Bank of England and Financial Services Bill [HL]
Debate between Lord Tunnicliffe and Lord Bridges of Headley(8 years, 5 months ago)
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Lord Bridges of Headley
My Lords, this amendment has led to a very interesting debate. I would like to pick up on what the noble Lord, Lord McFall, said, and remind the House of the context. As he so well knows, and everyone here will remember, seven years ago, the world was engulfed by a financial crisis, triggering a deep recession. It was a crisis caused, in part, by the reckless actions of some bankers and it was a crisis which our regulatory system failed to prevent. Today, we are all still paying the price for it and we are still hearing cases of crimes and misdemeanours in our financial services, as my noble friend Lord Lawson mentioned.
Although a number of banks have paid eye-watering fines for their misdemeanours, it is wholly unacceptable that so few bankers have themselves been held to account for their wrongdoings. The current regime, the approved persons regime,
“has created a largely illusory impression of regulatory control over individuals, while meaningful responsibilities were not in practice attributed to anyone. As a result, there was little realistic prospect of effective enforcement action, even in … the most flagrant cases of failure”.
These are not my words but those of the Parliamentary Commission on Banking Standards. The Government are absolutely clear that this has to change.
Our regulatory system needs to be able to hold individuals—I repeat, individuals—and not just banks to account for misconduct or recklessness, a point that the noble Lord, Lord McFall, rightly made in Committee and my noble friend Lord Lawson echoed. More than that, regulation needs to deter misconduct and recklessness in the first place. Good regulation is a spur for good behaviour and, as such, is crucial to driving the cultural change in the industry which we all want.
What are the characteristics of such a regulatory regime? It is one in which individuals’ responsibilities are crystal clear. It is one where individuals cannot shirk responsibility for their actions or those of their employees. Tasks may be delegated, but never accountability. A good regime is a regime where ignorance is no excuse. It is a regime where there are strong, simple principles that guide people’s conduct. Above all, it is a regime in which all senior managers understand that if something goes wrong in their team—be it a team of 20 or 20,000 —or on their watch, they will be held individually accountable. That is a good regulatory regime. Are these the features of the current approved persons regime? They are not but they are the hallmarks of the new senior managers regime that we will implement. As the noble Lord, Lord Grabiner, eloquently argued, the new regime will be tough and it will help to change the culture across the financial services industry for the better, which is what the noble Lord, Lord Tunnicliffe, desperately wants.
I am aware that there are concerns that the replacement of the reverse burden of proof with a statutory duty of responsibility will leave us in the same position as under the approved persons regime, where it can be very difficult, as I have said, for the regulators to hold senior management to account. I can reassure your Lordships that this is simply not the case. Let me set out exactly how the new regime will deliver a step change in senior manager accountability. First, the clarity of responsibility which has been so desperately lacking under the approved persons regime will be embedded in the system. This will be achieved in a number of ways.
An application by the firm for approval of a senior manager must be accompanied by a statement of responsibilities setting out what the senior manager will be responsible for managing in the firm. This must be updated if the responsibilities of a senior manager change. That ensures that both regulators and the firm will have the necessary clarity about who is responsible for what, and senior managers will take full ownership of their respective areas of responsibility.
This requirement is bolstered by the regulators’ rules, which require each firm to have, and to submit to the regulators, a “responsibilities map” setting out how responsibility for the business of the firm as a whole is allocated amongst its senior managers. This minimises the risk of any responsibilities falling through the cracks between different senior managers. On top of that, under rules of conduct made by the regulators, it is made clear that a senior manager must take all reasonable steps to ensure that any delegation of their responsibility is to an appropriate person, and they must oversee the discharge of any delegated responsibilities effectively.
Secondly, tough rules will apply to the senior managers. A senior manager can now be found guilty of misconduct if a breach of regulations occurs in the area of the firm’s business for which they are responsible and if they did not take such steps as a person in their position could reasonably be expected to take to prevent it. Crucially, it does not matter whether or not the senior manager is aware of the regulatory breach. Ignorance is no defence. What matters is whether they have taken reasonable steps to prevent the breach. If they have not, they are guilty of misconduct. They will not be able to avoid liability simply because the email trail has gone cold. The regulator will not—I repeat, not—be completely stymied if all conversations and exchanges take place in an environment where there are no minutes, no emails, no memos and no existing trail.
Indeed, as the noble Lord, Lord Pannick, said, the very fact that there is an absence of such an email trail, and that a senior manager is totally unaware of what is going on in an area of the firm for which they are responsible, may very well suggest that they have been guilty of failing to take reasonable steps to prevent a breach of regulations. This is the new system we are introducing and the Bill before Parliament does not change any of what I have just said. The measures in this Bill do not take us back to the days before the financial crisis.
Noble Lords need not take my word for it. According to Andrew Bailey, deputy governor for Prudential Regulation and chief executive officer of the Prudential Regulation Authority, the introduction of the statutory duty of responsibility, instead of the reverse burden of proof,
“makes little difference to the substance of the new regime. Once introduced, it will be for the regulators (rather than the senior manager) to prove that reasonable steps to prevent regulatory breaches were not taken. This change is one of process, not substance”.
Furthermore, the removal of the reverse burden of proof does not change the penalties which can be applied. If found guilty of misconduct under the statutory duty of responsibility, a senior manager could face an unlimited fine and/or prohibition from working in the industry. All this means that situations where things go wrong because of irresponsible, reckless or negligent management by a senior manager will be less likely to occur in future, because of the strong deterrent effect of the statutory duty of responsibility. If they do occur, the regulators will be much better equipped to take action against senior managers who have mismanaged the firm.
To those who would still like to keep the reverse burden of proof, I would say this. First, Andrew Bailey has highlighted to the Treasury Select Committee in the other place that the way banks are starting to prepare for the introduction of the reverse burden of proof next March is unhelpful. We understand that some of their legal advisers are being asked to prepare checklists, as the noble Lord, Lord Tunnicliffe, said, of “reasonable steps” which their senior managers should follow. I would say to the noble Lord that the point about checklists is this: presenting evidence that a template or checklist had been followed could enable the senior manager to meet the burden of proof for the defence, but would leave the regulator to prove that the steps taken were not reasonable.
In practice, the reverse burden of proof would not give the regulator a significant advantage but could sow the seeds of a new tick-box culture. The reverse burden of proof will add no significant weight to the regulators’ powers of enforcement, but instead risks creating a great deal of lucrative work for City lawyers. Secondly, the Government are expanding, as has been said, the senior managers and certification regime so it covers all authorised financial services firms, the majority of which are small. The tick-box culture I have described risks leading to the perverse outcome whereby senior managers in the largest firms are less exposed to legal risk under the reverse burden of proof, thanks to being able to employ the best lawyers and compliance officers.
I have been pressed on why the Government cannot introduce a two-tier system, with the reverse burden of proof applying to deposit takers but not to other firms. First, I have described the potential for detrimental effects on small firms. These issues are also relevant for small deposit-takers—for example, small building societies and credit unions, the latter often relying on volunteers for their staff. This approach would also raise serious issues of cross-sectoral competition. Noble Lords on all sides want a vibrant, innovative financial services industry that offers high-quality, good-value products to consumers. To achieve that, the regulatory system must, as far as possible, deliver a level playing field to support competition.
A reverse burden of proof that applied only to the banking sector would undermine this. For example, both deposit-takers and non-deposit-takers can engage in mortgage advice. A small building society or bank, for which the reverse burden of proof would apply, engaged in direct competition with firms, for which it would not apply, could find it more difficult to attract key members of staff. There could be a particular issue for challenger banks, especially those seeking authorisation for the first time.
Legitimate questions of fairness would also be asked about why senior managers in deposit-takers, particularly small ones, should be subject to the reverse burden of proof while those in firms such as large insurers or investment firms, which may pose greater risks to positive consumer outcomes and market integrity, are not. This approach would also create a great deal of complexity in large groups that contain firms which have deposit-taking permissions and firms that do not.
So, introducing a two-tier regime would introduce unnecessary complexity, when we have a tough, fair and practical alternative—the statutory duty of responsibility —that can be applied consistently to all firms. This is why the Government do not believe it appropriate to retain the reverse burden of proof. Is it needed to prove a senior manager culpable for a misdemeanour? No. Is it needed to clarify responsibilities of individuals in firms? No. Is it needed for the regulator to prosecute a senior manager if the email trail goes cold? No. Is it the silver bullet that will make the individuals who manage our banks responsible for their actions? No.
Instead, as I have explained, the new regime, with its statutory duty of responsibility, is a formidable tool for holding senior managers to account and for changing behaviour and culture in banks and across the entire financial services industry—a change we and the British public so very much want. I therefore ask the noble Lord to withdraw his amendment.
Lord Tunnicliffe
My Lords, I am conscious that there are two possible tests for deciding when to bring a debate to a conclusion. One is when all arguments have been exhausted, the other when there are no minds left to change. I suspect that the second test is the more acute one, therefore I will be brief.
Many noble Lords have taken part in the debate. In many ways I do not need to answer the points, in that it has been a balanced debate and points have been contested across the House. I am particularly grateful to those noble Lords who agreed with me; I am less enthusiastic about those who disagreed with me. A particular point raised was the matter of human rights. I counter that with the point that the noble Lord, Lord Deighton, affirmed that this part of the Bill is compatible with the regime.
I thank the noble Lord, Lord Sharkey, for speaking in support of my position and, in particular, for bringing out in how many areas the reverse burden of proof is in our law. It is not common, but it is there in particular cases.
I note the point made by the noble Lord, Lord Hunt, on credit unions. In my speech I made the point that we were willing to enter conversations with the Government so that they could come forward at Third Reading with a sensible carve-out from the overall effect. I plead with the noble Lord—he may remember way back when he was in opposition—that we have modest resources. Putting together a series of sensible additions to do the carve-out would not be sensible. We are very happy to agree carve-outs with the Government.
I thank my noble friend Lord Brennan for once again reminding us of the Health and Safety at Work etc. Act 1974. That is one of the most outstanding pieces of legislation in the British system. Its impact on safety in this country has been phenomenal. I and many managers in this country have laboured under the reverse burden of proof that that Act brings. The reverse burden of proof can be the right thing to do and has proved so in safety. We believe that it would prove so here.
The noble Lord, Lord Pannick, said that we have not brought out sufficient justification. He says that it is difficult to prove. No: it has so far proved impossible. I thank my noble friend Lord McFall for reminding him, us and fellow commissioners of how forcefully they supported the reverse burden of proof in their report—I have pulled out extracts but I will not take up the time of the House and read them.
Banking: Financial Crime
Debate between Lord Tunnicliffe and Lord Bridges of Headley(8 years, 5 months ago)
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Lord Bridges of Headley
My Lords, I am sorry but I cannot go into greater detail on that point. However, I draw the noble Baroness’s attention to the fact that, under the FCA’s rules, money laundering reporting officers will have to be senior managers. The FCA will also require firms to allocate overall responsibility for the firm’s policies and procedures for countering the risk that the firm might be used to further financial crime to an approved senior manager, who could be the MLRO but does not have to be. This will ensure that there is accountability for financial crime matters at the top executive level.
Lord Tunnicliffe (Lab)
My Lords, the problem with the regime so far is that there have not been successful prosecutions. Perhaps I may pick up on the point that my noble friend Lord Davies has been pressing in Committee on the Bank of England Bill. The Government have yet to provide a rationale for their change of heart on the code for senior managers, having moved from the reverse burden of proof to a duty of responsibility. The senior managers and certification regime is not due to come into force until next year so something must have changed their mind. We on this side of the House would like to know what that was. Will the Minister give an assurance that, before Report, noble Lords will be given access to the minutes of the meetings that the Government have had with banks, their lawyers and whoever else they met when coming to this conclusion?
Lord Bridges of Headley
My Lords, it is no secret that a number of banks did not believe that the reverse burden of proof was a good idea. This is public knowledge. Why are we making this change? Because we are rolling out the more rigorous SMCR regime across all authorised financial services firms. We want to do so in a way that is proportionate but robust and which delivers a level playing field for competition across the industry. The new approach does just that.
Bank of England and Financial Services Bill [HL]
Debate between Lord Tunnicliffe and Lord Bridges of Headley(8 years, 6 months ago)
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Lord Tunnicliffe (Lab)
My Lords, I thank the noble Lord, Lord Sharkey, for filling my morning, because it took me a little time to work out what this amendment meant. It brought home once again the value of professionals in producing the consolidated version of the various Acts. Unfortunately, they did not produce a consolidated version of FSMA 2000, as amended, and it took me some time to find it on the website. It is worth doing because although this Bill intends to delete the appropriate provisions in favour of the Prudential Regulation Committee, what it does is bring out the essence of the point being made by the noble Lord, Lord Sharkey. Reference is made to paragraph 9(b), but first you have to read paragraph 8 of Schedule 1ZB, which states:
“The Bank must secure that a majority of the members of the governing body of the PRA are non-executive members”.
I stress that, because when one turns to the proposed replacement for this schedule to FSMA 2000, which is now Part 3A of what will be the Act as amended by this Bill, no equivalent reference is made to paragraph 8 about there being a majority of non-executive members. As the noble Lord, Lord Sharkey, alluded, it goes on to state:
“For the purposes of paragraph 8 and for the purposes of”,
the principles to which Section 3C requires the PRA to have, none of the following can be non-executive members:
“(a) the members referred to in paragraph 3(a), (b) and c), and
(b) a member who is an employee of the PRA or of the Bank”,
to which the noble Lord proposes to add proposed new sub-paragraph (c),
“the chief executive of the FCA”.
I want to bring out two points. First, I agree entirely that in no way can the chief executive of the FCA be seen as a fully independent non-executive. The Minister was at a very fine point the other day when he said that Martin Wheatley was not sacked. My understanding is that his term was to run until March 2016 but I believe that he departed in September, presumably on gardening leave. He did not exactly leave quietly. When addressing a meeting at the Queen Elizabeth II conference centre in London, he said:
“I am disappointed to be moving on”,
and that he was doing so,
“with a sense of unfinished business”.
He later listed the ongoing work as being to clean up markets through the Fair and Effective Markets review and the implementation of the Senior Managers Regime, which is intended to hold top bosses to account when things go wrong. The article reporting his speech added that the clean-up was prompted by the LIBOR rigging scandal.
Martin Wheatley had many critics and I am sure that he is not a card-carrying member of the Labour Party; I doubt whether he has ever voted Labour, but he was to many citizens who took an interest a man of the people. He took the banks on in a pretty robust way, and I think that an awful lot of people in society felt that the banks needed to be taken on in a robust way. I am sure that he was first leaned on and then eventually fired. It is interesting to note that if you look up the CV of his successor, she is listed as only an “acting” chief executive. In no way can this person be considered to be independent. I assume that when the noble Lord accepts the amendment, he will tidy it up and make a reference to the Prudential Regulation Committee which is to take over the responsibilities presently listed in FSMA 2000. That would introduce a new subsection to what is presently Section 30A of FSMA, which requires there to be a sufficient number of non-executives to outnumber the executives of the Bank plus the chief executive of the Financial Conduct Authority. I think that that is the intent of the amendment even if it is not what it actually says, and I support that.
The whole of the debate on this Bill has been about influence and independence. We will be moving on to the Prudential Regulation Authority or the Prudential Regulation Committee in the clause stand part debate, but I think that not making it clear that there should be a majority of NEDs on the committee is a retrograde step. It almost implies, through the wording of this subsection, that the chief executive of the Financial Conduct Authority is independent.
I have had the privilege of working for Her Majesty’s Government, not as a civil servant but in the public sector. I know about being leaned on and I have to recognise that it is very effective. The one thing you cannot say at the end of the exercise is that you are independent.
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 Tunnicliffe
My Lords, again, I support the noble Lord, Lord Sharkey, on his general thrust in this debate. I come at it from a slightly different direction, although I think that the fundamental proposition is, “If it’s not broken, why are we trying to fix it?”. In fact, the supporting paperwork says that it is working well. We need to go behind that—back to the 2012 Act, the FiSMA 2000, as amended, and all that sort of stuff—to look at how the Bank is now going to work.
I think the Bank will move its emphasis from the Monetary Policy Committee towards the FPC. Regarding the control of interest rates and the Government’s injections of cash, depending on which textbook you read, it was the actions of banks in creating credit that formed the bubbles that caused the crisis of 2008-09. I believe that is the technical reason and that we are seeing many bubbles emerging again. As to the process of the FPC, by reading through the consolidated Act we see that its many powers—to make recommendations about new tools, for example—and all the things it is able to do to control the creation of credit, among other things, are absolutely fundamental to how efficiently the money system supports the economy, and hence are fundamental to the economy.
Now, what is the thing that keeps this clean? The thing that keeps it clean is the fact that the PRA is a subsidiary—an independent company, as mentioned, governed by company law—and, therefore, there has to be an arm’s-length relationship between it and the FPC. Under the various terms of the Act, the FPC can create various macroeconomic tools, which it then hands down to the PRA. It hands those down not through some side-channels or influence but, because of that independent legal status, in a very formal way to its subsidiary, and I think that is healthy. I do not believe that in effect moving the PRA closer to the Bank—and, by definition, closer to the FPC—is a good thing. The present separation is working, and I think we should continue it.
The reform included in the Bill ends this subsidiary status. The PRA board will be replaced by the Prudential Regulation Committee and, as I said, that must have the right balance. The Government so far, frankly, have not come up with a good reason for this change. The noble Baroness, Lady Kramer, made the point that mechanisms for information transfer are there, and therefore that is not at risk. The whole purpose of being in a subsidiary company—I headed a subsidiary company of a large organisation—is to get focus on its business, so that there are very clear responsibilities. I think that the move in the Bill away from its being a subsidiary is a bad thing, and I hope that the Government will reconsider the inclusion of this clause.
Lord Bridges of Headley
My Lords, once again I thank the noble Lord, Lord Sharkey, for provoking a very interesting debate and for the thoughtful contributions that he, the noble Baroness, Lady Kramer, the noble Lord, Lord Tunnicliffe, and my noble friend Lord Carrington of Fulham have made.
The noble Lords, Lord Tunnicliffe and Lord Sharkey, absolutely got to the nub of the matter here. We are seeking a PRA that is effective and independent, and getting the balance right between those two aims, and making sure that we achieve both, is absolutely crucial. I would argue that the proposed changes will increase the PRA’s effectiveness—making it better still, to address the point made by the noble Lord, Lord Tunnicliffe—but do not undermine its independence.
Let me first address the issue of increasing effectiveness, and I will try here to steer clear of management-speak. The governor has explained the links—I have crossed out the word “interdependencies” that was in my brief—between monetary and financial stability and why, therefore, it is right that both these macroeconomic policy responsibilities should rest with the central bank. The Bank is also committed to implement a set of changes to its internal organisation, aiming to ensure that different parts of the Bank work even better in pursuit of its twin aims of monetary and financial stability. The Bill builds on and reinforces these organisational reforms.
Ending the subsidiary status of the PRA will reinforce the Bank’s efforts to strengthen its capacity to work effectively across its responsibilities. At Second Reading, it was suggested that ending the PRA’s subsidiary status and creating the Prudential Regulation Committee might represent a downgrade of the prudential regulation function—a point that has been alluded to. I entirely disagree with that. I would argue that this change will have the precise opposite effect. Placing the Prudential Regulation Committee on the same footing as the MPC—and, with our changes, the FPC—means elevating the microprudential role to the same level as monetary policy and macroprudential policy.
This is, I would argue, an upgrade that reinforces not just to the Bank staff but to the wider public, to whom the Bank must be transparent and accountable, that the Bank is not simply an organisation dedicated to setting interest rates but one with equally important macro and microprudential responsibilities.
The Bank has told us that closer integration has increased the feeling among PRA staff that they are an integral part of the Bank’s mission and have broader opportunities for progression across the whole Bank. This can only assist recruitment of the best people to the supervisor, which I am sure is something that all your Lordships will support.
Bank of England and Financial Services Bill [HL]
Debate between Lord Tunnicliffe and Lord Bridges of Headley(8 years, 6 months ago)
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Lord Tunnicliffe (Lab)
My Lords, in moving Amendment 5 I will speak also to Amendment 6. Amendment 5 would omit the subsection that transfers the power for the creation of the financial stability strategy from the court to the Bank. Amendment 6 would specify in the Bank of England Act 1998 that the Chancellor of the Exchequer should be consulted in relation to the development and production of the financial stability strategy.
The maintenance of financial stability is arguably the overwhelming role of the Bank of England and its committees. If you look at what has gone wrong in the recent past, it has overwhelmingly been issues of financial stability that have impacted on the financial system and, much more importantly, on society as a whole, both in our country and across the world.
It is interesting to look at what is supposed to happen now. The appropriate part of the Act, which I can read from the consolidated document that the Treasury was kind enough to provide us with, is Section 9A—“Financial stability strategy”—which says:
“The court of directors must … determine the Bank’s strategy in relation to the Financial Stability Objective (its ‘financial stability strategy’), and … from time to time review, and if necessary revise, the strategy … Before determining or revising the Bank’s financial stability strategy, the court of directors must consult about a draft of the strategy or of the revisions … the Financial Policy Committee, and … the Treasury”.
That seems quite straightforward. It seems to put the court at the centre of the creation of the stability strategy, and to invite the right other parties to be involved.
Indeed, the importance of that process is demonstrated by the fact that it gains a place on my favourite piece of paper, which is a print-out of a splendid one-page summary on the Bank’s website, called “How we are governed”. It says:
“The FPC is a sub-committee of Court and its objectives are set by reference to the Bank’s Financial Stability Objective. The Bank’s Court is required by statute to prepare and publish a Financial Stability Strategy, in consultation with the FPC and HM Treasury”.
That is all very straightforward. Sadly, it has not been a great event so far. A strategy document was produced in 2013, called The Strategy for the Bank’s Financial Stability Mission 2013/14. It was five pages long and it was approved by the court on 25 September 2013. The strategy was revised and published in the 2014-15 report, which was signed by the chairman on 4 June 2014. If I read that document correctly, the strategy was reduced to one column and, while asserting a negative is always rather difficult, in the Bank’s 2015-16 report I could find no mention of a financial stability strategy in the ownership of the court.
It looks as though the Executive have to some extent pre-empted this part of the Bill by letting the responsibility of the court wither on the vine. My amendments are really simple and probing. What has happened to the financial stability strategy and what will happen under the new arrangements? Who will produce the financial stability strategy or have the Government effectively decided that the role of producing it should be subsumed into the FPC and, if it is being subsumed, where in the Bill or in the subsequent amended Act is that enabled?
My other area of concern about the situation is that, reading through the document, we find increasing references to HM Treasury’s input to the strategy. So on the one hand, you have responsibility for the strategy clearly drifting away from the court. As far as I can see, the Bill intends to take it away totally from the court and I would value confirmation of whether that is true. On the other hand, one seems to be having increasing input from Her Majesty’s Treasury. I do not wish to comment particularly strongly on whether that is a good or bad thing but I would certainly value the Minister confirming whether the Government intend to take this role away from the court and increase the role of HM Treasury in this important area. I beg to move.
The Parliamentary Secretary, Cabinet Office (Lord Bridges of Headley) (Con)
My Lords, I thank the noble Lord, Lord Tunnicliffe, for his introduction to his amendments. We discussed the Bill’s changes to the arrangements for the financial stability strategy at Second Reading. I hope to address the issues raised during that debate and some of the points that the noble Lord has just raised again. As I said earlier, legislation generally confers powers and duties on the Bank of England in two ways: either directly on the Bank or on a statutory committee of the Bank, such as the Financial Policy Committee. Consistent with this approach, Clause 5 moves responsibility for determining and revising the Bank’s financial stability from the court to the Bank. I reassure the noble Lord and the Committee that the court, as the body responsible for managing the Bank’s affairs, will retain ultimate responsibility for determining the financial strategy. But by naming the Bank instead of the court, we would grant the court the ability to delegate production of the financial stability strategy to those best placed within the Bank.
I argue that this flexibility is important given the broad range of policy that the financial stability strategy covers, which obviously extends beyond the responsibilities of the Financial Policy Committee. For example, responsibility for resolution policy, regulation of financial market infrastructure, note issuance and macroprudential policy are held within separate parts of the Bank, but the financial stability strategy will need to cover all these areas and others to be truly comprehensive. The clause as drafted does not affect the court’s ultimate responsibility for determining the Bank’s strategy, while granting the court additional flexibility as to who within the Bank undertakes the work to pull together the actual document. As I have said, the court will be able to delegate production of the strategy within the Bank but, as the noble Lord, Lord Tunnicliffe, asks, who will be left holding the pen? It is for the court to determine who is best placed to produce the strategy, and this may shift over time as the Bank decides to prioritise particular elements of its responsibilities. However, it is clear that a document of this importance will require significant engagement by the Bank’s senior management. I expect that the Bank’s governors will all be heavily involved when the strategy is determined or revised. I should add that there is no intention to increase the role of the Treasury in the Bank’s financial stability strategy. As I have just said, the court will be responsible for the strategy, although it will be required to consult Her Majesty’s Treasury, as now.
Bank of England and Financial Services Bill [HL]
Debate between Lord Tunnicliffe and Lord Bridges of Headley(8 years, 6 months ago)
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Lord Tunnicliffe
Surely there is a world of difference between the phenomena of groupthink in either one of the policy committees or on the court than the phenomena of the seven NEDs meeting alone. If they do produce a piece of groupthink, the most harm they will do is require a part of the activities of the Bank to be examined. It is very unlikely that they would do that, but it would do no great evil and cause little inconvenience. We are talking about a radical difference in balance when it comes to the powers of the NEDs to question the executives of the Bank.
Lord Bridges of Headley
My Lords, it is clear that I still have some persuading to do. I would argue that those powers have not changed in the sense that they have been transferred from the committee to the court.