Financial Services Bill

Lord Hodgson of Astley Abbotts Excerpts

Monday 15th October 2012 Lords Chamber

My request to the Minister is that any proposal for granting the powers should be subject to the same conditions and the same external approach as under the revised Banking Act regime. I suggest that this could include the requirement that provisions should be proportionate to the risks to market stability and be exercised only with the approval of the PRA, the FCA and HM Treasury. The reason for this is to ensure the famous level playing field for clearing houses. If additional powers and direction are the given to the Bank, under both the Financial Services and Markets Act and the Banking Act, it would seem to make sense to make them subject to the same conditions and to offer consistency across the legislation.

[Lord Hodgson of Astley Abbotts]

Before the Minister replies, I add my request to him to explain the issue of the level playing field. We have a very complicated piece of legislation here. In Amendment 176D we are looking at an additional power to direct UK clearing houses, and in Amendment 193G there is an application to UK clearing houses. I would like the Minister’s reassurance that this is not going to lead to differential treatment, because it will be extremely confusing if that is the case, and that the basic conditions, as the noble Baroness said, are going to be the same and that we are not going to find ourselves at sixes and sevens because it depends on which part of the Banking Act or FiSMA is applicable in a particular case. I realise that this is a technical point, but it is important that we try to get as much clarity and as much of a level playing field as possible.

[Lord Barnett]

My Lords, I would like some clarification. New Clause 296A in Amendment 176D says that the Bank of England “may” direct, not “must”, even though it has regard to the public interest, while new Clause 296A(2) says that the direction “may” specify various things. The direction is then enforceable only on the application by the Bank by an injunction or by other complicated means. Why should it not be “must” if it is in the national public interest? I do not understand why the word “may” is there rather than “must”.

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[Lord Hodgson of Astley Abbotts]

My Lords, I rise to support the amendments of my noble friend. In Committee, I said I believe that the regulatory philosophy, culture and approach has shifted and that far from it being an attempt by both sides to achieve the best and right way forward it has become an entirely aggressive, uncontrolled approach by the regulator without any thought to the consequences of how his actions will impact on the firm in question or the City as a whole.

I have also spoken about the increasing use of Section 166; the way that the significant influence function committee has used its powers to damage people’s careers and leave them absolutely no redress at all. They are left in limbo. My noble friend says that people can go for judicial review, but if he believes an individual is going to take on a regulator in this way, he cannot be doing anything other than reading the Treasury briefing note. I cannot believe, with his experience of the City, that he really believes an individual is going to be able to take on an organisation like the FCA, or the FSA as it now is, with its limitless resources, limitless amount of time and limitless access to legal expertise. I believe my noble friend raises a very serious point.

I understand the argument about transparency and it is an attractive one but the fact of the matter is we may be having transparency about inaccurate or wrong information. That cannot be sensible. We owe it to all sides for transparency to be about things that are correct in every sense. When a regulator, with all its authority, is able to put out its view it means that the person about whom the allegations are made never has a chance to obtain proper redress. In the eyes of the public there is no smoke without fire, people will say there must be something or the regulator would not have put the information out there. Even if it is proven in the end to be absolutely wrong, and even if it has not gone bust in the meantime, the firm will be immensely damaged. People will say that there must have been a case to answer because such a great authority, which has all the power of the state behind it, would not put out a notice without a reason.

I really feel that we have to be much clearer about who makes the final call about whether to publish. Judging from the Bill, it seems to me that it is far too cosy and far too easy for the regulator to be making these decisions to publish. There are not nearly enough outside checks and balances to ensure that a proper assessment of the information and evidence is made available and assessed before a very precipitous, potentially exceptionally damaging disclosure is made. I hope the Minister will be able to go a long way to meet my noble friend’s amendments.

[Baroness Hayter of Kentish Town]

My Lords, the starting point for my intervention on this group of amendments is our belief that consumers will benefit from transparency, contrary to the suggestions made by the noble Lords, Lord Deben and Lord Hodgson of Astley Abbotts, to help them make—

[Lord Hodgson of Astley Abbotts]

I do not think my noble friend Lord Deben and I said that we were against transparency. We said—or, at least, I said and I think my noble friend Lord Deben said—that we wanted to make sure that what was made transparent was accurate. Inaccurate transparency does not help anyone.

[Baroness Hayter of Kentish Town]

The assumption is—it has been said a number of times—“What if it is proved wrong?”. However, many, if not most, of these will be proved right, and that transparency surely will be of enormous benefit to consumers and investors in a way that I hope to demonstrate.

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[Lord Hodgson of Astley Abbotts]

My Lords, the noble Baroness’s amendment has much to commend it. I picked up two points in her comments. On the question of, to use her words, eroding confidence in the regulator, that confidence is already being eroded at present because of the way in which the regulator is behaving, and her proposal would go some way towards ensuring that that was put right. She and I can agree, because we have already agreed on the importance of transparency, that this would achieve not only transparency but, particularly, accurate transparency, and that someone would not be condemned without having had a proper chance to put their side of the case. Like my noble friend Lord Deben, I think that there are some tweaks to be made to the terms of office and so on, but as a concept this has much to commend it.

[Lord Flight]

My Lords, all that I was really calling for previously was for the RDC to be embodied in statute to provide this role. The amendment proposed by the noble Baroness, Lady Hayter, offers something rather better because it is a duly organised and independent body that would provide the safeguard of justice. That, it seems to me, is what we all want.

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[Lord Peston]

My Lords, in supporting my noble friend’s amendment, I say that I am a strong supporter of the European Union, and that I hope one day to live in a country where the Government is also a strong supporter of our membership of the European Union—something that has not been the case for many years. I refer not just to the present Government but to the previous one. However, although I regard myself as a supporter of the European Union, I am well aware that often it drips into areas that are none of its business. When I first saw the amendment, I thought: what possible grounds are there for the European Union to consider supporting charities, let alone setting limits on how they can be supported? I assume that this is a probing amendment, although my noble friend has not told me so. Really the European Union has no business to be in this field; that is the message we would like to get over.

[Lord Hodgson of Astley Abbotts]

My Lords, my Amendment 187CA in this group relates to another aspect of the operation of the Financial Services Compensation Scheme. The current wording by which the scheme operates gives it a lot of discretion in the way that the costs of the scheme are allocated. Section 213(5) of FiSMA states:

“In making any provision of the scheme … the Authority must take account of the desirability of ensuring that the amount of the levies imposed on a particular class of authorised persons reflects, so far as practicable, the amount of the claims made, or likely to be made, in respect of that class of person”.

There are two get-outs.

I make it clear that this is not about restricting the rights of consumers to obtain compensation. It is a critical and essential part of maintaining proper confidence in our financial system that there are proper and appropriate ways for people to claim and get compensation for mis-selling or other malfeasance. However, the amendment is about ensuring that the polluter pays. It has become more difficult in recent years to trace the allocations and levies made by the Financial Services Compensation Scheme to the particular class of persons and businesses to which they have been applied. Often, there appears to be a shifting of the pea around the plate, with a disproportionate share landing on those perhaps least able to complain. I hope that my noble friend will listen to the amendment with sympathy. The funding system must reflect the differences in risk and instability posed to the public and to the wider economy by firms and the financial products they offer.

I make it absolutely clear that my amendment does not enforce an unacceptable level of correlation. The words “as far as practicable” will remain, and will therefore provide the scheme with a degree of flexibility—a get-out, if you like. However, the additional words, “take account of the desirability of ensuring”, are too woolly. They lead to situations where people feel that the scheme is not operating fairly. Therefore, I would like to see those words replaced by the single word, “ensure”, as a means of ensuring that the Financial Services Compensation Scheme penalises the polluter and not the wider financial community.

[Lord Newby]

My Lords, Amendment 187AB, moved by the noble Baroness, Lady Hayter, would require the Government to notify other EU member states that the limits on compensation payments to charities in the event of a loss of their bank deposits should be reviewed. The noble Lord, Lord Peston, asked what on earth this had to do with the EU. I suspect that he, like me, had not heard of the deposit guarantee scheme directive, which is an extremely valuable piece of legislation. It means that across the EU there is a maximum harmonised limit of compensation per depositor in the case of banks or other financial institutions going bust. It makes sure that across the EU there is a common framework for paying out when organisations get into financial difficulties.