Financial Services Bill

Lord Whitty Excerpts

Monday 11th June 2012 Lords Chamber

[Lord Whitty]

My Lords, I want to approach this Bill in a slightly different way. Although I no longer have any formal role in the consumer world, I want to look at the Bill from the point of the view of the average consumer of banking and other financial services and of the microbusinesses that have to deal with our financial institutions. They are faced with a very powerful and often quite incomprehensible financial system and a fairly incomprehensible system of regulation. I am not sure that this Bill will help them or, indeed, many practitioners in this field. The Bill is not only, as my noble friend Lord Eatwell said, slightly messy in its presentation, for all the pre-legislative efforts, but the way that it is drafted makes it difficult to follow, and it also excludes substantial parts of the jigsaw. The Minister referred to the Vickers report, the forthcoming White Paper and a separate banking Bill, and in another part of the jungle we have a change in the competition regime and changes in EU financial regulation, all which need to be taken into account before anybody can form an overall position about whether this new regime replaces the old regime in a way that is beneficial to the consumer.

It is clear that there were serious failures in the 1997 tripartite structure. It is also pretty clear that there were serious failures in the pre-1997 structure that concentrated powers in the Bank of England and the Governor of the Bank of England. We need to look to see whether this third attempt is any better. Many of us would conclude that the problem was not so much the institutional structure as the nature of the regulation. I would say it was too light touch—the noble Lord, Lord Bilimoria, would say it was too wrong touch—and I am not sure that the current structure makes it much better.

I, slightly surprisingly, find myself on the same page as the noble Baroness, Lady Noakes, on this one. The separation of the FSA into two distinct parts does not necessarily commend itself to me. Of course, there are those like the noble Lord, Lord Lawson, who will say that consumer protection got in the way of proper prudential supervision; there are also some on the consumer side who would say that the FSA was overburdened and failed in its consumer protection, partly because it had multiple functions. Total separation, which this Bill appears to create, seems unfortunate. After all, if you look at Northern Rock, it failed on its own corporate microprudential side and, indeed, made a major contribution to the failure on the macroprudential side because it was selling inappropriate products to the wrong consumers. In other words, in that case the consumer interface was important in the prudential sense in the total running of the monetary system, as it was in the United States with those who advanced subprime loans and so forth. Separating them totally is dubious. However, like the noble Baroness, I think I will be flogging a dead horse on this one if I pursue that in Committee. After all, the previous Government also proposed separating them, and I think I had better concentrate on what I would regard as a slightly second-best solution; namely, that the Bank of England and the PRA should also have some regard to consumer considerations and that there should be more effective co-operation between the PRA and the FCA and between the Bank of England and the FCA in relation to consumer issues and consumer issues implications through the broader supervisory role. That could be in a memorandum of understanding, but since the previous memorandum of understanding did not really work, as several noble Lords who have great experience of these matters have said, I would prefer to see it in primary legislation. It is certainly something that we should return to in Committee.

Turning to other consumer issues, why are we not writing a consumer mandate throughout the Bill? Where are the enhanced consumer powers? I welcome the additional powers for the regulator with regard to such things as products—I recognise that there are restraints on those—but where are the powers for the consumers themselves? Under Alistair Darling, the previous Government proposed, for example, at least a limited form of collective redress in financial matters. That would greatly simplify the current mess over PPI. Whether such a system of collective redress would be opt-in or opt-out is a secondary consideration. However, that additional direct power for consumers or consumer organisations appears nowhere in the Bill.

I have other concerns. One consumer concern in particular relates to privacy. The nature of the banking sector is changing. Organisations that are not banking organisations are setting up banks or quasi-banks. We heard about Marks & Spencer just this morning. There is protection for the privacy of data for the consumer of one subsidiary of a bank; the parent company cannot use that information in a different context. However, no such provision seems to apply to supermarkets. They already have a huge amount of data on their customers, which they could use to customers’ detriment were they to pass them to their financial wing—Tesco bank or M & S bank, or whatever we will call it. That is a loophole that we need to address.

There are also issues in relation to the competition structure. When, under the previous Government in 2008, this House approved the takeover of HBOS by Lloyds TSB and the nationalisation of RBS, I argued that we had to agree to it, given the emergency, but that in 18 months’ time there should be a full Competition Commission investigation into the structure of retail banking. However, if anything, the situation has got worse since then. I hope that the fact that the OFT has powers in relation to CCA issues does not mean that we end up with yet another sectoral regulator of everything in financial services that has competition well down its list of considerations. After all, some other sectoral regulators, such as those for energy and water, are adamantly opposed to any reference to the Competition Commission because they see it as a failure on their part. We need to avoid that.

I make a brief point on governance—not so much governance of the Bank of England as of all banks. Banks are unique companies. The rules that apply to joint-stock companies and other bodies generally are not really appropriate for banks. We must all recognise that if we do not change the responsibilities of the boards of banks and those who sit on them, we will go through a similar crisis again. At some point, in the course of either this Bill or the banking Bill, we should address that issue.

Finally, I agree wholeheartedly with the right reverend Prelate the Bishop of Durham, who made a very effective speech. We have a two-tier financial market in this country. Around 20% of our population do not have access to banking facilities, credit or insurance in the way that most of us do. On the credit side, many are driven to those who offer loans at a rate of around 1,000% APR and often, as the right reverend Prelate said, into the arms of criminals. Unless we not only intervene in that market under the new regulatory structure but impose on the mainstream banks and credit creators some responsibility for universal provision, I am afraid that the two-tier financial market, financial exclusion and the whole system—of which payday loans are but one example—of division within our society will persist. I hope that somewhere within the Bill and this structure we can address that issue as well.