Financial Services Bill

Baroness Hayter of Kentish Town Excerpts

Monday 8th October 2012 Lords Chamber

[Lord McFall of Alcluith]

My Lords, there are 14 amendments in total here, and I will not be speaking to them all; but if I could characterise them, the three words I would use would be investigation, consultation and reasons for the Financial Conduct Authority. Underpinning that are the concepts of natural justice and the law of judicial review. Given the problems that the FCA has experienced with investigations in the past, both with the Royal Bank of Scotland and the HBOS decision, there are many questions arising from that, not least on the HBOS decision. The FCA needs to be clearer and have more consultation on its relations with financial service companies because the status of the FCA is at stake here. These amendments refer to FCA investigations and providing the reasons and the consultation for them.

[Baroness Hayter of Kentish Town]

My Lords, I rise to speak on the amendments in this group, and in particular on Amendment 165ZA, standing in the name of my noble friend Lord Davies of Oldham, and Amendment 170ZA in my name. As my noble friend Lord McFall has said, these amendments are essentially about transparency, before and after the event, and consultation. They are also about the publication of findings and reasons, including to Parliament.

Amendment 165ZA would require, where a prohibition order is made, that the regulator publish the reasons for this and that the individual appears on the list of people subject to prohibition orders on the Treasury website. This is key. It is not simply to promote good practice by making clear what constitutes the contrary, but also to enable investors and others easily to identify who has been subject to such an order.

My family recently had to check out a hitherto chartered accountant, only to find it impossible to discover from the ICAEW’s website whether he had actually been removed from the register—which, in fact, he had been. The institute finally said it would sell us a list of those who had been so removed, but it should not really be necessary to go through that to discover who has been struck off. We certainly do not want that sort of opacity from the new regulators.

The amendment is really about open access. I assume that it will not divide us across the Committee. On this very proposal, Matthew Hancock—admittedly before he was a Minister, albeit that he was very close to a certain senior one—in the other place said that,

“the principle that prohibition orders on people who are not fit and proper persons should be published is crucial … Prohibition must not only be a sanction for past irresponsible behaviour, but a deterrent for future irresponsible behaviour. That change in behaviour, by ensuring that sanctions are strong enough to change the culture within finance, is … extremely important. It is one of the key lessons from the financial crisis. … the point of prohibition is not only … to stop the actions of those who have … committed acts that make them not fit and proper, but to demonstrate the bounds of behaviour that are deemed responsible and reasonable within authorised firms”.—[Official Report, Commons, Financial Services Bill Committee, 6/3/12; col. 384.]

The then Minister, Mark Hoban, agreed,

“that prohibition is both a punishment and a deterrent, and that the risk of being deprived of one’s livelihood is a deterrent to those who transgress”.—[Official Report, Commons, Financial Services Bill Committee, 6/3/12; col. 387.]

Clearly, publicity is key to that.

Amendment 170ZA in my name requires the FCA to give a copy of its policy on penalties relating to the discipline of sponsors not just to the Treasury but also to Parliament. Clearly, this is about improving parliamentary accountability and scrutiny of the FCA, its reports and how it carries out its functions. It is not enough to leave the FCA or the Treasury to publish statements to the wider public without laying them before the public’s elected representatives in Parliament. Furthermore, we do not want the new regulators simply to become creatures of the Treasury but we want to submit their work also to parliamentary scrutiny.

The amendments in the name of my noble friend Lord McFall of Alcluith are similarly about openness and transparency. They require appropriate consultation by the authorities, proper investigation before action is taken and then explanations provided in due course. We commend these amendments to the Committee. There is also an amendment in this group in the name of the noble Lord, Lord Hodgson, which appears to make good sense. We look forward to the Minister’s response to that.

--- Later in debate ---

[Lord Flight]

My Lords, three different sets of amendments that I have tabled are grouped together here and they cover rather different territories. I will be as organised as I can in presenting them.

Amendment 173AA is about fair process for product intervention powers. I understand, and have a deal of support for, the regulator being able to ban promptly products that are clearly undesirable. However, if additional product intervention powers are put in place, there ought to be legislative safeguards to ensure that the powers are used as a last resort and not regularly. Amendment 173AA seeks to put in place safeguards for the use of product intervention powers, such as those set out in the EU markets in financial instruments directive.

Many noble Lords may have noted that Martin Wheatley, the designate head of the FSA, had made statements about shooting first and asking questions later and had perhaps over-made his point. One of the issues I want to speak about on Report regarding the new regulatory order is that I have encountered reluctance by the industry to raise criticisms with the regulator for fear of unpleasant reciprocal action. I fear we are slightly swinging from an era where regulation was very lax to one in which there may not be enough open debate between the regulator and the industry.

My Amendments 173ACA to 173AE seek to remove the requirement to publish details of directions prior to the conclusion of the representation process. There is an analogous issue that will come up in due course with regard to warning notices. In a world where anything published is a label of guilt, I am inherently opposed to the publication of notices before there has been fair representation and a fair judicial process.

My Amendment 173AF covers slightly different territory. The Bill already gives the FCA the right to introduce rules without consultation where it would be considered that a delay would be prejudicial to the interest of consumers. This additional power, which my amendment seeks to block, is unnecessary and provides the FCA with excessive powers without appropriate checks and balances.

Amendment 173AG raises the issue that very little detail is included about what should be covered by the statement of policy. It would be better if the statement of policy were clear and transparent, particularly if there is no consultation on the specific use of the powers. Finally, the statement of policy should be used for production intervention powers generally.

I cannot find the appropriate notes. Amendments 187RA and 173AAC both cover completely different territory. As noble Lords will be aware, financial advisers are the only category of people who do not have protection from the statute of limitations for a period beyond 15 years. In practice, this means that if there are any outstanding issues when a financial adviser retires, there is no closure. There are many such situations. Sometimes issues may be with the ombudsman or the regulator from way back and there is no indication whether any action will be taken. This is a messy situation and it is ultimately unfair to financial advisers, and not helpful to clients, as it stops financial advisers being able to hand on or sell their businesses to others in the industry. I can see no really fair justification why financial advisers should not enjoy the same protection as those in other industries. I may add something further after the Minister’s response.

[Baroness Hayter of Kentish Town]

My Lords, I am sorry that we do not have the other amendments in order to be able to have a long discussion about “may” and “must”, but such are the events of the evening.

There are two major areas of concern for us in this set of amendments, and I am afraid that they are found in the amendments tabled by the noble Lord, Lord Flight. Unsurprisingly, one involves the so-called toxic products powers, and the other financial promotions. We have already congratulated the Government on their initiatives in this Bill on both of these issues, so it will come as no surprise that we would not support any weakening of their well chosen tools. Product intervention powers are absolutely key. They will allow the FCA to take prompt action to prohibit the sale of a particular product or to counter a product feature either on a temporary or permanent basis. There has been widespread mis-selling of endowment mortgages, PPI, interest-only mortgages and self certified mortgages; we all know the list. It demonstrates that the FSA failed to act swiftly enough to prevent widespread consumer detriment. It is highly unlikely, despite some of the lobbying that I know we have been receiving, that the retail distribution review would have had an effect on any of those, and nor indeed the TCF initiative. After all, treating customers fairly was always a part of FiSMA.

Product intervention needs to be seen as more than just a decision on whether to ban a particular product. It can also be used to control the way banks vary the terms or other specifics. Many products are not in themselves toxic. Even PPI was a very good product for a certain group of people, as were interest-only mortgages. The issue arose over the way they were sold—their packaging and their terms. That is what made them toxic. We would not want to see any weakening of what the Government have already put in the Bill.

With regard to the new and, I think, long overdue powers on financial promotion, these will allow the FCA to publish details about misleading adverts once they have forced their withdrawal. It seems extraordinary that that is not already the case. Surely if an advert is found to be misleading, every consumer who might have seen it or been influenced by it should know that it was not all that it sounded. Making public the findings on financial advertisements will also encourage other consumers to report anything that they think is a little suspicious. The power to publish will provide a real incentive for firms to improve standards and, I think, to be wary of allowing their marketing departments to push the boundaries. Research by Which? shows that many adverts for financial products have been in breach of consumer law. The organisation asked consumers about this, and two-thirds responded saying that they want the financial regulator to be proactive in taking misleading financial adverts off the market. We know some of the numbers in this area. Which? asked the FSA how many adverts it had removed. In 2010 the authority removed 262 misleading adverts, and last year it removed 327, which is almost one for every working day. However, we do not know what the adverts were because no details are available to us as consumers. So the fact that in future the FCA will be able not just to take action but to publicise it is a power that we welcome. We would not want to see it diminished in any way.

We are sympathetic to the quite different amendments spoken to by the noble Lord, Lord Sharkey, and the noble Baroness, Lady Kramer, and again we look forward to the Minister’s response.