Royal Bank of Scotland (FSA Report)

Lord Tyrie Excerpts

Monday 12th December 2011 Commons Chamber

[Mr Hoban]

The approach taken by the hon. Gentleman, who seeks to try to blame everybody for the crisis, overlooks the key role that the shadow Chancellor—who is not in his place today—played in the design of the regulatory system that led to the problems we saw at RBS. That design—driven by the shadow Chancellor, who took great credit for it—meant that no backstops were in place when RBS took those decisions.

The other point that the hon. Gentleman should bear in mind is that only three politicians are named in the report as having put pressure on the FSA to adopt a light-touch regulatory regime. One was Tony Blair, one was the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), and the third one—the person who is missing from the Opposition Front Bench today—is the shadow Chancellor, the person who in his first speech as City Minister called on the FSA to adopt a light-touch regulatory regime, a regime that, when confronted with the challenge of RBS, turned from a light touch to a soft touch. It is, of course, the taxpayer who has picked up the bill for the fundamental flaws in Labour’s regulatory regime.

The hon. Gentleman talked about disqualification of RBS directors. It is a pity that the previous Government did not think about that issue in the aftermath of the financial crisis. My right hon. Friend the Secretary of State for Business, Innovation and Skills has referred the report to counsel to see whether it is possible to disqualify the directors of RBS.

The hon. Gentleman talked about approval for acquisition. We will look carefully at the proposal Lord Turner made, but the reality is that the FSA had powers to intervene, but chose not to use them—partly as a consequence of the light-touch regime foisted on them by the previous Government.

When the hon. Gentleman talks about bonuses, let us not forget that it was under the previous Government that bonuses could be paid out in cash and taken straight away. Under the regime in place now, bonuses are deferred, paid out in shares and can be clawed back. Let us not forget that the moment that it was possible to exercise the maximum leverage on Sir Fred Goodwin—the banker Labour knighted—was the moment when it gave away his pension scheme. So I will take no lessons from the Labour party on the way in which we should deal with the problems of RBS.

The hon. Gentleman referred to the Bank of England and seemed to question whether it was able to take on the additional responsibilities. I thought he was moving away from his party’s position of supporting the package of reforms that we have put forward. Let me remind him that it was the Bank of England that identified the problem of the mispricing of risk in the financial markets. The problem was that the regulatory structure it had to deal with meant that the Bank did not have the power to tackle the problem—nor, indeed, did the FSA. What we are faced with is a problem of dealing with the regulatory regime left to us by the previous Government. They chose not to make these reforms when they were in government; we are taking action now to ensure that we have the right regime in place to tackle those risks and ensure that we have a stable, but successful, financial services sector.

[Mr Andrew Tyrie (Chichester) (Con)]

Powerful institutions do not leap forward to explain themselves when they make mistakes, and neither did the FSA. The fact is that the almost 500 pages of this report would never have been written had it not been for the unremitting pressure from the Treasury Select Committee. I would like to thank my colleagues on that Committee for helping me to secure this report from the FSA. Furthermore, to make sure that the report was of adequate quality, we took the unprecedented step of sending our own specialist Committee advisers into the FSA with full powers to examine papers and personnel in order to check that the papers underlying the compilation of this report were fairly reflected in it.

Is it not now crucial that the new regulators—the Bank of England and the Financial Conduct Authority—are subjected in future to far more vigorous parliamentary scrutiny than the FSA has been in the past? Will the Government commit in the draft legislation to secure a much higher level of parliamentary scrutiny of these powerful quangos than we have had hitherto?

[Mr Hoban]

I, too, commend the work of my hon. Friend and his Select Committee, along with the work done by Bill Knight and Sir David Walker in scrutinising the FSA’s report and making consequent improvements to it. One of the challenges we face is, as my hon. Friend said, to ensure that there is proper scrutiny. He commented on the fact that it took the pressure of his Committee to produce this report. The reality is that the existing powers in section 14 of the Financial Services and Markets Act 2000 to require a report to be produced where there is regulatory failure have never been exercised. One measure we have put in place in the Bill is to enable such reports to be produced on a more regular basis—not at a Minister’s request but in response to objective triggers to ensure that reports are published in a timely fashion so that we can learn the lessons from past mistakes. I think that is a helpful way of enabling Parliament to hold the regulators to account. We look forward shortly to responding not just to my hon. Friend’s Select Committee report, but to that of the pre-legislative scrutiny Committee.