Financial Services Bill

Baroness Noakes Excerpts

Tuesday 20th November 2012 Lords Chamber

[Lord Peston]

My Lords, my contribution is also entirely interrogative. I have a lot of questions. I shall put the matter in context. Before we started today's proceedings, I thought that this was all very straightforward and simple but I now realise that I did not understand any of it at all. I am not certain that I am alone in not understanding it. I shall go through my questions and give some examples to elucidate them. First, I may have missed the noble Lord, Lord Sassoon, making the relevant statement, but can noble Lords assume that everything in these amendments has been agreed by Mr Wheatley and that he also agrees that they do every single thing that he wanted done? That was not said, but I assume that perhaps we are to take that for granted. My second question, which was not in my original notes, but I listened to what was said, is: do these amendments go well beyond what is in the Wheatley report? I would like an answer to that. My third question is: why are we talking about benchmarks? That was the first thing I scribbled when I saw the amendment. Why are we using this expression? It is so broad that it seems to me to cover all sorts of things that have nothing to do with LIBOR. My main puzzle is that I thought that this was all about LIBOR, exactly LIBOR, no more than LIBOR and no less than LIBOR, but it seems to me that it is about 101 other things.

In order to elucidate that, perhaps I may give some examples. I am sticking to the investment paragraphs, whereas my noble friend Lord Eatwell rightly says that benchmarks are used for all sorts of contracts, not just investment contracts. Let us stick with investment contracts. Suppose a firm issues a long-term bond which is specified in the following way: “This firm agrees to pay the holders of this bond 5% interest over its life”, say 25 years, “plus the rate of rise of the GDP deflator”. That seems to me to be a good way of issuing a bond and raising money. Does the GDP deflator, and do all those who set the GDP deflator, come into the scope of this Bill? I can see nothing that stops them coming into the scope of the Bill, but those people are the Office for National Statistics and if the Government manipulate the GDP deflator by subsidising certain key elements of it, the Government may face criminal charges. I have seen nothing in this Bill to stop that happening. I mention that because the GDP deflator happens to be my favourite price index as compared with the CPI and the RPI, but it would apply just as well to them.

Let us go further. In order to produce stability in its enterprise, suppose a firm says, “I will pay you 3% per annum over the lifetime of this contract, which we wish to last for five years, plus the rate of rise of the GDP deflator. Will you agree to that?”. That relates to a question that occurred in your Lordships' House yesterday. It is the kind of wage contract many of us would like to see used in order to stabilise the economy but I can see nothing that prevents such a contract coming under the scope of this Bill. To my noble friend Lord Eatwell, I say that it is not just a matter of commodities trading, but it seems to me there is nothing in the Bill that prevents almost anything that is index linked coming under its scope. Am I right that this goes well beyond LIBOR? I would take the view that it should not; that is not what we are here for.

Those are my contributions, they are all interrogative and I am perfectly happy to be told that I have misunderstood everything that is going on here. I do however agree with my noble friend Lord Barnett that I may misunderstand it, but the lawyers involved in this kind of activity will not and they are going to look for trouble. Has the Minister asked his officials to guarantee that no trouble can arise in that way within this part of the Bill?

[Baroness Noakes]

My Lords, I ask my noble friend a simple question, for which I apologise for not having given him notice. It is a question I had intended to raise in respect of an earlier amendment but for various reasons I was not here when that amendment was dealt with. It relates to the definition of financial crime. The FCA has, as one of its integrity objectives, the financial system not being used for a purpose connected with financial crime, and financial crime is defined in new Section 1H. An amendment moved by my noble friend earlier was to include terrorism financing in the definition of financial crime. It seems to me that the definition as it stands does not automatically include the new offences that are created in this rather large group of amendments, which we can shorthand as the LIBOR offences, because it would not otherwise have been within the remit of the FCA. I would be grateful if my noble friend would answer that point.

[Lord Sassoon]

My Lords, I was rather getting into the swing of this. I have never had so many questions in such a short time and I was waiting for more to come. Noble Lords know that I usually try to group my answers together in some coherent way, but the questions have come so thick and fast that I fear that in answering as many as I can the answers may not be grouped together quite as efficiently as I would like.

Let me start with the definitional issues around what we are trying to cover here. First, to the noble Lord, Lord Barnett, benchmark may be defined by Chambers Dictionary, on Google and in many other places, but it has never before been defined in FSMA and I think it is necessary to have a FSMA definition. I am sorry the noble Lord went to all these other sources and did not look at the very particular definition in the Bill, but that is where these amendments start. The noble Lord, Lord Eatwell, asked if the definition was wide enough and the noble Lord, Lord Peston, takes the view we should only be talking about LIBOR so the definition may be too wide.

--- Later in debate ---

[Baroness Noakes]

I am sorry to interrupt my noble friend. I know he wants to get on to the rest of the interesting questions that he has been asked but I want to come back to this definition of investment. “Investment” is defined in Amendment 112 for the purposes of the offences but it does not appear to be defined for the purposes of defining “Benchmark” at the beginning of this group. I have spent some of the past 30 minutes or so using my iPad to see whether FiSMA already had an equivalent definition in it and I cannot find it. That does not mean it is not there but I cannot find it.

[Lord Sassoon]

As I said in response to the noble Lord, Lord Eatwell, I will look again. I believe that, as I have set it out, everything that is intended to be covered is covered. I am grateful to my noble friend for pointing out that,

“‘Investment’ includes any asset, right or interest”,

for this purpose. That points to the wide scope of the definition. I will take away these points and make sure that it all knits together in the way intended. If it does not, I will write and seek to put matters right at Third Reading.

Let me move on to some other questions that have been asked. I can assure the noble Lord, Lord Peston, that this group of amendments does what Mr Wheatley intended and that he and, on his behalf, his FSA team have rightly crawled all over it. I just want to be clear that it does not go beyond Wheatley except in the sense that we are future-proofing it for other possible benchmarks, which is entirely consistent with what Mr Wheatley wanted. While I am dealing with one or two of these questions, I can also confirm to my noble friend Lady Noakes that the definition of financial crime catches the new offences. The definition in proposed new Section 1H(3) provides that,

“‘Financial crime’ includes any offence”,

and the list of offences is not exhaustive, so the answer to my noble friend is yes.

I see the noble Baroness, Lady Hogg, in her place. It is good to see her here. There were various questions about the process for appointing the administrator. I can assure noble Lords that the noble Baroness, to whom I am very grateful for taking on this responsibility, will be taking this forward in a measured way, as your Lordships would expect. That process will take place over the next few months. My understanding is that considerable interest has already been shown in the opportunity to be the administrator. It would have been inappropriate to have an independent body setting LIBOR. As we know, it has been set by the BBA. That has presented all sorts of difficulties and conflicts of interest. Independence was weak. The BBA is handing over to the new administrator but, critically, the oversight of that new administrator will be the responsibility of the FCA. The behaviour of the new administrator will be regulated, not just the behaviour of the banks supplying the information.