Financial Services Bill

Lord McFall of Alcluith Excerpts

Tuesday 3rd July 2012 Lords Chamber

[Lord Eatwell]

The noble Baroness has made a very interesting point. I have forgotten the precise names, but you have a person who submits the information, and a person who receives it and then has the responsibility of transmitting that received information into the LIBOR setting. That is the person I have in mind.

[Lord McFall of Alcluith]

My Lords, I shall speak to Amendment 43. The four main Financial Policy Committee functions have been outlined in the Bill, but I would like the Minister to consider providing clear regulatory statements for both the FCA and the PRA, given that clarity is essential: there is an outside audience here, so transparency and clarity are very important. For both those bodies, that would be a helpful submission from the FPC.

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, we are into another bran-tub—not a pot-pourri this time, but a bran-tub, I note; I am not sure what the distinction is. This is a varied group of amendments about the functions of the FPC.

I say to the noble Lord, Lord Eatwell, and all other noble Lords taking part in Committee that if there are definitional difficulties—we have got into one or two tangles about definitions, construction of difficult clauses and the interrelationship between clauses and subsections —I am very happy for the noble Lord or any other noble Lord to have meetings including the Bill team to try to thrash out some of those difficult issues outside the Committee if that would be helpful. Some of these things might more easily be done away from the constraints and formality of the debate. I lay that offer on the table to all noble Lords who are interested.

I will come back to Amendment 42, but let me start with Amendment 43, which would require the FPC to prepare and publish regulatory statements for the PRA and FCA. One of the most glaring flaws of the tripartite system of regulation was a lack of clarity about who was responsible for what. As we know, the Bill will create regulatory bodies with clear and separate responsibilities. Although the FPC will have the power to direct the FCA and the PRA, that will apply only in the case of actions required to address systemic risk. The Bill makes it clear that the FPC cannot make recommendations or directions that relate to specified persons—that is, individual firms. Decisions on the policy approach of the PRA and the FCA will be made by their respective boards, not the FPC. As such, the amendment would risk blurring those clear responsibilities of the regulators.

Amendment 47, which would provide the FPC with the power to direct the PRA to require the disclosure of leverage ratios, is simply unnecessary. The Government agree that the disclosure of leverage ratios would be beneficial. That is why we supported the Basel III proposals to require its calculation from 1 January 2013 and its disclosure from 1 January 2015. The Government have pushed for full implementation of Basel III.

The interim FPC recommended in November last year that the FSA encourage UK banks to disclose their leveraged ratios from 1 January 2013, and an update on the progress of that recommendation was included in the financial stability report published last week. I will not, but I could quote extensively from that report. It is clear from reading that FSR that the FPC is already using recommendations to address disclosure issues effectively, so I suggest that Amendment 47 is unnecessary.

--- Later in debate ---

[Lord Sassoon]

My Lords, I am not sure whether one can distinguish the world in which we are talking about financial regulation from the real world. This is the real world. It is a world in which these are very important powers that go to the heart of ensuring the financial stability of the UK. This is not a frivolous point. It may appear on the surface to be Alice in Wonderland territory but, if the FPC is to exercise the really significant powers in the system that it is being given or the responsibility for financial stability, it must first have the levers. One of the important constituencies that it will be addressing—and it would be totally remiss of the Government and this Bill to leave it out—would be directions from the FPC to another important regulatory body, of which the Bank is one.

An awful lot of things could be left unsaid which one would assume would somehow happen. This is not one where it would be safe in any way to do so because, if we did not have this power to make recommendations, there could be a significant risk that the FPC would not have the powers—the levers—over critical areas of the supervision and the regulation of the financial infrastructure that underpins so much of our financial system. One only has to look at recent events to see how computer glitches and apparently relatively simple IT problems can have very significant consequences. I suggest that the FPC would have a huge hole in this armoury if it was not able to make recommendations also directed at those who supervise the infrastructure.

[Lord McFall of Alcluith]

On this point, can I remind fellow Peers that I have invited the Governor of the Bank of England along tomorrow morning, so I suggest that they ask him the very important question: “Will he enjoy writing letters to himself in the future?”.

[Viscount Trenchard]

The Minister just said that the FPC is to be a separate committee with strong statutory powers. I find it very hard to reconcile this with its being a committee of the Court of the Bank of England. This is different from the MPC, which is not a committee of the court but is a committee of the Bank. It would be more logical and comprehensible if at least it were acknowledged—as it clearly is—that the FPC is not a committee of the court but a strong semi-separate body. However, the Bill says that it is a committee of the court, in which case it cannot have any powers beyond the powers of the court.