Financial Services Bill

Viscount Trenchard Excerpts

Tuesday 3rd July 2012 Lords Chamber

[Viscount Trenchard]

My Lords, I also support my noble friend’s amendment. In particular I think that this whole section is unclear and muddled. It is extraordinary to state that a committee of the court, which is the board of directors, may make recommendations within the Bank. The Financial Policy Committee is clearly a committee of the court. That has been stated. It is strange that it is asymmetric and different from the MPC. This is a recipe for muddle because if it is a committee of the board—that is, the court—it has no authority beyond the court. Any authority that it has is the authority of the court. To state that a committee of the board—the court—may make recommendations within the Bank seems weird.

Similarly, in making recommendations to the Treasury, if it is a committee of the court, it should be the court that makes those recommendations. We are getting very confused. The difference between the FPC, dealing with macroprudential regulation as a committee of the Court of the Bank of England, and the PRA not as a committee but a different body, but again within the Bank of England, is strange. I just think it all needs to be clarified a bit more.

[Lord Eatwell]

My Lords, I first address the amendment moved by the noble Baroness, Lady Noakes. I am now very puzzled by the status of recommendations, given that a recommendation is not necessarily something which needs to be followed. Given that there seems to be no indication, as the noble Baroness, Lady Noakes, pointed out, about the reactions to recommendations, it is difficult to assess the status of this concept within the structure of the Bill. My Amendment 69 simply deals with the offending new Section 9Q and deletes it. It states:

“The Financial Policy Committee may make recommendations to”,

the world. I am sure the world would be very grateful, but we should not expend public money on making recommendations to the world, and especially not on confirming them in writing. It would be interesting to know who these “persons other than those” are defined to be when we are talking about the context of macroprudential regulation; we are not talking about relationships, say, with individual firms or whatever. The noble Baroness, Lady Noakes, has picked up on some important and valuable obscurities in the Bill and it would be helpful if the Minister could elucidate them.

A sort of bran-tub of my amendments has again been grouped together. I am sorry about that but I am not responsible for the groupings. I could ungroup them but that would be tedious for everyone, so let us deal with them. Amendment 48 is included in the group, which again has been tabled in the context of directions. It refers to the point made with respect to the nature of directions. The Bill states in proposed new Section 9G(4) that:

“The direction may relate to all regulated persons or to regulated persons of a specified description, but may not relate to a specified regulated person”.

I understand entirely what the drafting is supposed to do, but given the level of conglomeration and concentration in the financial services industry, I do not think that this will work as it is quite possible to refer to,

“regulated persons of a specified description”,

but for there to be only one firm of that description. It is quite possible for that to happen. If this may not “relate to” in the sense that it may not have a relationship to, that would rule out, say, a reference to,

“regulated persons of a specified description”,

if it just so happened that the set of persons of that description contained but one element—just one firm of that type. We can see that there are various niche firms and highly specialised companies in the City. I can think of very highly specialised money brokers of which only one performs a particular role in the money markets. Perhaps my amendment would have been more helpful if it had changed the word “relate” to “refer”, so that the direction could not refer to an individual specified regulated person. That would be inappropriate and would go beyond what the FPC is designed to do. However, I am nervous that the activities of the FPC may be unreasonably limited by the possibility that there might be just one specific regulated person within a given class of persons to which the FPC wishes to issue a direction.

I turn to Amendment 50, which again refers to new Section 9G. Subsection (6) refers to the fact that a direction,

“may not require its provisions to be implemented by specified means”—

I am not quite sure what that means—but then it goes on to say,

“or within a specified period”.

This is very dangerous in the sense that it may be enormously important that a direction should be operational within a specified period. It may be important for the financial stability of Britain that actions take place within a month or six weeks, or whatever the period might be. Being unable to require that provisions be implemented within a specified period seriously weakens the ability of the FPC to pursue effectively the stability objective. I am also a bit worried about the term “specified means”, but again, I am not sure what it means. Perhaps the Minister could help me on that when he replies. I really think that the business of a specified period should be looked at very carefully indeed for fear of weakening the powers of the FPC.

Amendment 63 has been withdrawn, so I turn now to Amendment 66. It refers to the making of recommendations under new Section 9P(2), and states specifically that:

“The recommendations may relate to all regulated persons or to regulated persons of a specified description, but may not relate to the exercise of the functions of the FCA or the PRA in relation to a specified regulated person”.

Again, this is the problem. It is quite possible that a generic description could apply to just one regulated person. Therefore, this is the same point that I made with respect to Amendment 48. The word “relate”—that is, “have a relationship to”—could result in the FPC not being able to make recommendations because the specified activity was performed by only one particular institution.

Finally, Amendment 69 is where I follow on from the noble Baroness, Lady Noakes, and comments that have been made by the noble Lord, Lord Hodgson, and the noble Viscount, Lord Trenchard, about new Section 9Q being very odd. It states that:

“The Financial Policy Committee may make recommendations to persons other than those”,

namely, the rest of the world. With those comments, I look forward to hearing the Minister’s comments on the amendments in the name of the noble Baroness, Lady Noakes, and the various amendments in my bran-tub in this case.

--- Later in debate ---

[Lord McFall of Alcluith]

On this point, can I remind fellow Peers that I have invited the Governor of the Bank of England along tomorrow morning, so I suggest that they ask him the very important question: “Will he enjoy writing letters to himself in the future?”.

[Viscount Trenchard]

The Minister just said that the FPC is to be a separate committee with strong statutory powers. I find it very hard to reconcile this with its being a committee of the Court of the Bank of England. This is different from the MPC, which is not a committee of the court but is a committee of the Bank. It would be more logical and comprehensible if at least it were acknowledged—as it clearly is—that the FPC is not a committee of the court but a strong semi-separate body. However, the Bill says that it is a committee of the court, in which case it cannot have any powers beyond the powers of the court.

[Lord Sassoon]

My Lords, the clear advice on the drafting of the Bill—notwithstanding other constructions that my noble friends are putting on this—is that the FPC should have the clear power to make these recommendations. I remember now that I, almost on a daily basis, am writing letters of perhaps a similar kind when I write to my boss the Chancellor—when, for example, he is wearing his hat as the chair of a Cabinet committee—for clearance or to seek permission for some policy matter. I certainly write letters within the Treasury on a regular basis to deal with formal matters, which is broadly similar territory to what we are talking about.

I have talked about the importance of clarity and transparency. It is perhaps worth underlining that one of the things that this power does is to ensure—because FPC recommendations will be published in the meeting record of the FPC—that the public are informed that, if a recommendation has been made by the FPC to the Bank, it is recorded and is open to public scrutiny.

I think that it was my noble friend’s construction that the FPC cannot have powers beyond those of the court. I correct him on that: if the Bill confers such powers on the Financial Policy Committee, it does indeed have powers that the court does not have.

--- Later in debate ---

[Viscount Trenchard]

In that case, does my noble friend the Minister not think that it would be right to recognise the FPC as a committee of the Bank and as separate from the court, having its own powers as given in the Bill? The position would then be logical. At the moment, it is stated that it is a committee of the court. If I were a member of the court, I would not find it easy to understand any structure where a committee of the court—that is, the board—had powers which were independent of and separate from those of the court itself.

[Lord Sassoon]

My Lords, that is the situation; my noble friend might find it difficult now. If he or anybody else was appointed—as they have been—to the interim FPC or the formal FPC if and when it becomes established, they will of course receive extensive briefing on all these matters. This is not the right place to discuss how the FPC fits into the architecture of the Bank—that is dealt with in other provisions. Although my noble friend may not like it, the FPC, however it is constituted—I do not think that his construction would alter the point—simply must have these important powers, which are unequivocally the powers of the FPC and not those of the Bank. That is the case however the FPC fits into the architecture. I am glad that we have probed this matter but, without this provision being in the Bill, the FPC would be unable to make recommendations and would not therefore be transparent and open to parliamentary or public challenge.

These are important matters, but I think that I should turn, if the Committee will permit me, to Amendment 69, relating to the FPC’s ability to make recommendations to people other than those whom we have discussed so far. Amendment 69 would remove one of the FPC’s most versatile and useful levers for addressing systemic risks. Perhaps the best way of explaining this is by addressing the challenge given to me by my noble friend Lord Hodgson of Astley Abbotts to provide examples of what we are thinking about and why the power is necessary.

For example, the FPC may wish to make a recommendation to the Financial Reporting Council regarding corporate governance standards, or to the European Banking Authority about a risk to the UK financial system stemming from European banks—that very much links in with our recognising earlier that systemic risks may come from overseas and should not be ruled out. Equally, here is a power taking on board the challenge from the noble Lord, Lord Eatwell, about international linkages. Here is a power that gives an important ability to the FPC to make recommendations to an international authority.