Baroness Noakes
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Financial Services Bill
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Baroness Noakes
“(7) The Bank must consult with the Markets Practitioner Panel on the regulation of clearing and settlement infrastructure when the FCA agrees that proposed changes will have an impact on the regulation of trading infrastructure.
(8) 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.”
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.
Lord Sassoon
My Lords, to manage expectations before the break I attempted to say that I was not going to be as accommodating all through the day. In qualitative terms I will be as accommodating, but I can only work with the material that is in front of us. In this case, it is possibly a matter of explanation and reassurance. I hope that some, if not all, of the matters here are going to be covered satisfactorily.
Amendment 127ZA to which my noble friend Lady Noakes spoke would mandate some quite complicated arrangements for the Bank of England to consult the markets practitioner panel of the FCA, in certain cases. I do not make a comment about the drafting, but the general arrangements here would be quite complicated. In addition, the markets practitioner panel would also have the ability to request information from the Bank, but only via the FCA and only for the purpose of assisting the FCA. I had not been quite sure what the amendment was trying to achieve, but I now understand from my noble friend that it is a matter of strengthening the co-ordination between the Bank and the FCA in relation to market infrastructure, as well as strengthening the consultation arrangements in relation to infrastructure matters. I understand why this is important, but will attempt to explain why I believe it to be unnecessary.
There is of course nothing to stop the Bank of England consulting the markets practitioner panel or any other panel, or their members or anyone else. It is worth remembering that. It is also important to bear in mind—it may be more important in this case—that the Bank of England will be regulating only a very small number of institutions in this highly specialist area. That really is the key point. I suggest that there is not a lot to be gained by trying to institutionalise consultation arrangements in this way because of the small number of specialist players.
The Bank will indeed be able to consult each of the entities that it regulates individually, should it wish to do so. That is of course an inconceivable position for most of the other subsectors of financial services, where a panel arrangement is therefore necessary to corral views efficiently. I am not sure what a requirement to consult the markets practitioner panel would necessarily add here. More generally, the Bill already introduces a requirement for the Bank and the FCA to have a memorandum of understanding relating to infrastructure regulation, while there is of course nothing to stop the Bank and the FCA working together in any way that they want, subject to the framework of the Bill.
I think that panels are not required in this area. I hesitate a bit because my noble friend Lady Noakes may come back at me on the settlement question. I accept that on that aspect I should possibly take a bit more time to reflect on my noble friend’s views, just to make sure that all angles have been covered in what I have said and in what has been indicated by the Bank and the FCA, so far as it is relevant to them. However, specifically on settlements, I appreciate that I might reflect a little further.
I turn to Amendments 128AAA, 128AB and 130ZB, the first two of which require the FCA to provide a statement in writing to any panels it establishes where it disagrees with any of the representations. Amendment 130ZB would make a similar provision for the PRA. I note that these amendments replicate the existing provisions in FiSMA. It may help if I explain the thinking behind why the Government consider it right to depart from the existing approach in FiSMA. It is because the Bill imposes a general duty on the regulators to publish responses to the representations they have received, which is wider than the current requirement in FiSMA. The regulators must respond to all representations, rather than simply those with which they may disagree. That was a conscious change because it did not seem right that the only responses the regulators should have to give to the panels are where they disagree with them.
We do not want to promote an antagonistic relationship between the regulators and any of the panels that they may establish. We have also required the regulators to publish their responses to help inform public understanding and enhance accountability. I reassure the Committee that this duty will, in practice, require the regulators to give their reasons for rejecting or departing in any significant way from a recommendation of one of their panels. With those explanations, I hope that my noble friend will feel able to withdraw her amendment.
Baroness Noakes
My Lords, I thank my noble friend Lord Trenchard and the noble Baroness, Lady Hayter, for their contributions to the short debate and I thank my noble friend the Minister for his response. I note that he will look again at the settlement system, which raises slightly different issues because of the different way that it is dealt with legislatively. I doubtless await a letter from him during the summer, which I shall look forward to.
The Minister said that there was nothing to stop the Bank of England from consulting anybody—it may be that he was playing that for laughs. The real purpose of tabling this amendment was because there is no specific mention of panels, and there is a concern that the Bank of England will not use its general obligation to consult the right people. The right people are not necessarily just the people they are regulating but also those who are impacted by regulation, such as the people you would find on something like the markets panel. That is also why I tried to press my noble friend the Minister on why the Bank did not have to consult the FCA when dealing with regulatory matters in this area. I put it to my noble friend that he has not quite addressed those issues. I hope that he will think further on this before we get to Report, and I will certainly reflect on what he has said.
In respect of the second amendment in this group relating to explanations in writing, the Bill states:
“The FCA must from time to time publish in such manner as it thinks fit responses to the representations”.
This does not convey the sense of what the noble Baroness, Lady Hayter, referred to, which is dialogue. At the moment the panels operate in a much more collaborative mode, feeding through ideas as well as making formal representations, and they are being seen here, I think, as just another consultee to be dealt with along with responses from any other consultee. The sense that the practitioners have is that the quality of relationships will deteriorate going forward, and that is a matter of concern.
These amendments were tabled by my noble friend, as I said, following the comments made by the financial services. I know that my noble friend will want to talk to them before we return to this Bill at Report. I thank my noble friend the Minister for his reply today but I do not think that I can regard the issues as settled. However, I am prepared to withdraw the amendment today.
Baroness Noakes
Baroness Noakes
My Lords, I shall speak also to Amendment 130A in this group. These amendments deal with value-for-money studies for the FCA and the PRA respectively. I am delighted to see that the noble Lord, Lord Eatwell, and the noble Baroness, Lady Hayter, share my enthusiasm for value-for-money studies for the FCA and I hope to persuade them that they should be enthusiastic about value-for-money studies for the PRA as well.
Amendment 128B amends new Section 1S of FiSMA, inserted by Clause 5 of the Bill. The new section states:
“The Treasury may appoint an independent person to conduct a review of the economy, efficiency and effectiveness with which the FCA has used its resources in discharging its functions”.
My amendment would change that “may” to “must”. Amendment 130A does exactly the same thing to the equivalent new Section 2M for the PRA. These are probing amendments. As a veteran of may/must debates, I am well aware that the Government will argue for flexibility to respond to circumstances and not be tied to any particular course of action, so my noble friend need not spend a long time reading out all of those comments from his notes.
My purpose in tabling these amendments is to ask the Government to state how they intend to use the powers. There is a similar power in FiSMA in respect of value-for-money reviews of the FSA, but the only time that I can recall it being used was when the C and AG was asked to carry out a review around 2007. I believe that my honourable friend Mr Mark Hoban last year described Section 12 of FiSMA as being “underused”. Because the existing power was used so sparingly, the simply rollover of the FiSMA formulation into this Bill is surprising.
My amendments say that the Government “must” set up independent reviews, but I accept the criticism of the Minister’s officials that I have not rounded that off by saying how often such reviews should be conducted. My own view is that they do not need to be conducted absolutely every year but they do need to happen reasonably often—for example, every three years. I hope that the Minister will set out how the Government intend to use the powers to subject the FSA and the PRA to VFM reviews.
My noble friend will be aware that the FSA was much criticised by large swathes of the regulated community for lack of economy, efficiency and effectiveness. The FSA raises its moneys through fees, and the only thing that appeared certain was that fees would go up, often by significant amounts. Consultation on its key proposals did little to silence its critics. Subjecting the FSA to an independent VFM review was seen as important as there are no natural downward pressures on the FSA’s costs. It obviously has no marketing wish to compete and it is not accountable to the Treasury for its use of resources. This is a recipe for inefficiency, and it is important that the successor bodies to the FSA are genuinely put under pressures to deliver regulation at a cost that is proportionate to the benefits.
The FSA’s current budget is going up very considerably and people understand in part why that is, although not all sections of the regulated community understand why their particular share of the costs is going up. Generally people accept that the costs of regulation will rise, but I hope that the Government will agree that lack of efficiency or effectiveness must not be allowed to shelter behind the banner of tougher regulation and that the successor bodies to the FSA must routinely be exposed to an examination of how well they spend their money.
I would also like to use this amendment to ask how the Minister explains the relationship between the reviews that can be set up under the new Sections 1S and 2M and the annual audits of the new bodies. Under Schedule 3, the Comptroller and Auditor-General will carry out the annual audits of the bodies, which is fine, but will the C and AG be entitled and expected to carry out regular value for money reviews of the FCA and the PRA? Will value for money reviews therefore happen when the C and AG wants it to happen or only if the Treasury uses its powers under this Bill? I hope that my noble friend will be able to respond positively to the thrust behind these amendments.
Lord Sassoon
First, I am not sure why the noble Lord, Lord Eatwell, talks about advisers to government departments. Here, we are talking about finding firms to carry out value-for-money reviews of the FCA, and independence from the FCA would seem to be the overriding concern. We are not talking about the Bank of England itself or some part of the Bank of England’s wider group doing the review. As I am sure the noble Lord knows, with all the increasingly tough professional codes that exist, the definition of independence is becoming ever tougher. Therefore, although the noble Lord and all of us might like to go back to a sort of common-sense, gentlemanly world that once existed, I absolutely stand by what I said. The amendment—whose effect incidentally goes wider than the noble Lord indicated in speaking to it—would capture a range of firms just because of the way that professional independence has come to be defined these days. Therefore, I stand by my analysis of the amendment.
Amendment 130AA would require that when the Treasury orders a review of the economy and efficiency of the PRA, it informs the Treasury Select Committee of the nature of, and arrangements for, the review. I understand that the amendment is driving at the importance of accountability to Parliament. The Government agree that that is important, which is why there is already a large amount on this subject in the Bill, including the provision for NAO audit, which we have discussed.
Requiring the Treasury to inform the Treasury Select Committee of the nature of, and arrangements for, the review at such an early stage might have some benefits of the sort that the noble Lord identified but I fear that it is more likely to be seen as an invitation for the Treasury Select Committee to comment on or even attempt to change the remit of these important reviews. I suggest to this Committee—I would not suggest anything to the Treasury Select Committee—that adding another political hurdle could slow up the process of producing these reviews. It may even make it less likely that they will be commissioned in the first place if there has to be a negotiation of the sort that I fear.
I hope that those explanations are sufficient for my noble friend to be able to withdraw her amendment.
Baroness Noakes
My Lords, I am grateful for the contribution of the noble Lord, Lord Eatwell, to this debate and for my noble friend’s reply. Perhaps I may comment on Amendment 128BB in the name of the noble Lord, Lord Eatwell, concerning independence. I think that my noble friend has stretched even the most stringent modern interpretation of independence way too far. On his interpretation, the NAO might not be independent of the FCA and therefore might not be able to carry out any further reviews of the FCA. I hope that my noble friend will reflect on the need for independence. We have to remember that when the Bank of England, rather belatedly, appointed people to carry out reviews of itself recently, independence was not exactly plain in the appointments that were made.
I thank my noble friend for his responses on value for money. It is slightly odd that the Government intend to use the NAO to carry out value-for-money studies, but they have set up the NAO to be appointed the auditors, so it might carry out value-for-money studies. I am still left with the feeling that the carryover of the ability to appoint somebody to do a review is just repeated legislation which might lay fallow, as the FiSMA legislation largely lay fallow. However, I thank my noble friend for his response and beg leave to withdraw the amendment.
Baroness Noakes
“1SA Report to Treasury Select Committee
(1) The FCA must conduct reviews of its own policy and performance if requested by the Treasury Committee of the House of Commons.
(2) On completion of a review, the FCA must make a written report to the Treasury Select Committee setting out the result of the review.”
Baroness Noakes
My Lords, in moving Amendment 128BC I shall speak also to Amendment 143B in this group. These amendments are in the name of the noble Lord, Lord McFall, and myself and are part of the suite of amendments we have tabled to ensure that the views of the Treasury Select Committee in another place are given a proper hearing and receive a proper government response.
Amendment 128BC introduces a new Section 1SA which requires the FCA to review its own policy and performance, if requested by the Treasury Select Committee, and to send a written report of the review to the TSC. We have just debated the Government’s powers to initiate value-for-money reviews of the FCA. This amendment goes further and allows Parliament, through the TSC, to require reviews.
The cause célèbre which underpins this amendment is the FCA’s review of the failure at RBS and its own role in that. I should remind the Committee that I am a director of RBS, but, thankfully, I was not involved at all during the period covered by the report. It took huge pressure from the Treasury Select Committee to get that report into the public domain.
The Government’s response has been that such reviews and their publication are a matter for the Executive, rather than Parliament. However, the problem that the Government have is that it did not work in the case of the RBS report, which leaves Parliament without any direct means of dealing with any similar cases in future. It is not always self-evident that the Government of the day have the same interest in transparency and accountability as Parliament, especially when the Government have themselves been so closely involved in a particular event or series of events.
Amendment 143B features another aspect of the role of the Treasury Select Committee—this time in relation to the appointment of the chief executive of the FCA. Under the new Schedule 1ZA of FiSMA the chief executive is to be appointed by the Treasury and the amendment would add the words,
“following consideration by the Treasury Select Committee of the House of Commons”.
On our first Committee day, which I was unable to attend, there was much discussion of the role of the Treasury Select Committee in relation to the appointment of the Governor of the Bank of England. The Government’s position appears to be that the Treasury Select Committee is to have no role whatever in the appointment but that it may hold pre-commencement hearings. My noble friend Lord McFall—sorry, he is not my noble friend; it feels like he is my noble friend but he is actually the noble Lord, Lord McFall—asked the Government to think again about that.
The reasons usually trotted out by the Government are unproven assertions. In particular, the role of the governor is said to be so market sensitive that it has to take place without any parliamentary involvement. I am not sure that there has been any empirical evidence to back that up, but it is much more extraordinary that the Government are citing market sensitivity for the appointment of the chief executive of the FCA. The Treasury Select Committee does not accept this assertion, and it calls into question exactly how the Government think that markets work in practice.
The age of parliamentary examination of candidates for major public offices is already upon us. In general, they go well; but there have already been reports of cases from committees in another place which have not gone well. In at least one pre-appointment hearing the candidate withdrew because the hearing did not go well. Provided that this can be handled with dignity, it seems to me that this is a sensible part of a parliamentary democracy. However, post-appointment and pre-commencement hearings raise quite different issues. I recall a distinctly lukewarm if not completely damning report by the Treasury Select Committee in respect of one of the MPC appointees. It did not invalidate the appointment but it got off to a difficult start and certainly undermined the credibility of the individual involved.
If the Government stick with post-appointment hearings only for posts such as chief executive of the FSA, it is only a matter of time before the Treasury Select Committee, or a similar committee, reaches a different conclusion from the Government and makes its views plain, as indeed it should do. Where does that leave the position of an appointed but disapproved of chief executive of the FCA?
The Government need to think this through again. If, as I suspect, the evidence which stacks up shows that the case for market sensitivity is not convincing, it would be wise to ensure that Parliament’s view is taken fully into account before executive decision-making. I beg to move.
Baroness Hayter of Kentish Town
My Lords, I rise to give particular support to the second amendment to which the noble Baroness has spoken. I shall not repeat the very strong arguments that she made about the need for this to be pre rather than post-appointment. I would just add a few comments about the importance of the role of the chief executive of the FCA to consumers—as may be a bit expected of me now. After all, consumers are the people on whose savings, or need to borrow, this industry depends.
The Financial Conduct Authority has been called the consumer champion, albeit the word “consumer” no longer appears in the title. That is how, I am delighted to say, the newly appointed chair described it to me. I know that that is what consumers will want it to be. We need this new architecture to have the confidence of the public—some of whom undoubtedly hold financial products at the moment, while some may have done so in the past, and some might do so in the future. Without the confidence that this sector will behave and conduct itself in their interests—with integrity, professionalism and high standards of behaviour—what chance is there that those individuals will save for their homes or pensions, or that small businesses will borrow to produce growth and jobs?
The people who can hold the FCA to account and to scrutiny on behalf of all those millions of small savers, borrowers and those with simply a bank account are, of course, our Members of Parliament. They should, therefore, through their Treasury Select Committee, hold a pre-appointment hearing of the chief executive. This will establish in successful candidates’ minds that they are responsible to the people for the performance of their organisations. Chief executives will know that they will return to the Treasury Select Committee from time to time to account for their record and explain their decisions. That will be a healthy relationship. It does not give the Treasury Select Committee a veto, but it makes clear that the candidate needs to establish the confidence of that committee before taking up the post, and that before appointment she or he has the capability and the vision to stand in the shoes of clients and safeguard their interests. That is not too much to ask.
Baroness Noakes
My Lords, I thank the noble Baroness, Lady Hayter, for her response to Amendment 143B, and I thank the Minister for his reply.
In connection with the reviews, my noble friend relied heavily on the provisions which are in the Bill—which we will come to later—in respect of regulatory failure leading to reviews, as if that was the beginning and end of it. My amendment and the amendment suggested to us by the Treasury Select Committee itself—or by the clerks to the committee—provide that the FCA must conduct reviews of its own policy and performance. That is to say, it is much broader. It does not wait until things have gone very badly wrong before asking the FSA to carry out a review. I am not sure that the Minister’s response has dealt with that point. It seems that he is still keeping all the power to the Executive, except when there is clear and manifest regulatory failure, when all the pressures would build up and the Treasury Select Committee might be required again to argue its corner, as it had to do in the case of the RBS report.
On the pre-commencement as opposed to the pre-appointment hearings in respect of the chief executive, I hear what my noble friend says in respect of chief executive appointments, and I would like to reflect on that. However, I think that he was making up policy on the hoof in relation to other public appointments. It is a relatively recent phenomenon that public appointments have been subject to pre-appointment hearings, and it is my impression that they have been expanding, not declining, in scope in recent years. It may be that my noble friend is indicating that the Government are now trying to significantly row back on what was regarded as an important expansion of the ability of Parliament to be involved in these important decisions and to hold the Executive to account.
I would like to think more carefully about what my noble friend has said in response to that, and possibly discuss it further before coming back at Report. However, I beg leave to withdraw the amendment.
Baroness Noakes
Baroness Noakes
My Lords, I feel a bit like a number 11 bus—it does not come along for a long time and all of a sudden four come along at once. In moving Amendment 128BF, I shall also speak to Amendment 128BG in this group. Both amendments stand in my name and that of the noble Lord, Lord McFall, and deal with a further issue that the Treasury Select Committee in another place believes was not dealt with properly before the Bill left the other place.
Amendment 128BF amends the PRA’s general objectives in subsection (2) of new Section 2B. The objective currently says that it is for promoting the safety and soundness of PRA-authorised persons. The amendment would mean that it would promote competition among PRA-authorised persons.
Amendment 128BG is similar, but adds a subsection to new Section 2B requiring the PRA to discharge its functions in a way that promotes effective competition in the interests of consumers. But that has to be compatible with its general and insurance objectives.
The Treasury Select Committee was concerned that the PRA’s low tolerance of failure, as expressed in particular by its former chief executive, would entrench the market position of larger market players. The committee noted that competitive markets needed what it called the freedom to exit as well as freedom to enter, although I doubt that a failing bank would regard its impending implosion as a freedom. The theory is that a market that artificially restricts exit will almost inevitably inhibit entry as well.
The Government have said that no firm is too important to fail and they point quite rightly to the fact that the legislation is predicated on allowing failure. I fully accept that. I also accept that the FSA has been clear that it does not regard the job of the prudential regulator to prevent failure at all costs. But—and this is a big but—it is also clear that the new regime will be failure averse. New rules on regulatory capital, liquidity and leverage are designed to make banks safer and the implementation of the Vickers proposals in the way recently announced by the Government will do the same. Bail-in capital will also tend to work in that direction. The resolution plans that banks are working on are themselves in effect partly about preserving the status quo. Ownership may change, but large chunks of banks will remain in the market.
We all want financial stability, but a consequence of that is that the default assumption will be that bank failure is a last resort. Even then, resolution will preserve much of what has failed. All that the amendments do is to correct that balance. Without upsetting the core prudential objectives, the PRA has to have regard to the desirability of effective competition.
While supporting the thrust of the amendments, I do not wholly support their wording and I believe that “promoting competition” may go a little too far. I do not really like Amendment 128BG to the extent that it refers to competition in the interests only of consumers, because competition benefits not only the consumers but the wider economy by creating efficient businesses that can compete internationally to the benefit of everyone, not just the people who use their particular services. For that reason, I also support my noble friend Lord Hodgson’s Amendment 129ZA in this group, which is rather more rounded and balanced approach to ensuring that the PRA does not forget the wider environment of the business that it will be regulating. I beg to move.
Lord Sassoon
The fact that it has already started on the work which will lead to the document in the autumn and which goes to the most expensive element of getting authorised—namely, the amount of capital required—is a fundamentally important and good start. I do not pretend that that completes the business, but it tackles first the most expensive element: the cost of putting that capital aside. This is a start. It is not before time, but it is happening as we speak.
Baroness Noakes
My Lords, I start by apologising to the noble Baroness, Lady Kramer, for having appropriated her amendment incorrectly in my opening remarks. I do not quite know when I made the mistake, but I made it quite early and perpetuated it. I latterly discovered that I did not quite like the drafting, and so was slightly disobliging about the amendment of the noble Baroness, which I thought was my own. With apologies to the whole Committee and particularly to the noble Baroness, Lady Kramer, I did not intend to add my name to her amendment. I would not have signed up to the precise wording but, as has come out in this debate, I think we are all speaking from the same territory.
That apart, I believe that there has been quite a lot of agreement among those who have spoken that the Government have not quite got this right. I am concerned that the Government keep saying that they will not repeat the mistake of giving conflicting objectives, which is alleged to have been one of the causes of the problems of the FSA, so this body has to have a single focus. However, I cannot see that a single focus is going to be good for the financial services industry or for the consumer, particularly where competition is just not in its lexicon. If it is not good for them I cannot see how it is good for the UK, so it seems to me to be bad policy.
The amendments that we have put forward today, in varying ways, have been trying to make it a slightly better policy by giving the PRA a broader remit. My noble friend the Minister said that he had undertaken to come back at Report to give a wider economic context, as he had already undertaken to do on the FCA. With respect, that does not meet the points that have come out from the debate today. I believe that there was quite a lot of agreement between my noble friends Lord Flight, Lord Trenchard and Lord Hodgson and I on the amendment tabled by my noble friend Lord Hodgson. When my noble friend the Minister thinks carefully about what to come back on Report with, I hope that he will look again at this issue. Expecting the FCA’s objectives to bear all the burden of reflecting competition in the way that the PRA operates is just bonkers. With that, I beg leave to withdraw the amendment.
Lord Sharkey
My Lords, I rise briefly to support Amendment 144K, in the name of my noble friend Lord Flight, and even more briefly to support Amendment 144L, in my name, which covers some of the same ground but is more focused on the need for the PRA board to have non-executive members with relevant experience and expertise in the insurance sector. I am sure that neither of these amendments should be at all controversial. It would be very hard to argue that the PRA non-executive members need not have among them people of experience and expertise across the regulated sectors, but I think that it would be wrong to argue that this provision is not needed in the Bill. There is no reason for this to be left simply to the discretion of the Bank and the PRA and every reason why they should have an obligation to act in the way that both amendments suggest.
Amendment 144L in my name focuses on insurance because I am concerned that the PRA—as a subsidiary of the Bank, and with a special financial stability purpose and a number of Bank officials on the board—will be much more explicitly focused on the banks. It is also true, I think, that the Bank of England has no history of regulating insurance. The FSA currently does this, in succession, I think, to the DTI. In order to make sure that the PRA also effectively and properly focuses on the insurance sector it seems right that it should have, among its non-executive members, people with the appropriate experience and expertise in that sector. That is what my amendment and the amendment of my noble friend propose.
Baroness Noakes
My Lords, I support Amendments 144K and 144L, which are driving in the same direction, particularly in relation to insurance. Insurance companies have been the orphans: they have been tossed around Whitehall with the DTI and the Treasury; then they went to the FSA, where they were not the most important part of the FSA’s responsibilities; and now they know that they are being taken, rather grudgingly, into the Bank of England. They are worried that the particular features of their industry will not be given due weight, so the appearance of somebody with the requisite experience at board level is a minimum requirement. Because of the degree of concern in the industry, I do not think that it is enough simply to say, “Well, the Bank will do the right thing”—as I am sure the Minister is going to tell us in a minute. It is right that the Bill should reflect the concerns that exist in the industry.
Lord Davies of Oldham
My Lords, it is for the Minister to respond to those arguments for the specific interests regarding representation on the PRA, and I will be very interested in his response. The concern of the opposition amendments in this group is of a rather more general nature with regard to governance, which, as the principal rule by which it is all going to operate, is of the greatest significance.
Amendment 139B would ensure that each regulator must act in a way which follows principles of good governance, including having regard to the UK corporate governance code. I hope that the Minister will find no difficulty at all in accepting that broad principle on which the regulator should operate. Our two other amendments, Amendments 144M and 146A, are rather more specific.
Amendment 144M extends the principles to which the Bank must have regard when making public appointments to the PRA. The Bill states that it must have regard to general principles. We want them spelt out more specifically; that is why we have proposed the insertion of the words, “merit, fairness and openness”, in front of “good practice”, to give specific illustration of what we mean by good practice in this area.
Amendment 146A is a minor addition but an important public safeguard with regard to remuneration. No one in this House can ignore that remuneration at any level in financial services is an issue of great public concern and therefore will certainly be of concern with regard to the governing body of the PRA. At present, the PRA must pay its members,
“such remuneration as may be determined by the Bank”.
We want to add,
“with the approval of the Treasury”,
so that we have the necessary public safeguards on this issue.
Lord De Mauley
I thank noble Lords for introducing their amendments. Let me go through them. Amendment 139B would make explicit that both the PRA and the FCA should have specific regard to the UK Corporate Governance Code. That is an important point. The code is the benchmark for good governance. The Bill makes clear that both the PRA and the FCA will be required to have regard to such principles of good corporate governance as it is reasonable to apply to them. That includes principles from the UK Corporate Governance Code. The Government fully expect the regulators to comply with the relevant principles of that code.
However, generally accepted principles change over time—it is worth noting that just two years ago the UK Corporate Governance Code was called the combined code. I hope that noble Lords will accept that it would not be appropriate to put an explicit reference in the Bill to a specific document which may change from time to time, or the name of which may change completely.
Amendment 144K would require that the Bank must be satisfied that the non-executive members of the PRA board have relevant experience in the sectors that the PRA will regulate, including banking and insurance. Amendment 144L would require that the Bank must be satisfied that the PRA board must include members with insurance expertise. I thank my noble friends for raising this issue, which is also important. The Bank and the FSA have been clear that they understand that the nature of insurers’ business models exposes them to a different set of risks than banks, and that therefore the regulation of insurance requires a different approach.
I can categorically confirm to the Committee that the Government and the Bank are clear that the PRA board will have members with the necessary expertise in each of the sectors that the PRA regulates, including insurance. It will also be important for the PRA board to have expertise in investment banking, building societies and credit unions, for example.
My noble friend Lord Sharkey said that insurance expertise on boards should not be left to the discretion of the Bank. He is right; it will not be; the Treasury will approve the appointment of PRA non-executives. I hope that noble Lords will therefore accept that it is unnecessary to make such detailed provision in the Bill.
Amendment 144M would make explicit that appointments to the PRA board must take place in accordance with the principles of merit, fairness and openness. Of course the Government agree with the intention behind the amendment. Paragraph 10 of Schedule 1ZB already requires that the appointments to the PRA board should take place in line with,
“generally accepted principles of good practice relating to the making of public appointments”.
The clearest articulation of those principles is the Code of Practice for Ministerial Appointments to Public Bodies, published by the Commissioner for Public Appointments. The aim of that code is,
“to ensure that public appointments processes are fair, open and transparent, command public confidence and result in appointments which are made on merit”.
Although some of the principles in the code are relevant only to ministerial appointments, some have wider application. Merit, fairness and openness clearly fall into that category.
Amendment 146A would require that the Treasury approve remuneration of the PRA board. Let me respond to this amendment in the context of the Government’s approach to the FCA and the various policy committees of the Bank. The Treasury has no role in relation to the setting of remuneration for the FSA board, nor will it have any such role in relation to the FCA board. This is as it should be. The FSA is, and the FCA and the PRA will be, independent of government. The Treasury has no role in the setting of the remuneration of external members of the MPC because the Bank is separate from government. The Bank determines how much it needs to pay to get the right people, while still ensuring value for money.
Similar considerations apply to the PRA board. The Bank will need to assure the quality of the leadership of the PRA, so it must be able to determine the remuneration of the PRA externals in the same way as it determines the remuneration of other parts of the Bank group. The Bank and the PRA operate separately from the Treasury and they account separately to Parliament. Parliament has a key interest in whether the PRA is delivering value for money, which is why the PRA falls within the remit of the National Audit Office.
I hope that I have persuaded noble Lords to accept the government amendments and not to press their own in this group.
Baroness Noakes
My Lords, could I clarify with the Minister what he said about the composition of the PRA board? I think he said that the Government were clear that there would be a member with insurance expertise. Did he mean any member, or a non-executive member? There only has to be a majority of non-executive members. I think that my noble friend said that, under that formulation, he believes that that could be met by having an executive member with insurance expertise. The drive of the amendments that we have been discussing was that there should be a non-executive member in an oversight role on the PRA board, bringing in insurance expertise.
Lord De Mauley
My Lords, I categorically confirmed to the Committee that the Government and the Bank are clear that the PRA board will have members with the necessary expertise in each of the sectors that the PRA regulates, including insurance. I did not specify, in answer to my noble friend’s question, but I will write to her if I may.
Lord Sharkey
I will also speak briefly to Amendments 129ZC and 130ZA in this group.
All these amendments address the PRA’s general duty to consult. As the Bill stands the PRA must consult PRA-authorised persons or, where appropriate, persons appearing to the PRA to represent the interests of such persons. This consultation is to be on the extent to which the PRA’s general policies and practices are consistent with its general duties under new Sections 2B and 2G. These general duties include, for example,
“contributing to the securing of an appropriate degree of protection for those who are or may become”,
insurance policyholders. This is a very wide if not universal category, as the noble Lord, Lord Flight, has pointed out. They also include a duty to have regard to the regulatory principles in new Section 3B, which include,
“the general principle that consumers should take responsibility for their decisions”.
In both these cases it is clear that the PRA will need to know what consumers want and need; what their experience is and has been; and, particularly when it comes to the caveat emptor clause, what information consumers need to be able properly to take responsibility for their decisions.
These three amendments simply add “consumers” and “the Consumer Panel” to the list of groups that the PRA must consult or whose representations it must consider. Quite apart from the obvious justice of consulting those who may buy the end products, consulting consumers can also have the beneficial effect of preventing the PRA being totally isolated from the real world and the real consequences of their actions. We can all see from recent events the danger of any part of our financial system, regulatory or otherwise, losing contact with what is actually happening or what people are actually experiencing.
These are simple and clear amendments with a simple and clear purpose. I hope that the Minister will give them sympathetic consideration. I beg to move.
Baroness Noakes
My Lords, I have Amendment 129A in this group and it concerns practitioner panels. With the leave of the Committee, and at the request of my noble friend Lord Northbrook, I shall also speak to his Amendment 130ZZZA and to Amendment 130ZAA in this group. When a Marshalled List has to resort to using the letters “ZZZA” there is something wrong.
My amendments concern consultation with practitioner panels. A number of amendments in this group concern consultation with consumers and the noble Lord, Lord Sharkey, has just spoken to his amendments. I am sceptical about the role of consumers in relation to consultation on prudential regulation. I shall be interested to hear what my noble friend has to say in response, but I shall concentrate on practitioners.
Of course it is very good that the Bill contains a requirement for the PRA to consult in new Section 2K. However, the Bill merely enables—it does not require—the PRA to set up practitioner panels. That is in stark contrast to the existing requirement on the FSA to set up practitioner panels and the very detailed requirements in new Sections 1N to 1Q for the FCA to set up various kinds of panels as part of its consultation arrangements. My Amendment 129A would require the PRA to set up one or more practitioner panels as part of its consultation arrangements.
My noble friend Lord Northbrook’s Amendment 130ZZZA mandates a single practitioner panel, and it goes a little further than my amendment by setting out what it should do—namely, it should be a regular forum for policy debate for the PRA and also consider the cumulative regulatory impact of the FCA and the PRA; that is, it should not merely be reacting to specific concentration exercises by the PRA but should also be involved, on a more in-tune basis, as a conduit for practitioner views. That harks back to the concept of dialogue that we talked about earlier when we spoke of consultation in relation to the FCA.
There ought to be clear advantages for continuing with practitioner panels for the PRA as well as for the FCA. The panels have been a well understood and welcome part of the FSA’s interaction with the financial community, certainly from the perspective of the industry. I believe that they are generally regarded as having worked well.
These amendments are supported by the Financial Services Practitioner Panel. Its chairman, Mr Joe Garner, has written to me to say that his panel very much hopes that this Bill will be amended so that the practitioner panel will be able to continue to help the PRA in future as well as the FCA. He sees its role as making a positive contribution to regulation. I have also heard from several industry bodies and other bodies which also support the continuation of practitioner panels.
I have very great respect for the work done by the pre-legislative scrutiny committee on this Bill, but I believe that it was wrong to reject the practitioner panels as involving regulatory capture. I believe that that misunderstands the nature of the quite detailed and technical nature of the work that is carried on by the panels. The FSA did a lot of things wrong, but I do not believe that one of them was being captured by its practitioner panel. Amendment 130ZAA in the name of my noble friend Lord Northbrook seeks to put that beyond doubt by specifically providing that the PRA is not accountable to practitioners if it rejects their recommendations.
The issue of practitioner panels might be less important if there were confidence that the PRA’s approach to consultation would be carried out well. Unfortunately that has got off to a bad start, with considerable concern about the draft of the PRA’s approach to consultation which was recently issued by the FSA and the Bank of England. As I noted at Second Reading, there has been considerable dismay at the dismissive and patronising language used. If the document which is on the Treasury’s website is representative of the kind of thinking which would permeate the PRA, I believe that it is a problem in the making. I could list the problems with the published PRA guidance at consultation but I am conscious of time today. However, I am happy to give the Minister the litany of problems identified with the draft to date. These problems are serious from the perspective of those who are expected to be consulted.
Even if the shadow PRA had pretended that it really embraced consultation, I do not believe that it would have removed the need to set up in legislation a definite structure of consultation, such as the existing practitioner panel arrangements. However, the evident lack of enthusiasm on the part of the Bank of England and the PRA rather strengthens the case for recognising in this Bill the need to have practitioner panels.
Baroness Noakes
My Lords, can the Minister explain in a little more detail why the FCA is not allowed any discretion about whether it has panels but the PRA does have discretion? Is it just because it is the Bank of England, and the Bank is saying that it has to have discretion?
Lord Sassoon
No, my Lords, of course it is not because it is the Bank of England and it says that it has to have discretion. This is government legislation and the Government are presenting a Bill that we believe is appropriate to the new financial architecture. Of course we consult the Bank of England, the FSA and all sorts of other people. We have also had the input of the Joint Committee. My noble friend is quite right to challenge me on this but I am quite clear on it. As I have tried to explain, it is understandable but simplistic of people to read across that there are panels now that would like to continue to be engaged with both new regulators. I can understand where the panels come from and why, as I have explained, since consumers have a considerable interest in the decisions taken by both bodies, consumers superficially may say, “Actually, we would like to be engaged directly with both”.
Baroness Noakes
Before the noble Lord, Lord Sharkey, decides what to do with his amendment, I would like to come back to a couple of points raised by the Minister. I do not believe that he has given a rationale yet for why the PRA has a free-for-all in this. I believe that the Government should be concerned about the PRA’s potential attitude to consultation. The Minister said that the PRA was not going to set up consultation panels—that has been clear—because it did not need them to gain the information that it needed. The Government seem not to get the concept that the panel is about a form of dialogue, feeding back concerns as well as responding to specific questions.
I skimmed over the quality of the consultation paper. I do not know whether it is the same one as that of the noble Baroness, Lady Hayter. I have had mine for several weeks. I did not discuss earlier the kind of problems that there are; there is no commitment to a minimum period of consultation, to proactive consultation, to consulting on the exercise of national discretions on the implementation of EU policy or to decent implementation periods. I could go on. There is a very serious concern about the attitude to consultation in the PRA, which would be partially resolved if there were a more definite requirement in the Act not simply generically to consult but to make sure that groups were consulted. I have to say to the noble Baronesses, Lady Hayter and Lady Cohen, that I think that I am persuaded that consumers, too, should be formally recognised within that structure. I hope that the Minister, even if the noble Lord, Lord Sharkey, lets him off this afternoon, takes this away and looks at it again over the summer, because I do not believe that the Government have got it right.
Lord Hodgson of Astley Abbotts
My Lords, I have Amendments 131, 132, 133, 134 and 135 in this group. I certainly support Amendment 130B moved by my noble friend Lord Flight but my amendments go rather further and are rather more prescriptive in their approach. They relate to the attitude, approach and culture of the regulator, which we have been discussing. There has been a lot of hollow laughter about culture in the banking system, which I understand, but the financial services industry covers much more than the banks—it covers the IFA community, the insurance community and Lloyds. I think that in recent years the regulator has moved from a reasonably open, even-handed relationship with its regulated firms to one of much greater risk aversion. Of course, I understand that safeguarding client money and avoiding financial crime are very important indeed, but the regulator seems to have forgotten many chunks of the introduction to FiSMA, which sets out other objectives, requirements and issues that it has to consider in carrying out its regulation. Nowhere has this shift in culture been seen more than in the relationships with the smaller and medium-sized firms. Very often these are firms where innovation and some of the most exciting developments are taking place.
Specifically, I should like to draw to the Minister’s attention three or four things which I hope we can agree are being practised in an undesirable way at present and which are regulatory commercial approaches that henceforward we should try to avoid in the structure.
The first is Section 166 inquiries—the expert person investigations. These were designed to be used rarely but there are now 840 outstanding. A rough estimate of the cost of a Section 166 inquiry in professional fees for the regulated firm is £100,000, although it could be £200,000. Therefore, we are talking of between £84 million and £150 million of costs, and that is without the cost in terms of the management time spent providing the information needed for the professional firm carrying out the inquiry on behalf of the FSA.
This is sub-contracting regulation. There is really no restraint at all on the FSA in undertaking these inquiries. Such an investigation costs it nothing; it simply has to engage a professional firm to carry it out and away it goes. That is without the Section 404 thematic reviews, and without TC4, which are the run-off requirements when a firm is closing down. Of course, closing down a firm requires some very difficult judgments to be made about what you will be able to realise from the assets, the time over which you will be able to realise them and the consequent costs incurred during that period. If you make a series of extremely negative and conservative estimates, then of course you can put a firm in a very difficult position and make it almost impossible for it to carry on.
Last but not least is the position of the SIF—significant influence function—committee. I should like to give a real-life example of this, which I want to use to underpin the detail of my amendments. I have recently resigned as the chairman of a regulated firm. In April 2011 we took on from another regulated firm a new finance director, who came with good references. In July, he was told by the SIF committee that he was not able to take up the role of finance director. I went to the FSA and asked why. It said it could not tell me as there was an investigation and it was confidential. I asked the FSA if it could tell him what he had done. It said it could not do that either as it was confidential. That was June or July 2011. He is still waiting to hear the outcome a year later. He cannot find out what he has been accused of and is in a Kafkaesque situation. This is the sort of culture and risk-averse nature of the situation we now find ourselves in. My amendments are designed to prevent this being carried over into the new structure.
In the regulatory principles to be applied by both regulators in new Section 3B on page 28, I seek to add “operational rules” after “burden or restriction” because it is the unofficial stuff that can be made extremely expensive and difficult. It should cover firms as well as people. In particular, in Amendment 134, after “proportionate” I want to add “reasonable and fair”.
I have just given in some detail—and I apologise for going back to it—the example of the SIF committee. I can see how the regulator could argue that, if you have a person who has been involved in a firm which is under investigation, preventing him operating might be proportionate but to hold him in limbo for 13 months cannot be reasonable or fair. It offends the principles of natural justice.
I hope very much that my noble friend, when he comes to wind up and reply to this important set of amendments, can give me some assurance as to how we are going to make sure that the culture going forward is more even-handed and better than it has been over the past couple of years. It is absolutely vital that the future regulatory architecture enables financial services firms to play an effective role in the economy. To enable this role to be fulfilled, the regulatory regime needs to take an approach that considers whether interventions are proportionate, reasonable or fair.
My set of amendments would address a number of concerns. There would be assessment of business-specific risks—for example, the insurance sector presents very different risks from those of banks and has a very different business model. If the regulators are required to consider whether their approach is reasonable and fair, they should ensure that consideration is given to whether it is appropriate to apply regulations drafted with banks in mind to other industries in the financial services sector, including insurance. Then there is the question of the culture. My noble friend has said many times that the Government wish to avoid the stability of the grave. A requirement to have regard to what is reasonable and fair will help to ensure the regulators take a more measured approach. For example, the PRA has signalled a desire to make greater used of skilled persons and external auditors in its approach to supervision. While you have to recognise that these are important regulatory tools, it is imperative that they are used appropriately and in relation to those firms which represent a significant risk to the PRA’s objectives. This set of amendments is designed to help these considerations.
Baroness Noakes
My Lords, I have Amendments 144A and 147C in this group. They are in the name of the noble Lord, Lord McFall, and myself. I want to start by saying that I support what my noble friends Lord Flight and Lord Hodgson have said in respect of their amendments.
My amendments are much more modest. They just deal with Schedule 3, which sets up new Schedules 1ZA and 1ZB to FiSMA, which deal with the much more routine aspects of the FCA and the PRA. These little amendments simply add one requirement to the list of things that the FCA and the PRA have to include in their annual reports to the Treasury. That requirement is to include an analysis of the costs and benefits arising from regulation for which the bodies are responsible. It is important that this report is then laid before Parliament so the issue is kept visible.
These amendments come from the Treasury Select Committee’s first report of this Session, as do others in my name and that of the noble Lord, Lord McFall. The Treasury Select Committee has received a lot of evidence from the financial services sector about the rising cost of regulation—I have mentioned that once already this afternoon. I know that in particular the non-bank parts of the financial services sector feel that they are paying a price that cannot be justified by reference to the risks related to their own activities, which is why the issue of costs and benefits is particularly important.
Baroness Noakes
My Lords, the noble Lord, Lord Tunnicliffe, reminded me that this morning I carried out my annual clearing out of documents to be binned or not to be retained. One of those that I reviewed was the document to which he has just referred, the Bank’s announcement in relation to how it would manage the PRA. That document did not go into the bin; it was saved for another day. However, it reminded me of the importance of the issue.
My noble friend Lord Hodgson referred to the number of staff who have left the FSA over the past year and a half. It is a very significant number of people at many levels, and often very senior people. The organisation is trying to live up to this new judgment-led supervisory approach and to cope with major organisational change, as the FSA is split into two organisations. My question to my noble friend on the Front Bench is: what confidence do the Government have that new regulatory organisations will have the staff? I am sure he will say, as the noble Lord, Lord Tunnicliffe, anticipated, that this amendment is not necessary. That may be so, but it is important to know from the Minister whether the Government believe that these organisations are ready for the responsibilities that they are to take on.
Lord De Mauley
My Lords, my noble friend’s Amendment 138C would make the FCA and the PRA consider whether their staff are appropriately experienced and endowed with the requisite level of expertise and knowledge to carry out their general functions. That would be inserted into the list of principles of regulation to which both regulators will be required to have regard. Of course, we agree that it is absolutely critical that the new regulators employ the right staff—staff who have the necessary skills and experience to use their informed judgment will be the defining factor in the success of the new regulatory system. Likewise, we agree with the Joint Committee’s assertion that the PRA and FCA will need to attract staff with the appropriate approach and experience. As my noble friend suggests, it is important that staffing decisions are made by the regulators themselves. Specifically, they should be empowered to consider whether they are appropriately staffed in order to meet their statutory objectives.
In that regard, the FSA paper setting out its vision for the FCA’s approach to regulation, published in June 2011, highlighted the importance that the FCA will place on such matters. It says that,
“the FCA will need to retain and attract professional and dedicated staff, equipped with the skills and knowledge to tackle the difficult issues ahead. It will need to be a dynamic and learning organisation, committed to developing individuals within a career that includes management and specialist paths. It will put a premium on flexibility and team-working where resources are allocated flexibly across the organisation”.
There is a similar commitment in the PRA approach to the banking document:
“The PRA will maintain its own in-house specialists including staff with particular expertise in risk management and risk modelling”.
I also understand my noble friend’s concerns about the requisite experience of the European policy-making process. Indeed, engagement with international regulatory bodies will be crucial for the regulators. I confirm, therefore, that I would absolutely expect the regulators both to employ staff with the requisite knowledge of European policy-making and to provide comprehensive training for staff who work in areas where knowledge of this is desirable. However, again, these will rightly be operational matters for the regulators.
My noble friend Lady Noakes asked whether the Government have confidence in the ability of the regulators to find the necessary staff. Yes, we do: we will draw on the best of the staff of the FSA and of the bank cadres and I am confident that, with focused objectives, they will quickly develop deeper expertise in their areas.
Baroness Noakes
Could I have a follow-up to that one? Has the FSA managed to recruit for all the staff it has lost, particularly those it has lost at senior levels over the last 18 months?
Lord De Mauley
My Lords, I cannot answer that here and now, but I will write to my noble friend on that point.
Meanwhile, I assure my noble friend Lord Hodgson that while staffing is not a matter for the Bill—as the noble Lord, Lord Tunnicliffe, suggested—we regard it as absolutely key for the regulators themselves to consider. On this understanding, I ask him to withdraw his amendment.