Financial Services (Banking Reform) Bill

Lord Eatwell Excerpts

Wednesday 23rd October 2013 Lords Chamber

[Lord Phillips of Sudbury (LD)]

My Lords, Amendments 98A and 98B stand in my name. They seek to tease out a little more detail in relation to the amendment just moved by the noble Lord, Lord McFall, on whistleblowing. I say at once that I am wholly in favour of that amendment. The position of whistleblowers in our country is not satisfactory. Amendment 98 would widen the portal to offer assistance and compensation for whistleblowers by giving the appropriate regulator the power of initiative with regard to getting appropriate compensation for whistleblowers.

My amendment is designed to widen the scope of that initiative as, at present, I feel that it is unnecessarily limited in that the whistleblower is defined by proposed new subsection (2) in Amendment 98 as a person who gives information directly to the appropriate regulator or gives it to a colleague. I notice that the amendment does not define “colleague”. Suffice it to say that many of the circumstances in which whistleblowers are sometimes encouraged—and feel morally compelled—to speak out are extraordinarily complex.

I have had the good fortune to do work for the charity Public Concern at Work. Indeed, I set it up 20 or so years ago. That charity continues to do extremely valuable work. I spoke to people at the charity a couple of days ago and, believe it or not, they had been approached by roughly 2,500 whistleblowers in the past year. Astonishingly, I think that scarcely any of the whistleblowers were from the City. There are particular issues around that and we can underestimate the extraordinary pressure that a whistleblower or would-be whistleblower feels under in the context of the City, particularly as it is a very tight community in many ways. At the moment, the only recompense that a whistleblower can get, if he or she is discriminated against and suffers loss, is by using the provisions of the Public Interest Disclosure Act 1998. However, the whistleblower has to take the initiative. This amendment, as I say, gives the initiative to the regulator, which can be of enormous help and assistance to the whistleblower.

The Public Interest Disclosure Act 1998 scores over this amendment by having a much wider entrée to the remedies than is provided by the amendment. In particular, my amendments put the words “directly or indirectly” into the beginning of the two subsections that define how a whistleblower gets into the circle of potential compensation when they talk about giving information to the appropriate regulator or to a colleague. This is because—and I have checked this with Public Concern at Work—a lot of those who want to speak out are really anxious, if not fearful. What very often happens is information gets to the regulator in a really indirect, round-the-houses way, sometimes anonymously. My simple amendment is designed to open up the door but it is also a probing amendment in the hope that between now and Report we can have discussions with the Government on the optimum way of finding the remedy which the amendment seeks to supply.

I finish by giving some idea of how much wider the Public Interest Disclosure Act is regarding “getting into the remedy”. Clause 1 of the Act inserts a four-page amendment into the Employment Rights Act 1996 and provides a multiplicity of definitions of who is a whistleblower for the purposes of the remedy. An example of its sensible provisions is that a “qualifying disclosure” is one that is made in good faith, is substantially true, is not made for personal gain and,

“in all the circumstances of the case, it is reasonable for him to make”,

and so on.

It may be possible, at the next stage of the Bill, to import some of the language of the 1998 Act or, indeed, insert this amendment as an amendment to the 1998 Act.

[Lord Eatwell (Lab)]

My Lords, I am sure that the Treasury has studied carefully the experience of a measure developed in the United States which is very similar to this and which has been remarkably successful over the past three or four years in bringing forward very important information to the regulatory authorities. When the noble Lord replies, perhaps he would reflect on the American experience and say how valuable it might be to replicate it here.

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Moved by

[Lord Eatwell]

101: Before Clause 16, insert the following new Clause—
“Duty of care
At all times when carrying out core activities, a ring-fenced body shall—(a) be subject to a fiduciary duty towards its customers in the operation of core services; and(b) be subject to a duty of care towards its customers across the financial services sector.”

[Lord Eatwell]

My Lords, Amendment 101 in my name and the names of my noble friends Lord Tunnicliffe and Lord McFall goes to the heart of the change in culture which all of us wish to see in the relationship between banks and their customers, particularly their retail customers. Our objective is for banks to see their relationship with their retail customers as ensuring the financial success and security of those customers as far as may be possible, rather than seeing them as entities from which to make profits. A ring-fenced body should have a fiduciary duty towards its customers in the operation of core services, and a duty of care towards its customers across the financial services sector with respect to other duties.

Following the passing of the Financial Services and Markets Act 2000, the Financial Services Authority developed the notion that customers should be treated fairly. It did an enormous amount of work developing various rules, instructions and procedures whereby customers would be treated fairly. This was a dismal failure. PPI and the interest rate swap stories demonstrate that beyond all reasonable doubt. This was not a failure because of the failure of the regulators as such and their intentions. They were well intentioned, and they were focused on important issues. It was a failure because the culture of the banks was to see customers as entities with which to trade and from which profits would be made. We need to change that.

The amendment will put us in tune with developments that have also been perceived to be necessary in the United States, where the SEC now has the authority to impose a fiduciary duty on brokers who give investment advice. It is the same thematic development. A stronger duty of care would ensure that industry has to take customers’ interests into account when designing products and has to provide advice and support throughout the product life cycle, something which has clearly been lacking in recent scandalous events. This will increase consumer protection and help to restore confidence of the retail customer in banks. It will raise standards of conduct because banks will know they are responsible for acting according to these duties.

I am well aware that there is a general common law responsibility for duty of care, but the importance of this amendment is that the fiduciary duty would be reflected in the activities, responsibilities and powers of the regulators, not simply something enforceable under common law. That is why a fiduciary responsibility akin to that elsewhere in financial legislation, but here expressed generally within the context of the ring-fenced bank, would add significantly not just to consumer protection but to the character, behaviour and culture of ring-fenced banks. I beg to move.

[Baroness Noakes]

Can the noble Lord, Lord Eatwell, explain how this fiduciary duty and duty of care would be enforced? I think he mentioned a moment ago that it would somehow draw regulators in, but I cannot find anything in his amendment that places any corresponding powers or duties on regulators. I cannot see that a duty of care will make any difference whatever if ordinary consumers—ordinary customers of the banks—are expected to litigate personally on the basis of it.

[Lord Eatwell]

Surely the point is that by establishing a fiduciary duty a regulated entity would be expected to pursue exactly those duties. Therefore a regulated entity or other authorised person would be deemed by the regulator to be required to follow exactly those duties. If the noble Baroness thinks that this is too weak, I will be very happy to bring a stronger duty of care back on Report.

[Lord Phillips of Sudbury]

My Lords, the noble Lord, Lord Eatwell, asked an extraordinary question because there is no more onerous duty than the fiduciary duty. It is a novel and maybe a highly effective way of dealing with a great many of the concerns that have occupied this House over the last few days in Committee. An important part of the amendment is that the core activities and services are subject to a fiduciary duty, and other services to a duty of care. Given the big difference in responsibility, is it sufficiently clear what is and what is not a core duty?

[Lord Eatwell]

Core duties are defined in the Bill.

[Lord Phillips of Sudbury]

I thank the noble Lord.

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[Lord Eatwell]

My Lords, that was a very unsatisfactory answer. It was both analytically weak and unsatisfactory in terms of the noble Lord’s argument. Let us first deal with the economics. As the noble Lord well knows, in the face of asymmetric information, competition is not necessarily efficient. He knows that: he learnt that at Cambridge. In those circumstances, to argue simply that competition will be an effective means of establishing a satisfactory relationship between the bank and its customers is simply analytically wrong. We ought to take that into account.

Then the noble Lord said that there was a series of relationships: contractual duties, the relationships set out in FiSMA and the senior manager regulations. The first two of those have existed since 2000. They did not work, so let us not rely on contractual duties which have been there all the time and have been happily beavering away. Did they protect the customer from PPI? No, they did not do that successfully. Did they protect the customer from interest rate swap selling? No, they did not do that either. It is no good relying on these contractual duties or on various elements of treating customers fairly in FiSMA. The senior manager regime, although it stiffens up the responsibilities of managers, does not change the actual structure of the relationship.

The noble Lord said something towards the end of his reply that was really quite extraordinary. He said that if bankers were told that they had a fiduciary duty and a duty of care, they would not have a clear understanding of what they were required to do. I find that quite astonishing. I have a sense that trustees have a very clear understanding of the fiduciary issue of what they have to do and all these terribly clever bankers ought to be able to suss that out as well. The idea that they do not have a clear understanding is just unbelievable.

Then the noble Lord said, “But of course, the trustee relationship applies to a situation which is appropriate only when one person is acting for another”. The majority of retail customers who deposit their money in the bank think the bank is going to be operating for them. They think that is what is happening. I know that many bankers therefore regard them as naïve, but that is what people actually believe. That is what we, on this side, believe should actually be the case. The noble Lord then said, “Well, of course, I do agree there should be a duty of care, but it should be specific and focused”. We all know that when you try to make specific lists of issues, the endeavour goes wrong because of the things left off the list. The things that are left off the list are the areas where we will see further consumer scandals appearing.

It is the responsibility of this Government to protect consumers in this country and to protect bank depositors within ring-fenced banks. It is a responsibility that this Government are clearly shirking. This amendment would provide a significant cultural change within the banking system—a cultural change which is desperately needed. I can assure the noble Lord that we will return to this forcefully on Report. For the moment, I beg leave to withdraw the amendment.

Amendment 101 withdrawn.

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Moved by

[Lord Eatwell]

103: Before Clause 16, insert the following new Clause—
“Sale of state-owned banking assets
(1) Before any sale of banking assets in the ownership of HM Treasury, the Treasury shall lay before Parliament a report setting out—
(a) the manner in which the best interests of the taxpayer are to be protected in connection with such sale;(b) the expected impact that any sale might have on competition for the provision of core services, customer choice and the rate of economic growth; and (c) an appraisal of the options for potential structural changes in the bank concerned including—(i) the separation of the provision of core services from the provision of investment activities,(ii) the retention of a class of assets in the ownership of HM Treasury,(iii) the impact of any sale on the creation of a regional banking network.(2) A copy of the report in subsection (1) shall be laid before Parliament and sufficient time shall be given for the appropriate committees of both Houses of Parliament to consider its findings before any sale decision.”

[Lord Eatwell]

My Lords, I have commented on a number of occasions that despite all the considerable endeavours since the financial crisis by the Treasury itself, by the FSA as it then was—not by the Bank of England—by the Independent Commission on Banking and now by the parliamentary commission, there has been no significant thought applied to the manner in which the banking system could be fundamentally restructured. All those discussions have taken place within the context of the banking system as it is currently structured. There has been no, let us say, Standard Oil approach to breaking up that company or an AT&T approach to say that there should be some fundamental restructuring of the overall banking system. Instead, we have taken the structure as it is and examined how we can make it work better: for example, by a ring-fence, bail-in clauses, resolution regimes or whatever. The only significant change in the structure of the banking industry—the separation of TSB from Lloyds—was done under the instructions of the European Union. It was not a policy developed here in the UK.

This amendment does not propose anything dramatic such as a break-up of the larger banks so that they are small enough to fail, but instead says that when there are sales of banking assets which are in Treasury ownership, the Treasury ought at least to go away and think about this. It ought to tell us how the structure of the sale is in the best interests of the taxpayer and think about the impact on competition—I am sure the noble Lord would like that—on customer choice and, indeed, on the rate of economic growth. It ought also to look at the relationship to the ring-fence and whether there might be a development of regional banking, an idea suggested by a number of commentators. All that the amendment seeks is to say, “Let us please have some thought about the overall structure of the banking industry in this respect”.

We know that the industry consists of entities which are too big to fail. We have one degree of separation with the TSB. There is an endeavour to encourage entry into the banking industry but we all know that it will take a long time for new entities to achieve the scale to be significantly competitive, except perhaps in the occasional niche of the industry. Before we rush further into selling the state-owned banking assets, let us at least consider whether those assets could be used and deployed in a significant restructuring of the banking industry. That would achieve the goals of making the industry more stable and a more effective entity in the overall operation of the UK economy. I beg to move.

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[Lord Deighton]

The first thing we have to determine is what we are proposing to do with the good bank/bad bank. Does the split make sense and on what basis does it work? We will subsequently look at what we do with the separate parts.

[Lord Eatwell]

My Lords, that was not a very satisfactory answer. First, market sensitivity is an extraordinary red herring. Whoever wrote that bit should not be allowed to write any bits again. This is not about market sensitivity: it is about the overall structure of the banking sector and any issues of market sensitivity would, of course, be kept carefully out. Anybody would do that, so it is a really silly argument.

Turning to the good bank/bad bank story, value for money with respect to the disposal of assets is obviously an important component, but so is the future of the banking industry and its performance in relation to the UK economy as a whole, especially its support of the real economy in the provision of financial services. That aspect does not seem to have been considered. After all, the good bank/bad bank story is essentially a defensive move. It is dealing with a bank which is hampered—or potentially hampered; we will see what the report says—by its current mixture of assets and liabilities, particularly non-performing assets. The good bank/bad bank split is a defensive measure; a device for ensuring that you have an operation in the good bank which we hope can start increasing lending, as the noble Lord, Lord Lawson, said, particularly to the SME sector.

However, Amendment 103 is asking for something different, which the Minister did not actually address. It is asking for some thought about what the structure of the banking industry should look like in future. Are we simply going to repair what we have in the best way we can or do we want something really different? Could progress towards that “something different” be made in the sale of state-owned assets? It seems to me that that was what the noble Lord, Lord Turnbull, was talking about when he referred to the second element of the banking commission’s recommendations. Clearly, this recommendation has not been taken on board by the Government. Perhaps it has simply been overlooked; they might look at it now and think more seriously about it. I am sure that we will be returning to this issue later. In the mean time, I beg leave to withdraw the amendment.

Amendment 103 withdrawn.

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Moved by

[Lord Eatwell]

104: Before Clause 16, insert the following new Clause—
“Portable account numbers
(1) Within 12 months of the passing of this Act, the Treasury shall lay before Parliament a report considering—
(a) the adequacy of voluntary arrangements made by UK ring-fenced bodies to facilitate easier customer switching of bank account services; and(b) legislative options for the introduction of portable account numbers and sort codes for retail bank accounts provided by UK ring-fenced bodies.(2) The Chancellor of the Exchequer may, by affirmative resolution procedure, confer powers upon the appropriate regulator to require UK ring-fenced bodies to comply with any specified scheme to establish the use of portable account numbers and sort codes.”

[Lord Eatwell]

My Lords, this amendment refers to portable account numbers. I am sure that noble Lords will have read in yesterday’s Financial Times the story about the voluntary endeavour by the banks to increase the possibility of customers switching their accounts from one bank to another. The current switching drive does not include portability of account numbers. As the Financial Times boldly declared:

“Account switching drive fails to dislodge customers”.

The general assessment is that the complications associated with the non-portability of account numbers—that is, the complications of changing account numbers—are a significant disincentive to customers to switch their account from one bank to another. This is of course a considerable diminution of competition. The Government have argued very strongly that they are in favour of competition and choice in the retail sector. The noble Lord has repeated that position in discussing some of the amendments that we have already looked at this evening. However, here there is a clear opportunity to increase the possibility of competition in a very concrete way through the portability of account numbers.

The noble Lord will recall how successful this process has been in the telephone industry. The portability of telephone numbers has very evidently provided a significant competitive boost, which suggests that being able to move a number would increase competition significantly in the banking industry as well. I understand that this would be more difficult within the banking industry. For example, the amendment refers specifically to both portable account numbers and sort codes. That makes the issue more difficult because two individuals who bank at different banks may have the same account number but, of course, different sort codes; their entire identification is in the combination of the two. Therefore, a new means of identifying the core bank would have to be developed, and I understand that that would have various knock-on effects.

However, the idea that this would all cost £5 billion, as has been argued by the banking industry, seems to be vastly overstated. We had the same situation with telephony. We were told that this process was going to cost an enormous amount but, in the end, introducing transferable telephone numbers resulted in a tiny proportion of the costs which the industry had said it would need to incur.

Therefore, if we are really going to get competition and choice for the consumer, this seems to be a necessary step. The attempt to develop such competition through facilitating switching but without portability has, it seems, failed. Given that, if the Government are really going to put themselves on the side of the consumer in a competitive market, it is their responsibility to require the possibility of portable account numbers. I beg to move.

[Lord Newby]

My Lords, it goes without saying that the Government are fully behind the objective of increasing competition in banking and making sure that customers who wish to switch banks can do so without impediment. The notion of portable account numbers was considered by the Independent Commission on Banking and in its final report the ICB chose to recommend a new account switching service over portable account numbers. It considered that such a service, if designed correctly, would provide the majority of the same benefits as portability, but with significantly reduced risk and cost.

The Government acted quickly on this recommendation to secure a commitment from the banking industry to deliver current account switching in two years. This was an ambitious timetable for such a big project, but the banks have met the challenge. The new current account switching service was launched on schedule in September and covers almost 100% of the current account market. It has been designed to meet all the ICB’s criteria for tackling customer concerns over switching and to give customers the confidence they need to make the banks improve their services by ensuring that their customers can vote with their feet.

However, it is important that the new system delivers on its promises. That is why the Government continue to engage closely with the Payments Council, which has delivered the service on behalf of the industry, on the progress of switching.

[Lord Newby]

My Lords, I did not mention the parliamentary commission; I was referring to the Independent Commission on Banking. None the less, I shall come to the substantive point that the noble Lord has just made.

As I was saying, to aid transparency we have asked the Payments Council to publish statistics regularly, including switching volumes on a monthly basis and more detailed statistics every quarter, which include data on awareness and confidence in the new service. The Government consider that making this information public is the best way to hold the current account switching service to account. As has been mentioned, the Payments Council has just published the first set of data, covering the four-week period following the switching service becoming fully operational. The numbers show that 89,000 switches were completed—an 11% increase on the 80,000 completed during the same period last year. I am a great fan of the Financial Times, but to describe a scheme that has been running for a month as a failure, when it has already got 9,000 extra people to switch, is clearly complete rubbish.

Account portability is a more complicated issue. I am not necessarily disagreeing with the noble Lord, Lord McFall, but the only way to make a properly informed assessment as to whether, or how, steps towards portable account numbers should be taken is to conduct a comprehensive analysis. I must say, almost in parenthesis, that I do not believe that the analogy with telephone numbers takes us as far as might appear at first sight. For a start, as an individual I am quite happy if lots of people know my telephone number —but I am very unhappy if anybody knows my bank account details. This means that I have a completely different view about how I want to deal with that account. That is one of a number of different reasons why this is a complicated issue. It is not, however, an issue that the Government have just pushed to one side. We have made a commitment to ask the new payment systems regulator to undertake the comprehensive analysis that is required.

There has not yet been a proper study of account portability in the UK, but it is clear that operating the payments systems alongside account portability would be one of the significant challenges. That is why we think that the payment systems regulator is the right body to carry out this work. It will have the appropriate expertise and will be able to give an independent view. To be clear, the payment systems regulator will have the powers described in subsection (2) of the proposed new clause. There would be no need to confer new powers on the regulator in order to implement the recommendations of a review. In order to get a complete picture of what benefits account portability could bring, the experience of the current account switching service will need to be fully considered. Therefore, the Government expect the success of the switching service to be firmly within the scope of the payment systems regulator’s view of portability. The switching service is new and the regulator is not yet established. In our view, the logical step is to let them both become properly established and bedded in and then have a proper and comprehensive analysis. On the basis of that, a decision can be taken.

[Lord Eatwell]

The noble Lord just said that the payment systems regulator is going to be asked to do this. What timetable is the regulator going to be given?

[Lord Newby]

The regulator will be asked to make this one of its top priorities once it has been established, but it is impossible to say at this point that it will have to do it within three or six months. We think that that would be overly prescriptive. However, it is one of the priority tasks that it will be given from its inception.

[Lord Eatwell]

My Lords, that is why the amendment specifies 12 months. It seems that what the Government are saying is that they are behind the concept of competition but they are not behind the means of making that concept actually work. However, I must say that it is encouraging that the payment systems regulator is being asked to study this matter. It would be more encouraging if we were given some clarity that this will not simply be kicked into touch but will actually be presented to Parliament within a given timescale.

This is a matter of considerable importance if the Government are serious about competition and giving competitive advantage to consumers. It is therefore a matter to which we must inevitably return. In the mean time, I beg leave to withdraw the amendment.

Amendment 104 withdrawn.

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High-cost and short-term credit oppresses the least well-off and the most financially desperate. To charge so much is wrong, morally and socially, and we do not need to allow it to continue. The amendment would put a stop to it. I beg to move.

[Lord Eatwell]

My Lords, I am delighted that the Liberal Democrats are coming behind the proposals developed by my noble friend Lord Mitchell. I hope they acknowledge his success in having the various clauses limiting payday loans and high-cost credit agreements inserted during the passage of the Financial Services Act 2012.

Given that that Act is now in place and the measures advanced by my noble friend Lord Mitchell are on the statute book, the argument of the noble Lord, Lord Sharkey, as I understand it, is about why nothing is happening and why there is a lack of movement towards getting appropriate regulation in place. If he is indeed correct that things are moving so slowly—I have no reason to believe that he is not—the Government owe him an explanation as to why that is the case. Obviously, one is sympathetic to getting my noble friend Lord Mitchell’s measures going as fast as possible, but I have a couple of questions about the amendment.

First, do we really feel that there is a simple read-over between state government in the United States and a local authority in the UK? It seems that we pile responsibilities on local authorities without giving them sufficient funding, in many cases, to fulfil their responsibilities. I do not see that the amendment provides for any resources to go to local authorities to enable them to do the job.

Secondly, as far as I understand it, quite a lot of payday lending is done online. The amendment will do absolutely nothing to address loans that are made online because it is all geographically defined. A payday lender may have a registered address but that may have absolutely nothing to do with the location of the customers of that payday lender. The disjuncture between the registered address and the location of the customers suggests that knowledge of local needs would not necessarily be very relevant in such a case.

I am very sympathetic to the need to get things moving and look forward to the Government telling noble Lords how energetic they are being and giving us some concrete evidence of how my noble friend Lord Mitchell’s measures are being effectively brought into being. I would also like the Government to consider whether the noble Lord, Lord Sharkey, has, with the notion of the local authority—or indeed any other authority—identified a means of getting things moving more quickly.

[Lord Newby]

My Lords, the Government wholeheartedly agree with my noble friend that consumers must be protected when they borrow from payday lenders and use other high-cost forms of credit. As noble Lords have pointed out, the Government fundamentally reformed the regulatory system governing these lenders to protect borrowers by transferring the regulation of consumer credit to the Financial Conduct Authority in the Financial Services Act 2012.

The FCA takes up this new regulatory responsibility on 1 April but has already demonstrated that it is serious about cracking down on high-cost lenders. It is absolutely unfair on it to say that nothing has happened since the Act was passed last year.

On 3 October, as the noble Lord, Lord Sharkey, has pointed out, the FCA set out an action plan on high-cost lending to protect consumers, with tough new rules covering a number of issues, including a limit on rollovers and restricting the use of continuous payment authorities. These proposals have won widespread support and will profoundly change how this industry operates. I completely agree with the noble Lord, Lord Sharkey, that self-regulation has failed, but the industry is not going to be self-regulated any more.

Turning now to the noble Lord’s amendment specifically, I am surprised that he thinks that local authorities should be given additional responsibility for regulating high-cost lenders. I can see why it might work in the States, and having looked at the Florida scheme I completely agree that it has been an extremely successful scheme there. I hope that there are a number of additional elements of that scheme that might, in time, be introduced into the UK. However, I frankly cannot see the case for duplicating regulatory effort within such a small geographic area of the UK, especially as consumers will find this confusing. Nor can this be considered a good use of public funds, given that the FCA, which is fully funded by the industry, already has this responsibility.

Most payday lenders have a national reach, especially the biggest players which dominate the market and, by definition, those which are online, so it does not make sense to permit scores of local authorities, in addition to the FCA, to all regulate the same lender. We believe that a well-resourced and empowered single national regulator will provide the best outcome for consumers. Consumers will be better protected by having a regulator with the resources, expertise and national consistency of the FCA. I am not convinced of the benefits for consumers of a federal approach to regulation. In fact, this could lead to more consumer harm; payday lenders are more likely to target consumers in local authority areas where the authority is less active.

The nub of the amendment is, of course, that the noble Lord has framed it to ensure that the Secretary of State imposes a cap on the cost of high-cost credit. While I entirely support the noble Lord’s ambition to bring down the cost of such loans, I am not convinced that the best way to do that is via a mandatory cap. The Government do not believe that current evidence provides sufficient justification to support a cap on the cost of credit.

The noble Lord has referred to the work commissioned by the Government from the University of Bristol. It does not, as he says, say that the main arguments against a cap on the rate relate to loan sharks. It does point out that although that may happen in some cases, lenders may try to bypass the cap by introducing other charges or fees which are not subject to it. Evidence shows that, with a cap in place, lenders may be less likely to show understanding if customers get into repayment difficulties.

While the Government are not convinced that a mandatory cap is the best overall solution for consumers now, they have made it clear that the FCA has a specific power to impose a cap in future, should it decide that it is needed to protect consumers. The FCA has already committed to start analysis on use of this power from April 2014.

Capping the cost of credit is a major intervention with potentially profound consequences for consumers, so it is right that the FCA contemplates use of this power in a responsible and evidence-based way, which is what it will now do. Noble Lords should not be in any doubt about the FCA’s commitment to using its powers to protect consumers whenever it feels it is necessary. The Government stand ready to support the FCA to ensure the best overall outcome for consumers.

I know it is extremely frustrating that we have not got a comprehensive solution in place, but the Government have moved with considerable alacrity in setting up a new, effective regulatory framework. The regulator has acted quickly to set out proposals and on that basis, I hope that the noble Lord will feel able to withdraw his amendment.

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[Lord McFall of Alcluith]

My Lords, while many aspects of competition, culture and behaviour in the industry are addressed by the Financial Services (Banking Reform) Bill, these amendments focus on the lack of transparency and public disclosure of poor products, practices, individuals and institutions, which remains unaddressed. The focus of these amendments is to open up this aspect of transparency. The amendments would enable the FCA to publish the instructions it gives to firms when it finds that consumers have been unfairly treated. It would improve the accountability of the regulator and of the regulated firms.

Most people are agreed that the FSA was not a transparent regulator. Indeed, in 2009, when the Treasury Select Committee investigated the treatment of customers in mortgage arrears, it concluded that,

“the balance between disclosure to the public and the need to protect firms before they have been found guilty of wrongdoing may have tilted too far towards the interests of the industry”.

More importantly, Section 348 of FiSMA placed a blanket prohibition on the FSA publishing information received from firms without the firms’ permission. The question has to be asked: are any banks going to voluntarily agree to the publication of their poor practice? I would suggest that is highly unlikely.

I will give one example. In the case of PPI, HFC Bank was fined by the FSA in 2007 for mis-selling of PPI. It issued instructions about the steps the bank needed to take to contact customers and review its previous conduct. However, when consumer groups asked for full details of the instructions, the answer given was that the instructions issued by the FSA contained information from HFC and the FSA was therefore prohibited from disclosing them by Section 348 of FiSMA.

This amendment empowers the FCA to release the instructions given to firms. Genuinely confidential information still will be protected, but the regulator will no longer be able to use Section 348 as an excuse for not disclosing the instructions it gives to firms. There are safeguards for firms, requiring the regulator to consult firms on the notice it will issue and to take account of their representations. Indeed, when the managing director of supervision at that time, Jon Pain of the FSA, appeared before the Commons Treasury Committee in March 2010, he was asked if he would like to have the ability to publish names of firms to which the FSA has sent a warning notice on disciplinary process. He said that that process struck the right balance between transparency and process.

The FSA itself would like that facility to be looked at. Indeed, when the Parliamentary Commission on Banking Standards looked into it, we stated that:

“Amendment of Section 348 … is likely to be required to facilitate the publication of appropriate information about the quality of service and price transparency.”

The amendment argues that the definition of “confidential information” should be modified to exclude firm-specific results of mystery-shopping exercises and thematic work. That would prevent consumers being kept in the dark and ensure that firms are not able to get away with not treating their customers fairly without suffering any practical penalty.

The definition should also be modified to exclude price data for certain markets, such as annuities—a very hot topic at the moment—which would make it easier for consumers to shop around to get the best rate and spot when they are getting a bad deal. It would also assist consumer organisations in warning consumers about products to avoid.

Complaints data for individual firms should also be excluded, which would allow the FCA to react swiftly to emerging problems by disclosing specific information about individual product areas to consumers. The legacy of mis-selling which exists happened because of a lack of speed in telling consumers and ensuring that individual companies undertook the remedies which the then FSA asked them to undertake.

If the definition also excluded enforcement activity against firms, that would allow for greater regulatory transparency. That must include the FCA publishing information on the number of cases referred to enforcement, broken down by subject—including product and practice involved—and industry sector; the outcome of cases, including how many resulted in a fine, public censure or were dealt with informally; and the names of firms and individuals involved in cases.

As I said on an earlier amendment, the balance is tilted too much towards the industry. The asymmetry of knowledge is in the industry’s favour. This amendment would help redress that by improving transparency. I ask the Minister to consider the long-standing commitment that I have had to that.

[Lord Eatwell]

My Lords, my noble friend has made a very strong case. He needed to add one other element to persuade the Government, which is that this would enhance competition. If one improved information in this way, then, given the enhancement of consumer choice, the competitive objective of the Government would be better served. This would be a diminution of some of the severe problems of asymmetric information that distort competition in financial services, especially retail financial services. If it was developed with care it would be a considerable boost to the overall efficiency of retail financial services in this country.

It is very easy to say, “The time is not ripe; it is not really quite the time; there are unintended consequences”. All that is required is a consistent bias towards transparency. The Government should approach this issue by saying, “In principle, we are in favour of transparency”. The argument should be made for not being transparent. In other words, the strong case has to be made for not revealing something. The fundamental prejudice should be that this information should be transparent. Effective transmission of information is a key element in creating an efficient market and enhancing the competitive goal that the Government claim to be their own.

[Lord Newby]

My Lords, as the noble Lord, Lord McFall, pointed out, we debated this issue at great length during proceedings on the previous Financial Services Bill. Sections 348 and 349 of FiSMA govern the treatment of confidential information obtained by the regulators and the ability of the regulators to disclose such confidential information. The noble Lord argued at the time, and repeated today, that there was inadequate transparency and insufficient disclosure of information in the financial services regulatory regime. This led to the argument that Section 348 should be amended to make it as unrestricted as possible.

In response, the Treasury undertook a careful review of Section 348 and its associated provisions. The review concluded, first, that it would be difficult to amend Section 348 without negative consequences. Scaling back Section 348 would increase the risk that firms would become less willing to share information with the regulators, undermining those important relationships and the regulators’ ability to protect consumers. Secondly, even with Section 348 in place, the FCA could and should do more to increase transparency.

With that in mind, the Government decided at the time not to amend or delete Section 348 but agreed with the FSA, as it then was, for it to carry out a fundamental review of how transparency would be embedded in the new FCA regime. This was published as a consultation in April of this year and received positive feedback from consumer groups—that is, the very people the new or changed approach was intended to benefit. The review covered use of disclosure as a regulatory tool by the regulator, disclosure of information by firms, both voluntarily and as a result of FCA rules, and transparency on the part of the regulator.

In terms of publishing details of enforcement action, the FCA is already required to publish details and information about decisions and final notices that it considers appropriate. It can also publish the fact that a warning notice has been issued in respect of disciplinary action. In response to the recent PCBS recommendation that it should require firms to publish more information, the FCA has outlined its plans to issue a call for evidence next year on data that it should require firms to publish to help consumers better understand the firm and product quality.

I hope the noble Lord will agree that this is exactly what the PCBS was seeking to achieve and that it can be done without further amendment to Section 348.

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[Lord Eatwell]

Perhaps I can be of help to the noble Lord. I do not know whether he has had the opportunity to see the Bank of England response to the final report published today, where the Bank of England provides the answer which the noble Lord, Lord Newby, was unable to provide. It says:

“For the present, the Government’s legislative proposals in this area will apply only to deposit takers”—

[Earl Attlee (Con)]

My Lords, we are slightly out of order because the noble Lord has not moved his amendment and started the debate. Perhaps the noble Lord would like to finish moving his amendment.

[Lord Turnbull]

I thought that I had started by begging to move Amendment 104E, but if I have not I shall do so now, and if that allows the noble Lord, Lord Eatwell, to offer his clarification I should be very grateful. I beg to move.

[Lord Eatwell]

I usually try to be difficult. When I try to be helpful I am stopped. I was referring to the Bank of England response, published today, in which it says that,

“the Government’s legislative proposals in this area”—

this is referring to the senior persons regime which we talked about last time—

“will apply only to deposit takers but not to investment banks and insurance companies”.

So the Bank of England is clear that both the senior persons regime and, I presume, also the offences issue—for which I remember the same issue arose as to the definition of a bank—do not apply to investment banks.

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[Lord Newby]

My Lords, these are technical amendments relating to a number of the new powers introduced to the Bill as a result of the Government’s amendments in your Lordships’ House.

Amendment 113A amends Clause 17 of the Bill to specify the procedures applying to statutory instruments made under the new powers. It provides that the affirmative resolution procedure will apply to: orders made by the Treasury to exclude certain systems from the definition of “payment systems” for the purposes of the new clauses establishing the new payments regulator; orders to make amendments, which are consequential to the Bill, to other primary legislation, under the power introduced by the second amendment in this group, to which I will return in a minute; and orders made under paragraph 6 of the schedule on the conduct of financial market infrastructure administration, which allows the Treasury to make further modifications to primary legislation to make appropriate provision for FMI administration. Orders made under other provisions of the Bill will be subject to the negative resolution procedure, unless they are required to be made using the affirmative procedure, or they are commencement orders.

Amendment 114 enables the Treasury to make amendments consequential to the Bill—and any statutory instruments made under it—to other primary and secondary legislation. For example, it is likely that this power will be used to bring other legislation in line with the terminology of the new senior managers regime. This power can be used only in certain circumstances and the Treasury can make orders under the power only if it considers it necessary or expedient to do so as a consequence of a provision in the Bill. Furthermore, the power applies only to legislation which is made before the Bill is passed, or which is made in the same Parliamentary Session in which the Bill is passed. I beg to move.

[Lord Eatwell]

My Lords, first, with respect to Amendment 113A, it is useful to see the use of the affirmative procedure here. However, the noble Lord will recall that the Delegated Powers Committee recommended an amendment which referred to the amendment of clauses that deal with ring-fencing. I asked more than two weeks ago how the Treasury would react to the Delegated Powers Committee in this respect and was told that I would receive a reply. I have not, as yet, received a reply. As we are now reaching the end of the Committee stage, it would be very helpful to know whether the Government are simply ignoring the Delegated Powers Committee, in which case we would require an explanation, or what the Government intend to do about this.

On Amendment 114, these powers are sometimes referred to as Henry VIII powers. Given this new clause, the good King Henry would regard it as rather excessive and would be taken aback by the power that the Treasury takes,

“amending, repealing, revoking or applying with modifications any enactment to which this section applies”.

The enactment applies to,

“any enactment passed or made before the passing of this Act”,

so, presumably, since the birth of Henry VIII. The new clause then refers to,

“any enactment passed or made on or before the last day”.

That I understand. What scrutiny will be given to these measures? We have been through a Committee stage which has identified a consistent rejection of proposals by the banking commission and particularly of the amendments that have been put forward. I have not heard the Government accept a single amendment put forward on behalf of the banking commission—not one—so there has been a consistent rejection of those. Now we are told that we will have the possibility of,

“amending, repealing, revoking or applying with modifications”,

a series of quite controversial measures in which the Government have attempted to water down the proposals of the banking commission. I would like to feel that I could get some reassurance that this power is to be used sparingly and is to be used only if there is some oversight or accountability to Parliament when it is used.

--- Later in debate ---

[Lord Newby]

My Lords, three issues have been raised. The first is whether we have responded to the Delegated Powers Committee. I explained at some length last week what the Government’s response was. Subsequently, I wrote to the chair of the committee, reiterating what I had said. I am sorry if noble Lords have not seen the letter; I will make sure that it gets to them. I will repeat what I said and what the letter said.

The Government’s view, bearing in mind that the committee said it was for the House to decide and did not make a recommendation on the procedure to be followed, is that, given the technical nature of these statutory instruments, the best way forward, in the light of the Government’s response to the consultation process that they have just completed, is to invite noble Lords who are interested in the secondary legislation to the Treasury to have an informal discussion on the issues, and to see what they feel might be done, and whether any amendments are required. The Treasury does not have a fixed view on the detailed provision of that secondary legislation, and would welcome the further views of Members of your Lordships’ House.

Secondly, I find literally incredible the suggestion of the noble Lord, Lord Eatwell, that the Government took no account of the recommendations of the PCBS.

[Lord Eatwell]

Which amendment proposed by the PCBS have the Government accepted?

[Lord Newby]

The noble Lord may or may not remember that at the start of today’s discussions the noble Lord, Lord Lawson, pointed out that the size of the Bill had expanded multiple times. I admit that part of this relates to the Government’s amendments on bail-in. However, every other amendment is in order to implement a recommendation of the PCBS. That is what we spent nearly all of last week discussing.

[Lord Newby]

My Lords, I am sorry; with the exception of the bail-in provisions, the expansion of the size of the Bill is specifically in order to implement recommendations of the parliamentary commission, such as the senior managers regime, the criminal sanctions and the enhanced electrification power. The reason that the Government have not today accepted everything that the PCBS has recommended is that we have already accepted the majority of the commission’s recommendations and put them in the Bill. It is simply not the case that we have accepted no recommendations of the parliamentary commission—quite the opposite.

The final issue is specifically about the powers in this amendment. The powers can only be used to make consequential amendments—that is, those which are needed to deal with the provisions passed in the Bill. The example I gave was in relation to the senior persons regime, and I can reassure the noble Lord, Lord Brennan, that there is nothing sinister or unusual in what is being proposed. These powers are commonly taken in Bills which make significant changes to existing law. I am very happy for Treasury lawyers to set out in a letter the precedents that these powers exactly replicate. The hour is late, but I can assure the House that we are not doing anything here that is in the slightest way unusual.

[Lord Eatwell]

Will the noble Lord agree that Amendment 114, at least, should be withdrawn until it can be considered by the Constitution Committee and the Delegated Powers and Regulatory Reform Committee? He has plenty of time to bring it back on Report if he then has substantial justification for it, and it would give considerable comfort to the Committee.

[Lord Newby]

My Lords, I do not think that we need to withdraw the amendment. As I say, it is a standard provision. Interestingly, the specific reason that I gave for requiring it relates to the implementation of a recommendation of the Parliamentary Commission on Banking Standards. However, as I say, this provision is not in any way unusual. Therefore, I do not believe it needs the process that the noble Lord suggests.