Financial Services Bill

Lord Phillips of Sudbury Excerpts

Monday 12th November 2012 Lords Chamber

[Lord Peston]

My Lords, I rise to support both of these amendments in the names of my noble friends. I think that my noble friend Lady Hayter is right to place all of this in the context of the experience of the past few years. The general proposition on which our discussion must be based is that, if the financial services sector misbehaves, we all suffer—not merely those who buy financial products directly, but everybody in the country. I use the word misbehave advisedly. Systemic risk and systemic events do not appear as if by black magic but result from the way that people who work in the financial sector conduct their business.

Why do they occur? They occur because of the way that people in the sector do things. The solution to the problems must be found partly through regulation, as the Bill recognises. On the one hand, we must bring in regulation to deal with some aspects of this matter. On the other hand, improved behaviour by the enterprises operating in financial services is not merely required but urgently required, as I think my noble friend said. Until recent events emerged I, for one, was not aware of the lack of professionalism and the seeming total unconcern with ethical standards on the part of people in the sector. Whenever I reflect on it, I still find it astonishing that apparently decent people behaved like a bunch of crooks, not to put too fine a point on it. They did not mis-sell products by chance; they deliberately mis-sold them.

Clearly, something must be done. My noble friends are right to see the Bill as the ideal vehicle for doing something, and for tabling amendments to it that would actually achieve something. The object is not to damage the sector, as it is a very important one that earns a lot of money for our economy, but to make it fitter for purpose, if I may use a cliché. My noble friend Lady Hayter is entirely right when she says that as a minimum—I underline “minimum”—there must be a code of conduct which is mandatory and enforceable. I was not clear whether she had in mind all sorts of penalties rather than just the most draconian of all of saying, “You cannot work in this sector again”. Perhaps she will clarify that when she sums up.

I hope that the Government understand all this. Certainly the public understand these problems. I also hope that the Government do not play their usual card and tell us that these amendments are not necessary because buried somewhere in some bit of fine print is an inferior version of what they do. In my judgment these amendments are necessary and the sooner we get them on the statute book, the better.

[Lord Phillips of Sudbury]

My Lords, I have amendments in the next group and so will keep most of my comments on this aspect of the Bill until then.

I wholeheartedly endorse what the noble Baroness, Lady Hayter, said in moving this amendment and, indeed, what the noble Lord, Lord Peston, has just said. The problem for all of us, most particularly my noble friend the Minister, is to try to contrive a state of affairs for the future which is fundamentally different from that which has prevailed hitherto. I think everybody in the House agrees that we cannot go on as we have done. The City of London, which has been the jewel in our economic crown, is now so tarnished and undermined by its own conduct that its future is far from certain. I have been involved in the City of London since 1964. It has strayed so far from its own mottoes of “My word is my bond” and “May God direct us” as to become almost laughable—indeed, “tragic” is a better word.

--- Later in debate ---

[Lord Phillips of Sudbury]

My Lords, I have two amendments in this group, Amendment 26D and Amendment 27A. As I said during debate on the last group of amendments, this part of the Bill is extremely difficult and I make no pretence that what the Government and indeed the parliamentary draftsmen are contending with here is other than the greatest test of their skill.

None the less, I think that they have got the balance wrong. Noble Lords will know by now that there are three objectives that must be satisfied as far as possible under the Bill: the consumer protection objective, the competition objective, and what is called the integrity objective. My two amendments are designed to buttress the last of those three: the integrity objective. I suggest to your Lordships that of those three objectives, integrity must surely come first. It is frankly no use if the competitive aggression of the City of London remains the highest on the planet, bar perhaps Wall Street, if the standards of integrity are wanting. The same is true of consumer protection.

However, the Bill gives priority to competition over consumer protection and integrity. I dare say my noble friend the Minister will deny that, but I leave that to your Lordships to judge. Having set out those three objectives, proposed new Section 1B(4) to the FiSMA on page 20 then says the following:

“The FCA must, so far as is compatible with acting in a way which advances the consumer protection objective or the integrity objective, discharge its general functions in a way which promotes effective competition in the interests of consumers”.

That is either a pointless subsection because it has no meaning whatever, or it is a subsection which gives priority to competition. One does not need to labour the point that the tragic and appalling depths to which the City has sunk over recent decades and which it is not yet out of—let us make no bones about it—have their source in simple, ethical failure, and not in a want of competence, aggression of trades, shrewdness or anything else. We as a Parliament really owe it to the country—and, in a strange way, to the City itself—to make it clear that above, before and after all else it is integrity which must be supreme.

I must confess that I am now sorry that I did not attack proposed new Section 1B(4) head on. With other amendments, however, I have sought to strengthen the arm of the regulators in Amendment 26D, which puts as one of the issues that has to be considered when the regulator construes the integrity objective what I call,

“the fairness and integrity of policy and conduct of those directing or operating in the financial markets”.

It is a bit strange that there is no reference in this huge Bill to the regulator in relation to the individuals who are conducting business in the financial markets. My second amendment is to the proposed new section that defines the competition objective. It requires, among the matters to which the FCA must have regard,

“how far the methods or culture of any competition may undermine the integrity objective”.

I have just one more thing to say. The regulators in the City—as I said earlier, I have been there, mainly, not as a City player but within the City and acting occasionally for City entities and individuals—have an almost impossible task. That is because the law on regulation is now so voluminous and complicated, and those against the regulator are so clever, intensive and overwhelming in the resources that they can bring to resisting when it tries to intervene, that we owe it to what we are trying to achieve and, in aid of that, to the regulators to make it clear beyond peradventure that although this new Section 1B(4) will give competition priority between the three factors, none the less these additional subsections would introduce the conduct of the individuals and the concept of fairness into the equation, because they are notably absent in the wording of this Bill.

I have dealt with some of the regulators over the years and I can only pity them. We need to think what it is like when they are under huge attack and dealing with heaven knows how many cases, all of them complicated and all against businesses which will array against them 10 times the number of professionals that they have to deploy. We really need to make life that bit easier for them so that some cynical and crafty lawyer cannot say, “If you look at that clause and that clause, then that schedule and that schedule, then this Act and that Act and the rest of it, it is not clear. So, old friend, go ahead”. We do not want that.

[Lord Barnett]

The noble Lord makes a good point. He should perhaps have talked to some of his friends on the last group of amendments, when they all voted with the Government. I wonder what they might do this time. Has he convinced them, I wonder? We will have to wait and see. I was surprised by the proposed new section to which he referred because I thought I had understood the “may” or “must” argument. Those words are used profusely throughout the Bill. Indeed, the noble Lord, Lord Sassoon, told us that he had asked officials to go through the whole Bill and work out which of them they should keep. What I had not appreciated—this is a point drawn to our attention by the noble Lord, Lord Phillips—is that on page 20 we have, in new Section 1B(4), another method of having “must” or “may”. We have a qualified must:

“must, so far as is compatible”,

with the later words. In practice, it is not “must” at all. The noble Lord wants to strengthen it, and I agree. We need to strengthen the arm of regulators everywhere. That is why I voted for the previous amendment.

We may be told that we should wait for the banking Bill, which we have in draft. We cannot be sure that that Bill will appear in that form. I know that at least one noble Lord on the Opposition Benches wants to insert in it something that the Government do not have in mind to insert; namely, a Glass-Steagall amendment. The Minister will know what I mean. I do not know whether he has committed himself or the Government to the draft Bill appearing in the new year. I think he said that we will have it in the new year. Perhaps he will confirm that. We clearly need a banking Bill.

I understand when the Minister says that the Government will take into careful consideration what the banking commission says, but he has not committed himself on that either. What exactly are the Government committing themselves to? They have set up this very high-powered commission, of which colleagues on all sides of the House are Members, and I understand that they are doing a first-class job, but we have been told only that he may, after serous consideration, introduce what the commission recommends. Will he firm that up this afternoon? Will we definitely have a Bill early in the new year, based to a large extent on the work of this high-powered commission, that will deal with some of the points that have rightly been raised about integrity and care? All these matters could be in a banking Bill as well as in this Bill but, for the moment, we have only this Bill. I support my noble friend Lady Hayter and the noble Lord, Lord Phillips. I will support him when he moves his amendment, and I hope his colleagues on the Liberal Democrat Benches will do the same.

--- Later in debate ---

[Lord Hodgson of Astley Abbotts]

I was not aware that I said that everything in the City was perfect. I said that integrity lies at the heart of the financial services industry, as indeed it lies at the heart of most commercial endeavour. I said that there were clearly areas where the City had fallen short, but I pointed out to my noble friend and to the noble Lord, Lord Peston, that the significant influence function committee has very considerable powers that it has been exercising with increasing strength in recent years. Therefore, I doubt that we need amendments such as this.

[Lord Phillips of Sudbury]

I am a bit confused. If the noble Lord absolutely agrees with me on the primacy of integrity, he cannot have read proposed new Section 1B(4) of FiSMA or he would not be content to oppose these amendments. New Section 1B(4) clearly states that the three objectives are equal but one is more equal than others—namely, competition. If he agrees with me and if one is going to be more equal than others, it should be integrity.

[Lord Hodgson of Astley Abbotts]

My Lords, I am not on the Front Bench, but as I read it, proposed new Section 1B(4) gives equal weight to these objectives. It states that in,

“so far as is compatible with acting in a way”,

the three are equal. I agree that integrity is extremely important, but we are not in a position where we want to avoid the other objectives, which have a real place in the creation of a dynamic City that is competitive on the world stage.

[Lord Phillips of Sudbury]

I hesitate to trouble the House with a further intervention—

[Lord Newby]

My Lords, perhaps I may remind noble Lords that the rules of the House are that on Report, Members speak once on an amendment.