Banking Reform

Viscount Trenchard Excerpts

Thursday 17th June 2010 Lords Chamber

[Viscount Trenchard]

My Lords, I also take this opportunity to congratulate for the first time my noble friend Lord Sassoon both on his ennoblement and his appointment, which is indeed excellent news. I believe that there are three of us in your Lordships’ House today who served on the pre-scrutiny committee on the Financial Services and Markets Bill under the noble Lord, Lord Burns, who is in his place. Although I think that the noble Lord, Lord Eatwell, did not share that view at the time—it was 10 or maybe 11 years ago—I recall that there was extensive debate then on whether the FSA was being given too many powers. Certainly, some of us on the committee felt that the FSA should have been in a subordinate position to the Bank of England even from that time. Therefore I welcome the Government’s proposal that financial stability and monetary policy should be combined—in other words, the prudential regulatory functions of the FSA should be either transferred to the Bank of England or made subject to oversight by it. That is indeed a positive move and will help to ensure that there is no doubt in future as to who is in charge.

I ask my noble friend, though, whether there is not some concern about creating too many new quangos—too many new bodies. I see that the FSA is going to be replaced by three bodies: the CPA, the CFEB and the PRA, the rump of the FSA, each with its own board and, to some extent, with overlapping functions. I worry about the cost of these new bodies to the financial services industry. I wonder whether the consumer protection functions could not equally efficiently, or perhaps more efficiently, be taken on by existing consumer protection bodies, such as the one whose name I forget that operates under the business department.

I have a second question. I note the four principles that the Government will be guided by during the transition to the new regime, but might the Government consider adding a fifth—the maintenance of the competitiveness of the City of London as a financial centre? If we fail to do that, it will not be much good for us, however perfect a regulatory system we establish.

[Lord Sassoon]

I am grateful to my noble friend Lord Trenchard for his warm words. He mentions the question of too many powers under the old regime. I stress that I think it is more a question of the mindset and the regulatory approach rather than the powers themselves; it is the whole approach to regulation that needs to be changed. He raises the important question of whether we are creating too many bodies. I shall try to reassure him on that; indeed, the landscape is being simplified. Although the PRA will be a subsidiary of the Bank of England, it will be fully embedded in the bank structure. In that sense, I do not see that as the creation of a new body. My noble friend draws attention to the CFEB, which was created as a self-standing body but will now come under the auspices of the CPMA. We are creating a much simpler and more efficient structure in the landscape that should not create any additional difficulties.

My noble friend asks about the remit of the CPMA. Although its principal remit will be to ensure that the conduct of business is properly regulated across all markets, the question of secondary responsibilities, which could become primary responsibilities, including the competitiveness of markets, needs to be considered during the consultation process.