Financial Services Bill

Lord Flight Excerpts

Tuesday 20th November 2012 Lords Chamber

Finally, I will deal with Amendments 114A to 114C. Under the Consumer Credit Act regime, Trading Standards, and, in Northern Ireland, the Department of Enterprise, Trade and Investment, have the power to investigate and prosecute offences committed under FiSMA. Trading Standards and the Northern Ireland Department of Enterprise, Trade and Investment do important work in this area which the Government are keen to acknowledge. The Bill already allows the Treasury to enable Trading Standards and the Northern Ireland department to continue to prosecute offences under FiSMA—and this will include the new offence that we have just discussed. These amendments complete that picture by enabling the Treasury to confer powers on Trading Standards and the Northern Ireland department to use their existing investigatory powers in the Consumer Credit Act to investigate offences under FiSMA. This power to investigate complements provisions in the Bill which give Trading Standards powers to prosecute offences under FiSMA and ensures that Trading Standards and the Northern Ireland department can continue to play their vital role in the effective enforcement of the consumer credit regime. I beg to move.

[Lord Flight]

My Lords, I rise to ask the Minister some questions about the transfer of the regulation of the providers of credit to the FCA. I had understood that it was the Government’s current intention to repeal as much as possible of the CCA and replace the relevant clauses with a new rulebook written under FiSMA and that the Government have been proposing to finalise this new rulebook by March 2014 to be implemented the following month. The Minister will be aware that a lot of the industry feels that this will be physically impossible given the necessity of wholesale change to the credit industry’s computer systems and the need to retrain staff. It is also questionable whether the new rulebook will be ready by March 2014, as none of the main features of the new regime has yet been agreed—and some may not have been discussed.

The Minister will be aware that much of the industry accounting for some 65% of UK credit is urging the Government to take advantage of the flexibility in the Bill by keeping much of the existing CCA in place in April 2014. The FCA will be able to enforce the CCA using its new powers which exceed those of the Office of Fair Trading. This would allow time for the design of a generally proportionate new regime. If such an approach is not taken, tens of billions of pounds of existing credit currently available to ordinary consumers in the high street and elsewhere could be at serious risk.

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Moved by

[Lord Flight]

75A: Clause 10, page 49, line 23, after “FCA” insert “, which shall not be required where the applicant seeks permission to carry on the regulated activity of accepting deposits,”

[Lord Flight]

My Lords, Amendments 75A to 75G and Amendment 77 relate to Clause 10 and Amendment 77B relates to Clause 13. The amendments to proposed new Section 55 seek to remove the need for the PRA to consult the FCA over authorising a bank or in relation to other regulatory actions, such as variation and cancellation of permission, and imposition of requirements. The effect of the amendment to Clause 13 is that the FCA would have no role in approving an application to act as a bank director.

I raised a similar area of principle at Second Reading. I remain of the view that the double doing of applications for banks and bank directors by the PRA and the FCA is unnecessary and adds to the costs and hassle for new banks trying to emerge and compete. The PRA process for bank applications is more than sufficient. The matters that the FCA deals with, such as good conduct in relation to citizens and consumers, are essentially ongoing rather than being about having a good banking plan and appropriate directors, appropriate capital and appropriate systems in order to be able to start a banking business. I have also recently encountered a situation whereby the new yet-to-be FCA organisation made inquiries of a senior director that related to PRA, not FCA, territory.

The amendments are also in part probing amendments because it is not clearly understood by the industry how the new arrangements are intended to operate. At one level, my understanding is that an application for a banking licence and bank directors will be dealt with by the PRA, which will merely refer to the FCA to see whether it wants to raise any issue. However, in other circumstances, there seem to be two different processes to go through. Therefore, if the Government are not willing to accept my point of principle, which is that it would be much better to leave the approval of banks and bank directors purely to the PRA, it would be helpful for the Minister to set out today exactly how the new dual system is intended to operate in practice. I beg to move.

[Lord Sassoon]

My Lords, Amendments 75A to 75G, tabled by my noble friend Lord Flight, would remove the requirement for the FCA to consent to authorisation decisions taken by the PRA relating to banks and other deposit-takers, including the decision to grant or remove permission. We discussed a similar group of amendments in Committee.

As I previously said, authorisation is a vital tool for the authorities to set and enforce standards for regulated firms efficiently. It is much more costly to address issues within firms following authorisation than it is to do so during the authorisation process. Such costs will fall on regulated firms and, eventually, consumers. Of course, it is far preferable for the FCA to be able to identify and address potential threats to consumer protection or integrity as part of the authorisation process and to prevent consumer detriment or improper behaviour before it happens.

The FCA will have a significant role in the authorisation process—for example, in assessing the range of products being proposed by the applicant, its systems and controls, its processes for treating customers fairly, including dealing with complaints, ensuring the business is not being used for a purpose connected with financial crime, and promoting effective competition in the interests of consumers. It is surely right that all these matters should be carried out up front. To take one clear example, it must be right that the FCA should carry out its anti-money laundering checks as part of the authorisation process. In addition, it is surely right that the FCA should be able to object to an application if it is not satisfied that a firm can comply with its threshold conditions.

Similar points apply in relation to Amendment 77B, which would establish that the FCA should have no role in approval of any person who is to be a director of a deposit-taker. This would mean, for example, that the FCA has no role in approving a director of customer services or a director with responsibility for regulatory compliance.

Let me cut to the chase, because my noble friend made it clear that he is probing around how the system will work. There will be one application, not two. This is the crucial point that people have not fully grasped. I believe that I have said this before in our debates but I say it again clearly. My noble friend is right to say that we want to minimise the inconvenience of the process. There will be a single administrative process for approval of firms and of persons to perform significant-influence functions. It would not be appropriate now for me to go through the detail of how the PRA and FCA will do it, but the key issue for this House and the Government in setting the framework is that there has to be one application. That is what sets the tone of the necessary and appropriate co-operation to make the process as seamless as possible.

On the basis of that further assurance, I ask my noble friend to withdraw the amendment.

[Lord Flight]

My Lords, it is highly important that it should be absolutely clear that there will be one application and, as I understand it, that means that an application to establish a bank will be dealt with by the PRA, which will then have its own arrangements to deal with the FCA for FCA matters. What really matters in establishing a bank is whether there is enough capital, whether the management and the directors are suitable and whether the business plan is sensible. The bits that the FCA is concerned with are much less relevant up-front and more relevant as the business develops, so the PRA really should be in the driving seat for approving banks.

I would also make the point that I made in a slightly different context the other day. A team from the BIS made an appointment to come and see me to ask whether, in my view, the process of applying for licences for new banks and approval of new directors was anti-competitive. I was pleased to find that the BIS was very focused on that aspect, even if the Treasury was not quite as focused. I am pleased to have the assurance of the Minister that effectively it will be one process with the PRA and the FCA liaising and, on that basis, I beg leave to withdraw my amendment.

Amendment 75A withdrawn.

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Moved by

[Lord Flight]

78A: Clause 15, page 70, line 15, at end insert—
“( ) For section 73 substitute—
“73 General duty of the FCA
In discharging its functions under this Part, the FCA should, so far is compatible with its strategic and operational objectives, have regard to the international character of capital markets and the desirability of maintaining the competitive position of the United King dom.””

[Lord Flight]

My Lords, Amendments 78A and 79A are supported by the Listing Authority Advisory Committee to the FSA, which is an external committee appointed by the FSA. The amendments have the objective of permitting the FCA going forward as the listing authority to have regard to the international character of capital markets and the desirability of maintaining the competitive position of the UK in international capital markets.

The advisory committee is concerned that without the amendment the FCA, when regulating, will not have the power to consider UK competitiveness in international capital markets and could in fact be challenged for doing so unless the issue is specifically covered. Under current legislation, the listing authority is separately set out in FiSMA, while most legislation under FiSMA is about the regulation of those conducting various forms of standard financial services businesses. The listing function is a very different role, though; it is about setting the rules for and regulating listed companies as the issuers of securities, both debt and equity, where issuers obviously have choices as to the markets in which they opt to access capital. Hong Kong in particular has become an even more important financial capital than London, which also faces great competition from New York.

At present, under Section 73 of FiSMA, the FSA is obliged to have regard to market competitiveness and the UK’s position in carrying out this function. These two amendments would leave the listings authority’s role and function substantially aligned with the rest of the FCA but would reflect the fact that this part of the FCA’s function is about regulating listed companies, not the financial services industry. It is different and should have competitiveness not as an objective but simply as a matter to which the FCA should have regard.

This may sound a slightly obscure point but the chairman of the Listing Authority Advisory Committee is concerned that unless this particular, slightly different responsibility of the FCA going forward is given at least the steer to have regard to international competitiveness, it will not be covered by the wider parts of the Bill requiring the FCA to have competitiveness as an objective. I hope that the Minister will be able to give comfort that the wider competitive objective covers the particular listing authority context of the FCA. If not, I hope the Government might consider this somewhat offbeat territory. I beg to move.

[Lord Northbrook]

I support my noble friend Lord Flight’s amendment. It is important that in this area the FCA should have regard to the international character of capital markets and the desirability of maintaining the competitive position of the United Kingdom.

[Lord Sassoon]

My Lords, Amendments 77A and 79A would reinstate an existing “have regard” that applies to the FSA in its capacity as UK listing authority as a “have regard” applying to the FCA’s listing work. This “have regard” is a requirement to take account of the international character of capital markets and of UK competitiveness. I can assure my noble friend that these amendments are not needed. As we discussed in Committee, the FCA and the PRA will be bound to have regard to the regulatory principle that any burden they impose should be proportionate to the benefits that flow from it. The proportionality principle will apply where a requirement would have an effect on UK competitiveness that would be a burden, and the same need to ensure that the burden was proportionate to the benefits would apply.

In addition, last week we debated and agreed to make an amendment to the Bill to add a new regulatory principle giving the regulators the duty to have regard to the desirability of sustainable UK economic growth. My noble friend was good enough to welcome that amendment, which I assure him will also encompass international competitiveness in the appropriate way in relation to listing as well as more generally. I think that that answers the direct question he posed to me. My noble friend refers to the London Stock Exchange and my understanding is that, although it was rightly concerned about the removal of the listing authority competitiveness “have regard”, it has welcomed the new regulatory principle. I hope therefore that my noble friend will agree to withdraw his amendment.

[Lord Flight]

My Lords, I thank the Minister for the comfort on this point. I am aware that the London Stock Exchange has raised this issue and I hope that what he has said will also provide comfort to the Listing Authority Advisory Committee. The only grey area for me is that I am still not entirely clear whether the general burden upon the FCA with regard to competitiveness automatically covers its role as the listing authority. The Listing Authority Advisory Committee seems to think it does not. However, I note that the point has been generally picked up and therefore beg leave to withdraw.

Amendment 78A withdrawn.