Financial Conduct Authority

Debate between Mark Garnier and Graham Stuart

Monday 1st February 2016 Commons Chamber

[Mark Garnier]

I am regretting using the footballing analogy. I am not actually a huge football fan myself.

We have to look across the piece. The FCA has undoubtedly got it completely wrong in many cases—on interest rate hedging products and other things—and it is right that Parliament holds it to account, including through bodies such as the Treasury Select Committee, as a member of which I have a different point of view. I do not share the frustrations of those needing these debates or trying to get appointments upheld by the regulator; I can go along and get stuck in, along with other Committee members. That is the right way to do it.

It is also important to consider the successes. The FCA has managed to bring substantial fines for foreign exchange and LIBOR rigging. It even managed to bring a case through the Serious Fraud Office that sadly resulted in no convictions last week, when six foreign exchangers, who allegedly tried to fiddle the fixings, were acquitted. None the less, to get it to court was quite a success. The FCA has taken over responsibility for consumer credit and debt management from the Office of Fair Trading. It has protected consumers by banning retail sales of contingent convertibles—a technical thing to do with the resolution of failing banks.

Last February, the regulator published a paper aimed at providing help for firms that wanted to look after vulnerable consumers. On encouraging competition in the banking industry, the regulator, along with the PRA, created a challenger bank unit in January to help challenger bank entrants by providing the best regulation and thereby encouraging competition in the banking market. It has also provided an innovation hub, specifically aimed at the “fin tech” area, to help new entrants into the financial services sector to navigate the authorisation process. The regulator is, therefore, trying to do a number of things, and we need to be careful not to throw the baby out with the bathwater.

People worry about several issues. There is a big question about whether the Government are interfering with the regulator. Have they been interfering directly and explicitly? Are they taking it easy on the banks? I suspect that the cancellation of the thematic review might be a red herring. Most banks, given the 8% increase on their corporation tax rate, would argue that the Government are not being lenient on them. The Government are levying a bank levy that will help to repay taxpayers for all the money used to bail out the banks.

The reverse burden of proof has been reversed, but the implementation of ring fencing by 2019 will come at a fantastic cost to the banks of several billion pounds, in order to make sure that when the next financial crisis hits—there will definitely be another one—the collapsing banks do not take down other banks with them.

[Graham Stuart (Beverley and Holderness) (Con)]

My hon. Friend is making a strong case for the role of the FCA in terms of systemic, high-level regulation, but does he think it is fit for purpose in protecting consumers, entrepreneurs and individuals who, from that high level, might not look so important?

[Mark Garnier]

That is obviously the whole point of the debate. The answer, overall, is yes, but I think the regulator gets it wrong on occasions, which is why we have the Treasury Committee and debates such as this—to hold its feet to the fire on specific issues, such as those raised by my hon. Friend the Member for Aberconwy.

It is important to remember that this is a conduct regulator for a global business. It is worth bearing it in mind that 2.2 million people work in the industry. It represents about 12% of our GDP and generates about £65 billion a year in tax receipts. This industry is a global industry, and we should be careful about criticising it so vehemently by agreeing on a motion of no confidence. What message would it send to the rest of the world about our ability to regulate the huge amounts of international capital—running into trillions of pounds—that comes and finds a safe haven here in the UK with a regulator it can trust? If we say that the regulator is not fit for purpose, it will send a profound message to a significant part of our economy.

We need to cast an eye to the new chief executive. Andrew Bailey, who is coming from the PRA, has been in front of the Treasury Committee and the Banking Commission many times. I for one have found no reason not to think him an extraordinarily pragmatic, intelligent and wise regulator. Time will tell, and we will have to see how he gets on at the FCA, but it is important that he starts his career at the FCA with our good will, not with the feeling that the FCA is a problem to deal with.

Finally, I want to confront the big question about the possible interference of the Treasury. No matter how many times I ask people—either explicitly or by trying to get them drunk—I can find no evidence of any interference from the Treasury in the work of the regulator. There is possibly an implied interference, however, and one solution could be to give the Treasury Committee a power of veto over the hiring of the next chief executive.