Financial Services Bill

Baroness Noakes Excerpts

Wednesday 24th October 2012 Lords Chamber

Moved by

[Baroness Noakes]

190AA: Clause 64, page 140, line 36, leave out subsection (4) and insert—
“(4) If subsections (2) or (3) apply, the Treasury must arrange for an enquiry to be held under section 65 unless the Treasury consider that it is not in the public interest that there should be an independent inquiry into the events and the circumstances surrounding them.”

--- Later in debate ---

[Baroness Noakes]

My Lords, I shall also speak to Amendments 190B and 192ZA in this group. These amendments, and others in the group, concern the inquiry and investigation provisions of Part 5. I should say at the outset that I regard the provisions of Part 5 as crucial to the Bill. The earlier parts of the Bill created new regulations with very significant powers, and it is entirely likely that the new regulators will make mistakes in the use of those new powers and that things will go wrong, so we need strong provisions in the Bill—

[Lord Newby]

My Lords, I remind your Lordships that if you are leaving the Chamber, please do so as quietly as possible.

[Baroness Noakes]

My Lords, I was saying that Part 5 of this Bill is crucial because it sets up the provisions that will deal with things when they go wrong—if the regulators make mistakes or if things do not turn out well. Part 5 ensures that there are proper investigations and proper reporting of those investigations. I remind the Committee that there have been problems in this area in the very recent past. It took the heroic efforts of the Treasury Select Committee in another place to get the FSA’s report on the failure of RBS into the public domain. We still have nothing on HBOS. The FSA’s reports on both RBS and Northern Rock were internal reports, and therefore non-independent. The Bank of England, which will be the new home for the PRA, is not itself a beacon of good practice when it comes to reviews of its own performance. So we need to be sure that we get this part of the Bill absolutely right.

I welcome the new duties in Clauses 69 and 70 on the FCA and the PRA to investigate and report on possible regulatory failures. I similarly welcome the powers in Clause 73 which allow the Treasury to direct the regulators to carry out investigations in certain circumstances. However, internal investigations will often not be good enough, which is why in principle the powers in Clause 64 are very welcome. These allow the Treasury to arrange independent inquiries where there have been certain events which, to paraphrase, threatened the stability of the financial system or risked or caused significant damage to the interests of consumers or businesses.

The first amendment that I tabled to Clause 64 was Amendment 192ZA, which is one of our familiar and much-loved may/must amendments. I could see no circumstance in which the Treasury, having satisfied itself that a public inquiry is in the public interest, should have any optionality about whether to set up an independent inquiry. Amendment 192ZA would change that “may” into a “must” so that, if the public interest test is met, the Treasury must set up an independent inquiry. Having looked at this a second time, however, I tabled Amendment 190AA, which would replace subsection (4) and turn it round. Under my proposed new subsection (4) the Treasury must arrange an inquiry unless it believes that the inquiry is not in the public interest. I believe that this more naturally represents the thought process that would go on in the Treasury; that is, the Treasury would order an inquiry unless there was a sound reason for not doing so. For good measure I have also tabled in this group Amendment 192ZA, which is another may/must amendment, this time to Clause 73, which allows but does not require the Treasury to direct the FCA or the PRA to carry out an internal investigation. My amendment would require a direction.

I am aware that the wording and structure of Clause 64 follow that of Section 14 of FiSMA. However, I do not believe that that is necessarily conclusive. The new duties set out in Clauses 69 and 70 in respect of regulatory failure positively require the PRA and the FCA to organise investigations in specified circumstances. The only let-out is if the Treasury directs them that they are not required to carry out investigations. Can the Minister explain why “must” is the correct formulation for the PRA and the FCA, but not the correct formulation for the Treasury?

I hope that the Minister will explain the relationship between Clause 64 and Section 14 of FiSMA. It seems to me that Section 14 becomes redundant when this Bill is made law, but I could not find any provision for its repeal. So I ask my noble friend whether it is to remain in force, and if so, for what purpose?

Lastly, I ask the Minister to explain in what circumstances the Government would intend to use the independent inquiry route in Clause 64, as opposed to the self-investigation route in Clauses 69, 70 and 73. I tried to research how often Section 14 of FiSMA has been used but drew a blank; in fact, I am not sure that it has ever been used. I hope that the Minister will be able to explain in what circumstances the Government would want to use the independent inquiry route, rather than relying on self-investigation. For example, given the circumstances surrounding the financial crisis, would they have thought it appropriate to have ordered an independent inquiry—that is, one not left simply to the regulator concerned—or do the Government believe that self-inquiry is the appropriate route? If there is no independent inquiry for something as grave as the financial crisis that we have recently experienced, what is Clause 64 for? I look forward to hearing my noble friend’s response. I beg to move.

--- Later in debate ---

[Lord Sassoon]

My Lords, I do not want to get the Committee too excited about this matter because, as any noble Lord, including the noble Lord, Lord Barnett, will know, it is very rare for a piece of considered legislation, particularly coming from the Treasury, to get any of these matters wrong in the drafting. I really do not want to raise false expectations.

All I would say is that the exercise is carrying on and that the matter raised by my noble friend Lady Noakes is certainly one of the may/must instances that merits serious consideration. When there is any more news to report to Peers who are interested in this Bill, we have plenty of ways of communicating it. If there is anything to say, the noble Lord, Lord Barnett, will be among the first to hear.

The group of amendments on which the noble Lord, Lord Davies of Oldham, spoke rather modestly towards the end of this discussion nevertheless are ones which we need to take seriously. Amendment 192ZZA would provide that if the Treasury issues a direction to the FCA not to proceed with an investigation into possible regulatory failure, that direction must be laid before Parliament. Amendment 192ZZB makes similar provision for such investigations by the PRA.

Amendment 192C would provide that where the Treasury issues a direction specifying the parameters of an investigation into regulatory failure by the PRA or FCA, or suspending or halting such an investigation, that direction must be laid before Parliament.

The Bill is drafted to give the Treasury some discretion here and, all things being equal, we had wished to preserve this. However, in this instance I am somewhat persuaded by the case that noble Lords have made. The Government are very much committed to greater openness and transparency in our regulatory architecture. With that in mind, I am happy to confirm that I will be taking on board the insightful comments of this Committee and will return to this issue on Report, placing the Treasury under a duty to disclose any directions issued under Clause 74, unless doing so would not be in the public interest.

I know that the noble Lord, Lord Davies of Oldham, is looking a bit surprised by this turn of events. On previous occasions he has compared himself and his batting average to the late, great Sir Donald Bradman and I really did not want to disappoint this Committee by seeing his batting average going down too far. I do not think that the noble Lord does himself justice: he is a great strike bowler when it comes to this type of thing. By my reckoning, the noble Lord’s success rate is now back up to around 20%. I have no idea how one translates that into a conventional bowling average but I think that it is pretty good. I note that his fellow Lancastrian, Jimmy Anderson, is on 30.41 for his test average. I think we can say that the noble Lord, Lord Davies of Oldham, is close to that. However, I am left with the question as to why the noble Lord is not being promoted to the strike bowler role. He comes on as the first change bowler day after day; we want to see him, like Jimmy Anderson, as the strike bowler from hereon.

I hope I have reassured the Committee that we share its desire to see accountability and transparency in the system, and that my noble friend will be prepared to withdraw her amendment.

[Baroness Noakes]

My Lords, despite having spent a couple of years in the Treasury in the dim and distant past, I could never do cricketing talk so I shall not try to follow my noble friend the Minister. I am sure that the noble Lord, Lord Davies of Oldham, is thrilled with his success in this opening group of amendments. I am very grateful for the support of noble Lords opposite for my amendments and I was pleased to hear what my noble friend had to say. I look forward, as do we all, to the outcome of the may/must investigations which are clearly occupying the great brains that live in the Treasury night and day. With that, I beg leave to withdraw the amendment.

Amendment 190AA withdrawn.