Financial Services Bill

Debate between Lord Sharkey and Lord Sassoon

Wednesday 5th December 2012 Lords Chamber

[Lord Sharkey]

My Lords, I support some of the sentiments, but not the amendment, of the noble Lords, Lord Barnett and Lord Peston. Like them, I believe it would be a good thing if Mr Carney were to appear before the Lords Economic Affairs Committee as well as the Commons Treasury Committee. Mr Carney is entirely used to dealing with bicameral legislatures with separate committees. On 30 October this year, he appeared before the Canadian House of Commons Standing Committee on Finance to discuss the October monetary policy report. The following day, he appeared before the Canadian Senate Standing Committee on Banking, Trade, and Commerce to discuss the same report.

However, since this is a suggestion from the noble Lords, Lord Barnett and Lord Peston, I know they would prefer me to use the word “must” rather than “may”, but it may be better to suggest to the Minister not that Mr Carney must appear before our Economic Affairs Committee but that he may want to appear. The Minister may want to suggest this to him.

[Lord Sassoon]

My Lords, I will make sure that the suggestion to Mr Carney is passed on, but of course it is breaking radical new ground that a prospective governor should appear before the Treasury Select Committee, and I do not know whether we want to be too radical at this juncture, but the point is taken.

Turning to the matter in hand, first, I have to admire the persistence, consistency and eternal optimism of the noble Lords, Lord Barnett and Lord Peston, on this matter. I am sorry to disappoint the noble Lord, Lord Peston, but on this occasion the Treasury’s word processor did not slip a few words. There is a very important issue here, which is why the two noble Lords raise this matter on a regular basis. We debated very similar amendments to this one in Committee and on Report, although I recall that on Report the amendment was moved by the noble Lord, Lord Eatwell, on behalf of the noble Lords, with, let us say, a degree of enthusiasm.

The House will be unsurprised to learn that my position on this point is unchanged on the back of what I have heard this afternoon. The FPC’s primary objective must be financial stability. Financial stability is the FPC’s reason for being, its primary purpose. The aim of the committee will be to secure a safe and stable financial system, which will help create the conditions necessary for stable and sustainable economic growth. I should not rise to every bit of bait but I have to say that my right honourable friend the Chancellor of the Exchequer has done an outstanding job in extremely difficult economic circumstances, as we will discuss later this afternoon. While he is always grateful for any additional advice, we should have the FPC stick to its main task as its primary objective.

The legislation makes clear that, subject to achieving its primary objective for financial stability, the FPC should act to support the Government’s economic objectives. This structure strikes the right balance, by giving the FPC a clear and positive mandate to support economic growth, but without prejudicing its primary responsibility to protect and enhance financial stability. It is clear already, from the way that the shadow FPC is operating, that it has this mandate well on board.

The primary flaw with the structure proposed in Amendment 10—namely, to give the FPC dual, equally weighted objectives—is that this would allow the FPC to take action that would damage financial stability with the aim of encouraging growth. This would take the FPC outside its remit and expertise, and directly frustrate its primary purpose, which is financial stability. I simply do not believe that the model proposed by the noble Lords is appropriate or workable and I ask the noble Lord to withdraw his amendment.

Financial Services Bill

Debate between Lord Sharkey and Lord Sassoon

Monday 26th November 2012 Lords Chamber

[Lord Sassoon]

My Lords, the Government note the concerns expressed about the additional powers of direction to be conferred on the Bank of England. Some of these concerns are reflected in Amendments 92B and 92C, tabled by the noble Baroness, Lady Cohen of Pimlico. These amendments seek to impose more stringent conditions on the Bank of England’s ability to exercise the Section 296A power. I will say at the outset that in response, the Government are minded to bring forward amendments at Third Reading to address some of the concerns raised by the industry.

Before bringing forward amendments at Third Reading, I will reflect further on the debate we have had today. However, I am happy to confirm that the Government are considering amendments to raise the threshold of the trigger for the power of direction to a “necessary” rather than a “desirable” test; to more clearly set out how the power is to be used, including specifying procedures with which the Bank should comply prior to issuing a direction, whether on a routine or an expedited basis; and, finally, to set out in statute the assurance that I have already given the House that the additional power of direction cannot be used to compel a clearing house to accept the business of a competitor.

I will now address the amendments in this group. Amendment 92A, tabled by my noble friend Lord Sharkey, seeks to introduce a requirement for clearing houses to draw up and maintain recovery plans. The appropriate place for a requirement for clearing houses to prepare recovery plans would be in Part III of the recognition requirement regulations made under Section 286 of FiSMA, not in primary legislation.

The Government have already outlined their intention to build on the positive developments around loss allocation arrangements that are being introduced by some clearing houses of their own volition, and will also consult on proposals to make changes to the recognition requirement regulations, which are the operating conditions under which clearing houses are licensed to operate in the UK. The changes would have the effect of requiring all UK clearing houses to have in place loss allocation rules. As part of the consultation exercise, the Government will also seek views on proposals to change the recognition requirement regulations to make mandatory the preparation and maintenance of recovery plans by clearing houses. We are on the case and certainly are not waiting for EU legislation. However, we believe that the recognition requirement regulations are the appropriate place for these conditions, and we will take action to that end.

Amendment 93A, tabled by my noble friend Lord Flight, would impose further preconditions on the exercise of the power, would limit the scope of any direction given under the power and would apply various provisions of the special resolution regime provided for in Part 1 of the Banking Act 2009 to any direction given. It would not be appropriate for the Bank of England to wait until the financial position of a clearing house had deteriorated to the extent that it posed a serious threat to financial stability or failed to meet its recognition requirements before exercising the additional power of direction. The additional power of direction is a supervisory power, not a resolution power. It will allow the Bank of England to manage the considerable risks that may be posed by the actions of a clearing house which do not constitute a breach of its recognition requirements or its obligations under FiSMA 2000. If Amendment 93A were agreed, the Bank of England might be unable to give a direction that would safeguard the solvency of a clearing house, forcing the use of resolution powers as a last resort in order to minimise the impact of the failure of the clearing house on wider financial stability.

It would also be inappropriate to limit the scope of any direction that the Bank of England might give in the way suggested by Amendment 93A. The additional power of direction is intentionally wide-ranging. The Government feel that this is essential in order to build in sufficient flexibility to enable the Bank to manage and respond to new and unusual risks that may require regulatory action that goes beyond the purposes specified in Amendment 93A. The Government also believe that requiring a court order to be obtained before any direction could be given by the Bank could undermine successful regulatory intervention in instances where there was a need to act with alacrity in the event of a crisis. The court may not necessarily be well placed to make judgments on whether action is necessary having regard to the relevant public interest criteria.

Finally, it would not be feasible to apply the provisions of the special resolution regime provided for in Part 1 of the Banking Act 2009 to this power of direction. The additional supervisory power of direction provided for by Section 296A is separate and distinct from the stabilisation powers, exercisable in respect of UK clearing houses, provided for by Amendment 193G. In contrast to the power of direction, which is a supervisory tool, the stabilisation powers are resolution tools that would be deployed to minimise the impact of the failure of a clearing house on wider financial stability. Given that alternative, specific resolution powers exist, it would be unreasonable for the Bank of England to use the power of direction to effect “partial property transfers”. Such an action would be contrary to the constraints under which the Bank operates as a public authority.

With those explanations and assurances about what we intend to come forward with at Third Reading, I hope that my noble friend will feel able to withdraw his amendment.

[Lord Sharkey]

My Lords, I seem to have put my amendment in the wrong place, but I think I heard the Minister say that recovery plans would be made mandatory in any case but by other means. Given the risks involved, it would be nice to have some sense of when that may actually happen, but in the mean time I beg leave to withdraw the amendment.

Bank of England

Debate between Lord Sharkey and Lord Sassoon

Monday 26th November 2012 Lords Chamber

[Lord Sharkey]

I thank the Minister for repeating the Statement and congratulate the Government on the appointment of Mr Carney. I send congratulations from these Benches, and perhaps commiserations too, to Mr Carney.

I note that two weeks ago, in a speech to the Canadian Club of Montreal, Mr Carney addressed the question of whether we have ended “too big to fail”. He concluded by saying that it is not yet clear that it has been ended. He said, quite explicitly, that each “global systemically important” financial institution,

“ must have mandatory recovery and resolution plans”

in place. I look forward to discussing Mr Carney’s views on this subject with the Minister when Report stage of the Financial Services Bill resumes later this afternoon.

[Lord Sassoon]

I am grateful to my noble friend and look forward to our further discussions on that important topic later this afternoon.

Financial Regulators: Examinations

Debate between Lord Sharkey and Lord Sassoon

Monday 22nd October 2012 Lords Chamber

[Lord Sassoon]

My Lords, as well as getting the architecture of supervision and regulation right—on which this House has rightly spent many hours and to which the noble Lord, Lord Peston, has made some important contributions—the Government should within that appoint to those bodies an appropriate board with appropriate expertise and experience. It would then rightfully be up to the two successor bodies to the FSA to decide how to equip their staff properly to do the job. The FSA’s approach to testing and competence will be continued by the FCA. The FCA is also exploring whether to have training externally accredited, which the FSA has not done up to this point. The PRA, on the other side, is developing a comprehensive strategy, including a three-year training programme for new graduates. These matters are therefore being taken extremely seriously by both the successor bodies, which is how it should be.

[Lord Sharkey]

My Lords, it seems clear that the FSA was blind to the moral and ethical failings of the banks as well as to their regulatory failings. How will the FCA do better in this respect? It is all very well worrying about the locks on the stable door, but should we not also be worried about the mindset of the horse?

[Lord Sassoon]

My Lords, one of the things that is very striking about the FSA is the speed with which it put in place an inquiry into what had gone wrong on Northern Rock. It was very frank about its failings and has changed an awful lot of things already. One should be fair to the FSA and recognise that it acknowledged the failings of its supervisory regime, which is already reflected in differences to its approach to training and continual assessment.

Financial Services Bill

Debate between Lord Sharkey and Lord Sassoon

Monday 8th October 2012 Lords Chamber

[Lord Sassoon]

That is one way of dealing with it, but it is not the way in which the Government wish to deal with it, which I shall explain in a moment. I say to my noble friend Lord Stewartby that I have a hunch that before we pass this clause we will have a discussion about timetabling. If he will forgive me, I shall come back to the matter then, but if we do not I will make sure that I raise the timetable in question later.

Crowd funding is an innovative new source of funding for start-ups and other small enterprises. I share my noble friend’s hope that it will continue to grow in the coming years, so my answer to his first question is a resounding yes. However, on his second question, which is the subject of the amendment, while I understand my noble friend’s enthusiasm for establishing discrete legislative provision to bring this very new sector into regulation, I do not agree that it is needed at this stage and so cannot accept the amendment.

My noble friend raised the US JOBS Act. In the US, there was a very distinct problem and a pressing need, which led to the introduction of that Act. The situation is different in the UK. Among other things, there has been no clarion call from industry for more regulation. However, we should not be complacent, and the FSA is not waiting until there is a problem before doing things.

Platforms seeking to operate what are in effect collective investment schemes must obtain authorisation from the FSA. The FSA already has powers to take action against firms operating without appropriate authorisation. It is up to the FSA to work with platforms seeking to offer equity returns to their investors to ensure that they obtain relevant permissions before the activity that is most likely to apply here—arranging deals in investments—starts. This is happening already, with one such platform securing authorisation from the FSA prior to its launch.

Of course, the regulator must balance the need to allow innovative models to flourish with ensuring that consumers understand the risks involved with new platforms. In this regard, the FSA’s recent guidance on crowd funding makes clear its concerns, which are evidently shared by the noble Lord, Lord Peston. This is the right sort of regulatory response. It shows that we should not rush to create new regulated activities here.

I am also concerned that amending the Bill in this way could create confusion that stifled the growth of the new sector. There are currently many forms of crowd funding. We do not yet know precisely what definition my noble friend had in mind, but the vast majority of these platforms ask customers to make donations rather than investments. They have been very successful in doing that. The world’s largest crowd-fundng site, Kickstarter, for example, which will launch in the UK very soon, raised more than $100 million for creative projects in the past year. A platform such as that does not pose the same risks to investors, who expect no money in return for their donation, so we have to be mindful of the risk of legislating in a way that does not fully take account of the breadth of the businesses in this new area.

In conclusion, although industry standards and further FSA and FCA guidance may have an important role to play in future, my view is that the regulatory structure proposed in the Bill is suitably flexible to support the growth of the full variety of crowd-funding platforms, with a careful eye on the needs of the consumer throughout. With that, I hope that my noble friend will agree to withdraw his probing amendment.

[Lord Sharkey]

I thank the noble Lord for his answer. The noble Lord, Lord Peston, invited me to extend his education, but I think I should decline any such attempt. The noble Lord, Lord Barnett, did not believe that there was a definition there, and he was right—there is no definition. I shall not do it again now, but I did try to explain what forms crowd funding currently takes. Perhaps I did not give a clear impression of how important or what size it currently is, and that is my fault, but crowd funding exists and plays quite a large part in the landscape of small companies, both in the United States and already here in the United Kingdom.

I think I noticed an expression of perhaps amazement on the face of the noble Lord, Lord Peston, at the notion that people should donate $100 million to commercial enterprises for no return at all—an aspect of crowd funding that clearly he was not familiar with.

--- Later in debate ---

[Lord Sassoon]

My Lords, I shall start with Amendment 173ZAB. We are talking about new Section 137B which provides for FCA rules about the handling of clients’ money and related matters. It will replace existing Section 139 of FiSMA which is entitled, somewhat enigmatically, “Miscellaneous ancillary matters”, which does not really do it justice. However, as my noble friends have identified, it does not exactly reproduce Section 139. Their amendment would ensure that it tracks Section 139 in every respect by reinserting one subsection which, as my noble friend explained, relates to how references to money held on trust are to be construed in Scotland. Following consultation with the Scottish Law Commission, we reached the view that the relevant law in Scotland was sufficiently similar to the rest of the UK that it was neither necessary nor desirable to make different provision for Scotland in this way. I can reassure my noble friend that the recent Supreme Court judgment on Lehman Brothers also supports the view that a firm in Scotland which receives and holds a client’s money is obliged to hold that money in a way which preserves it for the client’s benefit as a trustee. This confirms that the approach taken in England, Wales and Northern Ireland is also correct for Scotland and that it is unnecessary to carry forward Section 139(3). I am happy to confirm that.

I turn now to social enterprise rules and Amendment 173AAZA, which seeks to give the FCA a new power to make social enterprise rules. I was of course delighted that my noble friend reminded us that social enterprises have not gone away over the summer break. I could leave it at that but I should probably do slightly more justice to this, although what I say will be entirely consistent with where I was before the break. We discussed in some detail the role that the FCA should or should not play in relation to social investment and enterprise and I will not repeat the whole of that debate. For the purposes of this amendment, I simply wish to put on record that where those running a social enterprise are carrying out a regulated activity, they will need to be authorised and will therefore be regulated by the FCA and will be subject to the rules that the FCA makes.

The drafting of the FCA’s objectives as well as new Section 137R make clear that the FCA should distinguish between different types of authorised persons and their consumers. There is therefore no need for a bespoke power. Specific rule-making powers in Clause 22 exist only where such rules go beyond the general rule-making power—for example, because they extend to unauthorised persons or affect third party rights. I would suggest that that is plainly not the case here.

On product intervention, I turn first to the group of amendments that seek to amend the FCA’s new product intervention power. This new power provides the FCA with a clear mandate from Parliament and the right tools to support a new and more proactive approach to consumer protection with greater regulatory scrutiny of the products themselves. I am grateful to the noble Baroness for her recognition of and support for the importance of the new rules in this area.

Amendment 173AA would restrict the circumstances in which the FCA may make product intervention rules. I should like to reassure my noble friend that to a large extent the Bill already requires the FCA to exercise the power in the way intended in the amendment. To be clear, however, there is one respect in which I do not sympathise with the amendment; namely, proposed new subsection (11)(a). This seeks to raise the threshold for intervention to where a product or practice,

“gives rise to significant investor protection concerns or poses a serious threat”,

to market integrity or financial stability. The amendment would prevent the FCA intervening to advance its competition objective in relation, for example, to high exit fees which, I am sure my noble friend would agree, have a negative impact on switching. The Government believe that this is an important feature that we want to see in the marketplace. The power would therefore become an exclusively negative rather than a positive tool. That would represent a significant step back in terms of consumer protection and is why I cannot support my noble friend’s amendment.

Amendment 173AF deletes the option for the FCA to make temporary product intervention rules. It is correct that the FCA’s rule-making power is very broad. The new power puts beyond doubt that the FCA has a mandate in this area. It also introduces a safeguard as temporary rules expire after 12 months plus breach of a ban can render a contract unenforceable. The default will be that any product intervention rules are made under the normal rule-making procedure, with prior cost-benefit analysis and public consultation. However, given the speed with which a new product can gain traction in the market, and the fact that the FCA cost-benefit analysis and consultation take a minimum of six months, we think it is important that, specifically for product intervention rules, the FCA has the option to intervene more swiftly albeit with the limitation that I have just outlined.

I turn to Amendments 173AG and 173AH on the FCA’s statements of policy under this power. The purpose of the statement of policy is to provide industry and consumers with clarity around the circumstances in which the FCA will make temporary product intervention rules in the absence of prior consultation. The FSA has published a draft of the statement on its website and noble Lords will see that it sets out the factors that the FCA will take into account before and the process it will go through. Linking the statement to the temporary rule-making power does not, of course, preclude the FCA from publishing information about its general approach to product intervention. Indeed, the FSA has already published a discussion paper and a policy statement on this topic.

However, the link we have here is consistent with the wider approach taken in FiSMA and in the Bill that policy statements are required only where there is a very specific need to provide further guidance on how the regulator will exercise a power or function; for example, the power to impose penalties. Therefore, out of the very many policy statements that the FCA and the FSA have and will have, only 10 policy statements are required by FiSMA, as amended by the Bill, principally relating to enforcement and imposition of penalties. In this instance, the need for guidance does not extend to the general product intervention power as the process for making such rules is set out in the Bill itself so the statement is deliberately limited to the temporary power because of the very particular effect that a temporary power will have through the short cut to making it. Finally, while I can reassure my noble friend that I expect the FCA’s statement of policy to cover the main points in Amendment 173AH, I do not believe it appropriate to specify this much detail in the Bill.

I turn to the group of amendments that start with Amendment 173AAC relating to the issue of a longstop requirement for complaints about financial services. When the FSA last looked at the issue in 2007, it said that to introduce a time bar, it would need to be clear that the potential detriment to consumers was outweighed by the benefits to consumers and firms arising from greater certainly among independent financial advisers about the extent of their liabilities. It is this cost benefit analysis that needs to be addressed. The FSA said in its published response of 5 November 2011 to the Treasury Committee’s retail distribution review report that,

“the FSA believes the FCA should review this issue again at some point in the future”.

I certainly believe it is important that the expert regulator looks at this issue and undertakes the necessary consultation with consumers and firms. I am grateful to my noble friend for this amendment because it has prompted me to look back at the rather unspecific commitment that the FSA gave to the Treasury Committee. As a consequence of my noble friend’s prompting, I followed up on the point with the FSA and it has made a commitment that the FCA will consider whether to investigate the case for a long stop as part of its business planning for 2014-15. The timing of that is linked to the settling down of the RDR. Therefore, I am grateful to him for prompting this and I would encourage industry and consumer groups to continue a dialogue with the FSA on this topic.

I turn to the Amendments starting with 173ACA on the new power to make rules concerning financial promotions. I cannot agree with Amendments 173AC and 173ACA. Financial promotions can have an immediate detrimental impact if consumers act on them. Quick and decisive action is therefore needed on the part of the regulator and we must empower the regulator to use its judgment to make a call on a promotion. It may be too late once the promotion has been made or while the regulator undertakes further investigation. This is why the power applies both where it is clear that rules have been breached, and where in the view of the regulator this is likely to be the case, and enables the regulator to prevent a promotion from being made. To provide the most obvious example of why “likely to” is required, the FCA needs to be able to require a firm not to circulate a promotion where it becomes aware of a promotion before it is actually circulated and the FCA is of the view that it is likely to breach financial promotion rules if circulated.

Finally, I turn to Amendments 173AD and 173AE, which seek to change the disclosure obligations attached to this power. Amendment 173AD seeks to change the duty on the FCA to publish information about a direction it has given to a power to do so. Amendment 173AE seeks to block the FCA from publishing information where a direction has been revoked. The fundamental shortcoming of the current financial promotions regime is that in most cases the FSA is not able to publish the fact that it has asked a firm to withdraw a misleading promotion. The power—which I am grateful to the noble Baroness for giving her support to—is designed to address the deficiency by giving the FCA a broad requirement, including a requirement to publish such information about the matter as it considers appropriate.

The Government believe it is important that the FCA should disclose what it has found for a number of reasons: it will help consumers, as they will be able to see what the regulator did and why; and, importantly, it will also increase the accountability of the regulator, as it will have to outline its thinking and set out where it has or has not taken action. The importance of the regulator both taking effective action and being seen to be taking effective action in this area is vital.

However, I accept that there may be circumstances when it is not necessary or appropriate to publish the information about a direction. Therefore we will look again at subsection (11) and consider carefully whether we should change the provisions relating to disclosure from a duty to a power. We will return to this issue on Report. On the basis of those reassurances and explanations I hope that my noble friend Lord Sharkey will feel able to withdraw his amendment.

[Lord Sharkey]

I am grateful to the Minister for confirming the Scottish situation. However, I am not entirely sure whether I am correct in understanding him to say that there is now no need to add explicitly cash received to cash held in Amendment 137B. On the assumption that that is the case—I can see that he is nodding to say that it is—I am happy to withdraw the amendment.

Financial Services Bill

Debate between Lord Sharkey and Lord Sassoon

Wednesday 25th July 2012 Lords Chamber

[Lord Sassoon]

Of course, I note what my noble friend says. She is always very clear and direct. I absolutely refute that the PRA has anything approaching a free-for-all. I have explained the many general and specific requirements it has to consult on, whether they are individual rules or setting things out on an annual basis and so on. Earlier on, I think she promised to send me a letter setting out some of the concerns, which she has just summarised, on the recent consultation. I will be very happy to receive that, and the Treasury will of course look at it as well.

[Lord Sharkey]

My experience in commercial life has left me with a deep respect for the wisdom of consumers, and a deep conviction that consumer groups, properly constituted and properly consulted, are a source of sound guidance, and a vital way of making sure that decisions are properly grounded in current experience, views and expectations. Critically, this wisdom and this learning is always best delivered directly and not through an intermediary. I continue to think that the Government are mistaken in excluding consumers from direct consultation with the PRA, and I think it is unwise to rely on second-hand unmediated input. I suspect, given the comments around the Chamber this evening, that this is an area we might well return to on Report. In the mean time, I beg leave to withdraw.

Finance: Loan Guarantee Scheme

Debate between Lord Sharkey and Lord Sassoon

Tuesday 24th July 2012 Lords Chamber

[Lord Sassoon]

I can confirm that the scheme will extend to the devolved Administrations.

[Lord Sharkey]

Is there anything about the design of the loan guarantee scheme that makes it more likely that funding to SMEs, particularly those in deprived areas, will increase?

[Lord Sassoon]

My Lords, the £40 billion infrastructure guarantee scheme is linked to nationally significant infrastructure projects. Typically, the promoters of those projects will not be SMEs, but of course there will be very many SMEs in the supply chain for the projects that will benefit. SMEs working in the public/private partnership space will also benefit from a possible £6 billion of additional loans that was also announced in this package, as will exporters, for whom a £5 billion export refinancing facility will be extended.

Financial Services Bill

Debate between Lord Sharkey and Lord Sassoon

Wednesday 18th July 2012 Lords Chamber

[Lord Sharkey]

I support Amendment 112 in the name of the noble Lord, Lord McFall. As the Bill stands, the use of “may” instead of “must”, when listing matters to have regard to in considering the effectiveness of competition in the markets under discussion, seems to have two problems. The first is that it makes the competition objective less strong than the consumer protection objective, in which the FCA is given a list of things that it must have regard to. In the competition objective, the FCA is given a list of things that it may have regard to. Why is this? Why is the consumer protection objective definite about what the FCA must have regard to, while the competition objective is not? Surely it would be more sensible to have these objectives on an equal footing and in both cases supply the FCA with a list of things that it must have regard to.

The second problem is that the use of “may”, regarding what the FCA takes into account in considering the effectiveness of competition, seems to render the whole clause without much force or substantive meaning. Why list the factors that the FCA may have regard to if it actually does not have to do so? Either the factors listed are important to consider or they are not. If they are important, surely the FCA must consider them. If they are not important and can be disregarded by the FCA, as the Bill seems to provide, why are they there at all? I hope that the Minister may see the virtue of “must” and might agree to the noble Lord’s amendment.

[Lord Sassoon]

My Lords, I am infinitely flexible; it depends how long we go on this evening but I can see one or two amendments coming up on which I can be more accommodating than I will be on this one.

I shall start with perhaps the easiest part: the questions from the noble Lord, Lord Tunnicliffe, around Amendment 111A. I am delighted to see the noble Lord joining the fray. We have now had four players on the Front Bench from the Opposition; I wish that we had such depth of reserves on our side. However, I will battle on.

Amendment 111A seeks to bring the activities of market makers into the scope of the FCA’s competition objective. I reassure the noble Lord and the Committee that the activities of market makers are already very much covered by the objective. Put very simply, to operate as a market maker firms will have to obtain permission to deal in investments as principal, and that is a regulated activity. That means that such firms are performing a regulated activity or a regulated service, and noble Lords will see that new Section 1A(1)(e) clearly states that markets for regulated financial services fall within the scope of the FCA’s objective, so the FCA can indeed shine its regulatory light on market makers as on any other part of the sector. For completeness and to clarify, as far as recognised investment exchanges or RIEs are concerned, they can be exempt from the general prohibition under Section 285(2) of FiSMA, but even their activities are brought within the scope of the competition objective by virtue of subsection (1)(b) of new Section 1E in the Bill. I hope that that deals with that.

Turning to Amendment 112, competition can mean many things to many people. To indicate what the Government might want the FCA to look at in deciding how to advance its competition objective, subsection (2) of new Section 1E sets out a number of matters to which the FCA may have regard in assessing the effectiveness of competition in a given market. It is an indicative and, importantly, a non-exhaustive list. The FCA cannot dodge or duck out of its overall competition objective. Had we not put the non-exhaustive list of examples down there we might not be expressing the concern that we have. There would be the simple competition objective and that would be that.

Given the list, let me explain a bit more why there is danger in changing “may” to “must”. That would mean that the FCA would always have to consider all the issues set out in new subsection (2). The FCA should not necessarily have regard to all of that list when looking at particular competition questions. There could be unintended consequences.

If the FCA wishes to take action to promote switching, the consideration of barriers to entry will not be as important as the ease with which consumers can transition between providers and how that is affected by the structures of the market or behaviours of incumbents. To enable the FCA to generate the outcomes that we want under the competition objective it is important that the list is expressed in the terms that it is. This does not make the basic objective of the FCA weaker in this area. It just means that we need to give it a degree of discretion to be able to target the particular issues that they are looking at at any one time.

That addresses the amendments that are being spoken to and I hope that the noble Lord, Lord McFall of Alcluith, will consider not pressing his amendment.

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[Lord Sassoon]

No, my Lords, I am not saying that. There are plenty of different tax treatments for all sorts of regulated and unregulated activities. I see the issues as separate. However, I have indicated a couple of areas in which changing the tax treatment would be difficult and would run counter to some of the broader accepted principles by which we run the tax system. But I would not link the two things explicitly together.

[Lord Sharkey]

There was a question in the debate about the scope of my suggestion. The amendments were drafted deliberately widely so that they create a “may” or a “must” for the FCA when it considers competition so that it looks at new developments in the market that may be in the interest of consumers.

I have been encouraged by a lot of the debate. There is an almost universal consensus that regulation might be important and might be a very good thing. I think I am perhaps a little encouraged by what the Minister has said, but I will read Hansard carefully tomorrow to check that I am still encouraged. There is one issue here that needs stressing, which is the matter of urgency. It takes only one rogue operator to go bang in a very serious and public way to sink this whole area. The Government should perhaps be a little more alive to that particular problem and the risk of that happening. Having said that, and looking at the clock, I beg leave to withdraw.

Financial Services Bill

Debate between Lord Sharkey and Lord Sassoon

Wednesday 18th July 2012 Lords Chamber

[Lord Sassoon]

To be absolutely clear, the regulators—and the FCA in particular—will have very clear powers to make any further rules on top of those that already exist in the FCA’s rulebook in order to deal with conflicts of interest. I can be completely clear and unequivocal on that point. The powers are there and further rules can be made in this area if the FCA at any point regards them as necessary.

[Lord Sharkey]

I thank the Minister for his detailed response. I listened very carefully to everything he said, but I was not convinced by the notion that this group of amendments might narrow the FCA’s scope to act in this area. I was equally unconvinced that the general duty to provide services honestly, fairly and professionally was too vague, wide or ill defined, if that is what the Minister was actually saying.

I continue to believe that there is merit in an explicit inclusion of the two principles that we suggest in the list of the regulatory principles common to both the PRA and the FCA. The debate has also shown the high level of concern about this whole area. The detail of the Minister’s response shows that he is alive to that level of concern. I expect that we will return to this matter on Report. In the mean time, I beg leave to withdraw the amendment.

Financial Services Bill

Debate between Lord Sharkey and Lord Sassoon

Tuesday 10th July 2012 Lords Chamber

[Lord Sassoon]

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

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

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

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

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

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

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

“an appropriate degree of protection for consumers”.

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

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

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

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

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

[Lord Sharkey]

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

Economic Policies

Debate between Lord Sharkey and Lord Sassoon

Wednesday 4th July 2012 Lords Chamber

[Lord Sassoon]

We are working extremely hard on the reforms that I have talked about to make sure that we have sustainable public finances and a more balanced economy.

[Lord Sharkey]

My Lords, the latest report from the Federation of Small Businesses shows, in the second quarter of this year, an increase to 73% in the number of small businesses finding access to credit difficult and an increase to 41% in refusals of credit applications. Given the Government’s efforts to provide funding for the banks to lend to businesses, can the Minister explain why this is so?

[Lord Sassoon]

My Lords, even though the latest business surveys show that private sector employment is significantly up and that manufacturing and service sector sales continue to grow, it is certainly the case that that is happening in the face of very tough financing conditions. That is why, among other things, the national loan guarantee scheme and the announcements from the Chancellor and the governor about the new funding for lending scheme, details of which will be put out in the coming weeks, were very important.

Economy: Deficit Reduction

Debate between Lord Sharkey and Lord Sassoon

Thursday 28th June 2012 Lords Chamber

[Lord Sassoon]

My Lords, the debt figures that the noble Lord, Lord Barnett, recited precisely illustrate the structural deficit challenge that we inherited from the previous Government. We have already reduced the current budget deficit from 11% to 8% of GDP in two years, but there is much more to do, and we will do it. We will be reducing borrowing by £155 billion a year by 2016-7, compared to what it otherwise might have been under another Government. We will keep on with that task.

[Lord Sharkey]

My Lords, the Oxfam report, The Perfect Storm, published two weeks ago, says:

“The combination in the UK of economic stagnation and public spending cuts is causing substantial hardship to people living in poverty”.

In view of this, could the Minister tell the House what plans the Government have in place to mitigate the effects of their deficit reduction programme on our most deprived groups and communities?