Financial Services (Banking Reform) Bill

Viscount Trenchard Excerpts

Tuesday 8th October 2013 Lords Chamber

[Viscount Trenchard (Con)]

My Lords, with the leave of the Committee, I, too, would like to participate in these proceedings although, like my noble friend, I was prevented from participating in the Second Reading debate. I strongly support the amendment put forward by my noble friend for the reasons that he has explained very well. I do not think that I can improve on his excellent explanation, but your Lordships should consider that governance would not be improved if there is a situation where the holding company has a completely different membership from the boards of the ring-fenced subsidiaries, and that applies most strongly in the case where the excluded activities comprise only a small part of the activities of the group as a whole. But even in the case where a relatively greater amount of excluded activities are carried out within the group, if the board of the holding company with responsibility to shareholders comprises completely different people from the board of the principal operating subsidiaries, does that provide for effective governance? I therefore would like to hear from the Minister something more about what “to a specified extent” means in new Section 142H(5)(d).

[The Commercial Secretary to the Treasury (Lord Deighton) (Con)]

My Lords, I will consider both Amendments 1 and 2, and I will talk first about Amendment 1, which has been proposed by my noble friend Lord Blackwell. I have much sympathy with the intention behind this amendment and I hope that I can provide some of the comfort that my noble friend seeks. Independent governance is of course key to the integrity of the ring fence to ensure that ring-fenced banks do not simply operate in the interests of their group’s investment bank, in this example, or indeed other parts of the bank, but it is important that any governance requirements are proportionate to the threat to the ring-fence. Where a ring-fenced bank makes up the great majority of a group’s business and the investment bank is therefore small, so the risk of the ring-fenced bank being dominated by the interests of the investment bank is also small.

The Independent Commission on Banking recommended that where the vast majority of a group’s assets were in the ring-fenced bank, requirements for independent governance should be relaxed. The Government accepted that recommendation, and in our June 2012 White Paper we supported,

“flexibility in governance arrangements where a ring-fenced bank represents the overwhelming majority of a group’s business”.

Under the Bill, the precise details of ring-fenced bank governance arrangements, along with other ring-fencing rules, are for the regulator to determine. The Bill sets the objectives that rules must achieve; the regulator then decides what exact structures or restrictions are needed to achieve those objectives. This is appropriate because of the highly technical nature of the issue, and in order to allow requirements to keep pace with developments in a fast-moving market. Rule-making will, of course, require the regulator to exercise its judgment, and proportionality will be central to how it does so. In particular, the regulator will be obliged to consider the costs and benefits of any rules it proposes to make, including ring-fencing rules.

In the case of ring-fencing and governance rules, the Bill also specifically gives the regulator flexibility to consider the proportionality of different requirements. The Bill requires the regulator to ensure “as far as reasonably practicable” that a ring-fenced bank is able to take decisions independently of the rest of its group.

The formulation “as far as reasonably practicable” specifically anticipates circumstances in which certain governance requirements might be impractical or have costs that are disproportionate to their benefits. The case where a ring-fenced bank constitutes the overwhelming majority of a group’s business may be one such circumstance. I hope the noble Lord can therefore feel reassured that the intention of his amendment is already reflected in the Bill. I therefore call upon the noble Lord to withdraw his amendment.

Government Amendment 2 corrects a minor and technical point in connection with new Section 142H, which imposes an obligation on the appropriate regulator to make certain rules requiring that a ring-fenced bank be independent of other members of its group. The clause as currently drafted defines the appropriate regulator only in relation to ring-fenced bodies. However, as new Section 142H also imposes an obligation on the appropriate regulator to make rules applying to authorised persons who are members of a ring-fenced body’s group, but are not themselves ring-fenced bodies, the appropriate regulator needs to be defined in relation to all authorised persons, not just ring-fenced bodies. This is corrected by this amendment, and I commend it to the House.

Queen’s Speech

Viscount Trenchard Excerpts

Monday 13th May 2013 Lords Chamber

[Viscount Trenchard]

My Lords, it is always a privilege and a pleasure to speak in the debate on the gracious Speech. I, too, pay tribute to the noble Baroness, Lady Lane-Fox of Soho, on her excellent maiden speech. Given how important IT is to all of us, it is very good to have her in your Lordships’ House and I look forward to many contributions from her. Like many noble Lords, I congratulate my noble friend Lord Lang on the entertaining and skilfully constructed speech he made in proposing the Motion for an humble Address.

In preparing for this debate today I was struck by the fact that much of the work that your Lordships’ House will undertake in this Session on business, the economy, local government and transport was not mentioned in the gracious Speech. The carrying over of Bills which have substantially completed their progress through another place has resulted in a growing disconnect between the gracious Speech and the agenda set for this House over the coming months.

On transport, the High Speed 2 Bills were announced. However, does it make sense to decide to go ahead with HS2 before deciding on the location of London’s main hub airport? The airport question should surely be determined first. After that it will be clear what enhancements to our railway network will be needed. I am sceptical about the value of shaving a few minutes off the journey from London to Manchester. Certainly I do not believe the figures produced in an attempt to monetise the value of HS2 in terms of enhancement to GDP.

If Heathrow is to remain our principal airport hub and expansion is to take place there, surely HS2 should be routed via Heathrow. If, as I believe should be urgently considered, a new airport in the Thames estuary were to be built, then there might well be a case for a new high-speed railway to be built as a part of the new airport’s links with Birmingham, Manchester and the north.

Among the measures announced in the gracious Speech was the deregulation Bill. We have only just seen Royal Assent given to the Enterprise and Regulatory Reform Act which paved the way for the merger of the Office of Fair Trading and the Competition Commission and some assorted minor tinkering. I fear that the new deregulation Bill, which is not yet published, will bring us more of the same. The Government’s website informs us that the Bill forms part of their agenda to reduce the burden of excessive or unnecessary regulation where primary legislation is required. I ask the Minister to explain exactly what that means. What about reducing the burden of excessive or unnecessary regulation where primary legislation is not required?

The Institute of Directors has commented that the gracious Speech shows a “poverty of ambition” about reducing the regulation of businesses. The Government’s Fifth statement of new regulation states that:

“A substantial proportion of the burden of red tape and bureaucracy emanates from Europe. The Government is working with our allies in Europe to encourage the EU institutions to reduce the EU regulatory burden”.

I fear that the Government’s encouragement of their allies will not achieve a great deal. European regulations in areas where we have lost our national competencies bind directly, without parliamentary ratification, and the transposition of European directives into British law continues to produce a vast volume of cumbersome red tape. I fear that it will be largely a waste of time to debate the deregulation Bill, which will be of such limited effect against the massive tide of new regulation engulfing us.

It is not fashionable to defend our banks and financial institutions, which continue, six years on from the financial crisis, to be bullied and abused by Governments and politicians not only here but in many other countries. Although not mentioned in the gracious Speech, soon the Financial Services (Banking Reform) Bill will come here from another place. Your Lordships’ House will have a duty to ensure that this Bill does not negatively affect the prosperity of our financial services sector and the competitiveness of our financial markets compared with their global competitors. British and foreign banks alike are grappling with the burdens of the new regulatory structure; around 2,000 institutions will be regulated both by the FCA and the PRA. The fastest growing departments in many City institutions are compliance and IT—all power to the noble Baroness—rather than the business departments that promote lending to SMEs. No wonder the executive committees of City institutions spend 90% of their time discussing ICAAP and ILAA rather than talking about how to do more to support and lend to new and growing businesses.

Unlike my noble friend Lord Lawson, with whom I agree on most things, I am not really convinced that the strict ring-fencing of retail banks is either necessary or desirable. I do not think that if ring-fencing had been in place, it would have made any difference to any of the banks which failed. Besides, banks now enjoy greatly improved capital and liquidity ratios, which I believe is more important. However, ring-fencing is going to happen. The Government want it, the banks have accepted it, and your Lordships’ House should concentrate on implementing it with as little collateral damage as possible.

As noble Lords are well aware, our new regulatory system is being introduced at the same time that the three equivalent bodies at the European level have been reorganised as fully fledged regulators. I have heard from some continental bankers that they are surprised that we have undertaken such a far-reaching reform of our national regulatory system because, “Everyone knows that it is intended that eventually the European regulators will do the job for the whole of the EU”. The soaring costs and the continuing uncertainty about the regulation of our financial services markets have undoubtedly already lost us many jobs and business operations to other centres.

I do not know whether it will be possible to repatriate significant powers such as financial regulation, but if the European Union is to consist principally of one very large country—the eurozone, one medium-sized country—the United Kingdom, and perhaps one or two small countries, then I think that it will be neither comfortable nor advantageous for us to remain a member, and I congratulate my noble friend Lord Lawson on his decision to articulate his view at this time. As my noble friend Lord Forsyth so eloquently argued, our future lies in developing our global trading relationships with the Commonwealth and the growing economies of Asia, South America and elsewhere. Of course we would need to negotiate a free trade agreement with the EU, but if South Korea can have one, why can we not have the same? Why would the EU not agree? After all, we buy more from the EU than it does from us.

I have spent a third of my working life resident in Japan, which is at last enjoying its day in the sun after a very long economic winter. I was naturally delighted that the Prime Minister and the former Japanese Prime Minister Mr Noda signed two important collaboration agreements in April last year: one on military equipment procurement and one on civil nuclear power. Hitachi’s acquisition of Horizon, rescuing our new nuclear power industry, is an example of the second. I believe that our excellent trading and investment relationship with Japan can make an increasing contribution to our growth and urge the Government to include Japanese alongside Mandarin Chinese as one of the languages that may be offered in primary school at key stage 2. Given the deep economic ties with Japan, and the fact that the Chinese and Japanese economies are nearly the same size, it is strange and upsetting to our Japanese friends that Japanese is excluded from the list.

The Government deserve congratulations for sticking to their pledge progressively to reduce corporation tax. By April 2015, we should enjoy, at 20%, the joint lowest rate in the G20. That should help the Government’s first priority: to strengthen Britain’s economic competitiveness. Although I keenly support the Government’s economic policy, I would ask my noble friend to explain what the Treasury meant by its statement following the gracious Speech that there would be a crackdown on tax avoidance and evasion, with a £4.6 billion package, including a new information exchange agreement between the Isle of Man, Jersey and Guernsey. Can my noble friend confirm that, in spite of the Treasury’s statement, the Government still distinguish between tax avoidance and tax evasion? Can she explain whether the UK is also a party to the information exchange agreement between the three territories? What is meant by a £4.6 billion package: will it yield £4.6 billion and, if so, over what period, or will it cost £4.6 billion to implement? The language is not clear.

In common with some other noble Lords, I confess that I, too, did not really feel inspired by the gracious Speech. I regret that it felt somewhat lacking in enthusiasm and vision. Nevertheless, there are some sensible measures, already referred to by other noble Lords, such as the Local Audit and Accountability Bill, which abolishes the Audit Commission and outsources and delegates its powers to local communities. The National Insurance Contributions Bill will also, in a modest way, encourage small businesses to take on more employees. I look forward to hearing the rest of the debate and the Minister’s reply.

Financial Services Bill

Viscount Trenchard Excerpts

Wednesday 28th November 2012 Lords Chamber

[Lord Flight]

My Lords, I think that there is broad agreement across the House that an ingredient part of a more stable banking system is that we should have healthy competition and, indeed, that a number of the problems that have developed over the past few years have been the result of a banking system that was not competitive enough, that was described as oligopolistic or cartelised. One important issue in terms of banking competition is the ease with which individuals can move their bank accounts.

I moved an amendment in Committee that largely covered all the practical things about transferring direct debits and standing orders. As many will be aware, the Payments Council has spent a lot of money on sorting that out and next September will implement its proposals to address the mechanistic aspects of changing a bank account.

My amendment in Committee raised the possibility of the Bill being used to enforce that. It is being done on a voluntary basis, and I am aware that most banks have signed up to the Payments Council arrangements. The one aspect that is not covered is the grandfathering of anti-money laundering information. I declare an interest as a senior non-executive director of Metrobank. Metrobank has pioneered removing a lot of the unnecessary—indeed, uncompetitive—measures that banks have typically used, such as requiring you to have your passport signed by a lawyer and to produce an original bill. Metrobank is able to get all the information it needs from your driving licence, so it can open an account pretty quickly. However, that cannot cover all circumstances, and as any existing bank has to have done all the necessary “know your customer” and anti-money laundering checking, it seems only sensible if, when an individual moves an account, the existing bank is obliged to pass on—to grandfather, to hand over—that anti-money laundering information to make it easier for individuals to move their accounts. Amendment 116B provides for banks to do that without charge.

I would obviously be lucky to get the Government’s agreement to include that in the Bill, but in thinking how it might be dealt with practically, this is an issue where the FCA, if not the PRA, could reasonably direct the banking system. One way or other, anti-money laundering is being used as a deliberate barrier to competition, a deliberate discouragement to people to move from one bank to another if they are unhappy with their existing bank’s service. That needs addressing and I hope that the Minister may have some clever idea as to how the point can be grasped.

[Viscount Trenchard]

My Lords, I support the amendment moved by my noble friend Lord Flight. Since the disappearance of the traditional bank manager from the high street, customers have increased difficulty in communicating with their banks at all, let alone to request a transfer to another bank.

What particularly irks me is that when you seek to engage with the successor to a bank manager by telephone—or when you respond to a text message requiring you to telephone the bank—you first have to go through a long process of answering questions put to you by a machine to establish your identity. If you successfully pass such questions, you may eventually be able to speak to a human being, who will then proceed to put you through an identical process of security checking. I wonder why you cannot be put straight through to a human being, rather than wasting time on your telephone, usually on an 0845 number or something like that, answering questions put to you by a computer, because it does not make any difference. When you speak to the person, the person requires you to do the security again. It is then very often the wrong person and you are transferred to another department and you have to go through the process again, probably in duplicate, first with a computer and then with another human being. Therefore, you have to allow at least 30 minutes if you are going to attempt to engage with a bank to do something that ought to take five minutes.

I welcome my noble friend’s amendment. It should be made much easier to transfer your bank account to another bank. For a long time the mobile telephone companies resisted a similar facility to change supplier; I understand that it is now much easier to change from one company to another. I see no reason why it should not be so in the case of banks.

However, in order to permit the customer to do this, banks should be required to provide forms for this purpose on request—and the request should be able to be given in writing or orally—making clear what information is needed. Otherwise, people writing in may not give the correct address or branch of the bank, and the banks will have reason not to act on the request. So the forms should be standardised and make clear what information should be given.

At the same time, the individual should be required to grant permission to bank A that it may release on behalf of the customer what my noble friend calls the anti-money laundering information—the material that it holds in that connection—because otherwise bank A will surely be prevented from releasing such information to a third party under data protection legislation. It would be necessary to agree a prescribed time limit for the transfer of such information, because in the case of somebody who has banked with a certain bank for 40 or 50 years, material that bank may hold dating many years back may be irrelevant to bank B. Does my noble friend have any comment on that?

[Baroness Hayter of Kentish Town]

My Lords, my noble friends Lord Mitchell, Lord Peston, Lord Barnett and Lord Davies of Oldham have all had the opportunity to thank the Minister today for hearing their arguments and meeting them. Perhaps it is now time for the Minister to do the same for one of his own side, and accept these arguments from his noble friend Lord Flight. The noble Lord, Lord Flight, is right on this: consumers will only be able to drive competition if they can swiftly, easily and cheaply change bank accounts. Without that, there really will be no way to drive up standards.

It was interesting to hear the noble Viscount, Lord Trenchard, talk about phone calls and automatic voice recognition. It reminds me of a wonderful publication produced by the National Consumer Council called The Stupid Company. This asked a whole lot of consumers, not just in financial services, “What are the things you most hate about companies?” In the top three was automatic voice recognition. It was really interesting that when that was played back to companies, they continued to use it although they knew that it was the thing their consumers most hated. Banks are like that. Until people can change banks easily, I fear that they will continue to do things that none of us likes. I hope very much, therefore, that the Minister can send Lord Flight home happy this evening by having accepted his amendment.

--- Later in debate ---

[Lord Flight]

My Lords, I thank the Minister for his supportive response and my noble friends Lord Trenchard and Lady Kramer for their support. I am delighted to hear that my noble friend Lady Kramer will be pursuing this aspect as part of the banking review; I make the simple point that it is obvious that it should be easy to move accounts. I also thank the noble Baroness, Lady Hayter, for her support.

I would not say that I was surprised but I am interested to note that the Minister cited yet another example of protectionist practices in the EU. To the extent that what he described is there to stop the transfer of such information or to make it unacceptable, it is clearly a barrier to trade. Anyone in the financial services industry who thinks that the single market means a free and competitive one has another thought coming, because the practical barriers to trade and financial services in the EU are substantial at a retail level. I am not sure if the Minister is right, however, because the law as it stands is that it is up to each bank to do what it wants to or feels is necessary and adequate to comply with its “know your customer” due diligence, and I would have thought that if the new bank got all this information it could make it a decision that it thought was sufficient.

I say to my noble friend Lord Trenchard that my amendment provided 10 working days for the information to be transferred once you had given notice that you were going to move your account.

[Viscount Trenchard]

I am sorry, I did not explain my question clearly. It was how old the information should be that must be transferred—10, 20, 30 years or what?

[Lord Flight]

The answer is that it is the current information that the existing bank has which satisfies its “know your customer” credentials. Maybe there could be a time period of two years or something, but it is the current information that is relevant.

On the basis of the Minister’s reply I am happy to withdraw the amendment, but I would like to think that somehow, through the banking committee, the FSA and the work that the Treasury is doing, a sort of code of practice among banks could be accepted and evolved. Just as the mechanistic aspects of moving bank accounts are being signed up to on a voluntary basis by the banks at the initiation of the Payments Council, I hope that practice in this area to go along with it might be brought into a code of conduct by banks. I beg leave to withdraw the amendment.

Financial Services Bill

Viscount Trenchard Excerpts

Monday 26th November 2012 Lords Chamber

[Baroness Hayter of Kentish Town]

My Lords, in moving this amendment standing in my name and that of my noble friend Lord Eatwell, I can hardly do better than quote directly from the Association of British Insurers. The association supports the new rule for the financial services regulator to promote competition in financial services because it believes that properly functioning, competitive markets can deliver good outcomes for consumers. However, the ABI urges further consideration of the practical implications of the FCA’s enhanced role in ensuring such competition. Given that the OFT, and later the CMA, will retain general competition law powers and the right to conduct market studies in financial services, there is, says the ABI, a risk of duplication and/or a lack of co-ordination between the two bodies. Uncertainty about the expected role of the two organisations is unlikely to lead to good regulation either for the industry or consumers. The ABI therefore thinks that the FCA and the OFT should be subject to a statutory duty to co-operate and to produce a memorandum of understanding. While the FSA and the OFT have voluntarily published an MoU, this will become a “must have” when the FCA receives its enhanced competition remit. The MoU should be a statutory requirement and should make clear that the FCA would normally take the lead on competition matters in financial services, with the OFT undertaking market studies only in exceptional circumstances. While the OFT and the Competition Commission and, later, the CMA would lead on enforcing the Competition Act—for example, over cartels—it would be the FCA, as the specialist regulator, that would be best placed to conduct analysis of financial services markets and pursue any necessary regulatory changes. It is for these reasons that the ABI has supported Amendment 86A.

Those in this House who are also following the Enterprise and Regulatory Reform Bill, which will bring about the merger of the OFT and the Competition Commission into the CMA, will have been struck by the comments in government briefings on financial services. The BIS papers on the ERR Bill stress the FCA’s stronger role in promoting competition compared to the FSA at the moment. It notes that both the CMA—the Competition Markets Authority—and the FCA will regulate financial services, with the FCA being the lead regulator and the roles of the two bodies therefore complementary. BIS goes on to state that the FCA will have a mechanism to make sure that the CMA’s powers and expertise are brought to bear in financial services. The CMA will have a mechanism to review competition in financial services and to recommend that the FCA takes action. Indeed, the FCA will have a power of referral to the OFT which will not prevent the FCA taking the lead in addressing competition issues where it is better placed to do so. I hope that noble Lords are all following this.

The FCA will also be required to respond to any recommendation given by the competition authorities. Furthermore, under the Enterprise and Regulatory Reform Bill, the CMA will be able to appoint a third party to monitor the implementation and compliance of remedies. Within financial services, we assume that the FCA could be one such third party where this is deemed appropriate by it and the CMA.

As must be clear from the briefings from BIS, which I assume noble Lords from HMT have also read, there are major competition issues within the financial sector, yet the ERR Bill regrettably makes no mention of the uncompetitive nature of the banking sector, which is highly damaging to our economy. We are all aware of the denial of access to finance being experienced by SMEs. We need a more diverse and competitive banking system, and the PRA, FCA and CMA simply must address this if the financial sector is to serve the wider economy. Neither the Bill before us today nor the ERR Bill indicates how this issue will be tackled, but tackled it must be. It must be crystal clear, as BIS says in its note, that the FCA and CMA will need a memorandum of understanding.

It is not enough for such a vital document to exist on a voluntary basis. It should be a requirement. Equally important, it should be visible to all with an interest and should therefore be published by both parties. In due course, I will seek to lay this responsibility on the CMA under the ERR Bill. Today, we seek to lay it on the FCA in this amendment. Similarly, I will in due course propose that the CMA has an obligation to co-ordinate its work with the FCA. Today, we ask the equivalent of the FCA. I beg to move.

[Viscount Trenchard]

My Lords, I support the amendment because I believe that there is too little in the Bill about the maintenance of competition. It is too confused. I personally regret that the PRA has no need to have regard to the maintenance of the competitiveness of the market place. The co-ordination between the FCA and the CMA, as the amendment would require, would help to concentrate minds on exactly how important competitiveness is and to increase awareness among consumers as well as firms and participants. That competition is extremely important and must be maintained and, where possible, enhanced. The amendment would help in that regard and I am inclined to support it.

Financial Services Bill

Viscount Trenchard Excerpts

Monday 26th November 2012 Lords Chamber

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

My Lords, new Part 12A of FiSMA, as inserted by Clause 26, extends and strengthens the regulatory framework by giving the regulators powers to act in relation to a parent entity, which is itself not regulated, but controls and exerts influence over a regulated entity. As we have heard, Amendments 90 and 91 seek to make significant changes to the scope of the powers over parent undertakings. We have not heard new arguments this afternoon, and regret that I probably will not advance any significantly new ones either—as is often the case. However, let me go through the argument as clearly as I can.

The Government are extending and strengthening the regulatory framework, so it is important that these new powers, which are untried and untested in the UK, have safeguards in place to ensure that they are used in a targeted and proportionate manner. I stress the new powers; they are not powers that previous Governments have sought to put in place, so we will put an important additional series of safeguards in place. However, their untried and untested nature is principally why the Government have proposed limiting the power to financial institutions of a kind prescribed by the Treasury in order to keep it within reasonable bounds.

As has already been identified today and on other occasions, if your main business is owning or managing authorised persons, you are caught, but if your main business is making or selling bread, then you are not. That is what the Government intend at this stage. We do not wish, at this stage, to give the financial services regulators powers of direction in relation to parent undertakings whose main business is not related to financial services. However, the Government are very much alive to the concerns raised by the noble Lord, Lord Whitty, which is why we propose to take a power to remove the limitation to financial institutions. We accept that it may be appropriate to widen the scope of Part 12A powers to catch a wider range of parent undertakings but the Government remain unconvinced that now is the appropriate time for these new powers to apply to parent undertakings which are not themselves financial institutions. It is a developing area of financial services industry practice. We need to watch it closely and the noble Lord, Lord Whitty, is right to remind us of that. The provision future-proofs the powers and ensures that the Treasury has the flexibility to respond if circumstances change and firm structures evolve, such that parent undertakings are no longer captured within the scope of the power.

I know that in both Houses there has been interest in strengthening the application of the powers over unregulated parent undertakings. Government Amendments 91A to 91E seek therefore to improve the usability of the powers. Amendments 91A, 91B and 91C lower the trigger for use of the power against parent undertakings and make the power more usable. Amendments 91A and 91B clarify that the regulators can give a direction if it is considered desirable in order to advance the FCA’s operational objectives or any of the PRA’s objectives, or if the giving of the direction is desirable for the purpose of the effective consolidated supervision of the group. Amendment 91C is a related consequential amendment.

As a result of these amendments, the FCA and PRA, would no longer have to demonstrate that,

“the acts or omissions of the … parent … are having or may have a material adverse effect on the regulation … of one or more … authorised persons … or the effectiveness of consolidated supervision”.

After reviewing the powers in light of statements made in this House about the imperative need for the regulators to have effective powers over the parent undertakings of authorised persons and consulting with the authorities, the Government consider the previous threshold was set too high, which would have made the power difficult to use in practice. The high threshold may also have hindered and sometimes prevented the regulators properly supervising complex financial groups.

These amendments will mean that the powers can be used effectively by the regulators to address difficulties within the group as a whole. That will better fulfil the Government’s objective of ensuring that the regulators have the tools they need to conduct suitably robust supervision of unregulated holding companies.

Amendment 91E would make similar changes to the power of direction that the Bank of England has in relation to the parent undertaking of a recognised clearing house. Amendment 91D would remove the requirement that a direction must specify the period during which each requirement remains in force. This ensures that, in appropriate cases, the regulator can give a direction of an indefinite duration. It better aligns the new Part 12A powers with the provisions in new Sections 55L and 55M to be inserted into FiSMA, which provide for the imposition of requirements on authorised persons by the FCA and PRA of an indefinite duration.

While we think that directions in relation to unregulated parent undertakings should generally be of limited duration, we can conceive of cases—for example, in connection with structural reform of the kind envisaged by the Banking Reform Bill—where it would be appropriate for a direction to have an indefinite duration. Amendment 91D therefore provides the regulator with the flexibility to give a direction of an indefinite duration.

[Viscount Trenchard]

Will my noble friend explain more about government Amendment 91A? I do not understand why the reference to the FCA is different from that to the PRA. As regards the FCA, the amendment refers to,

“one or more of its operational objectives”.

I am not quite sure which of its objectives is non-operational. As regards the PRA, the amendment refers to, “any of its objectives”. I think that “any” means one only. Why is the drafting different between the two?

[Lord Sassoon]

I do not think that there is any material significance, other than that it tracks the wording of the different form of objectives which relate to the two bodies. It now escapes me because it is a few hours since we discussed the form of the objectives but I do not believe that there is any substantive point that relates to what we are doing here to change the power over holding companies. If it is all right with my noble friend, I will write to him to confirm why this links into the slight different wording used.

Financial Services Bill

Viscount Trenchard Excerpts

Wednesday 24th October 2012 Lords Chamber

[Lord Flight]

My Lords, I wish to speak in support of my noble friend’s amendment. It touches on unfortunate developments. The reaction of regulators to being criticised for what were described as the failures of light-touch regulation have increasingly led to a much more tough-guy, macho approach by them. In turn, I find major, totally responsible financial services businesses saying to me when they are unhappy and think some regulatory proposals are mistaken, “But we don’t want to talk to the regulators in case they punish us”. An unfortunate culture has developed of seeing the regulators as being very likely to use their powers against you, if you fall out with them.

The whole light-touch regulation story is a misinterpretation. What was wrong with FiSMA in that territory was the assumption that large institutions could be left to run their own affairs, which, as I warned at the time, missed out the fact that when large institutions go wrong they risk bringing down the whole system. The amendment may be belt and braces—I agree with my noble friend that to rely on complicated legal processes to get justice is not satisfactory—but I think it is perfectly straightforward, sensible and common sense to have that guideline as regards how investigations are handled. In the present climate, I think that is necessary.

[Viscount Trenchard]

My Lords, I, too, support my noble friend's amendment. I apologise for going back to the regulatory principles, but I continue to believe that it is a huge pity that the regulatory principles, by which both the PRA and the FCA are bound to operate, do not contain, to my mind, the very necessary principle that they should have regard to maintaining the competitiveness of the marketplace on which the United Kingdom depends so much for tax revenues, for prosperity, for employment and for all kinds of things.

I also speak with the experience of having been a member of the executive committee of a regulated firm for several dark years. I can assure the House that at least 90% of the time of an executive committee is spent discussing how to respond to regulators. There is a real fear of increased supervision and a more intrusive approach and, nowadays, many firms spend very little time talking about how to develop and to expand the business in order to provide further employment and earn more money so that the business can be consolidated and maintained in London. In the absence of, to my mind, such necessary principles, which ought to be there and by which the new regulators ought to have to abide, it is more necessary than it otherwise would have been that the regulators should act, as my noble friend’s amendment suggests and requires, “proportionately, reasonably and fairly”. I wholly support the amendment and I look forward to hearing the comments of the Minister.

[Lord Peston]

We are indebted to the noble Lord, Lord Hodgson of Astley Abbotts, for raising these matters, although we discussed similar matters last week under the guidance of the noble Lord, Lord Flight, and my noble friend Lady Hayter. The central question here is our fear—fear in the relevant sector as well—that the regulators damage our financial services sector rather than improve its performance. I think that is the theme that lies behind these matters. I have two questions, but I am bad at reading amendments, so I want to be certain about them. Presumably the new subsection proposed in Amendment 192A would come before subsections (1) to (7) in Clause 74. Am I right that it would be the lead-in?

Financial Services Bill

Viscount Trenchard Excerpts

Monday 8th October 2012 Lords Chamber

[Lord Flight]

My Lords, I think it is self-evident that in gaining the advantage of twin peaks and what I hope will be a much better regulation of the safety of banks comes the cost of the requirement for elements of dual regulation and involvement. Rather contrary to what I had to say earlier about the authorisation of banks, when it comes to the authorisation and approvals of holders of controlled functions my amendment proposes, in essence, joint responsibility on behalf of the PRA and the FCA to approve holders of significant-influence functions for dual-regulated firms. Generally the industry has concerns that the proposed process for approving holders of controlled functions covered in Clause 12, which amends Section 59 of FiSMA, appears unnecessarily complex and might not have been fully thought through. From the drafting, it is unclear which regulator will be responsible for designating and approving some functions. The only straightforward, common-sense approach would be a joint responsibility on the part of the PRA and the FCA for granting approvals. Whatever system is put in place, it is important that it is run jointly in order to be as efficient as possible.

The draft MoU between the PRA and the FCA gives further details of the proposed system, but this makes it clear that there is an assumption that certain roles—for example, the CEO and the chairman—are inherently prudentially focused and so should be approved by the PRA, although with FCA consent. The holders of these senior roles are as much responsible for ensuring that the firm meets conduct standards as prudential standards; in the case of many businesses, the conduct standards may be more fundamental than the prudential standards.

I would like to hear the Minister’s comments on this territory, but one approach that might make life simpler is to have joint responsibility for the more senior dual-registered holders.

[Viscount Trenchard]

My Lords, I support my noble friend Lord Flight in his amendment, principally because it reads much better and is much easier to understand than the equivalent part of the Bill, which is confusing to say the least. I further agree that there is a very considerable risk that approved firms, having to apply to two regulators separately, is going to reduce the attractiveness of London and lead foreign firms to consider establishing in other centres businesses that could be established in London. There is already a perception that it is extremely cumbersome to obtain approval for significant-influence persons and that it is more difficult to do that here than in other financial centres around the world, so I definitely believe that my noble friend’s amendment would represent a significant improvement.

It is also important to ask my noble friend the Minister whether, if joint responsibilities are to be agreed between the PRA and the FCA, that would mean a single procedure. If the two regulators are made jointly responsible but operate slightly different procedures that with time become more different, it makes it much more time-consuming and expensive for regulated firms to comply with the requirements.

Has my noble friend also thought about customer-dealing functions? His amendments deal perfectly with the significant-influence functions, but the Bill as drafted also deals with customer-dealing functions, and I see no reason why these should not also be dealt with in an extremely simple and understandable manner using a form of words similar to his.

Where joint responsibilities between the two regulators are agreed, will this lead to the avoidance or elimination of the duplication of staff between them? If you have two regulators doing the same thing, you have double the people and you may have even more people who are responsible for talking to their equivalents at the other regulator. Where joint responsibilities under the memorandum of understanding or elsewhere are agreed and put into force, can that be done in a way that reduces rather than increases the number of persons necessary to carry out the process?

[Lord Sassoon]

My Lords, I can assure my noble friends that these matters have been carefully thought about. To some extent, the somewhat tortuous drafting is entirely to achieve a simpler and more cost-effective result, even if the drafting of the Bill is more complex than my noble friend has suggested, although I do not think he is doing it to make the drafting more comprehensible.

As with our earlier discussion about the authorisation of firms, we need to recognise that there are already difficulties in this area. My noble friend Lord Trenchard quite rightly points out how aspects of the authorisation processes in London are of concern to firms, particularly from outside Europe. I understand that. As he and I have discussed over a long period, different aspects of this go over many years. Whether it is the FCA or the new regulators, there is an ongoing challenge to make sure that the system is sensitive, appropriate and efficient, quite regardless of the new architecture. He makes an important point, but I suggest that it is a different point from the narrow but equally important one here about where best to do it in a dual-regulation, dual-supervision environment.

Amendment 165A would establish a different system for designating significant-influence functions, or SIFs. For dual-regulated firms, the PRA and the FCA would jointly make rules specifying which functions are SIFs and then put in place joint arrangements for approving individuals to perform them. For FCA-only firms, this would be done by the FCA alone. I can see the attraction of the approach which my noble friend Lord Flight is proposing. The language and the on-the-face-of-it approach perhaps appear simpler than the arrangements in the Bill at present. However, the arrangements in the Bill have been thought about, and we believe that they are preferable because they put one regulator in charge of leading the process for approving those who wish to carry out roles involving significant influence over the conduct of affairs of an authorised person. In most cases, this will be the relevant prudential regulator, although the FCA will be able to designate SIFs in dual-regulated firms where the PRA has not done so. For example, the FCA will have a greater interest than the PRA in the chief anti-money laundering officer, so it may wish to designate this function in the absence of the PRA.

We certainly do not think that the administrative process should be excessively difficult or lead to log-jams. The Government expect the two authorities to run a single administrative process for SIF applications, taking into account the statutory timeline. Indeed, the draft memorandum of understanding, published by the Bank and the FSA, makes clear that that is exactly what they will do: run one administrative process. I cannot answer my noble friend’s question about whether there will be more or fewer people. All I can say is that they have already documented a process to make it as efficient as possible.

With the explanation that this has all been very carefully thought out and that, although there is no perfect way to do it, we believe that the basis in the Bill as drafted will work better in practice for firms and for the regulators, I hope that my noble friend will withdraw his amendment.

Financial Services Bill

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Wednesday 25th July 2012 Lords Chamber

[Baroness Noakes]

My Lords, with the leave of the Committee and at the request of my noble friend Lord Northbrook, I rise to move Amendment 127ZA and also speak to Amendment 128AAA in his name. My noble friend is unable to be with us to speak to these amendments due to other commitments.

The new regulators will have many new powers to add to the formidable armoury of powers already held by the FSA. Consultation with practitioners in the industry about the practical aspects of policy, rules and practice is crucial. Amendment 127ZA concerns consultations carried out by the Bank of England in relation to the clearing and settlement systems that it will regulate in future, together with the role of the FCA in that. In general, the consultation arrangements in the Bill for the market areas covered by the FCA are welcomed by practitioners. In particular, the Bill, which mandates several panels to be used for consultation, includes a specific markets panel. However, there is concern in relation to the clearing and settlements systems, which are to be regulated by the Bank of England rather than the FCA. I understand the reasons that led to that decision, but it results in some fragmentation of regulation. Clearing and settlements systems will now be separate from the rest of markets regulation and practitioners are concerned that, in the absence of provisions in this Bill for consulting practitioners about clearing and settlement aspects, there could be problems.

Amendment 127ZA sets up a consultation requirement in this respect by requiring the Bank of England to consult the markets practitioner panel, which is set up under new Section 1P as part of the FCA’s consultation mechanisms. This amendment also allows the panel to request information from the Bank via the FCA in order that the panel can then advise the FCA on any related issues—for example, regulatory changes made by the Bank in relation to clearing and settlement systems, which may well have an impact on trading infrastructure, which the FCA itself will be regulating.

I thank the Minister’s officials for explaining to me how the Bank’s new powers will work legislatively and how the consultation provisions fit in. As I understand it, there will be a statutory requirement for the Bank to consult generally on the exercise of its new regulatory powers in relation to recognised clearing houses, but the consultation with practitioner panels or the FCA is not mandated. The Bill is silent in relation to settlement systems, and we have to wait to see what the eventual regulations will say.

Will the Minister explain how the Government intend consultation to work for settlement systems? Can he also say how the Government see proper co-ordination between the FCA and the Bank of England in this area? Is there, for example, any intention to involve the markets panel—and if not, why not? In respect of clearing houses, can the Minister explain why the requirements in respect of consultation by the Bank for clearing houses in Schedule 7, which applies the general PRA requirements for consultation on rules, specifically remove the requirement for the PRA to consult the FCA and has no requirement to consult panels?

Amendment 128AAA in this group tackles a rather broader issue. Under new Section 1R, the FCA must consider representations made to it by the panels and must publish responses to representations. The corresponding FiSMA requirements were for the FSA to respond in writing with reasons for disagreeing with a panel’s recommendations but this has been omitted from the Bill. The amendment of my noble friend Lord Northbrook reinstates that requirement.

Everybody understands that the FCA will not accept every single recommendation or view put to it, but it is not acceptable that the FCA can merely ignore any recommendations put to it by the panels and merely publish a response “from time to time”, which is all that new Section 1R requires. The FCA ought to be open to the possibility of dialogue with the panels. It is entirely possible, for example, that the FCA could misinterpret a comment or recommendation made to it. The Bill might make the FCA near-omnipotent, but it should not be predicated on the FCA being near-omniscient.

Both these amendments have been suggested by the existing financial services practitioner panel, which has done good work since the FSA was set up. It knows what it is talking about and if it is concerned, I believe that the Committee should be too. I do not claim that the drafting of my noble friend’s amendments is perfect but they are probing amendments. I beg to move.

[Viscount Trenchard]

My Lords, I support the amendment in the name of my noble friend Lord Northbrook and moved by my noble friend Lady Noakes. While I understand very well the reasoning behind splitting regulators into a multitude of new regulators, it nevertheless remains very necessary to make sure that regulation is well co-ordinated, not duplicated, and made as understandable as possible to practitioners and consumers alike. It is very sensible indeed that the regulation of trading infrastructure also be brought within the sphere of influence of the FCA. The requirement that,

“The bank must consult with the Markets Practitioner Panel on the regulation of clearing and settlement infrastructure”—

deals with that. I agree with my noble friend that the drafting is not yet perfect. In particular, I find somewhat confusing the second paragraph, which states:

“The Markets Practitioner Panel will be able to request information from the Bank via the FCA to enable them to provide appropriate advice to the FCA”.

However, in principle, this is a move in the right direction and I strongly support it.

One of the problems with regulation is that regulators, even if they have practical experience of banking, insurance or other financial services, very rapidly become out of date because markets change so rapidly. There are many very competent former bankers working for the FSA who are out of date with the way markets actually operate today. Therefore, I think it very necessary to have a practitioner panel for the PRA as well as for the FCA. However, that is the subject of a subsequent amendment.

Amendment 128AAA also deserves support for putting the requirement back on the FCA to give a statement in writing of its reasons if it disagrees with a view expressed by the practitioner panel. That is very sensible.

--- Later in debate ---

[Lord Flight]

My Lords, I support all three of these amendments. I declare an interest as a director and founder-member of Metro Bank.

Part of the total objective for the PRA of a safer banking system and banking stability is a need for more competition in the UK. One of the main sources of our problems has been a cartel. Whenever there are cartels bad habits tend to creep in. There is a history behind the cartel coming in, going back to Walter Bagehot in wanting to consolidate banks for safety, but there needs to be a balance. The PRA cannot achieve its major objectives without staunchly advocating greater competition and helping it to come about.

From my experience, it was agony going through a year and a half with the FSA getting the licence for Metro Bank. The sums of money that we had to spend were not quite as great as the noble Baroness reported but they were very substantial. The FSA kept changing its mind. The proposals for capital were out of all proportion to the risk of the bank. At the time, I wrote to the Minister reporting on the experience. Strangely, I do not think that there was ill intent by the FSA. It was very much about individuals wishing to protect their own position and not wanting to be attacked in some way in the media for having been too lenient on licensing a new operation. Memories go back to the early 1970s, when banking licences were given out too easily, and that was a major cause of the secondary banking crisis in 1974. However, it is absolutely right that a more competitive environment in banking should be a key factor which the PRA supports.

On international competitiveness, I have understood recently that the Government’s main objective is that they feel that this is somehow related to light-touch regulation that has got into trouble. I do not see that at all. It seems to me just silly for the UK to shoot itself in the foot with regard to an important industry that employs a lot of people, earns a lot of invisible earnings and so on. I would have thought that, in terms of regulating, it would be normal to consider the effect on international competitiveness. What was wrong with light-touch regulation—I remember it well—was the doctrine: “You don't need to regulate large institutions too much because they can look after themselves”. The weakness of that doctrine was that, if they got it wrong, as subsequently transpired, the problems for the whole system were that much greater. I think that was what was wrong and it has little or nothing to do with the competitiveness of the UK’s international banking services.

I do not accept at all the argument that a brief to keep watch on international competitiveness relates to inadequate or inappropriate regulation. Taking the point to absurdity, to ignore a debate about particular measures, which were clearly going to be highly damaging to the UK industry, would just be silly.

[Viscount Trenchard]

My Lords, my noble friend Lord Flight is, of course, completely correct in his assertion that the proposed new regulatory framework makes far too little mention of the need to preserve competitiveness of the marketplace, not just competitiveness from the point of view of the consumer but the very competitiveness of the marketplace for practitioners to participate in. For that reason, financial services companies from all over the world have come into London and that has helped to provide more consumer choice, and it will continue to do so in the future, as well as providing the Exchequer with a very large proportion of its annual revenue. It is a huge pity, as my noble friend has pointed out, that the Treasury mistakenly believes that preservation of international competitiveness implies approval of inappropriate or inadequate regulation.

All three amendments have some merit but of the three I tend to prefer the amendment proposed by my noble friend Lord Hodgson because it gives a duty to the PRA to have regard to competition. I would have preferred that the PRA had an objective to protect the competitiveness of the marketplace as well but I realise that there are some valid arguments against that. To have a duty—“duty” is a strong word—to have regard to competition is the preferred of the three amendments put forward. The points in my noble friend’s amendment are all to do with minimising adverse effects, or avoiding restrictions or unnecessary regulatory barriers to entry; they are all negatives rather than positives. I would prefer this issue to be expressed in a more positive manner. I have worked for a Japanese-owned financial institution; I am not sure whether this is a UK institution under proposed new paragraph (d) in my noble friend’s amendment. It is, of course, a UK-incorporated plc. Could my noble friend clarify what “UK institutions and companies” means? It is very important for London that the level playing field for all participants is preserved and I hope that the amendment refers to UK incorporated or UK resident financial institutions and companies.

My noble friend’s amendment also makes it very clear how necessary it is to have collaboration and co-operation between the PRA and the FCA. Proposed new paragraphs (b) and (c) impact on matters that are of great concern to the FCA. I hope that these matters will be properly covered in the memorandum of understanding to be drawn up between the PRA and the FCA.

[Lord Sassoon]

My Lords, the most important issues to be addressed in this group of amendments are those around barriers to entry linked to resolvability. A sea change is needed and is coming. If the Committee bears with me, I will get to this issue, because it is at the heart of the concerns in this area, as identified in particular by my noble friends Lady Kramer and Lord Flight.

Let me start with Amendments 128BF and 128BG in the terms in which they are drafted. My noble friend Lady Noakes says that in some respects they go too far in terms of the duty to promote competition. However, I should do the amendments justice by speaking to them as drafted, although I accept that my noble friend put somewhat of a qualification around her amendment.

There are three reasons why the Government do not agree with the proposition in the amendments. First, all PRA-authorised firms will also be regulated by the FCA according to their objectives, and will therefore fall under the FCA’s objective to promote effective competition in the interests of consumers. To correct one point, it is also the case that authorisation has to be carried out by both the regulators. For those that are seeking a PRA authorisation, the PRA will lead, but others will be led by the FCA.

Secondly, the Government’s view—this goes to the heart of the new structure—is that the FSA simply has an impossible job in trying to balance so many competing objectives, which has led to its lack of institutional focus on prudential matters. In order to avoid repeating this mistake, we have decided that the PRA should have a single, general objective, supplemented by tailored, focused objectives, which are specific to particular regulated activities, such as the insurance objective set out in new Section 2C.

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Wednesday 25th July 2012 Lords Chamber

[Lord Barnett]

I strongly support the amendment moved by my noble friend Lady Drake. As usual, my noble friend Lord Peston spoke about the average consumer and the complexity of the Bill. I doubt that an average consumer will ever read the Bill. This is not an ordinary Bill. I do not pretend that the FSA was perfect, but we are now to have an FCA. I think it is in Clause 5—although that itself is not easy to find—but then it is in proposed new Section 1E. You and I may find that easy—I do not, because this is the most complex Bill I have read. I apologise, because over five years I introduced many complex Finance Bills—two a year on average—so I know about complex Bills and have dealt with them both in government and in opposition, but I find this one incredible.

The Bill is about the competition objective and helping the consumer. The amendment is modest. If the noble Lord, Lord Sassoon, is in a good mood—I see that he is not; he is shaking his head—he should look at the amendment to see whether it would do any harm to the consumer. I should have thought that it might help them. The consumer will not read it, but the new FCA would have to read it and be responsible for it. First, the noble Lord must be in favour of good value for money—he is nodding. The last phrase of the amendment is that it should be “good value for money”. It deals with,

“the ease with which consumers can identify”.

That cannot do any harm to the Bill and the idea of helping consumers. Even if the noble Lord is in a bad mood today, as he indicated, I hope that he will see the amendment not in principle but in fact. It is a very modest amendment asking for very little.

The noble Lord, Lord Sassoon, does not always answer my questions positively, but this one is simple. This is not my question but that of my noble friend Lady Drake in her excellent introduction to the amendment. Is the amendment going to do any harm to the Bill? Is it going to help the FCA to help the consumer? If the answer is yes, can the Minister say that he will at least examine the Bill, take the amendment away and look at it with a view to including it at Report? That is all I ask, and I am sure that that is what my noble friend Lady Drake asks. I hope that he feels in a better mood when he comes to reply.

[Viscount Trenchard]

My Lords, I also recognise the good intention of the noble Baroness, Lady Drake, in moving this amendment. However, I think that the FCA is best helped to help the consumer by having clear objectives and principles, or matters to which they must have regard in pursuing the objectives. I worry that this is becoming overcomplicated.

I also suggest that new Section 1E(2)(a), which states that the FCA must have regard to,

“the needs of different consumers who use or may use those services, including their need for information that enables them to make informed choices”,

overlaps substantially with the effect of the amendment. Furthermore, I am not sure whether it is a good idea to put in the Bill,

“services which are appropriate to their needs”,

and,

“represent good value for money”.

Those two concepts are not defined and may be interpreted in very different ways by different consumers. Who is to say what represents good value for money? The important thing, which has been much too lacking in recent years, is that we should have complete transparency. However, I would like to hear the Minister’s view on this.

I would also like to ask him whether the words,

“The matters to which the FCA may have regard in considering the effectiveness of competition”,

mean that the FCA is prohibited from having regard to other matters, or is this intended to restrict—or to broaden—the matters to which the FCA can have regard? If the provision is intended to broaden the matters, surely the best way is to leave it as simple as possible so that the FCA can use its own judgment in deciding to which matters it should have regard.

[Baroness Noakes]

My Lords, the noble Baroness, Lady Drake, has made a powerful case for her amendment. I think that it is widely acknowledged that the needs of consumers require greater emphasis in the financial services industry as it moves forward, and I believe that that is why the consumer is being placed at the heart of the FCA. However, I am puzzled that the noble Baroness, Lady Drake, has chosen to put her amendment within the competition objective for the FCA. It seems to me that what she was talking about is quintessentially part of the consumer protection objective, which is in new Section 1C. A number of things are already listed within that consumer protection objective, including,

“the general principle that those providing regulated financial services should be expected to provide consumers with a level of care that is appropriate having regard to the degree of risk involved … and the capabilities of the consumers in question”.

It seems to me that if proper regard was paid to that in the development of the FCA’s policies, that would meet almost all of what the noble Baroness, Lady Drake, seeks to address in her amendment.

Financial Services Bill

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Tuesday 3rd July 2012 Lords Chamber

[Viscount Trenchard]

My Lords, I also support my noble friend’s amendment. In particular I think that this whole section is unclear and muddled. It is extraordinary to state that a committee of the court, which is the board of directors, may make recommendations within the Bank. The Financial Policy Committee is clearly a committee of the court. That has been stated. It is strange that it is asymmetric and different from the MPC. This is a recipe for muddle because if it is a committee of the board—that is, the court—it has no authority beyond the court. Any authority that it has is the authority of the court. To state that a committee of the board—the court—may make recommendations within the Bank seems weird.

Similarly, in making recommendations to the Treasury, if it is a committee of the court, it should be the court that makes those recommendations. We are getting very confused. The difference between the FPC, dealing with macroprudential regulation as a committee of the Court of the Bank of England, and the PRA not as a committee but a different body, but again within the Bank of England, is strange. I just think it all needs to be clarified a bit more.

[Lord Eatwell]

My Lords, I first address the amendment moved by the noble Baroness, Lady Noakes. I am now very puzzled by the status of recommendations, given that a recommendation is not necessarily something which needs to be followed. Given that there seems to be no indication, as the noble Baroness, Lady Noakes, pointed out, about the reactions to recommendations, it is difficult to assess the status of this concept within the structure of the Bill. My Amendment 69 simply deals with the offending new Section 9Q and deletes it. It states:

“The Financial Policy Committee may make recommendations to”,

the world. I am sure the world would be very grateful, but we should not expend public money on making recommendations to the world, and especially not on confirming them in writing. It would be interesting to know who these “persons other than those” are defined to be when we are talking about the context of macroprudential regulation; we are not talking about relationships, say, with individual firms or whatever. The noble Baroness, Lady Noakes, has picked up on some important and valuable obscurities in the Bill and it would be helpful if the Minister could elucidate them.

A sort of bran-tub of my amendments has again been grouped together. I am sorry about that but I am not responsible for the groupings. I could ungroup them but that would be tedious for everyone, so let us deal with them. Amendment 48 is included in the group, which again has been tabled in the context of directions. It refers to the point made with respect to the nature of directions. The Bill states in proposed new Section 9G(4) that:

“The direction may relate to all regulated persons or to regulated persons of a specified description, but may not relate to a specified regulated person”.

I understand entirely what the drafting is supposed to do, but given the level of conglomeration and concentration in the financial services industry, I do not think that this will work as it is quite possible to refer to,

“regulated persons of a specified description”,

but for there to be only one firm of that description. It is quite possible for that to happen. If this may not “relate to” in the sense that it may not have a relationship to, that would rule out, say, a reference to,

“regulated persons of a specified description”,

if it just so happened that the set of persons of that description contained but one element—just one firm of that type. We can see that there are various niche firms and highly specialised companies in the City. I can think of very highly specialised money brokers of which only one performs a particular role in the money markets. Perhaps my amendment would have been more helpful if it had changed the word “relate” to “refer”, so that the direction could not refer to an individual specified regulated person. That would be inappropriate and would go beyond what the FPC is designed to do. However, I am nervous that the activities of the FPC may be unreasonably limited by the possibility that there might be just one specific regulated person within a given class of persons to which the FPC wishes to issue a direction.

I turn to Amendment 50, which again refers to new Section 9G. Subsection (6) refers to the fact that a direction,

“may not require its provisions to be implemented by specified means”—

I am not quite sure what that means—but then it goes on to say,

“or within a specified period”.

This is very dangerous in the sense that it may be enormously important that a direction should be operational within a specified period. It may be important for the financial stability of Britain that actions take place within a month or six weeks, or whatever the period might be. Being unable to require that provisions be implemented within a specified period seriously weakens the ability of the FPC to pursue effectively the stability objective. I am also a bit worried about the term “specified means”, but again, I am not sure what it means. Perhaps the Minister could help me on that when he replies. I really think that the business of a specified period should be looked at very carefully indeed for fear of weakening the powers of the FPC.

Amendment 63 has been withdrawn, so I turn now to Amendment 66. It refers to the making of recommendations under new Section 9P(2), and states specifically that:

“The recommendations may relate to all regulated persons or to regulated persons of a specified description, but may not relate to the exercise of the functions of the FCA or the PRA in relation to a specified regulated person”.

Again, this is the problem. It is quite possible that a generic description could apply to just one regulated person. Therefore, this is the same point that I made with respect to Amendment 48. The word “relate”—that is, “have a relationship to”—could result in the FPC not being able to make recommendations because the specified activity was performed by only one particular institution.

Finally, Amendment 69 is where I follow on from the noble Baroness, Lady Noakes, and comments that have been made by the noble Lord, Lord Hodgson, and the noble Viscount, Lord Trenchard, about new Section 9Q being very odd. It states that:

“The Financial Policy Committee may make recommendations to persons other than those”,

namely, the rest of the world. With those comments, I look forward to hearing the Minister’s comments on the amendments in the name of the noble Baroness, Lady Noakes, and the various amendments in my bran-tub in this case.

--- Later in debate ---

[Lord McFall of Alcluith]

On this point, can I remind fellow Peers that I have invited the Governor of the Bank of England along tomorrow morning, so I suggest that they ask him the very important question: “Will he enjoy writing letters to himself in the future?”.

[Viscount Trenchard]

The Minister just said that the FPC is to be a separate committee with strong statutory powers. I find it very hard to reconcile this with its being a committee of the Court of the Bank of England. This is different from the MPC, which is not a committee of the court but is a committee of the Bank. It would be more logical and comprehensible if at least it were acknowledged—as it clearly is—that the FPC is not a committee of the court but a strong semi-separate body. However, the Bill says that it is a committee of the court, in which case it cannot have any powers beyond the powers of the court.

[Lord Sassoon]

My Lords, the clear advice on the drafting of the Bill—notwithstanding other constructions that my noble friends are putting on this—is that the FPC should have the clear power to make these recommendations. I remember now that I, almost on a daily basis, am writing letters of perhaps a similar kind when I write to my boss the Chancellor—when, for example, he is wearing his hat as the chair of a Cabinet committee—for clearance or to seek permission for some policy matter. I certainly write letters within the Treasury on a regular basis to deal with formal matters, which is broadly similar territory to what we are talking about.

I have talked about the importance of clarity and transparency. It is perhaps worth underlining that one of the things that this power does is to ensure—because FPC recommendations will be published in the meeting record of the FPC—that the public are informed that, if a recommendation has been made by the FPC to the Bank, it is recorded and is open to public scrutiny.

I think that it was my noble friend’s construction that the FPC cannot have powers beyond those of the court. I correct him on that: if the Bill confers such powers on the Financial Policy Committee, it does indeed have powers that the court does not have.

--- Later in debate ---

[Viscount Trenchard]

In that case, does my noble friend the Minister not think that it would be right to recognise the FPC as a committee of the Bank and as separate from the court, having its own powers as given in the Bill? The position would then be logical. At the moment, it is stated that it is a committee of the court. If I were a member of the court, I would not find it easy to understand any structure where a committee of the court—that is, the board—had powers which were independent of and separate from those of the court itself.

[Lord Sassoon]

My Lords, that is the situation; my noble friend might find it difficult now. If he or anybody else was appointed—as they have been—to the interim FPC or the formal FPC if and when it becomes established, they will of course receive extensive briefing on all these matters. This is not the right place to discuss how the FPC fits into the architecture of the Bank—that is dealt with in other provisions. Although my noble friend may not like it, the FPC, however it is constituted—I do not think that his construction would alter the point—simply must have these important powers, which are unequivocally the powers of the FPC and not those of the Bank. That is the case however the FPC fits into the architecture. I am glad that we have probed this matter but, without this provision being in the Bill, the FPC would be unable to make recommendations and would not therefore be transparent and open to parliamentary or public challenge.

These are important matters, but I think that I should turn, if the Committee will permit me, to Amendment 69, relating to the FPC’s ability to make recommendations to people other than those whom we have discussed so far. Amendment 69 would remove one of the FPC’s most versatile and useful levers for addressing systemic risks. Perhaps the best way of explaining this is by addressing the challenge given to me by my noble friend Lord Hodgson of Astley Abbotts to provide examples of what we are thinking about and why the power is necessary.

For example, the FPC may wish to make a recommendation to the Financial Reporting Council regarding corporate governance standards, or to the European Banking Authority about a risk to the UK financial system stemming from European banks—that very much links in with our recognising earlier that systemic risks may come from overseas and should not be ruled out. Equally, here is a power taking on board the challenge from the noble Lord, Lord Eatwell, about international linkages. Here is a power that gives an important ability to the FPC to make recommendations to an international authority.