Lord Newby: My Lords, a joint ministerial working group on rebalancing the Northern Ireland economy is currently examining the issues associated with the potential devolution of corporation tax. This group has made good progress but there remain some crucial areas where differences of opinion between the Northern Ireland Executive and Her Majesty's Government still exist. The group is due to meet again later this week to continue the discussions.
Lord Lexden: I thank my noble friend for his Answer. As this prolonged review finally draws to a close, will he confirm that the Government remain wholly committed to rebalancing the Northern Ireland economy in order to enlarge private sector wealth creation? Will he tell us the last issues that still remain to be resolved by the ministerial group? If the Government decide not to transfer corporation tax to the Northern Ireland Executive, what contingency plans do they have to stimulate the private sector in other ways?
Lord Newby: My Lords, I can confirm that the Government are committed to rebalancing the Northern Ireland economy. The remaining issues, not surprisingly, are financial, and essentially there are two. The first relates to the initial reduction of the block grant, which follows from any devolution of corporation tax to Northern Ireland. There is something called the Azores criteria, which means that if a devolved Administration take full fiscal responsibility for a tax change, they must face a reduction in their block grant equivalent to the current corporation tax take from firms based in Northern Ireland. The second point is about how you deal with the ongoing adjustment over time to take account of inflation. At this point, it is far too early to say what will happen if the working group does not reach a positive conclusion.
Lord Empey: My Lords, first, will the Minister confirm that in the event of the devolution of corporation tax-setting powers to Northern Ireland, the Assembly could set different rates of tax for larger and smaller businesses? Secondly, will the Minister agree that the case for the devolution of these powers is stronger than equivalent demands from the Scottish Government
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Lord Newby: My Lords, I can confirm that, as the current UK corporation tax system has different rates for smaller and larger businesses, it would be possible in principle if corporation tax were devolved to the Northern Ireland Assembly for two rates to obtain in Northern Ireland. I agree that the argument in favour of the devolution of corporation tax to Northern Ireland is of a different nature to the devolution of corporation tax to Scotland because of the proximity of the Republic of Ireland, which of course has a significantly lower corporation tax rate.
Lord Kinnock: In view of the Government's ambition to withdraw from certain obligations of membership of the European Union, are they contemplating the possibility that the devolved Administration in Northern Ireland could cut corporation tax to the much lower level that is customary in the Republic of Ireland?
Lord Newby: My Lords, that is exactly what this whole process is about. The complication, as I said earlier, is that if you devolve Northern Ireland corporation tax rate-setting to the Northern Ireland Assembly, you face a significant financial cost to the Northern Ireland budget, which, when last estimated by the Treasury, was thought to be in the region of £300 million.
Lord Alderdice: My Lords, as I listen to the somewhat siren voices on all Benches, I seek reassurance from my noble friend that the interests of the people and of the economy of Northern Ireland will not be set aside because of excessive rigidities in Her Majesty's Treasury on the one hand, and inappropriate comparisons with other parts of the United Kingdom that do not have, and I trust will continue not to have, an international frontier, on the other.
Lord Newby: Absolutely, my Lords. The key question, as I was just explaining, is financial and is about the consequences for the Northern Ireland Executive's budget if the tax is devolved. I think that is recognised within Northern Ireland. A recent poll by the Belfast Telegraph showed that, although 30% of those questioned were in favour of this move, a higher number-some 34%-were against it, and an even higher number did not have a view. That just demonstrates that this is a very complicated issue. On the second half of my noble friend's question, Northern Ireland is clearly in a different position from that of the other nations and regions of the UK, simply because it does not have a land frontier with them but has a land frontier with the Republic of Ireland.
Lord Reid of Cardowan: My Lords, of course this is an extremely complex question, not least because of the implications, as the Minister pointed out, of the Azores judgment and the potential burden on the Exchequer of Northern Ireland. In all these deliberations, will the Government bear in mind that Northern Ireland truly is a unique case, not only because of its border with another sovereign state-it is the only nation in the United Kingdom to have one-but because of the decades of very difficult and dangerous circumstances through which its people have come and because of the economy's and employment's ultra-high dependency on public expenditure in Northern Ireland? Will the Government at least look for some additional spark to move the dynamism of the private sector in Northern Ireland for the benefit of all the people there?
Lord Newby: The Government absolutely acknowledge that Northern Ireland is a unique case. That is why, while the whole issue of regional aid in the EU is being looked at at the moment, the Government are working very closely with Northern Ireland officials to consider how best to make the case for Northern Ireland receiving assisted-area coverage over and above that which would normally be provided for the rest of the UK.
Lord Trimble: My Lords, will the Minister tell me whether the Government have obtained assurances from the European Commission that it will not regard this as unlawful state aid? If they take that view, there is absolutely no point in taking it. In view of this issue, can he also say whether it would not be better to accelerate the Government's programme for reducing corporation tax generally?
Lord Newby: My Lords, the Government are reducing corporation tax and in a relatively short period it will be down to 22%, which makes the differential between Northern Ireland and the Republic that much less than it was in the past. I can assure the noble Lord that, as long as the Azores principles are followed, this will not constitute a call on state aid.
To ask Her Majesty's Government what progress they have made in negotiations at European level on the working time and recognition of professional qualifications directives in the light of their impact on the delivery of care in the NHS.
The Parliamentary Under-Secretary of State, Department of Health (Earl Howe): My Lords, negotiations on both directives are ongoing. The Government remain of the view that both measures should support labour-market flexibility without imposing significant extra costs on member states to ensure that any negative impacts that we have seen are ameliorated and, most importantly, to ensure that patient safety is maintained.
Lord Kakkar: My Lords, I declare an interest as professor of surgery and consultant surgeon at University College London Hospitals. In today's Daily Telegraph the presidents of the Royal College of Surgeons and the Royal College of Physicians make an urgent plea for action on these two elements of legislation to halt a devastating deterioration in clinical training and patient safety. Do Her Majesty's Government collect data on the number of patients harmed as a result of the implementation of these two directives, for instance from coroners' inquests where they have been implicated in patient deaths, and on the financial consequences in terms of the employment of locum doctors in the NHS to ensure that hospitals are 48-hour-week compliant? If these data are not collected will the Minister commit to organising for their collection in the future to better inform this Parliament and to add impetus to the Government's negotiations with their European partners?
Earl Howe: My Lords, it is the responsibility of individual NHS trusts to ensure that service rotas are compliant with the working time directive. In line with the Government's coalition agreement to reduce duplication and resources spent on administration, the department reduced bureaucracy for the service by removing the burden of central monitoring of compliance and we are leaving this role to organisations at local level. The last assessment of the working time directive was undertaken in January 2010 and reported that nearly 99% of doctors' rotas were compliant with the directive but we are in no doubt about the concerns that exist within the medical professions about the inflexibilities within the rules of the directive. As regards the mutual recognition directive, the department does not plan to collect directly any data relating to it. The professional regulators. who are the competent authorities, collect data in respect of the number of people applying for recognition under the directive.
Lord Ryder of Wensum: My Lords, is my noble friend aware of the fact that the clinicians at the Institute of Cancer Research where I am the chairman regard the working time directive as being of no benefit at all to their patients? In view of this fact, can he please tell me now-or if not now, in a letter with a copy placed in your Lordships' Library-the details of the meetings that have taken place between Ministers and senior officials and their opposite numbers in Brussels? The Government have long believed that they are able to revoke or to revise this directive but so far, after two and a half years, I see no progress at all.
Earl Howe: My Lords, it is important to understand that the EU social partner process, which is driving the discussions at the moment and has been extended to 31 December, is autonomous. It operates independently of both the Commission and the Council and the Government have no formal role in any social partner negotiations. Having said that, we have made it clear to the Commission and to partners in Europe that securing long-term sustainable growth has to be the EU's key priority. We will continue to work with our partners to ensure that EU measures support labour-market flexibility and do not impose significant costs on member states or burdens on business. The
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Lord Turnberg: Does the noble Earl agree that the working time directive as it now operates is detrimental both to patient care and doctor training? Is it not time that we stopped at least the nonsense of counting time in the 48 hours as time when one is on call, even though one may never be called? Will the noble Earl make sure that the case is made to the EU that at least this part of the directive is rescinded?
Earl Howe: The SiMAP and Jaeger judgments are very much the focus of our representations to the EU Commission. The disquiet about those judgements and the inflexibility that they have brought is shared by other member states. It is also important to recognise that none of us wants to go back to the past, with tired doctors working excessive hours. Tired doctors make mistakes; there is substantial evidence to support that. No one wants or deserves to be treated by tired doctors. There is a balance to be struck. The inflexibilities in the directive need to be addressed, but we should not go back to the bad old days when doctors became too tired to do their work.
Baroness Jolly: My Lords, if a clinician fails to understand a patient or to make themselves understood, their clinical competence is undermined. Will the noble Earl tell the House the current situation regarding the required level of English language competence of a doctor or other clinician from an EU state who wishes to practise in England?
Earl Howe: My Lords, we are now talking about the mutual recognition of professional qualifications directive. We have made it clear that we want to stop foreign healthcare professionals working in the NHS unless they have passed robust language and competence tests. As a result, we have explored the idea of strengthening language testing for doctors through the use of responsible officers; and explored also the GMC's ability to take action where concerns arise. The directive review is a key priority for the Government, and the Commission's proposals include greater flexibility on language. It is helpful that the proposal from the Commission makes it clear that controls on language checks are permissible and may be undertaken before a professional is able to practise.
The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma): My Lords, I begin by paying tribute to my noble friend for his contributions and consistency in bringing this and
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Lord Ezra: My Lords, as the House knows, historically this country was self-sufficient in energy supplies thanks to coal, natural gas and oil from the North Sea. However, as my noble friend mentioned, we had to import no less than one-third of our requirements in 2011. Does my noble friend agree that it will remain a major plank of the Government's energy policy to reverse this trend as soon as possible? Secondly, will she confirm that there will be adequate electricity supplies and generating capacity, in view of the recent report of Ofgem that stated that there might be a reduction in capacity in the next four years?
Baroness Verma: My noble friend is absolutely right that we need to try to maximise the economic recovery of oil and gas from the UK continental shelf, and our most recent licensing round has been the most successful ever. We are committed to working with industry to create a new world-leading, cost-effective UK carbon capture and storage industry, and policies such as the Green Deal and the introduction of smart meters will reduce our energy demand and ensure more efficient use of the fuel that we use. Our ongoing work is to achieve renewable targets which significantly increase the proportion of clean domestic energy in the mix. Ofgem's recent report provides a comprehensive analysis of the security of supply. We are looking at it very carefully and will respond formally by the end of the year.
Lord Teverson: My Lords, does my noble friend agree that, by making the most of the wide variety of renewables that our islands are blessed with, we will move further towards self-sufficiency in energy and will effectively then disconnect ourselves from the threat of ever-accelerating fossil fuel prices?
Baroness Verma: My noble friend raises a very important point. We are trying to make sure that we have greater self-sufficiency through our renewables but this means only that we reduce our reliance on fossil fuels and, although it is helpful to say that that is what we want to do, we are not currently at that stage. However plausible our scenarios of future energy, I think that there will still be a place for some fossil fuels.
Lord Tomlinson: My Lords, does the Minister agree that it is an illusion to pretend that we can ever attain self-sufficiency in energy without showing a rather more robust and urgent approach to the nuclear industry than the present Government are doing?
Baroness Verma: My Lords, I refute the noble Lord's point that we are not taking a robust approach. We are, but we also need to make sure that we are able to decommission safely and dispose of the decommissioning waste that we have.
Baroness Verma: My Lords, we need to make the most of all our domestic energy resources, and exploitation of shale gas reserves is just one way we can do this. We must also ensure that any development is sensitive to community concerns and consistent with our carbon objectives.
Lord Naseby: My Lords, if we are to continue with the aim of trying to achieve self-sufficiency, has not the time come to have another look at the Stern review, not because there is anything wrong with renewables but because the cost platform has so escalated in that area that it is highly questionable that we can now afford the proposals in that review?
Baroness Verma: My Lords, the Government are very mindful of the points that my noble friend raises but, as I said earlier, we are looking at all forms of energy, including renewables. We may well revisit previous reports but the most important thing is that we look at how, in the future, we are going to have a sustainable energy system which ensures that all our homes constantly have light.
Lord Broers: My Lords, in light of the fact that the Minister has admitted that it is inevitable that we use fossil fuels, how are we doing in our sequestration projects, which are designed to demonstrate the financial feasibility of the sequestration of CO2?
Baroness Verma: My Lords, the noble Lord's question is a very technical one, which will require a very technical answer. I think it would be more helpful to the House if I were to write to him with an in-depth response to his very in-depth question.
Baroness Worthington: My Lords, does the Minister agree that renewables are the way to reduce our dependence on foreign imports of fossil fuels, and would she care to comment on the Crown Estate's recent report into our tidal energy capacity, which is estimated to be the best in Europe?
Baroness Verma: My Lords, I welcome the Crown Estate report, which helps to refine our understanding of the wave and tidal energy resource in the UK. We have always known that we have an outstanding marine energy resource around our coastline and that is why the Government are fully committed to the development of wave and tidal energy. We have put in place the world's most comprehensive support of the sector's development, including innovation funding.
The Commercial Secretary to the Treasury (Lord Sassoon): My Lords, the Office for Budget Responsibility produces the official fiscal forecasts. The OBR's March 2012 forecast shows public sector net debt peaking at 76.3 per cent of gross domestic product in 2014-15 and subsequently falling in 2015-16 consistent with the Government's supplementary target for debt. The OBR will publish updated forecasts alongside the Autumn Statement on 5 December.
Lord Barnett: My Lords, I thank the noble Lord for his Answer. Is he aware that there has been a later report from a more independent source-namely, the IMF-which states that in 2015 the net debt as a percentage of GDP will be about £50 billion more than the Chancellor previously expected? In those circumstances, does he not accept that the OBR is less independent for the very good reason, as was set out in the beginning, that its forecasts are influenced considerably by the general and regular meetings that it has with the Chancellor and Treasury officials? How many have there been in the past 12 months?
Lord Sassoon: No, my Lords, I do not accept for one minute any questioning of the independence of the OBR. It was set up on a statutory basis through a Bill to which the noble Lord, Lord Barnett, contributed. It is set up totally independently under a respected head, Robert Chote, and his team and I refute absolutely any question that it is not independent. All of its meetings with the Chancellor and the dates on which data are transferred over are transparently set out on the Treasury website.
Baroness Kramer: My Lords, does the Minister agree that lack of access to reasonably priced credit by small businesses is holding back both those businesses and general economic growth? Does he further agree that with funding for lending now in place there is no excuse for the banks not to make that credit available, especially as they no longer have to put capital on their books to support those loans?
Lord Sassoon: My Lords, I certainly agree with my noble friend that the question of funding, particularly for SMEs, continues to be of considerable concern to the Government. That is why we have been able to use the strength of the national government balance sheet which derives from our deficit reduction plans to put in place the funding for lending scheme, to which my
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Lord Peston: My Lords, I take it that the noble Lord's answer implies that the Government intend to pursue continuously their ludicrous economic policy, the effect of which is that the Government engage in cuts, those cuts lower aggregate demand, the tax revenue goes down and some benefits go up so that the budget deficit increases, whereupon they engage in more cuts, and this process goes on until the economy implodes. That is the danger before us. What is required is a change in economic policy that leads to some expansion of the real economy.
Lord Sassoon: My Lords, I do not know whether the noble Lord, Lord Peston, and his noble friend Lord Barnett have been comparing notes, but the noble Lord, Lord Barnett, was quoting the IMF approvingly at me only a minute or two ago. On this point, only a week ago, on 9 October, a senior official of the IMF said that at this stage:
Lord Sassoon: My Lords, I am not going to give a commentary on the IMF's forecasts, or anybody else's. We should wait until 5 December to see what the Office for Budget Responsibility has to say in its renewed forecasts.
Lord Davies of Oldham: My Lords, are we not experiencing a double-dip recession that is longer than any since the war, and is it not the case that forecasts are belied by the facts? The Government are borrowing £9.3 billion more in the first four months of this year than in the same period last year. How on earth can the Minister pretend that the present policy is working?
Lord Sassoon: My Lords, we have only to wait until 25 October to learn the third-quarter growth number; then we will know the latest state of play in the economy. As to the question about levels of debt, I find it extraordinary that a Front-Bench opposition spokesman should give us a lecture on debt plans. Does the noble Lord, Lord Davies of Oldham, recognise the recent IFS analysis of Labour's plans, which said that under the so-called Darling plan, total accumulated debt would be £201 billion higher than under the present Government's plans? That level of debt would see the AAA rating gone for a very long time and would see almost £4,000 of debt per man, woman and child in this country added to the debt load we inherited. Is that what the noble Lord is advocating?
"(ba) Part 2A makes provision relating to the winding up, administration or insolvency of UK clearing houses;"
The Commercial Secretary to the Treasury (Lord Sassoon): My Lords, this is the first of a number of amendments that will extend the powers under the Banking Act to investment firms and central counterparties to enable their orderly resolution. The financial crisis of 2008-09 highlighted many deficiencies in the regulation of the global financial system. Most importantly, we found that the disorderly failure of systemically important banks could have a catastrophic effect on the stability of the UK and on international financial markets.
To give the Treasury and other authorities the powers necessary to minimise the impact of bank failure on depositors and the system as a whole, the Banking (Special Provisions) Act was introduced in 2008, swiftly followed by the special resolution regime established under the Banking Act 2009. Both Acts enjoyed cross-party support, although of course they benefited from the scrutiny of both Houses. I trust that noble Lords will take a similarly constructive approach to these important amendments.
Establishing the special resolution regime for deposit-takers was an important step towards ensuring that systemic institutions would not fail in a disorderly manner. However, deposit-takers are only part of the financial system. There are other types of financial institution, such as investment firms and central counterparties, whose disorderly failure could also severely disrupt both financial markets and the normal functioning of the wider economy.
Reform is also taking place at a European and global level, and the UK is playing a leading role in these discussions. The UK's approach is consistent with those set out by the European Commission, the Committee on Payment and Settlement Systems, and the International Organisation of Security Commissions. However, implementation of these reforms in Europe is some way off. Our financial services industry is of huge importance to the UK economy and we believe that any gaps in such resolution powers should be
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The first group of amendments that I am speaking to today covers the new insolvency regime and arrangements that apply to UK clearing houses and recognised investment exchanges. UK clearing houses form part of the financial market infrastructure that underpins the operations of domestic and international markets. They act as the buyer to every seller and the seller to every buyer, in order to protect trading parties from the risk of counterparty default. The role performed by UK clearing houses means that they are particularly exposed to wider market risks, such as the failure of large clearing members.
Recognised investment exchanges, in their capacity as market operators, can operate regulated markets and multilateral trading facilities. These exchanges provide a number of crucial services for the trading of shares, bonds and other securities. Amendment 183ZZA introduces a new subset of recognised clearing houses-UK clearing houses-into the regulatory framework. The reason for this is that it is not appropriate for the Bank of England to exercise the new powers contained in these amendments in respect of foreign clearing houses that are not established in the UK, nor in respect of clearing houses that do not offer central counterparty services. This amendment provides clarity on these points.
Amendments 176A and 176C introduce provisions in relation to the Bank of England's role in winding-up, administration or insolvency proceedings relating to a UK clearing house. These amendments will ensure that the Bank of England and the Treasury are put on notice of the application for the winding up of a clearing house and have the opportunity to consider whether to exercise a resolution power in order to minimise the impact of failure on financial stability. Amendment 176C allows the Bank of England to direct insolvency practitioners appointed in connection with the insolvency of a UK clearing house. Such directions will build on current provisions governing company insolvency but will allow the Bank of England to direct the insolvency practitioner to take steps to minimise the impact of the insolvency on financial stability. In doing so, the Bank must be satisfied that it is desirable, having regard to the public interest in the maintenance of financial stability.
Amendment 176B allows for the Bank to apply to the court for administration of the clearing house and participate in court proceedings. It also requires that the Bank gives its consent before an administrator is appointed to act for a failed UK clearing house. These powers will enable the Bank of England to respond quickly and decisively when a clearing house is in financial difficulty, managing the safe winding up in a manner that minimises any risk to financial stability and the wider economy.
Finally, Amendments 189BD to 189BL relate to insolvency arrangements for recognised investment exchanges. They expand the scope of Part 24 of FiSMA so that it applies to the insolvency of a recognised investment exchange, as it applies to the insolvency of an authorised person. This means that the regulator will be able to apply to a court for an order placing an investment exchange into an appropriate insolvency procedure. These amendments also ensure that the regulator would be put on notice of an application for an order placing an investment exchange into an insolvency procedure and could participate in these proceedings if it considered it necessary in the public interest. I beg to move.
Lord Tunnicliffe: My Lords, I thank the Minister for his introduction to the total package of measures to which the amendments relate and for his explanation of specific amendments. The way in which the amendments have been grouped means that a substantial part of the detail of the overall package will be debated in two working days. Accordingly, we will look at the detail during that period and respond then. The results of the consultation are being published today. Only when we have carefully looked at those will we make a detailed response. At a general level, we welcome the bringing of these financial institutions into the resolution regime.
Lord Peston: My Lords, will the Minister clarify one or two aspects of what he said? Am I right in thinking that the amendments, in so far as one can follow them at all, are relevant when something has already gone wrong; that is, when the institution in question is in trouble and something has to be done to cope with that?
Lord Sassoon: My Lords, at the risk of oversimplifying matters, yes, indeed. We want a judgment-based system of regulation and supervision that makes it less likely that things will go wrong in the first place. That is entirely correct.
Lord Peston: The Minister must be aware by now that there is no way that he can oversimplify when he is dealing with me. Has a study been done of the costs and benefits of the effects of the amendments? In particular, if a crisis appears that is connected with insolvency et cetera, will costs be involved and who will bear them? I cannot find an answer to that anywhere in the amendments. Is it a responsibility of whoever is administering all this? Further, am I right in thinking that clearing houses will not be saved but essentially go out of business?
Lord Sassoon: My Lords, I can confirm that, as with just about everything that this Government and the previous Government have brought forward, an
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Lord Flight: My Lords, the Minister referred to EU regulations relevant to the territory. I and colleagues returned the week before last from a visit to Brussels to look at the banking union proposals. The long and short of it appeared to be that ECB supervision proposals might just be achieved; and that the arrangements for a common approach to deposit insurance was unlikely to get anywhere in the foreseeable future, and likewise the arrangements for common resolution systems. What is the Government's stance? I think it is understood that, as we are outside the eurozone, we will not be part of these arrangements, but there was insistence that the EBA, as a sort of advisory body on top of the ECB, would have the last word over central banks and national regulators with regard to issues in all these territories.
Lord Sassoon: I am grateful to my noble friend for bringing us a summary of the latest intelligence from Brussels. If he will permit me, I shall restrict my comments-because he raises some big questions-to this particular group of amendments. He may want to raise European questions as we go through other topics. On this particular topic, and regardless of whatever areas of the evolving European structure the UK is part of or not part of as the banking union goes ahead, work is already going on at EU level to introduce a resolution regime for institutions such as the ones we are talking about. They recognise, as we do, that central counterparties are critically important. The question, therefore, becomes one of timing-should we sit back and wait for Europe to do it?
I hasten to say that there is absolutely no reason to believe that there is any problem with any of the clearing houses or the recognised investment exchanges, but I would not wish to come here as a Minister in, say, six or nine months' time and say, "Well, we had identified and Europe had identified this issue; we had a vehicle for legislation but we did not actually take the opportunity". I recognise the point made by the noble Lord, Lord Tunnicliffe, that we are putting a lot more things in here, but we have a one-off opportunity. It is an important point, and Europe has identified it, but goodness only knows when Europe will get round to implementing it. We believe that we have a solution-it has been consulted on-and if in due course it is not compliant with the way that the EU subsequently does it, we will obviously have to amend things. There is no suggestion, however, that that will be the case because we have been consulting the UK authorities as we go through the design of this.
Baroness Kramer: My Lords, I have not been sure whether to speak to this group of amendments or the following group, or how to organise comments on the clearing houses. I therefore apologise, but given the conversation that has just taken place, I would like to raise a couple of issues. As this process is going forward in terms of supervision, has attention also been paid to Dodd-Frank? Obviously some of the extraterritorial powers that are being sought by the United States on these issues have a very significant impact on the matters that he is dealing with in this and the next group of amendments.
The Minister also said that Europe was being very slow to come to conclusions on how to apply resolution for the clearing houses, but he did not mention that they are also very slow-and appear to have done nothing-to recognise or mitigate the procyclicality impact of the changes he is describing in this move towards centralised clearing houses. We all recognise that the changes stamped down on counterparty risk, but they amplify market risk. Procyclicality is a significant part of that. I think that we have to understand that context if we are to understand the particular measures.
The noble Lord, Lord Flight, raised the issue of co-ordination with other supervisors, but none of these measures seems to address in any way the issue of access to euros for the CCPs, should they require it in another crisis such as the one we saw in 2008. Where are we in the process of negotiating a mechanism that ensures that offshore euro CCPs, such as those in the UK, will be able to access euro liquidity should they need it?
One last issue-and I will try to hold things for the next round of amendments-is that I am unclear as to how these resolutions tie in with banking resolutions or living wills for banks, because the two obviously tie together. If CCPs are placing large amounts of cash and non-cash collateral in banks in the UK as a result of their margin positions, what happens if the bank holding such collateral fails? Is the CCP just one more unsecured creditor? It would be helpful to have some sense of on what side of the ring-fence such accounts would fall for us to understand whether there is significant risk or a relatively minor one. As I said, I shall hold all comments on the actual resolution mechanism to the next round of amendments.
Lord Sassoon: My Lords, my noble friend asks a lot of important questions but there is a danger of overinterpreting what the clauses achieve. They are to cover circumstances that we do not envisage-although we did not envisage any of the circumstances that occurred in 2007-08, but there is no reason to believe that there is a problem here. As my noble friend says, the clearing houses already have a critical role in the financial architecture; that role is getting even more important as more trading is done on exchange and securities are cleared through the clearing houses.
We are trying here to put in place some mechanisms by which the authorities can step in where voluntary arrangements or insolvency are live. I do not believe that in drawing up the proposals or in consultation on them any difficulty has been identified in relation to the Dodd-Frank rules. Of course the question of procyclicality must be dealt with, but the provisions
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Baroness Kramer: Is the Minister saying that the provisions are completely apart from EMIR and the ESMA rules derived from EMIR and that we will have another round, as it were, at some point encompassing those rules?
Lord Sassoon: Yes, I am essentially saying that. This is about clearing houses and recognised investment exchanges that get into trouble, whatever the cause of the trouble. EMIR and related issues raise a whole separate series of questions-including, for example, the question of access to euro liquidity, on which, as I am sure my noble friend knows, we last year started an action against the European Central Bank which, we believe, is attempting to draw lines across the single market in financial services depending on whether a country is in or out of the eurozone around where clearing houses can operate in the euro.
We as a Government firmly believe that the single market requirements are such that a clearing house can operate in the euro wherever it is located in the European Union and that access to euro liquidity and everything else should flow from that. As to the relationship with the banks, that is not directly relevant to these clauses. An exception to this is where a bank has an important relationship with a clearing house. These new powers mean that the authorities can step in if there are questions of financial stability. We have additional tools in the authority's kit-bag to deal with a situation which might include the knock-on effect on the banks of their relationship with the clearing houses or vice versa. So it does increase the toolkit.
Lord Barnett: My Lords, this group of amendments seems, at least to me, to emphasise ever more the huge powers that are being given to the Bank of England under this Bill. I am grateful to the Minister for all his clarifications so far, and I take it from what has been said about the European situation that this is not one of those areas where the Government are looking to transfer power away from Brussels. However, my main question is this: given the huge powers that are being given to the Bank of England under the Bill-this might explain why there are so few applicants for the post of governor; it is such a complex job that no one wants it, even with a salary of £300,000 a year and going up all the time-will the Government give new thinking to the whole idea of the extra powers that are being given?
Lord Sassoon: First, my Lords, there is no question in this of anything being transferred to or from the EU. This is just a regime around the winding-up administration for the insolvency of UK clearing houses, so I assure the noble Lord that that issue does not
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We are talking about clearing houses and recognised investment exchanges this afternoon, and we will go on in a future session to talk about investment banks. We are merely saying that we have identified other areas where the authorities need to have powers similar to the ones that came out of the legislation initiated by the previous Government, and are putting that in place.
As to the cumulative amount of responsibility that we are giving to the Bank of England, we have already in the course of the very useful scrutiny of this Bill made some important changes, including putting the oversight committee in place to respond to the sort of challenge that the ever-nimble-on-his-feet noble Lord, Lord Barnett, raises. I therefore think that we have covered that issue up front in this Bill and that the Government have made some big concessions.
Lord Peston: My Lords, I will not pursue the question of more powers to the Bank of England. After its performance over the last few years, it is the last thing I would do, and I do not think this is the occasion to debate that yet again. However, I am puzzled by two things. I thought that in his reply to the noble Lord, Lord Flight, he said we should not be discussing the European angle and that that would come at some other stage. Is that right? I do not think I misheard him.
Lord Sassoon: No, I said in my reply to my noble friend this afternoon that I would concentrate purely on the European angle of these amendments, which I dealt with. I was not going to be drawn into discussing a whole range of other European matters which my noble friend's remarks address. It is as simple as that.
Lord Peston: I take it that we are not discussing-because if we were, I would make a speech-the fact that we believe strongly in a single market for financial services but that many of the European countries go to enormous lengths to prevent our highly efficient financial services firms getting into their markets. I would not mind having a debate on that some time during proceedings on this Bill. However, I gather that in the Minister's view this is not the moment.
Baroness Cohen of Pimlico: Might I ask the Minister for a little guidance? If we are discussing all these amendments together, I have a set of problems that I would like to discuss on Amendment 176D. Is this the moment or are we going to do all the amendments separately?
(a) section 356 (powers to participate in proceedings: company voluntary arrangements);
(b) section 358 (powers to participate in proceedings: trust deeds for creditors in Scotland);
(c) section 359 (administration order);
(d) section 362 (powers to participate in administration proceedings);
(e) section 362A (consent to appointment of administrator);
(f) section 363 (powers to participate in proceedings: receivership);
(g) section 365 (powers to participate in proceedings: voluntary winding-up);
(h) section 367 (winding-up petitions);
(i) section 371 (powers to participate in proceedings: winding-up).
23B In the case of any regulated activity which is carried on for the purposes of, or in connection with, the provision of clearing services, the reference to the FCA in section 375(1) is to be read as including a reference to the Bank."
(a) by the applicant for an administration order, that the application has been made,
(b) by the petitioner for a winding up order, that the petition has been presented,
(c) by the UK clearing house, that a resolution for voluntary winding up may be made, or
(d) by the person proposing to appoint an administrator, of the proposed appointment.
(a) the period of 2 weeks, beginning with the day on which the notice is received, has ended, or
(b) the Bank of England has informed the person who gave the notice that-
(i) it has no objection to the order, resolution or appointment being made, and
(ii) it does not intend to exercise a stabilisation power under Part 1 of the Banking Act 2009.
(8) Arranging for the giving of notice in order to satisfy Condition 1 can be a step with a view to minimising the potential loss to a UK clearing house's creditors for the purpose of section 214 of the Insolvency Act 1986 (wrongful trading).
(a) in England and Wales, the High Court,
(b) in Scotland, the Court of Session, and
(c) in Northern Ireland, the High Court.Power to give directions to insolvency practitioner
31B (1) This paragraph applies where a person has been appointed to act as an insolvency practitioner (within the meaning of section 388 of the Insolvency Act 1986 or article 3 of the Insolvency (Northern Ireland) Order 1989) in relation to company which is, or has been, a UK clearing house.
(a) protecting and enhancing the stability of the UK financial system,
(b) protecting and enhancing public confidence in the stability of the UK financial system, and
(c) maintaining the continuity of central counterparty clearing services.
(a) the Treasury,
(b) (if the clearing house is a PRA-authorised person) the PRA, and
(c) the FCA.
(a) in bad faith, or
(b) in contravention of section 6(1) of the Human Rights Act 1998.
After section 296 of FSMA 2000 insert-
(1) The Bank of England may direct a UK clearing house to take, or refrain from taking, specified action if the Bank is satisfied that it is desirable to give the direction, having regard to the public interest in-
(a) protecting and enhancing the stability of the UK financial system,
(b) maintaining public confidence in the stability of the UK financial system,
(c) maintaining the continuity of the central counterparty clearing services provided by the clearing house, and
(d) maintaining and enhancing the financial resilience of the clearing house.
(a) specify the time for compliance with the direction,
(b) require the rules of the clearing house to be amended, and
(c) override such rules (whether generally or in their application to a particular case).
Lord Sassoon: My Lords, as ever, these things are discussed and agreed through the usual channels. I certainly take my side of the usual channels extremely seriously. The noble Lord can discuss it with his side, but I believe that is where we are headed. I thought we might have got through the previous group of amendments rather more quickly, so I do not know what time we will finish, but in only a moment I have been able to move on to Amendment 176D.
Amendments 176D and 182ZA build on the existing powers of direction that the Financial Services Authority has under the Financial Services and Markets Act 2000, or FiSMA. This group of amendments gives the Bank of England additional powers to direct UK clearing houses to address risks to their solvency, or indeed any other matter. Specifically, the direction could require a clearing house to make changes to its rules or introduce emergency rules, or require rules to be activated. The existing powers of direction provided for in FiSMA can be used only to direct a clearing house to ensure that it complies with the recognition requirements or its obligations under FiSMA. Here, in answer to a point that the noble Lord, Lord Peston, raised, we are talking about powers that go with the previous group of amendments, which were all to do with clearing up a mess when we got there. We are now talking about additional powers to make sure, specifically, that we minimise the chances of getting into trouble.
Providing the Bank with additional powers of direction over UK clearing houses is essential to allow the Bank to manage the considerable risks that may be posed by actions of a clearing house that is nevertheless not in breach of its recognition requirements or obligations under FiSMA. Put simply, the powers will enable the Bank to intervene as required to help to ensure that clearing houses act in a way that is consistent with the maintenance of financial stability and wider market confidence. For example, these provisions allow the Bank to issue a direction requiring a UK clearing house to refuse to accept certain investments as collateral, or to require all collateral in relation to specified types of financial transaction to be provided in cash. They also allow the Bank to require a UK clearing house to
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Although these powers are wide-ranging, building in essential flexibility to manage new and unusual risks, they may be exercised only where the Bank is satisfied that it is desirable to do so, having regard to various clearly defined public interest tests. With one exception, the Bank of England cannot use this power to require shareholders, members or clients to recapitalise or otherwise fund a failing recognised clearing house. The power of direction relates only to the recognised clearing house itself. The exception is where the UK clearing house already has recapitalisation arrangements and agreements in place with its shareholders. In this instance, the Bank of England could use this power to direct the UK clearing house to enforce those arrangements, provided that the necessary conditions and safeguards are met. This is to ensure that the clearing house acts in a way that is consistent with the maintenance of financial stability and wider market confidence. I beg to move.
Baroness Kramer: My Lords, I hope that these amendments will be consistent with EMIR and ESMA rules. It is not as though those are not available to the Treasury, and the last thing the industry needs is continual revision. Can the Minister clarify whether the amendments give the Bank of England a fairly free hand in resolution procedures? As he said earlier, the steps to resolution are, first, to use the collateral margin; and, secondly, to go into, presumably, the clearing house default fund and exhaust that. I am not clear what the next step and fallback is at the end of that process.
To what extent is there the capacity to go back to members or, as implied by EMIR, for the Bank of England to direct or permit clearing houses in effect to tear up their trades where a financial stability issue has been raised? If those are the kinds of powers that are being transferred to the Bank of England as a consequence of this, when will we get some clarity on exactly what the rules are-by whom, how and when those steps might be applied? Will they be comprehensive when we see them, as well as clear? Will they be credible, in the sense that they are the kind of rules that could be implemented in a crisis? There is a lot of concern about all that, because EMIR creates a possibility but has not created the rules. Can the Minister tell us when we will get those rules and be able to look at all this again? I understand that EMIR is to be implemented by the middle of next year. That does not give us much time if we are going to use this legislation, so I remain very confused.
Baroness Cohen of Pimlico: I draw attention to some difficulties raised by Amendment 176D. In doing so, I need to declare my interest as a non-executive director of the London Stock Exchange, and in that respect as the owner of a clearing house in Italy, and, I hope, subject to all the regulatory requirements, the owner of a majority share in the London Clearing House, and therefore very directly concerned.
These new powers extend the existing powers of direction over clearing houses that the Bank will already have under Section 296 of FiSMA. The amendments are being brought forward following many consultations with the Treasury this summer. I have two problems with the new clauses; I am not certain that the Minister has not just solved the first one, but I will say all this in order to make quite sure that we have got the answer right.
Will the Minister please confirm that the new powers under Amendment 176D cannot and will not be used to direct owners and members of a clearing house to recapitalise or re-fund the default arrangements? I hope that I am pushing at an open door here. I think the Minister said that the direction would not compel unless the default or refunding arrangements were already agreed and an already agreed arrangement were simply being activated. If so, that is splendid, and I would be grateful if he could kindly confirm it again. It is obviously important for owners and members of a clearing house to understand their maximum possible liabilities and to finance accordingly.
Secondly, will the Minister explain why the Bank has been given two different sets of new powers over clearing houses, each subject to slightly but critically different trigger conditions? Next week we are likely to debate Amendment 193G, which extends the resolution regime specified in the Banking Act 2009 to cover clearing houses as well. The proposed powers under the Act are subject to stiff trigger conditions, principal among which is that the clearing house is likely to fail to meet its threshold conditions under the meaning of FiSMA-namely, that the clearing house may be about breach its licence, including being in danger of running out of money. Even in those circumstances, though, the Bank is required to consult the Treasury before it can exercise any powers. There is no limiting indication of this sort so far in Amendment 176D-the Bank can apparently just do it all by itself, which would make anyone a little anxious.
My request to the Minister is that any proposal for granting the powers should be subject to the same conditions and the same external approach as under the revised Banking Act regime. I suggest that this could include the requirement that provisions should be proportionate to the risks to market stability and be exercised only with the approval of the PRA, the FCA and HM Treasury. The reason for this is to ensure the famous level playing field for clearing houses. If additional powers and direction are the given to the Bank, under both the Financial Services and Markets Act and the Banking Act, it would seem to make sense to make them subject to the same conditions and to offer consistency across the legislation.
Lord Hodgson of Astley Abbotts: Before the Minister replies, I add my request to him to explain the issue of the level playing field. We have a very complicated piece of legislation here. In Amendment 176D we are looking at an additional power to direct UK clearing houses, and in Amendment 193G there is an application to UK clearing houses. I would like the Minister's reassurance that this is not going to lead to differential treatment, because it will be extremely confusing if
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Lord Barnett: My Lords, I would like some clarification. New Clause 296A in Amendment 176D says that the Bank of England "may" direct, not "must", even though it has regard to the public interest, while new Clause 296A(2) says that the direction "may" specify various things. The direction is then enforceable only on the application by the Bank by an injunction or by other complicated means. Why should it not be "must" if it is in the national public interest? I do not understand why the word "may" is there rather than "must".
Lord Sassoon: My Lords, I shall try to deal with a number of those points. First, on the general question of "may" and "must", I have quite a lot of sympathy with the noble Lord, Lord Barnett. I thought that we were going to have a more extensive discussion about "may"s and "must"s in our previous session, but unfortunately and regrettably the noble Lord was not able to be here, so we did not spend as much time discussing it as we could have done. There were some instances last week where I thought that on a first reading he and the noble Lord, Lord Peston, had spotted some rather good examples where those terms should be reversed, although they had spotted one or two others where I did not agree with them. However, it provoked quite a long discussion with the Treasury lawyers and drafting experts. As a general matter, I have asked them to reassure me on all the "may"s and "must"s in the Bill, as I am a bit confused sometimes. However, a general defence of this is that, even though some of us as laymen may think that a "may" should be a "must", it gives rise to all sorts of difficult potential legal challenges. As noble Lords will know, this is a common feature of a lot of legislation that we discuss. I have asked the draftsmen to reassure me that there are no instances where we could change the language in the Bill. I am grateful to the noble Lord, Lord Barnett, for that.
In answer to my noble friend Lady Kramer, as the Committee will know, EMIR will, in the main, force mandatory clearing of OTC derivatives. That will increase the role of, and risk concentrated in, clearing houses and is part of the driver behind introducing these new powers now. I reassure my noble friend that these provisions are entirely consistent with and complementary to EMIR. The intention is that the EMIR regime will be agreed in full by 1 January 2013, with 12 months thereafter to comply. I believe that that gives enough time to explain to all concerned how these various powers are going to be operated. However, I will take back my noble friend's specific concern that all relevant guidance, particularly in the area that we are discussing this afternoon, goes out in good time. I will discuss that with the authorities.
On the specific questions that arise from the London Stock Exchange, I confirm to the noble Baroness, Lady Cohen of Pimlico, that I answered the question
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Baroness Kramer: For clarification, I had understood the statement of the noble Baroness, Lady Cohen, to be that she was reassured because, under these rules, there was no expectation that the members of a clearing house could be required to top up a default fund unless there were some pre-agreed arrangement or mechanism in place; they would presumably be able to scope out their liabilities. What are the consequences of that for those who are trading and clearing through for the counterparties on the various transactions where the clearing house then has no resource to margin or to a default fund because it is exhausted and whose trades remain open with the clearing platform as the counterparty that should have fulfilled that side of the trade? What are the implications for people who initiate the various derivatives contracts? As my noble friend knows, these contracts often can be open for quite a few years. Are they at risk or is there some other mechanism that provides them with protection, or will they have to very carefully evaluate what they consider to be the financial safety of the clearing houses? If that is the case, will we have credit-rated clearing houses? What mechanism will be used to have some sort of assurance that this is an appropriate platform for them to use to clear trades?
Lord Sassoon: My Lords, these are professional markets. We are putting in place additional protections and provisions, which does not mean that you could not put in place in a theoretical world all sorts of other protections. We are going further than the current situation. Currently, all sorts of rules and oversights are in place. We are going further but we do not believe it is appropriate-that is the point on which I was able to reassure the noble Baroness-that the Bank of England should be in a position to order shareholders of these businesses any more than it can order shareholders of banks that fail to put more money in, save only in the prescribed circumstances where there is a pre-existing agreement and where the clearing house itself can trigger it.
I am sure we can all think of all sorts of provisions that we could put in place to make the world a lot safer, but rather sterile, place. We are going further than the current protections. Of course, theoretically, various things could be put in place but we do not intend to do that.
Lord Peston: My Lords, I hate to abandon a "may" and "must" debate, because it is my favourite activity. However, in this case, since we are discussing additional powers, I hate to say it but I think that "may" is simply the word that corresponds grammatically to giving the additional powers. Given the circumstances in which the amendment lists when those powers can be used, it is perfectly obvious that "must" is then implicit. Why else would these criteria be taken into account? I do not want the Minister to stop annoying the parliamentary draftsmen but perhaps for once they have got it right.
"(a) in subsections (1), (6) and (7), after "section 296" insert "or 296A", and
(a) which has its head office or its registered office (or both) in the United Kingdom,
(b) which provides central counterparty clearing services, and
(c) in relation to which a recognition order is in force."
Lord Flight: My Lords, Amendments 183A and 187A seek to restore the existing 28-day period for representations for principal parties and third parties. I hope that the Government will not have a problem with accepting that as a small step towards ensuring that justice is done. Amendments 185A and 186 are rather more fundamental as they seek to limit the very wide powers that the Bill presently gives with regard to the publication of warning notices.
I am not sure why it has not been included in this group of amendments but subsequently we shall come to Amendment 187AA in the name of the noble Baroness, Lady Hayter, which potentially has the whole solution to the issue that I raise by providing for an independent judicial body and process for each regulator. At present, the amendment in the Bill to Section 391 will enable the PRA and FCA to publish details of their allegations immediately they are issued to individuals or firms, which seems to me to be unfair for two fundamental reasons. First, the allegations could be mistaken in fact and, if not mistaken, they could be one-sided. I think it is unfair for a regulator to publish such allegations when the individual or firm has no equally authoritative platform from which to respond. Secondly, there is the position of a senior manager; a business could become completely untenable where such a notice is issued.
Under FiSMA at present, the FSA is not able to publish its allegations against a firm or individual until they have had an opportunity to challenge them by meeting the FSA's enforcement division. Effectively, that means appearing before the Regulatory Decisions Committee, which acts as a relatively independent judicial body. It seems wrong in principle for an individual or organisation to be publicly labelled guilty before there has been some form of independent judicial process to assess the matter. Stakeholders can also be unfairly affected. I cite the fall of 25% in Standard Chartered's share price when something similar happened in the USA and the New York regulator gave advance notice of publicly alleged wrongdoings by Standard Chartered. It is not just the individuals or organisations that are affected but the pension funds and others who are shareholders.
"The new warning notices power is a good idea because it will increase transparency. This will mean that consumers will know at an earlier stage where things are going wrong with a firm or individual and the FCA is taking action",
seems to me to ignore or to override the principles of natural justice and the wider interests of other stakeholders. It was particularly ironic that both the Chancellor of the Exchequer and the Governor of the Bank of England should have complained about the Standard Chartered case when the FSB contains very similar provisions which will enable the same sort of thing to happen in the UK. I grant that the positions are not absolutely analogous but they are pretty similar.
The protections in the Bill are also unlikely to be effective. While the regulator is obliged to consult with the person or organisation to whom a warning notice is given and not to publish such notices if they are deemed to be unfair or prejudicial to the interests of consumers or detrimental to the stability of the UK's financial system, the Bill is not clear as to what are the requirements to consult and it is implicit that in the event of disagreement between the regulator and the recipient as to publication, the regulator will have the power to go ahead and publish. It would be analogous to introduce a power to publicise the stage in the process which otherwise remains private until after the regulatory decisions committee has decided whether or not to issue a decision notice. Also, unlike the USA regulators in the UK have statutory immunity and cannot be sued if they have wrongly caused a damaging impact on a business as a result of their actions.
The position of the regulatory decisions committee is crucial. It is not a creature of statute but rather the system which the FSA has evolved and adopted. There is no obligation under the Bill for the FSA or PRA to adopt the regulatory decisions committee model. The Government's proposed amendment erodes the independence of the decision-making body. While the actual decision to publish must be taken by at least one person not directly involved in establishing the evidence on which a decision is based, other decision-makers can participate who have been directly involved in the underlying investigation. I fear that is not very far from the investigators taking the decision where the Government's proposed amendments to the existing law appear to allow the existing safeguards to be substantially bypassed. This in turn throws up the risk that a decision made by a body which includes individuals who have been involved in gathering the evidence on which it is based could be challenged by an affected party as being contrary to the principles of natural justice that no man may be a judge in his own case. Parallels have also been made with bringing charges in criminal proceedings which are public, but the code for crown prosecutors imposes a far higher standard of proof that there is sufficient evidence to provide a realistic prospect of conviction than the much lower standard of proof for a regulator issuing a warning notice.
It seems that in focusing on the value of transparency, the Treasury has ignored the equally important issues both of natural justice and of third-party stakeholder
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Lord Deben: My Lords, I declare an interest as a board member of a company which might be affected by this and also as chairman of the Association of Independent Financial Advisers. It means I know a bit about what is happening here and it concerns me very considerably. The proposal is that the public will know more but I do not think that they will. It has been shown that the public will assume that if no reference has been made, then everything must be all right. Recent examples have shown that the regulator has failed to know what is going on inside organisations. If a regulator says that there may be something wrong, the public will know that there may be, but the public will assume that if the regulator does not say that, everything is all right. So I am not at all sure that there is an extension of transparency.
There is a big problem for the Government. This Bill was introduced at the same time as the Civil Aviation Bill. I listened carefully to everything that the Minister said on the Civil Aviation Bill. Very simply, he said that they were introducing all kinds of ways in which people who were affected by the regulators would be able to appeal. They would be able to make sure that they were heard, and certainly they would not be criticised before evidence had been laid. All the arguments that my noble friend made were stated in defence of the changes in the Civil Aviation Bill-yet at precisely the same time we produce this Bill, which removes all the things that we put into the Civil Aviation Bill. The Government cannot have it both ways. Either it is right for the Civil Aviation Bill and for this Bill, or it is not right for either. This is why the House of Commons has asked us to be so careful about this. It is very concerned.
There is also a question of parallels in criminal proceedings. This is a very odd argument. The reason that the police announce publicly that they are proceeding to prosecution or considering prosecution is to protect the person who is being prosecuted, so that they do not suddenly disappear. It is done as a protection of the individual against whom an allegation is made. In many other systems it has been shown that if you do not do that, people get themselves into circumstances that no one else knows about. The police in this country have to be transparent not for the general public but for the individual concerned. The situation is wholly different for financial institutions with which we are dealing. If it is said in advance that the regulator is considering action, in the world in which we live people will make immediate assumptions; the pinks will be out immediately with all the comments that one would expect. Is this fair? I think not.
Certainly there are too many examples of regulators getting it wrong-as well as too many examples the other way round when they did not intervene and got it wrong. It is much better to have a system in which the regulator goes as far as he can to establish the truth before he makes public an allegation, particularly in a country where the regulator is protected by law. If we were in a country where the regulator could be
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This argument comes from someone who has been more critical than most of the financial services industry, and who has been critical of regulators for not intervening rather than for intervening. Therefore I am on the right side, in terms of the Government, but one should not win these battles by shortcuts-and this is a shortcut. It does not achieve anything because if it is right that an investigation should take place and that somebody should be put on notice that they are to be investigated, that is done just as well in private hands as in public-and if the charge is true it will become public. If it turns out to be something that it is necessary for the world to know, it will be known. The idea that it should be known before one knows whether it is necessary or not is not an acceptable position.
Although I have declared an interest in this, my real interest is that I have fought in this House-as I did in the other House-for the rule of law. Part of the rule of law is that nobody shall be judged guilty until they are proved guilty. The problem with this change is that it is unparalleled and not applied in any other industry, and it ends up with people being assumed to be guilty until they can prove their innocence. The length of time that the regulator takes to work means that many people will never be able to prove their innocence because they will already have gone bust. We have not recognised how serious this measure would be for companies. It is not a fair way of proceeding and it is not justified. Frankly, the regulator has not given a single example of when having this power would have improved regulation. I asked but no answer came-all I got was a statement that it will be useful. That is not a satisfactory answer for the removal of a human right.
I very much hope that the Minister will understand there is very considerable unhappiness about this; it is unnecessary and it is to act here in a way that I have not seen in any-any-legislation brought before this House since this Government took office. I would therefore like to know why what is sauce for the goose is not sauce for this particular gander. Could we please have an absolute example-even one-of a case in recent years in which this power would have helped the cause of justice? If we cannot, it seems to me likely that the cause of justice will not be helped at all.
Lord Hodgson of Astley Abbotts: My Lords, I rise to support the amendments of my noble friend. In Committee, I said I believe that the regulatory philosophy, culture and approach has shifted and that far from it being an attempt by both sides to achieve the best and right way forward it has become an entirely aggressive, uncontrolled approach by the regulator without any thought to the consequences of how his actions will impact on the firm in question or the City as a whole.
I have also spoken about the increasing use of Section 166; the way that the significant influence function committee has used its powers to damage
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I understand the argument about transparency and it is an attractive one but the fact of the matter is we may be having transparency about inaccurate or wrong information. That cannot be sensible. We owe it to all sides for transparency to be about things that are correct in every sense. When a regulator, with all its authority, is able to put out its view it means that the person about whom the allegations are made never has a chance to obtain proper redress. In the eyes of the public there is no smoke without fire, people will say there must be something or the regulator would not have put the information out there. Even if it is proven in the end to be absolutely wrong, and even if it has not gone bust in the meantime, the firm will be immensely damaged. People will say that there must have been a case to answer because such a great authority, which has all the power of the state behind it, would not put out a notice without a reason.
I really feel that we have to be much clearer about who makes the final call about whether to publish. Judging from the Bill, it seems to me that it is far too cosy and far too easy for the regulator to be making these decisions to publish. There are not nearly enough outside checks and balances to ensure that a proper assessment of the information and evidence is made available and assessed before a very precipitous, potentially exceptionally damaging disclosure is made. I hope the Minister will be able to go a long way to meet my noble friend's amendments.
Baroness Hayter of Kentish Town: My Lords, the starting point for my intervention on this group of amendments is our belief that consumers will benefit from transparency, contrary to the suggestions made by the noble Lords, Lord Deben and Lord Hodgson of Astley Abbotts, to help them make-
Lord Hodgson of Astley Abbotts: I do not think my noble friend Lord Deben and I said that we were against transparency. We said-or, at least, I said and I think my noble friend Lord Deben said-that we wanted to make sure that what was made transparent was accurate. Inaccurate transparency does not help anyone.
Baroness Hayter of Kentish Town: The assumption is-it has been said a number of times-"What if it is proved wrong?". However, many, if not most, of these will be proved right, and that transparency surely will be of enormous benefit to consumers and investors in a way that I hope to demonstrate.
Lord Deben: Every time it is proved wrong it will undermine the proving of right. Since when have we had a system whereby one says, "Because many people
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Baroness Hayter of Kentish Town: Perhaps the noble Lords will let me make my case and explain that. As was suggested by the noble Lord, Lord Flight, the purpose of my amendment in the next group is to address this issue and I hope that it will get support from across the House. It is about a different way of dealing with this and bringing to that independence a much higher hurdle for exactly the reasons that noble Lords have been talking about. I hope that when we come to that amendment it will receive wide support because I share the view about a greater degree of independence and separateness being needed. Nevertheless, transparency is a particularly important issue which we, as consumer representatives, feel was very restricted by Section 348 of FiSMA and the FSA's interpretation of this. I shall in a moment explain why we do not support the amendments of the noble Lord, Lord Flight, in the present group.
Amendment 185B concerns warning notices in respect of procedures and referrals to tribunals and other issues. It would remove the requirement to consult with those about to be named before any warning notice is published. I find it hard to see why this requirement is in the Bill. It does not affect other walks of life. In criminal cases, ordinary people do not get consulted before they are arrested or charged but their names will be released. "Consultation", I fear, is code for, "Let the lawyers loose"-I apologise to noble Lords who are lawyers-and risks injunctions, stalling and long legal arguments. Why should the person who is to be named be given special rights? If it is right to publish, why should there be a block on publication? I hope the Minister will be able to justify that, given that tremendous consultation goes on already with the firm involved before one is even at the stage of a warning notice.
On the amendments in the name of the noble Lord, Lord Flight, as, I say, we have sympathy with bits of them because of the lack of a second eye, independence and separateness, if you like, from the investigators within the regulation. The Bill empowers the regulators to publish the fact that a warning notice has been issued. This is of particular interest to the issue of misleading financial promotions. For consumers, it is a significant increase in transparency to know which ads have not only been looked at by the regulator but have been seen to be sufficiently misleading for consumers to know that an ad-which they may still have; they may have cut it out of a magazine or remember it from the television and it may still influence their purchase of a product-is under review. There could be considerable consumer detriment if the ad is still in their minds and they have not had a signal that the regulator is worried by it. That is one of the most important things to consumers.
At an earlier stage of the Bill, the Government were not motivated to accept our worries about reliance on "buyer beware"-caveat emptor-but how can consumers shop around if the ads on which they are basing their choice of products are perhaps going through what
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In other areas, we know fairly quickly. If action is taken against a food factory suspected of contaminating food, we as consumers want to know immediately, and the Food Standards Agency lets us know straightaway when it is taking action. Similarly, if a garage had fixed a coach's brakes and was accused of doing it less than satisfactorily-some of us are grandparents-I would not want my grandchild to be on a coach where the garage was already up before the Health and Safety Executive for not having done repair work properly. Similarly, as a shareholder, I would want to know whether BP did have some liability for pollution in the Gulf of Mexico before I parted with money to invest in that company.
There can be ongoing detriment if serious accusations are made and the people involved in parting with their money, as consumers or investors, do not know about it. I am not sure it was right that we heard nothing about LIBOR and the behaviour of banks until that first case was settled. Was it right that Equitable Life went on selling products even when there was a case pending? Many of the difficulties that arose were consequences of that ongoing sale. The first time these names came out there would be a lot of coverage in the press, but once we got over that hurdle-once we had got used to it and grown up-consumers are quite able to know the difference between an accusation and a finding. Keeping those hearings in the dark is quite against consumer interest.
We hope that the Government will not accept these amendments, but that in the next group they will be rather more sympathetic to a different approach to dealing with how these decisions are taken. For the moment, I hope that they can support my amendment but hold fire on the others.
Of course I have some sympathy with what my noble friends are saying, but we have to recognise that the starting point is that there has been a huge amount of detriment over the years caused by the mis-selling of financial services. To talk in dramatic terms about human rights and people being proved guilty before they had had a chance to go through natural justice and so on is painting the picture from a completely wrong starting point. To be fair to my noble friend Lord Flight, who kicked off this group of amendments, those are not remotely the terms in which he came at this, so I do not bracket him in this. However, we have people who are quite properly setting out their interests but talking as if somehow everything was fine. It was not fine before.
Certainly the regulators equally fell down on the piece, and we may be giving them a power that is difficult for them to handle. I recognise that, and I will
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Lord Deben: I hope the Minister remarked in my comments that my major criticism of regulators was that they did not intervene in a whole series of areas where they should have. My argument was that if it is in the public arena when they do intervene, the public will be even more convinced, as the history shows, that everything else is going okay. In fact, the regulator has fallen down again and again. Many of the worst examples-the ones that he and I would be most cross about-are those where the regulator has not intervened.
Lord Sassoon: Perhaps my noble friend could listen to the argument. He said that he has asked for examples on a number of occasions but there has not been a single case where the FSA could say, "This would have been a useful power". I have a long list of examples that the FSA could no doubt have given him. It includes the Winterflood market abuse case, where it tackled an illegal share ramping scheme, with warning notices issued in April 2007 but decision notices not issued until June 2008; the case of Gary Lester, a fraudulent mortgage broker, in 2008 to 2010; the Swift Trade market abuse case; and Atlantic Law and Greystoke. I could go on. I am sorry if my noble friend has been led to believe that there are no examples. The FSA can certainly give me examples. Of course it is important that there should be examples.
I have made one or two remarks about the general situation-which is that the Government believe that a new power is merited and that we need to recognise that we are trying to deal with detriment to the users of financial services here while affording proper protections to market participants. However, before I come back to some broader points, let me address the amendments themselves.
The first two amendments, Amendments 183A and 187A, seek to reverse a very specific change that the Bill makes to FiSMA, namely shortening the period for making representations after a warning notice has been issued from 28 to 14 days. We made this change in close consultation with the regulator, which noted that in many cases the 28-day window is not required at all. This may be because a case is straightforward and does not require such a long time for representations to be put together, because a person admits to the contravention or because that person does not respond at all. In such cases, having a mandatory 28-day period has the effect of unnecessarily slowing down the overall enforcement process, which is not in the interest of credible deterrence and the regulator's efficient use of its time and resource. That is why we have moved to a starting point of 14 days.
I fully agree that firms should have adequate time to make representations. Although 14 days is the new minimum, it is important to note that it remains at the regulator's discretion to specify a longer period-for example where it knows a case is particularly complex. The regulator may decide to extend the period from the outset. The decision whether to extend the period will of course be governed by the principles of natural justice and Article 6 of the European Convention on Human Rights concerning the right to a fair trial. I hope that that gives some reassurance to my noble friend on the narrow point; that is, it is not a blanket 14 days.
I am conscious that, in moving to the wider issue, we risk straying into the areas covered by the amendment of the noble Baroness, Lady Hayter of Kentish Town, which we are going to debate next, but I repeat that my starting point is very much the same as that of the noble Baroness; namely, we need to provide the regulators with this new power but to make sure that it operates proportionately.
Amendments 185A, 185B and 186 are all concerned with the new power for the regulators to disclose the fact that they have issued a warning notice in respect of disciplinary action to a firm or individual. Amendment 186 probes an important issue relating to the disclosure of warning notices; namely, whether the new power should apply in respect of individuals or approved persons. There are two reasons why we included warning notices issued under Section 67 in the list in new subsection (1ZB). First, the warning notices concern what are very clearly disciplinary matters, relating as they do to contraventions or knowing involvement in rule breaches or contraventions of EU requirements, so it is consistent that they should be included here. Secondly, it is important to remember that this is a power, not a duty, and that the regulators will be required to consider whether disclosure would be unfair to the person concerned.
Amendment 185B seeks to remove the requirement to consult from the power. I recognise that allowing warning notices to be disclosed is a major step change in regulation. It must be underpinned by proper procedures and safeguards. Consultation with the firm or individual concerned is key, because it is an important way in which the regulator can assess whether disclosure would be unfair and consider the possible impact of its actions. But I want to be clear that a requirement to consult the person affected does not mean that the FCA needs to seek their consent. That is clear and there is no getting away from it.
Amendment 185A seeks to delete the entire new power and revert to the current arrangements in FiSMA. I restate that the power to disclose warning notices is a key part of our vision for the FCA. It enables the FCA to regulate in a more proactive and preventative way. I have given a number of examples where, in its judgment, these powers would have made a difference in the past. They make transparency and disclosure a key pillar of its regulatory approach and enable it to have a credible enforcement function and deterrence strategy.
I do not agree with my noble friend Lord Flight about the read-across from the Standard Chartered case. I certainly agree with him and my noble friend
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A number of other points have been made by noble Lords. As to the more specific challenge of my noble friend Lord Deben about what would happen if the regulator got it wrong, there is a general danger which the regulator needs to bear in mind before putting out a notice. Where the regulator decides to take no further action after it has made public the fact that it has published a warning notice, it has discretion to publish the fact that it has issued a notice of discontinuance if the person to whom the warning notice relates consents to that issue. Where the regulator has made public the fact that it has issued a warning notice but then decides that a case will not proceed to a decision notice, it will also make public the fact that a notice of discontinuance has been issued.
There are various other questions about delay and injunctions. I do not agree that the power as drafted will cause overall delays to the enforcement process. The Bill does not require publication of the warning notice or of a decision whether or not to be published to be taken, challenged or appealed et cetera in order for the enforcement process to keep going. The only delay will be to the publication rather than to the action itself. That may not have been the point that the noble Baroness, Lady Hayter of Kentish Town, was making, but just to be clear: if it was, the underlying enforcement process keeps on going.
Of course, the FCA might face injunctions to prevent publication and that is part of the protection in the injunction process. We also stress that, without a requirement to consult the firm or individual in question, it is more likely that that firm would seek emergency injunctions preventing publication as a knee-jerk reaction. Therefore, we have the consultation duty and the final decision is taken by the FCA. There could be an injunction process, but we think that the right balance has been struck.
I could go on for a long time on this, but let me conclude. I hope that my noble friends will listen to the next bit, because I hear that, although we believe this is an important power, the question is whether it will be exercised properly and whether any further protection is needed. We are taking a bold new step in an untested direction and it has to be used responsibly. For that reason-and listening to this debate-I can say that we intend to return to this issue on Report in this one very specific way: that is, to make provision for a power for the Government to repeal the new warning notices power if at some point in the future the Treasury considers that the power or use of it by the regulators is, or may be, contrary to the public interest. This does not weaken in any way our commitment to this policy, or our belief that if used responsibly, which we expect it to be, the new power will form a vital part of the FCA's regulatory toolkit.
I hope that what I have just said provides my noble friend with some reassurance that we will be mindful that the power is used in a responsible way which is in the interests of the greater good. Should that not be the case, we will act under a power which we intend to bring forward on Report.
Lord Peston: I admonish the Minister in a trifling way. It seems to me that the issuing of warning notices is enormously beneficial to those being regulated. That is one bit of a Bill that I do not like which I am totally in favour of. I am surprised that the Minister would even consider any backtracking on that. It is immensely beneficial to people to be told, "We are concerned about what you are doing and would like you to modify your behaviour so that it does not create a loss to the public interest". That is one of the really good bits of the Bill.
Lord Sassoon: My Lords, let me stress again that we are not backtracking at all. Our commitment to the new policy instrument remains extremely firm. It may be that the industry will come to take the view expressed by the noble Lord, Lord Peston. We will see. I have been struck by not only our debate this afternoon but our conversations in the run-up to it that because we are taking such a bold step, which I believe to be the right one and which I believe that the FCA will exercise properly, we should have the reserve power, which we do not have in the Bill, should things not turn out as I and the noble Lord, Lord Peston, expect.
Baroness Hayter of Kentish Town: My Lords, would that happen by an order that would come back to this House, or would it just be by Treasury decision? That is a big power to take away without parliamentary scrutiny.
Lord Sassoon: My Lords, I said that we intend to come back to the House on Report with a power to reflect the concerns that have been expressed. As to how the power will operate, noble Lords will see a
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Lord Flight: I am not entirely clear where the Government are. As I understand it, the present situation is very satisfactory. If the FSA thought that the noble Lord, Lord Peston, had been a naughty boy, it would have a word with him and tell him so. It might make that notice public but, first, there would be a fair judicial inquiry into whether what was alleged by the FSA was correct and accurate. That is handled by the Regulatory Decisions Committee.
I cannot understand why the Government want to sideline the RDC, because it seems to me to be the check on accuracy and fairness. The issue about warning notices being public is that, in today's world, if it is made public that the FSA has warned the noble Lord, Lord Peston, that it thinks he is conducting his business dishonestly, his career and reputation are dead. He is a guilty man: strike his head off, basically. We are living in that sort of world, which is why it is a serious matter.
If the Government are saying that they are very happy to have an independent judicial process before warning notices are published and as I understand the amendment that the noble Baroness, Lady Hayter, has tabled, which we are coming on to debate, then I have no problem, but I am extremely uncomfortable at the officers of the FSA being able to gang up and publish warning notices themselves.
I have experienced indirectly a number of examples where, to be candid, the accuracy and research of the FSA has been questionable. I know one business that was raided and accused of insider dealing. Eventually the alleged insider news was shown to have been in the newspapers three weeks previously. The situation was that someone on the wrong side of a takeover battle wanted to get at somebody because they thought that they would vote their shares the other way, so they phoned the FSA and said, "We think so-and-so has been insider dealing", and the FSA went roaring ahead without checking at all. I am afraid I have encountered other situations where the FSA has not been professional in putting together its case and checking it before taking action.
Therefore, I am concerned that, if it is just left to an individual and their chums in the FSA to go ahead and publish warning notices without any sort of fair judicial review, there is scope for injustice. It is not helpful to the consumer either because, if the FSA is subsequently proven to have got it wrong and to have been unfair, it damages its own reputation.
I am not quite clear where the Government are coming from because of this unfortunate division of the amendment of the noble Baroness, Lady Hayter, which is yet to come, and this group of amendments. If the Government are to support some form of alternative fair judicial process, I think that everyone in the Committee will be happy. If they are not, I think that quite a lot of people will be less than happy.
I merely ask the Minister whether there is an intent to have some form of judicial review, as we are about to debate. Without some knowledge of that, it is not possible to know how to react to the comments.
Lord Sassoon: All I can say to my noble friend-which I hope he would expect me to say-is that I am not going to pre-empt what I hear in the next debate. I want to listen to the next debate and hear what the Committee has to say. I am not responsible for the groupings here.
(c) for "a final notice" substitute "the notice required by subsection (2A)".
(a) in a case where the regulator is acting in accordance with a direction given by the Tribunal under section 133(6)(b), or by the court on an appeal from a decision by the Tribunal under section 133(6), a further decision notice, and
(b) in any other case, a final notice."."
(a) decide the number of persons to be appointed as the other members of the Panel; and
(b) nominate a person for each of those appointments.
(a) any member of the relevant regulator;
(b) any member of staff of the regulator;
(c) any employee of Her Majesty's Treasury.
Baroness Hayter of Kentish Town: My Lords, in addition to the reasons that we debated in the last group, there are two main reasons behind this amendment. I hope the Government will consider this amendment seriously, as I believe it will have widespread support across the Committee, as well as from the industry and the wider public.
One reason is to give some certainty that regulatory issues, or discipline, will be dealt with in an open and transparent way and not simply according to procedures chosen and operated within and by the regulators who are themselves bringing cases to a body for determination.
The second reason is to bring some independence to these hearings to give confidence to those against whom regulatory measures are to be taken that they will have a chance for a fair, objective second hearing-a hearing by people who are apart from, and indeed independent of, the regulator's staff. We know from the FSA's history that such independence was not always there. Although there is now the Regulatory Decisions Committee, it is not guaranteed in statute. Indeed, I know that, partly thanks to some ideas floated on the FSA website, there has been much concern that the RDC may not even continue under the new architecture. However, surely the existence of such a body should be clearly set out in the Bill so that it cannot simply be abolished or amended by the regulators.
I should add, reflecting what happened in the previous debate, that the fairness of the new power of the FCA to publish its warning notices-a power which, as the Committee will have heard, I strongly support-has been made explicitly contingent on the continuing existence of the RDC's involvement in decision-making; hence the concern that such a committee might be abolished without parliamentary agreement. In defending the proposal to allow it to publish warning notices before the formal enforcement process had taken place, the FSA noted that all proposals to exercise regulatory powers are currently taken to the RDC to determine whether there is a case to answer. That is just the first stage-having a case to answer. Furthermore, the FSA's then head of enforcement, Margaret Cole, said that a warning notice is,
The central role of the Regulatory Decisions Committee in providing an independent source of challenge to the FSA's executive was regularly cited in evidence to the pre-legislative Joint Committee and to the Treasury Select Committee. The FSA's current arrangements are, I believe, robust and effective, having been refined by experience and as a result of the Strachan review of its enforcement processes. However, we cannot assume that the protections afforded by the
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Any erosion of these profoundly important checks and balances will not benefit consumers and will risk eroding confidence in our regulatory system. Given the explicit significance that has been attached to delivering fairness in respect of the new powers, they should not be left to the discretion of the regulators to carry forward but be embedded in statute and endorsed by Parliament. It is for this reason that I propose that the essence of the FSA's regulatory decision-making processes should be captured and embodied in legislation.
The proposal in Amendment 187AA, as the observant among the Committee will notice, follows the model of the Pensions Regulator set out in the Pensions Act 2004. Although I was not in the House at the time, I believe that drew partly on the lessons of the slightly less than satisfactory FSA model. I have to declare a past interest as a former member of the Pensions Regulator's determination panel. However, I know from discussions with present and past RDC members and from one who has served both on that determination panel and the FSA body that the pensions model is seen to offer greater independence and scrutiny of cases brought by the respective regulators. That is partly because it cannot be abolished, partly because its members have to be independent of the regulator and partly because it is in primary legislation.
The exact formulation of the equivalent formats for two such bodies as the PRA and the FCA may need a trifle more perfect drafting than I have managed in this amendment. However, for today, will the Minister consider carefully the principle that these big decisions, which can have great impact on individuals or financial firms, should be taken by a specialist independent panel, albeit appointed by the relevant regulator, to ensure a highly knowledgeable and expert group of decision-makers? I beg to move.
Lord Sharkey: Will the Minister clarify a point in sub-paragraph (3)(b) of paragraph 28 in Schedule 9, which would survive whether or not the amendments of the noble Baroness, Lady Hayter, were accepted? The sub-paragraph adds to the sentence in FiSMA the words,
"That procedure must be designed to secure, among other things, that the decision which gives rise to the obligation to give any such notice is taken by a person not directly involved in establishing the evidence on which that decision is based, or by 2 or more persons who include a person not directly involved in establishing that evidence".
FiSMA already permits a procedure that allows, in certain circumstances, the decision to issue a notice to be made solely by a person directly involved in establishing
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Lord Deben: I hesitate to return to the previous discussion, but I just remark to my noble friend the Minister that his whole list of examples of what this might have prevented of course misses the point. My point was that we could have done all those things with the RDC. The real question is: who makes that decision? I have never had an explanation of why it is necessary to have a power that is never referred to any independent group. That is all I am interested in and I feel very strongly about it. We have recently been trying to complete a very valuable thing called "treating customers fairly". I want all customers to be treated fairly, and I entirely agree with the speech of the noble Baroness, Lady Hayter, who is absolutely right.
I say to the Minister very personally and directly that when one of those most likely to be a senior regulator tells the industry that he intends to shoot first and ask questions later, he should understand why the industry has some concerns. That is all I say. All I am asking is that before such a decision is made, there should be reference to an independent body, and I think that the proposals put forward-albeit, as the noble Baroness rightly said, that they might need a little tweaking here and there-would seem to everyone to be fair.
We have the same situation-parallels have often been drawn-in police prosecution when someone outside asks whether this is a proper circumstance and whether it is likely to stand up. That is all that is necessary. Do that and most of us, I think, would be perfectly happy. Our issue is that, without making things more difficult in these debates, there are too many examples of decisions made that appeared to be hasty and when people have not looked too carefully at the details. This would make sure that they do.
All I say to the Minister is that he would have pretty overwhelming support for the changes that he wants if he were prepared to do what the noble Baroness has put forward. I would certainly be happy to argue that. If he does not do that, this will be difficult to support, and I am interested in the point that my noble friend has just made that there seems to have been an attempt to move even further away from what we should have.
I have one other point. The key thing is that the murmurings that somehow the RDC will disappear would be overcome by having this measure in the Bill. It is not unreasonable to have the concerns that people have, and I have not yet seen why introducing this measure would make things more difficult or less transparent. I would be happy to take the risk of people being warned and turning out to be guiltless, if it were done with this degree of protection. Then the Minister would have us all on his side.
Lord Hodgson of Astley Abbotts: My Lords, the noble Baroness's amendment has much to commend it. I picked up two points in her comments. On the question of, to use her words, eroding confidence in the regulator, that confidence is already being eroded at present because of the way in which the regulator is behaving, and her proposal would go some way towards ensuring that that was put right. She and I can agree, because we have already agreed on the importance of transparency, that this would achieve not only transparency but, particularly, accurate transparency, and that someone would not be condemned without having had a proper chance to put their side of the case. Like my noble friend Lord Deben, I think that there are some tweaks to be made to the terms of office and so on, but as a concept this has much to commend it.
Lord Flight: My Lords, all that I was really calling for previously was for the RDC to be embodied in statute to provide this role. The amendment proposed by the noble Baroness, Lady Hayter, offers something rather better because it is a duly organised and independent body that would provide the safeguard of justice. That, it seems to me, is what we all want.
Lord Peston: My Lords, I support my noble friend's amendment, but I would like to place it in context. I start from the position that the Minister started from when he reminded us that the Bill and these regulators have not been picked like a rabbit out of a hat. There was a problem to be solved and this, even though I do not like aspects of it, is the Government's best attempt to solve it. There was a problem in this sector of the economy, the public demanded that something be done to prevent it from happening again and the solution is regulation. Since the only alternative solution that I know about would be to nationalise the whole of the financial sector, which I would not favour, the Government are clearly doing the right thing in broad terms-even though, I repeat, there is a lot of this Bill that I do not like.
The second aspect of the context is the old adage, "Quis custodiet ipsos custodes?". The trouble is that once you go down that path, you get an infinite regress; whoever you set up to regulate the regulators, you then ask, "Who's going to regulate them?", and it goes on for ever. We ought to bear that in mind.
My general point is that, while I hope that the Government will either agree precisely to my noble friend's amendment or come up with a suitably tweaked amendment of their own, we should not be naive about this. The moment the regulator starts looking at any particular organisation-and certainly when it starts considering, suggesting or indeed issuing a warning notice-the idea that this will not leak out is a bit on the naive side, to put it bluntly.
Although I support my noble friend's amendment, I think she will agree that it does not protect us from the world in which we live, a world in which there is, in a sense, money to be made by leaking secrets. I believe that the Government ought to go down the line suggested by my noble friend and respond sympathetically, but whether or not I live long enough to see the first case that arises, I would not be in the least surprised if the
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Lord Turnbull: Can the noble Baroness clarify for me what right the accused has to make representations to this committee? Does it simply take the presentation of a case from the FCA and examine that for its strengths and weaknesses, or is representation from those accused of the regulatory breach built in? To answer the noble Lord, Lord Peston, it is a criminal offence to leak the existence of a decision notice before its appropriate time.
Lord Sassoon: My Lords, I go back to the overall picture on this and to the previous group of amendments. This is a necessary area of additional powers that must be in the authority's armoury. We will take a power to look at the whole thing again if it does not operate properly. However, on this specific amendment, we are probably all agreed-this is where I can be sympathetic if not positive in response to the challenge by the noble Lord, Lord Peston-that it is necessary for there to be appropriate checks and balances. The question is whether we can rely on the judgment and good sense of the successor regulators to do appropriate things without having the stick of legislation on them. In this specific area, everyone seems to have plenty of criticisms of the FCA, many of them justified. However, the Regulatory Decisions Committee was established by the FSA, although it is not required in statute.
I understand why people are nervous about what the successor bodies will be putting in place, but it is important to recognise that the RDC structure-which everyone this afternoon seems to love and wants to hard-wire into the legislation in some form-was put in place by a regulatory body that was given a broader remit, used its judgment as to how best to have this independent challenge and scrutiny of decisions, and put that in place. Now we are saying, which I do not agree with, "Well, the FSA did such a good job in putting it in place that we are not going to trust it to exercise appropriate judgment on your successor's shape, so we need to hard-wire that in".
My starting point is that the authorities will establish appropriate procedures. This afternoon we are very much talking about the FCA side of it. What is appropriate for one authority is not necessarily appropriate for the other successor authority. While I am of course sympathetic to the end objective here, the question is what it is necessary to put in place that goes beyond the current framework within which the FSA established the RDC, which people like. I believe that it is appropriate to leave the successor authorities to make their own decisions on this point.
We agree that significant decisions should be subject to appropriately robust decision-making processes and that, for the avoidance of doubt, the significant regulatory decisions should be made with the involvement of individuals who did not collect the evidence in support of the decision. That would ensure that such decisions
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However, as I have explained, we believe that it should be up to the successful authorities to decide how they do that. That would be consistent with the broad thrust of this legislation, which is that we set the outcomes we want to achieve and leave it up to the independent regulators to establish the detailed processes within them. After all, we want to move to a much more judgment-based decision-making process in the new regime. As the FSA has previously exercised judgments which the Committee is approving of today, we should leave it to the authority in the future.
My noble friend Lord Sharkey made an important point. There is a difference between the remit as proposed by the Government and the remit in FiSMA, and there is an element of additional protection. Of course, it still leaves room for the successful authorities to set up other structures. However, we believe that the change to which my noble friend referred was appropriate to accommodate the approach of the PRA in which senior managers may become quite closely involved in discussions with firms and in setting the direction of supervisory strategies but may also be involved in taking some of the decisions that are governed by Section 395 of FiSMA. That is essential if we want to empower the regulator to supervise on the basis of judgment and for senior staff to use their knowledge, experience and expertise to contribute to difficult decisions.
Amendment 187AA would make such an approach impossible. Recognising in particular the different circumstances of the PRA, it is appropriate to put in a necessary piece of additional backstopping. In summary, both authorities will still be required to establish clear procedures for making significant supervisory decisions, which will be subject to the requirements in Section 395(2) as amended by the Bill. I believe that it is wrong to require such a determination panel in statute and for it to be applied to all the significant decisions of the FCA and the PRA. Equally, as the authorities consider prospectively what their distinctive approaches will be in these circumstances, I am sure that they have heard loud and clear particularly how in the case of conduct matters an approach like that of the current RDC finds considerable favour in the Committee. I have no doubt that account will be taken of that as it comes to define the processes going forward.
Having heard all that, I hope that the noble Baroness will consider withdrawing an amendment that hardwires these very important matters-although I am very sympathetic-to what would become a statutory provision.
Lord Barnett: I suppose that I should not be surprised. The noble Lord has heard a very serious case made from all sides of the House and he cannot even bring himself to say that the Government will at least consider a possible amendment which may not be exactly the same as that which my noble friend suggests. I suppose that the regulators, the new FCA, may be perfect and will never make a mistake. But as regards this modest little amendment, he could at least say, before my
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Lord Sassoon: With all due respect to the noble Lord, this slightly misses the point. As I have explained, within much the same remit under FiSMA, to which we have added one additional piece of protection, the FSA exercises the judgment and comes up with the structure that this Committee seems broadly happy with. It is entirely fair and proper to allow the successor body the space to come up with a decision which finds approval in decisions that were previously taken about this structure. Therefore, based on our approval of how it has done up to now, we should have confidence that it will do it again. It has heard loudly and clearly the support that your Lordships will give it if it takes that approach.
Lord Peston: I am really lost as to what the Minister is saying. Apart from the fact that he was made a very good offer-I would have thought that the Minister, in his right mind, would never reject a good offer-is he saying that this amendment is not needed because the regulators could set up committees of this sort themselves with no statutory powers behind them and that they can do exactly what is in this amendment already? Can he guarantee that it is right that each regulator can set up a committee so the only difference is that we are saying that they must and he is saying that they can? For the record, is that what he is saying?
Lord Sassoon: I am sorry that I have not been sufficiently clear. Yes, that is exactly what I am saying. In fact, I am saying more than that. Within the very similar provision for FiSMA, that is exactly what the FSA did. Not only can it do it but it has a track record of having done that. I think we should trust it to do whatever is appropriate again.
Baroness Hayter of Kentish Town: My Lords, I am extremely disappointed. We come back to "may" and "must", which my noble friend mentioned. He has just had a birthday and he is still talking about "may" and "must". If the FSA had not put on its website that it would not continue with this, perhaps our trust that it would continue with the RDC would be greater.
I confess that I have some form on this. In 1981, I worked on a Royal Commission on criminal procedure which tried to persuade the police that they should take their cases to an independent prosecutor. The Committee will not be surprised to hear that they did not want that to happen. In the Labour Party, it used to be the NEC that took cases against individuals. We were taken to court and told that we could not do that, so I ended up on the disciplinary committee to ensure that that was separate and independent of the National Executive Committee of the Labour Party. The barristers did not get it right and for a time the Bar Council used to use the same body to discipline its members and was taken to court. It had to set up the BSB complaints committee-that is another declaration of interest as my partner was vice chair or something of that-to ensure that there was that independence among the people who were presenting the cases and those hearing them. Whether there are two panels-one to see whether
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Lord Deben: One might go as far as that had it not been for two facts: one, to which the noble Baroness refers, is the website; and the other is the fact that a senior person, who is likely to be a regulator, said that his policy was to shoot first and ask questions later. That severely worries people. Whatever happened in the past, we need to remove doubt. As the Minister suggested that it does not really make any difference because he expects that to happen, I cannot see why it would make any difference if you were sure that would happened.
Baroness Hayter of Kentish Town: I could not have put it better, although I quite like to shoot first and ask questions after, but that is just a personal preference. As my noble friend Lord Barnett has said, there is clear support for this around the House. We are obviously going to bring it back at the next stage. If it is easier for the Minister, perhaps someone not from this side but from his side could put his or her name to the amendment. But for confidence in this type of independence it seems clear that the decision cannot be in the hands of the regulator who is also the presenter. There should be some guarantee that it is an independent body. I am extremely worried that someone who has been investigating could also be the decision-maker. That seems to go quite differently from other groups. So I am afraid we will return to this but for the moment I beg leave to withdraw the amendment.
"( ) Within 30 days of the coming into force of this Act, Her Majesty's Government shall inform the governments of the European Union of the United Kingdom's desire that the EU limits on financial compensation for charities affected by the loss of retail banking deposits should be reviewed."
Baroness Hayter of Kentish Town: Let us hope I have a little more success with this one, which is completely different. Amendment 187AB concerns the limits-currently £85,000-for compensation which can be awarded by the Financial Services Compensation Fund. As the Committee will know, this is not a complaints-type award for mis-service but compensation following the insolvency or similar of a financial service company. While £85,000 may be suitable as a limit for individuals, since not many of us have that much in our bank accounts, it is clearly insufficient for charities. Charities are greatly at risk but normally being only
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