists. If it does not exist, whom does my noble friend think we should be consulting? That is the nature of many of these provisions, such as paragraphs 10 to 12, covering the British Steel Act 1988. What was British Steel plc is now wholly owned by Tata Steel, so the Government’s shareholding provisions are redundant. Paragraph 12 repeals a saving provision for four sets of historic iron and steel pension regulations that are now redundant and no longer have any practical effect. That is the nature of these provisions.
Amendment 42 gives further illustration. My noble friend indicated that it had been brought in very late but it relates to three instruments that were identified as being spent during the rail theme of the Red Tape Challenge. The Department for Transport had originally believed that the revocation could be delivered by secondary legislation. However, legal investigation during the drafting of the revocation instrument—and this underlines the thoroughness with which officials go through these matters—identified vires issues which meant that this could proceed only through primary legislation. A number of similar instruments have already been included in the schedule. That is the reason for the proposed insertion into the Bill at this stage.
I will explain. The Railways Act 1993 (Extinguishment of Relevant Loans) (Railtrack plc) Order 1996 extinguished the liabilities of Railtrack plc in respect of specified loans. These loans were initially made to the British Railways Board and subsequently transferred to Railtrack plc as part of the privatisation of the railways. As many noble Lords will recall, Railtrack plc was placed into railway administration in October 2001 and acquired by Network Rail in 2002. The Railtrack Group PLC (Target Investment Limit) Order 1996 fixed, for the first time, the target investment for the Government’s shareholding in Railtrack Group plc. That limit was expressed as a proportion of the voting rights exercisable in all circumstances at general meetings of Railtrack plc. Following the entry into administration of Railtrack plc, Railtrack Group plc was placed into members’ voluntary liquidation in October 2002 and finally dissolved in June 2010. Railtrack Group plc no longer exists and that is the essence of why we are putting these kinds of provisions in.
When I sat on the Benches opposite, both here and in the other place, I was on the receiving end of technical problems with amendments standing in the way, but I think that in this case there are serious technical deficiencies, not least because I am still not certain how, even if a clean bill of health was returned by the law commissions, these provisions would come into effect. More relevantly, it is part of the work of government to keep the statute book in a tidy and orderly fashion. Thorough work has been done. It was presented initially to the Joint Committee and subsequently went through both Houses. It is on the basis of not wanting to duplicate work that has already been done, and of trying to avoid a somewhat odd situation where the law commissions would consult government departments to see whether they agreed that these matters were no longer of practical use when in fact the only reason they would be consulting was because the government departments had said they would no longer be of practical use, that I do not believe it is a good use of resources.
Before I sit down, Defra officials have confirmed that before commencing the particular repeals with regard to the Breeding of Dogs Act, there will be consultation as the issue generates a considerable amount of interest, as the noble Lord indicated. I urge my noble friend to withdraw his amendment.
Lord Sharkey
I thank all noble Lords who have spoken in this debate. Earlier in the afternoon, I heard that the Government had referred the laws on busking to the law commissions. When I heard that, my hopes rose, but, clearly, that was the limit of their willingness to refer things to the law commissions.
Having listened carefully to the Minister, I am not quite sure that we were talking about the same thing at times. The point is not that the Government should not repeal legislation; of course they should. The point is that Parliament should be able to scrutinise proposed repeals. The fact is that some of the repeals that are proposed will need scrutiny. The Government were able to trot out examples such as laws on the keeping of pigs or the flying of kites—the usual stuff that, on inspection, appears to be safe to repeal—but they did not mention, for example, item 18, which is the Nuclear Industry (Finance) Act and the implications of that, and the consultations that went on.
As for the duplication of work by government departments and the law commissions, it seems entirely clear that the existing work by the departments will have the effect of speeding the review by the law commissions. It will be extremely helpful to the law commissions to have transparent access to the inner workings of the departments when they make these assessments.
The problem is that it is now very late. If we were working on normal time, it would now be 10 o’clock or so. At this point, with the Chamber fairly empty and the clock registering the normal weekday equivalent of 10 o’clock or quarter past, I feel with some regret that it would be inappropriate at this stage to divide the House.
I end by saying that I believe strongly that Parliament in general should be given every opportunity to examine in a timely way repeals proposed by the Executive. I regret that on this occasion it will not be possible. Having said that, I beg leave to withdraw the amendment.
Deregulation Bill
Lord Sharkey Excerpts(10 years, 1 month ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Sharkey
“(2) This section and paragraphs 1 to 39, 41 and 42 of Schedule 20 may not come into force until the three conditions set out in subsections (3) to (5) are met.
(3) The first condition is that the Law Commission and the Scottish Law Commission (“the Law Commissions”) have reported on whether each item of legislation to be repealed by paragraphs 1 to 39, 41 and 42 of Schedule 20 is, or may be, of practical use; or is no longer of practical use.
(4) The second condition is that the reports of the Law Commissions under subsection (3) have been laid before each House of Parliament.
(5) The third condition is that the Secretary of State has, by regulations made by statutory instrument, removed from the list of legislation to be repealed in Schedule 20 any provisions which the Law Commissions have reported are, or may be, of practical use.
(6) A statutory instrument containing regulations under subsection (5) may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.
(7) Paragraph 40 of Schedule 20 comes into force on the day on which this Act is passed.”
Lord Sharkey
My Lords, I move Amendment 89 and shall speak briefly to Amendments 103 and 104. Amendment 89 deals with Clause 82 and Schedule 20.
Clause 82 is very short. It contains 17 words. It asserts that the laws listed in Schedule 20 are no longer of any practical use and it repeals or amends them all. Schedule 20 is in 10 parts and runs to more than seven pages. It lists at least 84 pieces of primary legislation, seven of which are whole Acts, and eight pieces of secondary legislation. Those numbers will rise in a moment when the Minister moves Amendments 91 and 92, which, at this late stage in the Bill, add a further two pieces of secondary legislation and another three whole Acts to the list of repeals.
Schedule 20 and the Minister’s further additions today are a widely varied and miscellaneous collection. They range from apparently obvious candidates for repeal to deeply complicated amendments. It is probably not dangerous to repeal the 22 sections of the Town Police Clauses Act 1847, creating as it does offences to do with every person who rolls or carries a cask, every person who beats or shakes any carpet, every person who keeps a pigsty and even—the politician’s favourite—every person who flies a kite.
However, most of the provisions in Schedule 20 are not like that. They are repeals of complicated sections of Acts or of whole Acts themselves. There is even one Schedule 20 provision to be repealed which seems not to be “not any longer of practical use”. That is paragraph 40, which repeals Section 13 of the Defamation Act 1996, which allows an individual litigant in defamation cases to waive the ban in Article 9 of the Bill of Rights on proceedings in Parliament being impeached or questioned in court.
That section of the Defamation Act has been much discussed by your Lordships and the Commons, and I support its removal. However, this section is still of practical use. We are removing it because we think that it is wrong, not because it is useless. It may be in the wrong place in the Bill.
In its report, the Joint Committee recommended that items in what was then Schedule 16 be referred to the Law Commissions for confirmation that they are in fact no longer of practical use. We did that because we felt that:
“The skills, research and consultation needed to ensure that Parliament, external organisations and the public can be satisfied that a piece of legislation is genuinely obsolete strongly suggest that the Law Commissions are better placed to conduct that work than Government departments. Added to which, the independence of the Law Commissions from Government and their track record since 1965 reinforce the trust that Parliament places in the … Law Commission Bills including SLR Bills”.
The point here is this. Whom do we trust to certify that Acts or parts of Acts are genuinely no longer of any practical use? Should it be the department’s assessment agreed by a Minister, or should it be by an independent body, such as the Law Commission, to ensure thoroughness of inquiry and absence of any suspicion of political bias? Or should it be Parliament itself? Parliament has not thought so, for good reason. To examine in exhaustive detail the possible consequences of repeals would overwhelm Parliament and would reintroduce the possibility of suspicion of political motivation. That is why Parliament delegated the job to the Law Commissions and why it approved an accelerated procedure for Law Commission Bills.
In the present case, as this Bill passed through the Commons, there was no real discussion of Schedule 16, which is now Schedule 20. So the question resolves itself into this: is it better to accept, without evidence or supporting argument and without substantive discussion, the Government’s assertion that the items in Schedule 20 are really no longer of any practical use or is it better to let the uniquely qualified and independent Law Commission certify that for us? The Joint Committee thought that the second option was better but the Government did not agree. In their response to the Joint Committee’s report, they made three points.
First, they noted that Governments frequently repeal legislation. However, they do not say how frequently this extends to the en-bloc repeal of over 90 items of legislation. Secondly, they disagree on whether departments have the expertise to determine whether legislation is obsolete or to know the importance of accuracy and giving consideration to saving transitional or consequential provisions. Here, they are pleading not guilty to something that they have not been accused of. The Joint Committee simply noted that the Law Commission was better qualified for this task than the departments are. The Government also make no mention in their response of the importance of having independent judgment, free from the possibility of the suspicion of political bias. Thirdly, they agree that some of the provisions in the then Schedule 16 are the type of repeal candidates that can be referred to the Law Commissions. They do not say which or how many.
When the Joint Committee heard evidence from the Law Commission, we were impressed not only by its obvious independence and professionalism but by its willingness to take on more work. We were also struck by the fact that in its last trawl of government departments for suggestions for repeal to be included in the forthcoming SLR Bill, none of the items now in Schedule 20 was put forward. When we asked the Government why this was so, they gave two reasons. In his letter to the committee of 5 November 2013, Mr Clarke noted that the Law Commission generally brings forward an SLR Bill every four years, with the last being in 2012 and the next in 2016. However, as departments have been asked to implement Red Tape Challenge measures in this Parliament, he went on to say that there are a number of such measures in Schedule 20. He did not say which.
Mr Clarke also told us that the existence of legislation that is no longer of practical use had come to light in the course of mainstream departmental work and that the Bill provides the Government with an appropriate legislative vehicle to repeal it and rationalise the statute book. Neither of those points quite answers the question of why none of the Schedule 20 items was referred to the Law Commission when it asked in June 2011 for proposals for repeal.
The Law Commission has also received no suggestions for repeal at all from the Red Tape Challenge people, the Better Regulation Executive. All this raises another question: “What’s the rush?”. Why cannot the Schedule 20 items be left to the independent review of the Law Commissions to decide whether they really are obsolete or not? The Joint Committee asked the Law Commission how long it would take for it to review the legislation in Schedule 20. The answer was that it would probably take between four and 12 months. What is the problem with waiting that long? In previous Committee sessions the noble Lord, Lord Deben, whom I am sorry not to see in his place, and other noble Lords have wondered whether parts of the Bill are there simply so that the Government can say that they have repealed so many pieces of allegedly burdensome legislation, and that this can be a big number.
The situation that we find ourselves in is this. The Government are proposing the wholesale repeal of at least 84 pieces of primary legislation and seven pieces of secondary legislation. If the Bill passes as it stands, this legislation will be repealed without any real examination by Parliament or any examination at all by the Law Commissions. The Government assert that the departments are qualified to make a proper assessment of whether the candidates for appraisal are obsolete. This is an unevidenced assertion but, even if true, it does not mean that they are best qualified. We have heard nothing to suggest that the departments’ assessments are as deep, as consultative or as rigorous as the assessments made by the Law Commissions.
Of course, any departmental assessment approved by a Minister leaves the whole process open to the suspicion of political bias. This is not an independent assessment process; by contrast, assessment by the Law Commission is exactly that. It is independent of government and it has a statutory duty to apply the three tests of external expertise, impartiality and independence in its SLR function. How does a departmental and ministerial review pass these three tests?
Furthermore, the process of assessment and review by the Law Commission is extremely rigorous. It involves research and consultation, and it finishes in a report and a draft Bill. The research phase tests each repeal candidate—there may well be more than a hundred in any repeals project, although there are fewer than that in Schedule 20—to check whether any of it is of any practical utility. This includes checking parliamentary records, including the original debates, examining other public records and studying a range of legal and historical works to provide context and background information. The research is then written up and issued as a consultation paper to people in central and local government, in industry and elsewhere. This consultation typically goes on for up to three months, dealing with inquiries and responses. After the consultation, the report and draft Bill are produced. This is all very rigorous and very thorough, as it must be if we are to be certain that legislation is really no longer of any practical use.
However, this raises a question about departmental assessments. Can the Minister say whether the departments followed the same process? Was there consultation and, if so, with whom? Are there written reports for the proposed repeal candidates? If so, can we see them before Report? On the one hand, we have the Government’s unevidenced assertion that it is safe to repeal the legislation in Schedule 20; on the other hand, we have the Joint Committee’s recommendation that these items be referred for rigorous, impartial and independent review to the Law Commission for certification that it is safe to repeal them. We know that it would take the commission only between four and 12 months to do this. So, again, why the rush? Why not give these pieces of legislation the kind of scrutiny Parliament set up the Law Commission to provide? The Joint Committee thought there was a strong case for doing exactly that.
Amendment 89 proposes exactly what the Joint Committee recommended. Amendment 103 accepts the repeal of Section 13 of the Defamation Act 1996 by exempting it from the provisions of Amendment 89. Amendment 104 makes Clause 82 and Schedule 20 come into force in accordance with the provisions of Amendment 89. I beg to move.
Lord Sharkey
I am grateful to all noble Lords who have spoken and to the Minister for his reply, apart from his reply to my noble friend Lord Skelmersdale in the last sentence. It is the case, despite the Minister’s assertions, that the items in Schedule 20 have not really been subject to scrutiny in any meaningful sense. I agree, of course, that we have now taken up more than three minutes of parliamentary time by discussing the items in Schedule 20, but we have not actually discussed or examined the items themselves in any detail. What we have discussed is whether they should be there in the first place, which is of course not the same thing.
The argument that interested parties essentially would have complained if they had found any faults—a kind of way of saying “The dog did not bark, so clearly these are okay”—makes me wonder, in a way, why we need any kind of parliamentary scrutiny or scrutiny by the Law Commission at all. We could just say “The dog has barked” or not and carry on that way. I do not think that that would work. On waiting for interested dogs—or interested parties—to bark there are, of course, interested parties but the difference between them and the Law Commission is that the Law Commission is precisely not an interested party.
In closing, there are some questions that the Minister did not answer. Perhaps I could persuade him to write to me, in particular about departmental processes, which are at the heart of the matter, the processes that these proposals have gone through and how those processes in fact impact with the processes that the Law Commission itself would use. It would be very helpful to know how those compared.
The real question, however, and I do not think that the Minister touched on this at all, is one that I asked twice, which is: “Why the rush?”. I do not understand why we have to rush this when we know that the Law Commissions could do this in between four and 12 months.
Lord Wallace of Tankerness
I am grateful to my noble friend for giving way. First, the amendment does not make any requirement on the Law Commissions to do this, so there is no guarantee that it will be done within the next six to 12 months. Secondly, these are matters which have been out in the public domain since the summer of 2013. By the time that this Bill proceeds to Royal Assent, it will be the best part of 18 months, if not longer. I do not consider that a rush.
Lord Sharkey
To answer my noble and learned friend’s first point, I will certainly alter the amendment to make sure that the Law Commissions are required to do it in the appropriate time, and I am grateful for that advice. I do not propose to go any further on the issue of rush because I do not think that our minds are meeting on this. I meant the rush to do it without certification, not just getting it done. That seems to me the heart of the matter. Given that we are in Grand Committee, I beg leave to withdraw and may return to this at a later stage.