Financial Services Bill

Lord Tyrie Excerpts

Tuesday 22nd May 2012 Commons Chamber

[Mr Andrew Tyrie (Chichester) (Con)]

I much agree with the sentiment of the remarks of the hon. Member for Nottingham East (Chris Leslie) a moment ago, and I will elucidate a little on some of the points that I think their lordships might want to look at. The Bill is the most important overhaul of financial regulation ever undertaken in this country, and it has implications for the health of the whole economy and affects everybody—every citizen, every business up and down the land. Along with the forthcoming banking reform Bill, it will change the landscape of our financial services industry, in which we lead the world in many areas and on which so many jobs in the UK depend.

The legislation certainly leaves this place in better shape than it might have done, which I think has something to do with the number of amendments that have been tabled and arguments that have been listened to by Ministers. Sometimes those arguments have come from those on the Opposition Front Bench, sometimes from the Public Bill Committee, sometimes from the Joint Committee, and sometimes from the Treasury Committee, which I chair. On that, I would like particularly to thank my colleagues with whom I work on the Committee who have been so helpful and generated so many ideas, helping put together the succession of reports that we have put out. They have, to some degree, influenced the shape of this Bill.

None the less, it is the Treasury Committee’s considered conclusion that the Bill is still defective in a number of respects. On the first day on Report, the Committee proposed a new clause to make the court more transparent and to require it to act more like a proper board. The Bank must have a board that is capable of assessing the institution’s performance, but it is explicitly prohibited from doing so at present. In view of the Minister’s favourable response to that new clause in the debate a few weeks ago, I look forward to seeing movement on the issue in another place. A number of other defects remain in the Bill, a few of which I will list in a moment.

It is important to put on the record one or two other points. Right from the beginning, the Government made decisions about the reform and the timing of the Bill that, in my view, have made the legislative process more complex and difficult than it could have been. For a start, we should have had a new Bill, something on which the Governor of the Bank of England and the Treasury Select Committee wholly agree. The complexity of the Bill could turn out to make it a lawyers’ charter—I only hope not.

Then there is the rush to get all this done quickly. After all, the horse has bolted. We have just had a most serious financial crisis; a crisis of the sort that we might have hoped the legislative framework would have protected us from. We now seem to be legislating to what can only be described as an arbitrary timetable in order to get the Bill through by the end of the year. Neither I nor the Committee have heard a good reason why we cannot take a few more months to get the legislation right. That meant that the Bill was produced without taking into account a number of views, including that of the Treasury Select Committee, on the shape of the Financial Conduct Authority. Some of the Bill’s current weaknesses owe something to the fact that not enough attention was paid to those views. We must therefore depend on the other place to get the legislation right.

I will briefly summarise a number of areas to which the Treasury Select Committee has drawn attention and which I hope the other place will look at. First, I have already mentioned the new clause that my colleagues and I proposed for improving accountability, and I am glad that there has been Government movement on that.

As I said on Report, all proposals to improve accountability, both of the Bank to its board and to Parliament, should be judged against two criteria. First, does the proposal hold out the prospect of improving the performance of the institution, meaning the quality of public policy decisions that the Bank will take, and secondly, does the proposal help secure public consent for the decisions? That is particularly important in a powerful body that is remote from the citizenry, such as the Bank of England. On both criteria, and particularly the second, the appointment and dismissal of the Governor would benefit from a parliamentary veto. The Treasury Committee’s second point is that the independence, authority and, in a sense, legitimacy of the Governor’s decisions will be enhanced if there is a parliamentary veto, through the Committee, over the appointment and dismissal of the Governor.

Thirdly, the Financial Policy Committee and the court should publish full minutes. The Government’s proposed compromise, that a so-called record be published, simply will not do and will not be enough to satisfy the Treasury Committee. We will inevitably end up demanding the full minutes and, one way or another, will persist until we get them.

Fourthly, the Chancellor needs a general power to direct the Bank of England in a crisis when public funds are at stake, not the rather strictly circumscribed powers the Bill currently contains. The Government picked up part of the proposal that the Committee made in our report on the need for some kind of limited power of direction for the Chancellor over the Bank in a crisis in order to deal with the problem to which the previous Chancellor has alluded, not least in his rather graphic memoirs of that period. The measure that the Government are proposing to put on the statute book might deal with the current crisis, which we have had over the past few years, but it might not put at the Chancellor’s disposal the right tools in some future crisis.

Fifthly, there needs to be enhanced scrutiny of the secondary legislation that will accompany the Bank of England’s macro-prudential tools. The hon. Member for Nottingham East referred to exactly that when he talked about the need for a super-affirmative procedure, and the Treasury Committee agrees: we must have something that provides for full debate and time to consider the proposals, except in case of emergencies.

Sixthly, the MPC and the FPC should both have a majority of external members. We on the Treasury Committee think that, in the longer term, this is essential in order to guard against group-think on those committees.

Seventhly, the Lords needs to look again at the Financial Conduct Authority’s objectives. The FCA would work better if it focused on a single set of objectives. Midway through the process, the Government added to the proposals what they describe as overarching strategic objectives, but the Treasury Committee concluded that they add nothing to the operational objectives in the Bill and might, indeed, take something away by creating confusion.

Eighthly—but by no means last, and certainly not least, although I probably will end on this point—the Financial Conduct Authority’s accountability mechanisms need strengthening. The FCA should publish its minutes, its chief executive should be subject to pre-appointment scrutiny and it should review its own performance without the need for the Treasury Committee to force it to do so. The Committee managed to get the Financial Services Authority to review the collapse of RBS, but it was hard work persuading it to do so.

The Financial Conduct Authority has been the poor relation throughout this process of parliamentary scrutiny, and regrettably the legislation carries over into the new body many flaws—the box-ticking culture, the burdensome problems of regulation, its cost and some of the regulation’s apparent pointlessness—in existing FSA practice, so I very much hope that their lordships get their teeth into that problem.

Overall, therefore, this legislation is a big step forward from the legislative framework that was in place at the time of the crash, but much more could be done to improve it further. It really could be so much better, and there is still time to do something about it. Let us hope that, when it comes back from the other place, that work has been done.