Financial Services (Banking Reform) Bill

Lord Lea of Crondall Excerpts

Tuesday 26th November 2013 Lords Chamber

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, I have not so far taken part in the debate on this Bill, although I participated during the passage of the earlier Financial Services Act. I therefore need to declare my interests as the chairman of two regulated entities and an as approved person under FiSMA.

I have listened carefully to the arguments deployed on both sides of this complex debate and have a couple of concerns about what is being proposed. The noble Lord, Lord Eatwell, described his amendments as designed to provide—I think that I have got the words right—a three-stage, self-reinforcing regulatory process. In doing that, he may have overlooked the degree of uncertainty that his amendments may cause. If I may follow his analogy further, I think that it is his amendment that may remove the third leg from the three-legged stool that he mentioned.

I agree with my noble friend Lord Lawson about the importance of reviews, particularly in cases where the likely outcome of fundamental legislation is so uncertain. In a parallel case in the Transparency of Lobbying Bill, I have tabled amendments that would have that Bill reviewed in a couple of years when one can begin to distinguish reality from supposition. I therefore favour reviews, but—and it is an important but—a review, as my noble friend Lord Flight said, must not begin with any presuppositions as to its outcome. If I may use a rather vulgar card-playing metaphor, one must not play with a loaded deck. Listening to some of the arguments so far, I formed the impression that these amendments could lead to a loaded deck because of the implicit power of the review to trigger separation without further primary legislation and therefore to introduce radical change without serious parliamentary consideration. As I read it, this would be the result of the House accepting Amendment 196. I think that this implication—and, of course, it is an implication—will weigh heavily on the banks and their executives and, as a result, be by no means to the advantage of the financial services industry specifically or the United Kingdom generally.

It is an oft-repeated truism that financial markets hate uncertainty. Perhaps I may offer at a rather lower level an example from my experience of what I mean. I was for a number of years a chairman of a network of independent financial advisers. For a prolonged period, the IFA sector suffered in the shadow of the uncertainty caused by the drawn-out processes of the retail distribution review. I have absolutely no doubt that the savings regime of this country, a very important part of our body politic, was set back by this elongated debate. I feel the same may be true for the banking sector if these amendments are passed.

Further, I am not quite clear how this approach will impose discipline, unless it is intended that some could suffer full separation and others would not. I have not yet heard that suggested by the noble Lord, Lord Eatwell, although I may have misunderstood him. If I, as a good guy, obey the ring-fence but am treated in exactly the same way as my competitor, a bad guy who has jumped the ring-fence, what incentive is there for me to follow the prescribed path?

My second area of concern can best be summed up by the well rehearsed argument that generals always plan to fight battles that are like the ones of the last war. Of course, we have discovered egregious examples of corporate and personal behaviour that took place in the period leading up to 2008, but it is by no means clear, to me at least, that ring-fencing or not ring-fencing will have any relevance to solving the next financial crisis—and, if history tells us anything, one will be along in due time.

Having listened to the arguments, I am forced to the conclusion that there should be a review but that it should be a review without preconceptions, and that, in any case, to trigger a move to full separation on the basis of secondary legislation, of which the ability of this House to scrutinise and amend is in my view woefully weak, would not be the right way to proceed.

[Lord Lea of Crondall (Lab)]

My Lords, there are a lot of very interesting propositions in this group. Am I right in thinking that what is in due course printed in Hansard will be one amendment which is moved, with other amendments not printed because they are part of a single group? If so, how can one proceed with that?

[Lord Phillips of Sudbury (LD)]

My Lords, surely there is no more important issue in relation to this banking situation than whether to go with ring-fencing or with separation—we have had that very clearly debated today. The noble Baroness, Lady Cohen of Pimlico, raised an issue in relation to that, which my noble friend the Minister placed some emphasis on in responding earlier, as he did at the last stage of this debate—namely, to state that the cost of total separation would be exorbitant. The noble Baroness rightly made the riposte that the cost of policing the ring-fence will not be a one-off, as the cost of a separation would be; the cost will be year after year. The task of the regulators in policing a ring-fencing arrangement will be intensely difficult. It is easy to jibe at the regulators, but we may underestimate the extreme difficulty of doing a thorough job in this field, where you have a single holding company and two companies under it. I take the point made vividly by the noble Lord, Lord Lawson of Blaby, about cultural contamination that can easily infect a group, such as the one that the ring-fenced company will be part of.

I hope that my noble friend will feel able to accept Amendment 5. We are all speculating madly. To have a review of how this has gone, and to look at it coolly, objectively and professionally in the period prescribed, must make absolute sense. Frankly, it is not worth taking the risk of not having such a review. The cost of getting this wrong will be insupportable. We are apt to underestimate, in what has happened over the past five years, the cost to this country in all sorts of non-financial ways. We must not let it happen again. The review that Amendment 5 proposes must be prudent, sensible and ultimately economical.