Mark Field
Main Page: Mark Field (Conservative - Cities of London and Westminster)Department Debates - View all Mark Field's debates with the HM Treasury
(12 years, 10 months ago)
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Mark Field (Cities of London and Westminster) (Con)
My right hon. Friend is absolutely right about this. Surely the issue is the clarity of the relationship between the Governor and the Chancellor of the Exchequer in relation to the confusion in the tripartite system. That would not prevent, and should not prevent, any Governor worth his salt from at least making it clear that there were other views within the Bank, albeit that it was his judgment in the advice to the Chancellor. That gets away from some of the confusion about whether we are looking to sweep away an integral part of the tripartite system.
Mr Osborne
My hon. Friend makes an extremely good point. This is all about the Governor’s responsibility to do his or her job in managing the Bank, and about the Bank coming to a collective view. The job of the Chancellor of the day is to manage the relationship with the Governor. For all the virtues of the tripartite system that the shadow Chancellor seems to be extolling, I understand that those at the principal level in the tripartite system did not meet for 10 years; perhaps he can correct me, as he was there.
Mark Field (Cities of London and Westminster) (Con)
To be frank, I still regard too much of this legislation as deficient, and I shall touch on some specific concerns, but it would be remiss not to give the Treasury significant credit for some of the work it has done. The extensive and broadly constructive pre-legislative consultation by the Joint Committee is a positive step. The outstanding and ongoing contribution of the Treasury Committee will help to focus the Government’s mind on some of the key institutional pitfalls. There is also an increasing recognition by the Treasury that this is an area of public policy where political judgments will need to be made, and that ultimately the buck must stop with it, not with the Bank of England, however good a Governor we may have.
My general dissatisfaction relates first and foremost to the inevitable guillotine in this House, which means that the high-level sophisticated scrutiny will have to come from the other place, and I fear that that shows our House in a poor light. It is not that we lack collective experience in this crucial field, but the wish of Governments, throughout my 11 years in the House, to get legislation through by whipped votes means that we continue to fail to hold the Executive to account, particularly on such important pieces of legislation.
This is probably the only area where I have some sympathy with the shadow Chancellor. The genesis of the Bill was perhaps a rather simplistic political analysis surrounding the financial collapse of 2007-08. It was not really the tripartite system of regulation that was at the heart of those concerns, but an old-fashioned debt and credit bubble and the global imbalance between the east and the west. It is important that we recognise that, because the result was not simply the failing of banks, bankers and Labour politicians; the simplistic analysis also fails to answer the core question that has dogged regulators ever since the financial crisis began: “When the crash came, who was in charge?” The risk is that we will replace an unsatisfactory tripartite system with a potentially even more complex four-way system. I think that there is a risk that that will come to pass, although I do not buy into the shadow Chancellor’s entire analysis. In truth, the new FCA will have too few people of the requisite expertise and sound judgment. Unsurprisingly, it remains very unloved and unrespected by too many professionals in the City, and I am afraid that that matters, given the important role that it will have.
Let me touch on some of the more substantial political issues that the press have not focused very much on. There is an overall concern about how prescriptive the new regime will be, and to what extent the Bill will recalibrate things in a way that will have unintended and potentially damaging consequences for the industry, the UK and the consumer. I will give a few examples. On the warning notice publicity, the Bill will change the current position whereby enforcement action becomes public only at the end of the process, after the firm has decided whether to go to tribunal, and before that stage has had two opportunities to make representations. The new approach means that there will be negative publicity at the stage of the warning notice—the first notice—and the firm will have no right to make representations before that. The reality is that, essentially, the Daily Mail test means that all the damage to the firm’s reputation will be done before any due process has been gone through. The argument in favour of the change is that this is similar to a criminal case, but that misses the important difference between the cases, and represents a worrying trend in the thinking, to the effect that everyone in the industry is somehow a would-be criminal.
Mark Field
I am afraid that I will not.
Product regulation and financial promotion powers are another issue. There are powers to intervene earlier in the product life cycle and ban financial promotions. There is an argument that the FSA already has the power to do this. The big political point is the balance between market and regulatory failure. All the debate has been about how the powers are needed to prevent market failure and how the regulator will be far more involved in product design and in the business. It is difficult to argue with the concept, but the position that there is no moral hazard in going down this route is arguably naive, and fails to recognise that the regulators never have perfect vision.
The cost of regulation is in many ways the dog that has not barked. There is nothing in the Bill to apply more financial discipline to either the PRA or the FCA, so the cost-benefit analysis does not apply to the rules that they have in place. We must also ask how the new regulators will work together. The Bill sets out certain principles for the memorandum of understanding between the PRA and the FCA, which is perhaps all that can be expected. However, that leaves on trust a lot of the detail of how the new organisations will work together. That is a key practical issue for firms if this is not to lead to new and inconsistent regulation.
One good example relates to threshold conditions. The Bill provides the PRA and the FCA with the power to make threshold condition codes, which will elaborate on the conditions and how they will apply to different classes of firm. Those codes will be binding. What will happen if the two regulators take inconsistent approaches on, for example, explaining what they mean by the suitability condition? The last thing anyone wants is the development of an industry engaged in arbitrage between the two inconsistent approaches to regulation for different parts of the industry. That is a particular worry for dual- regulated firms, and firms left under the FCA, such as fund managers, are concerned that they could suffer from more heavy-handed regulation, rather than the more senatorial style that it is assumed the PRA will adopt.
Will there be enough of the secondary framework to be able to consider the new structure properly? That is a general question, and one example is whether investment firms are within the PRA’s scope. Firms do not yet know, and things keep changing. For example, the Government agree that the risks posed by investment firms and the concerns arising from last autumn’s MF Global failure should continue to be subject to scrutiny by the authorities, which might change the boundary. The point about MF Global is that it did not take proprietary positions, and so would have fallen on the FCA side. The argument is that the organisation has caused great systemic problems, and so surely should have been regulated by the PRA.
That question has now been partly—but only partly— addressed, through the draft designation order published on the Treasury’s website, setting out the criteria that the PRA will apply when considering whether it should designate individual firms as “dealing in investments as principal” for PRA regulation. Has enough thought been given to that issue, however? There is a parallel debate about large hedge fund managers, who deal only as agents, and therefore stay on the FCA side, yet arguably pose a systemic risk themselves. It is hard to look at the new framework in the round until all such details are sorted out.
I shall conclude soon, because I appreciate that other Members have more to say. Indeed, there is so much more that I could say myself. One issue that has been widely discussed is the competition objective, which was especially well dealt with in the Joint Committee’s report. The point often missed is that the whole discussion is about competition within the market, and whether that itself should be an objective or principle to which the FCA ought to be compelled to have regard. It is not about the more fundamental issue of the competitiveness of the UK as a financial services centre, important though that is. That says something about the new approach to the industry.
I fear that we risk throwing the out baby with the bathwater. Why should the UK not have regard to the competitiveness of one of its most important industries, subject to the other important goals of market stability and consumer protection? Rebalancing the economy is all well and good, but it should not mean undermining the vital importance of the City and of financial services to the UK as a whole.
Chris Leslie (Nottingham East) (Lab/Co-op)
First, I congratulate hon. Members who have taken part in the debate this evening, particularly those who served so diligently on the pre-legislative scrutiny Committee and on the Treasury Select Committee, many of whom are in warmer foreign climes at present. I thank in particular the right hon. Member for Hitchin and Harpenden (Mr Lilley) for chairing the pre-legislative scrutiny Committee and my right hon. Friend the Member for Newcastle upon Tyne East (Mr Brown) and my hon. Friend the Member for Leeds East (Mr Mudie), who contributed to the debates, for their work.
My hon. Friends have spoken on a number of topics this evening, but it would be invidious in the short time left for Front Benchers—only 10 minutes each—to try to discuss them in more detail. But do not worry Mr Speaker, because we will have about 10 hours in every one of the four weeks when we consider this Bill in Committee, so we can elaborate on each other’s comments then. Let me just note that my hon. Friend the Member for Walthamstow (Stella Creasy) rightly spoke about the need for reforms to high-cost credit and that my hon. Friend the Member for Rutherglen and Hamilton West (Tom Greatrex) spoke about the collapse of Arch Cru and the need for lessons to be learned, and made a reasonable call for a Treasury inquiry into those matters. My hon. Friend the Member for Islwyn (Chris Evans) emphasised the need for more action on financial education and my hon. Friends the Members for Glasgow North East (Mr Bain) and for Foyle (Mark Durkan) talked about the current difficulties in the banking sector, particularly with high executive pay. Also, my hon. Friend the Member for Edinburgh East (Sheila Gilmore) spoke about the importance of addressing financial exclusion and access to basic bank account services.
The Bill is a significant piece of legislation and we support the moves to a prudential regulatory approach with improved systemic oversight, but there are serious misgivings about the proliferation of agencies and the confused responsibilities in the Bill, which are far from ideal. As we have heard, we are moving from a tripartite system to a quartet system, and the acronyms abound. That might work, but we need clear lines of accountability. That was the point that my right hon. Friend the shadow Chancellor was making. There are issues with complexity, and risks associated with putting all our hopes on placing regulation in the hands of the Bank of England. The formation of the Financial Policy Committee is sensible, but we need to ensure that it has the right composition, with fewer Bank of England officials in its membership, and that appointments reflect the balance across the economy.
We have touched on a number of issues relating to the economy, such as responsibility and long-termism, and we have heard about consumers of financial services, many of whom are, after all, constituents of ours, for whom we have an obligation to speak. There will undoubtedly be a debate about the objectives of the Financial Conduct Authority and whether they are sufficiently focused on the fairness, transparency and efficiency we need in the system. There is some confusion in the Bill regarding the FCA’s powers when it issues a warning notice, and the extent to which such notices will be published. Will it be known to consumers or will there be a nod and a wink, with notices going privately to the companies concerned? Is that the right balance? I am not entirely sure that that works.
We have to do a lot more to emphasise other consumer protection matters. We must surely grasp the nettle and take this opportunity to do what we can to improve financial education in all our schools up and down the country. We must also make sure that the information available to customers more generally is accessible, intelligible, clear and understandable so that we can try to do something about the asymmetry of information that hon. Members have discussed.
My hon. Friends the Members for Islwyn and for Foyle suggested that a fiduciary duty of care should be placed on providers of financial services, and we think that there are compelling arguments in favour of such a change, particularly as some important points about pensions and charges need to be brought out in the debate, as the hon. Member for Warrington South (David Mowat) mentioned.
My hon. Friend the Member for Walthamstow continued her campaign to introduce a time limit and a limit on high charges for credit, particularly for the vulnerable in our constituencies. I agree that it is time to ensure that the FCA has powers to take action in that regard and on fee charging, debt management plans and further safeguards for depositors.
When it comes to responsibility and the long-term changes that are needed to ensure that financial services address the real economy as well as the needs of consumers and constituents, it is important that we learn the lessons of the past. Therefore, we must look at the FSA’s report on RBS and take action in the Bill to end the bias in advisory fee structures in takeovers. We must take the opportunity to reform acquisition and merger rules, as the FSA has recommended. To what extent can we use the opportunity presented by the Bill to enhance the role of the Financial Reporting Council, and possibly the FCA, to support sound stewardship and shareholder accountability and to improve the corporate governance that many hon. Members have talked about, never mind the reforms that are so overdue to executive pay, the bonus culture and the remuneration committees that have been so much in the news in recent days? It is also important to take the opportunity to do more to support a diverse financial services sector, supporting mutuals and building societies, many of which do not fit into the neat capital requirements and plc structures imposed on them by current regulatory arrangements. Those are some of the changes that we will want to introduce in Committee.
It would be wrong not to take this opportunity to talk about one of the fundamental vacuums in the Bill: the insufficient attention to jobs, growth and finding ways to support our economy. The action taken by the Financial Policy Committee and the Bank of England will undoubtedly have a big impact on the availability of credit, not least because the Government have signally failed to do anything to encourage bank lending: Project Merlin has already fallen by the wayside and credit easing has still not commenced. The FPC has the objective of protecting and enhancing stability, but we believe that it should also be guided by the objective of promoting employment and the long-term growth prospects of the economy. That is something that the CBI has argued for, and it happens in similar situations elsewhere around the world.
Perhaps the Government’s difficulties stem from their partisan design of these structures when the Chancellor was in opposition. As we heard in his speech, the Government have tried to tell a domestic political narrative that pins the failures of the credit crunch solely on the previous Administration, and suggest that it is something that happened only in this country. In his revisionist attempt to re-write history, not even once did he mention the problems in other countries, or the fact that there was a global financial crisis. He suggested that what happened, happened only here in Britain—as if the then Prime Minister got on a plane and caused all the problems in America, Spain, Germany and elsewhere, as well as in the UK. The Chancellor’s analysis of the history of the credit crunch is lacking, to say the least. It would have been better if he had redesigned regulation in a way that recognised the casino culture of the global banking sector at the time of the financial crisis.
We are faced with a Bill that contains a number of problems, but ones that we hope can be amended and improved. The regulatory structure fails to sit adequately with the international and European regulatory environments. The EU’s supervisory bodies are split thematically to deal with banking, pensions and insurance, rather than mirroring the conduct and prudential arrangements set out in the Bill. Given that the EU drives the vast bulk of the regulatory agenda that will be able to overrule the domestic regulators that we are debating, it is important that the Government state clearly how they will ensure that our voice is not marginalised in those regulatory environments—if, indeed, it is possible to be even more out in the cold than the Chancellor is at present.