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Financial Services Bill

Volume 508: debated on Thursday 8 April 2010

Consideration of Lords amendments

Lords amendments to the Financial Services Bill have been received and printed. A grouping is also available. Under the order of the House of yesterday, they may be considered forthwith without any question put.

I draw the attention of the House to the fact that financial privilege is involved in Lords amendments 45 to 48. If the House agrees to any of these amendments, I shall ensure that the appropriate entry is made in the Journal.

Clause 1

Council for Financial Stability

With this it will be convenient to discuss Lords amendments 2 to 4 and 36.

The amendments remove from the Bill the clauses relating to the council for financial stability—that is, clauses 1 to 4—and the reference to those clauses in clause 38. As my noble Friend Lord Myners set out in another place yesterday and again this morning, given the limited amount of time remaining in this Parliament, the Government have agreed with the official Opposition through the usual channels and in the usual way which parts of the Bill should be enacted.

The council for financial stability was a casualty of that process, as were clauses 8 and 18 to 25, which respectively deal with the Financial Service Authority’s international remit and with collective proceedings. The second group of amendments deal with those changes. We continue to believe that the council for financial stability provisions are necessary, sensible and desirable; however, in the interest of securing other important elements of the Bill on which there is greater consensus, the Government have agreed to withdraw them. I hope that the House will support the amendments.

Of course, the Opposition agree with the amendments. We argued from the start of proceedings on the Bill that the council for financial stability was a cosmetic reform, not the fundamental structural reforms that we felt were needed to reflect the lessons of the financial crisis. The fiction the Government sought to create was that we would know who was in charge and who took responsibility in crises; in the evidence sessions, however, that fiction was slowly unpicked. The banks said that responsibility rested with the Treasury, and the FSA suggested that it had only a secondary role to play in financial stability—rather than clarity, there was confusion among the tripartite authorities. We therefore welcome the amendments that remove those clauses, which creates the opportunity for a fresh start in the next Parliament.

I welcome the Opposition’s support for the amendments. I am not surprised by it, given that the deal has been agreed. We still believe strongly that the council for financial stability is an important and necessary addition to financial regulation in this country, but given where we stand today, I appreciate the hon. Gentleman’s support for the other clauses in the Bill, which I hope will become law very shortly.

Lords amendment 1 agreed to.

Lords amendments 2 to 4 agreed to.

Clause 6

Disclosure of financial assistance to the Bank of England

With this it will be convenient to take Lords amendments 6 to 35 and 37 to 49.

As I mentioned a minute ago, as a result of discussions with the official Opposition via the usual channels, the second group of amendments will remove clause 8, which would provide for a new statutory duty imposed on the FSA to promote international regulation and supervision, and clauses 18 to 25, which would allow for group representative action in the courts for people with similar claims. We believe that, like the council for financial stability, those are important and necessary measures but, again, we have agreed to withdraw them to safeguard the passage of the Bill’s remaining provisions.

Alongside the amendments removing those clauses, the Government tabled in another place a large number of concessionary amendments, many in response to the scrutiny by this House and the points made by hon. Members who participated in debates on the Bill. I recognise that the length of the parliamentary Session has curtailed debate on the Bill in another place—indeed, my experience of watching some of that debate tells me that it could have continued for many more months—but I hope that Conservative Members welcome the Government’s efforts to deal with some of the concerns that have been raised.

Does the Minister accept that, in the financial risk outlook recently published by the Financial Services Authority, the FSA made it clear that, for the taxpayer, many tens of billions of pounds—a substantial proportion of what was provided—would be at risk, notwithstanding any proposed repayment of the loans by the banks? Does he agree that that is a serious hole in the public finances, which, according to the FSA, will be carried by the taxpayer?

I heard the hon. Gentleman mention that yesterday, but I have not had time to check it out, so I must pass on answering that question. On the general point, however, I do not believe that the Government’s financial interventions to recapitalise the banks and the Bank of England’s action to provide liquidity to the banking system have been anything other than absolutely necessary to ensure the continued stability of the financial system in this country. I will check the detail of what he says about the FSA’s financial risk outlook and, if it not too late in this Parliament, I will get my officials to write to him.

Let me describe briefly some of the concessionary amendments made in the Lords to which I hope this House will agree today. Amendments 9 and 10 ensure that the regulations provided for under clause 9 are subjected to the affirmative procedure. Amendment 12 ensures that the FSA, when making short-selling rules, has regard to international agreements in that area.

Amendments 16 to 23 further strengthen safeguards for individuals who performed a controlled function without the necessary FSA approval and reduce the proposed increase in the limitation period from four to three years. I well remember the hon. Member for Fareham (Mr. Hoban) expressing concern about those two points during Committee scrutiny of the FSA’s enforcement clauses. The extra safeguards reflect the importance of casting the FSA’s enforcement net widely enough to reach those who knew or could reasonably be expected to have known that they needed FSA approval and to deter individuals and firms from breaking the rules, but without catching those who reasonably should not be penalised. I believe that the amendment to the limitation period also strikes the right balance between allowing the FSA the time it needs to conduct proper investigations and answering the concerns expressed by Opposition Front Benchers, both in this House and in another place.

Amendment 24 will ensure greater transparency in disclosure of the FSA’s enforcement actions. That, too, is a point raised by the hon. Gentleman and by my hon. Friend the Member for Edmonton (Mr. Love). In Committee, I promised to look into the matter; I did so, and amendment 24 is the product of that thinking. It improves the position by widening the circumstances in which the FSA must disclose details of its enforcement actions against authorised firms and individuals. It requires the FSA to disclose such information relating to decision notices as it considers appropriate. At present, the FSA can disclose only information relating to a final notice, which follows any appeal to the tribunal, rather than information relating to a decision notice, which is issued after a firm has had the opportunity to make representations to the FSA but before the firm has had the opportunity to appeal.

The new clause provides earlier transparency before any appeal has been heard but, importantly, after the FSA has heard the firm’s views and concluded that there is a clear case to answer. It will empower consumers with additional information about which firms may have breached rules, and I think it strikes the right balance.

The Government have carefully considered points made in another place and by the industry on the ability to review rules made by the FSA establishing a consumer redress scheme. Although we feel that the approval of the court before a scheme can be established is not appropriate—indeed, we believe that that is a regulatory decision, which should be a matter for the FSA—the Government have accepted that the Bill should expressly set out a means of challenging such a decision, rather than requiring parties to rely solely on the judicial review process. Amendment 33 provides that any person may apply to the upper tribunal for a review of rules made by the FSA under new section 404 of the Financial Services and Markets Act 2000. We consider, again, that this strikes a reasonable balance between the ability of the FSA to implement a consumer redress scheme, where appropriate, and the rights of others to require a review of those rules. Furthermore, in the light of industry concerns about the use of the power, we have also agreed to change the commencement of the clause so that it must be commenced by an order rather than automatically on Royal Assent. I hope that that explains the amendments and I hope that the House will support them.

I welcome the amendments and the way in which the Minister has responded to the concerns that have been expressed during the scrutiny in this place and the other place. He highlighted amendment 24, for which I am grateful. One of the concerns that we had was that consumers did not know about enforcement action being taken against a firm regulated by the FSA and that that might put them at a disadvantage in dealing with those firms. Indeed, there was an incident that we cited in Committee relating to a mortgage company that was being investigated by the FSA on some of its repossession proceedings. If that information had been in the public domain sooner, that might have helped some people who had mortgages with that company. We welcome the constructive approach that the Minister has taken.

Let me focus very briefly on three areas. We want to see consumers given adequate protection when the product that they have brought or the advice that they have received is defective. That is a concern that we have expressed in a number of different ways over the course of this Bill but also in other wider reforms that we have set out. It is important that when new safeguards are introduced there should be proper scrutiny and consultation, so that we know that the safeguards will work effectively and proportionately.

We welcome the decision to drop clauses 18 to 25 on collective action. This gives the next Government the chance to consult properly on these changes and on the generic court rules that need to be introduced on collective actions and again on the detailed regulations that would then be used to apply those generic court rules to individual claims under financial services legislation. It also gives the next Government an opportunity to see how these rules dovetail with the existing protection for consumers and the consumer redress schemes. It also gives a Government the opportunity to think how collective proceedings should be applied to the whole area of consumer protection and not just to the narrow subject of financial services. The Government’s decision to drop these clauses creates the opportunity for further debate, which will benefit both consumers and industry.

On clause 26, we welcome some of the changes that the Government have made, particularly the change to the commencement date. Rather like collective proceedings, this is an area where there was insufficient consultation with the industry or consumer groups. There is an underlying concern about how the FSA would use these powers in practice. It might be the case that with a longer period of thought and deliberation the industry and consumer groups could become more comfortable with the way in which the FSA would seek to use these powers in practice. The amendment creates a breathing space to enable that to happen.

Let me make one thing very clear. It is apparent that the powers that this provision replaces—existing section 404 of the Financial Services and Markets Act 2000—are unsatisfactory, because those powers had never been used. It is also clear that defaulting back to the Financial Ombudsman Service to resolve large-scale mis-selling claims is also unsatisfactory. A solution needs to be found to resolve these issues and I think we are confident that we can and should make progress on this. Fundamentally, the best way to resolve these issues is through having the right mechanisms in place to deal with the cure while having the right regulatory approach and structure in place to deal with prevention, too.

I am pleased to see that amendment 43 has been introduced. The Minister did not choose to mention it, but it reflects amendment 48, which I tabled in Committee. The Minister was rather sceptical at that stage about the amendment and he said that as an expert in evaluation and someone who has studied this topic over 20 years, it was not really necessary because organisations would do that automatically. As someone who has not studied evaluation for 20 years, I am pleased to see that I can have an impact as a layman—perhaps through the machinations at the other end of the Palace, but the effect is none the less welcome for that. Clearly, there is good evidence for the impact that I have made in the outcome of this Bill.

Let me end by wishing the Minister well, as he is leaving the House at the election. He and I have sparred on a number of Bills over the course of the last couple of years. I have always found him straightforward to deal with—that might not be what the deputy Chief Whip would like to hear—and prepared to engage in the debate in Committee in a serious and thoughtful way. I am sure that whatever he chooses to do after he leaves this place, he will be as successful there as he has been in this House.

I shall not detain the House for more than a few moments. I listened carefully to the shadow Minister’s speech and, although I am open to correction, I do not think that he made much reference to clause 8, which is struck out by the Lords amendments. I am extremely surprised, bearing in mind the traumatic experience that the UK has suffered during the financial crisis over the past year or more, and bearing in mind the utterances that one gets from the Conservative party—not just in the hustings, but in recent times. I find it amazing that, at the Conservatives’ initiative, clause 8 has been struck out.

Clause 8 would have amended the Financial Services and Markets Act 2000 and would have allowed the Financial Services Authority—indeed, it would have empowered it—to take such steps to promote international financial regulation and supervision calculated to meet the financial stability objectives. It would also have charged the FSA with representing the interests of the UK when participating in discussions on international financial regulation and supervision. The agreed consensus was that some of the contributory factors to the global crisis and the background to the storm—which under the stewardship of this Government, we have largely weathered and got through—were the absence of adequate international financial regulation. I find it quite amazing that this House, at this stage in this Parliament, should strike out what must be a demonstrably approved measure at the whim or insistence of Conservative Lords and those on the Conservative Front Bench. I am happy to give way to the hon. Member for Fareham (Mr. Hoban), because I think that we should be told how that abdication of responsibility has happened.

I am grateful to the hon. Gentleman for giving way to probably the final intervention that he will take in this House. In the absence of this power, the FSA is still engaged in debate in the European Union and with the European Commission on technical issues to do with implementation of, say, Solvency 2. Lord Turner sits on committees of the Financial Stability Board. This makes no difference to the FSA’s ability to take part in international discussions. It has done so without this power being in the FSMA. It is an entirely cosmetic and pointless change.

I am pleased that I gave way, because that demonstrates the laid-back attitude of the Conservatives to this issue. Of course, the FSA has been acting in the way that the hon. Gentleman describes, but clause 8 places a duty on it. It reinforces its power. It sends messages abroad. It means that the FSA can go thumping the table internationally with full confidence and mandate of a statute. That is the difference. Statutory regulation stiffens the sinews, either of the FSA or the people who serve it, and underlines the importance and gravity of what they are doing. To say that the provision is not necessary is irresponsible and wrong.

I do not want to labour the point, other than to put on the record that removing clause 8 was a mistake. The Minister should be blushing, because the Government would have retained the provision, but the Conservatives insisted that it came out before the legislation could receive Royal Assent. The Conservatives are to blame for taking out a prudent and sensible clause.

The Minister may be able to help us on my second point. In proceedings in this House on 25 January and in another place on 23 February there was discussion of the credit unions of Northern Ireland. The hon. Member for Foyle (Mark Durkan), supported by the hon. Members for East Antrim (Sammy Wilson) and for North Down (Lady Hermon), Lord Bew and most sensible people, were led to believe that the measure would be a vehicle to empower the credit unions of Northern Ireland and give them parity with those in Great Britain. We thought they would be put under the FSA and allowed to provide financial products comparable to those in London, including child trust funds, ATMs and so forth.

Lord Myners was certainly sympathetic and, judging from the Official Report, the Minister indicated some support. Given his background as a Northern Ireland Minister, my hon. Friend will be aware that although only 1 per cent. of people in England use credit unions, they are used by 26 per cent. of people in Northern Ireland, yet they are denied parity of treatment with Great Britain. Furthermore, they do not have the assurances and guarantees arising from the oversight of the FSA.

I am bewildered and dismayed. All the political parties in Northern Ireland are in agreement on the issue, as are political parties in this House, including the Labour party in Northern Ireland and the Democratic Unionist party, except for the Conservative and Unionist party. By instructing the Minister that there should be no progress on the provision, the Conservative and Unionist party, which is standing in the election, is denying the people of Northern Ireland facilities for their credit unions. The Conservative party is doing a grave disservice to the 26 per cent. of people in Northern Ireland, across the political spectrum, who want their credit unions enhanced. The hon. Member for Fareham is looking anxious. Does he want to respond?

Only to say that I am not sure why the hon. Gentleman has reached that conclusion. I am not aware that we have sought in any way to block that amendment.

I rise to support the remarks made by the hon. Member for Fareham (Mr. Hoban). At one stage, many of us thought that the Bill might never come back here at all. Considerable work has been done on it by a lot of people and it includes some important aspects for consumers, so it would have been a great shame if it had not proceeded.

The provisions are reasonable given that there has been relatively little consultation as a result of the speed that was being required to push the Bill through. In many respects, the Bill is part 1 of something that will continue to be looked at as we impose regulation and supervision of financial services. I am happy to support the amendments and to allow the Bill to go through.

I do not have the same concerns about clause 8 as the hon. Member for Thurrock (Andrew Mackinlay). It had some belt-and-braces aspects and would not have had quite the impact he expected. Co-operation will clearly have to take place in that area. We shall not be able to introduce things off our own bat; we shall have to seek international support and co-operation and, as the hon. Member for Fareham said, there are already provisions in current legislation. However, certain aspects will have to be tightened up by the next Administration as they begin to push the measure through.

When the Treasury Committee visited Ireland a little while ago, we were amazed at the amount of credit union activity, but the mechanisms by which credit unions were administered or supervised were not raised with us. I am somewhat puzzled about the matter, so if the Minister has any helpful suggestions that would be good. It was certainly not something that the Committee considered was part of this legislation.

I echo the words of the hon. Member for Fareham about the Minister. We have had a good working relationship on various Committees, not least because of the way the Minister presented information and was always prepared to get us the additional information we required. I, too, wish him well in the future.

I want to speak briefly on clause 6. Nothing is more important than that people understand exactly, as it says in the amendment,

“the desirability of enhancing the understanding and knowledge of members of the public of financial matters (including the UK financial system),”

and for a very good reason. People have just been through the most cathartic experience; they have seen their savings and their jobs disintegrate as a result of mistakes, and sometimes of thoroughly misleading behaviour, by many people who ought to have known better. That goes for the Government as well as for the supervisory authorities and the companies and banks concerned.

People should have proper information and understand it and, if necessary, be given in school some overall idea of the extent to which they are dependent on the financial system. Something in the order of 20 per cent. of our entire economy turns on financial services, so it would not be amiss for people to have proper financial education and understanding. That provision is extremely important and useful.

Unlike the hon. Member for Thurrock (Andrew Mackinlay), I am delighted that clause 8 has been left out. I have taken a close interest in the Bill. I have written quite a lot about it in the Financial Times and other publications. From the beginning, I have made a constant assault on the idea that the City of London should be put under threat by European institutions—from the de Larosière report to the latest regulations, which I followed as a member of the European Scrutiny Committee from the beginning to the end. The Minister knows of my interest and of my condemnation of the extent to which the City of London has been put under threat as a result of European and/or global international regulation.

Even this morning, on the “Today” programme, the Prime Minister was still going on about the virtues of his great contribution to undermining—he would not put it like that, but it is a fact—our ability to run our own affairs. Given the number of jobs and the amount of gross domestic product dependent on the City, I am completely against the requirements under clause 8, and that is a very good reason why it should be left out. The hon. Member for Thurrock referred to its power, but he did not quite emphasise enough the fact that it would have provided for a legal duty, enforceable by judicial review. The hon. Gentleman is a good friend of mine, so I can tell from his expression how and to what extent he approves of clause 8.

As my hon. Friend the Member for Fareham (Mr. Hoban) knows perfectly well, irrespective of whether the clause is in or out, section 2 of the European Communities Act 1972 will require us to comply with the financial services regulations imposed by directives and decisions taken by the European jurisdiction. That is one reason why my United Kingdom Parliamentary Sovereignty Bill remains important. We have to have a proper adjustment, so that we co-operate with other countries. I have never been against that. As I have said many times before: European trade, yes; European Government, no. It is for this House to decide the extent to which we have proper regulation, and, whether we engage in agreements with other European countries or not, we in this House must have the last say.

Clause 8, as far as our courts are concerned, would have made an imposition upon the Financial Services Authority over and above the requirements of European regulations and directives. The clause would have gone to the Supreme Court at some point or other, when somebody challenged it, and it would have been an imposition—imposed by this Parliament as a mandatory requirement.

Therefore, I am glad that the clause has gone, but I remain concerned about our underlying requirement under the European Communities Act 1972 to comply with the financial regulations that are streaming out of the European Union like a tsunami. Through majority voting, they will effectively hand over control of the City of London to the axis of France and Germany—Frankfurt and Paris. Nikolas Sarkozy has been quite clear from the beginning about their overriding objection to the Anglo-Saxon methods of dealing with financial services, and about their objective of taking over the City of London. That is one of their objectives, and the same goes for the Germans in Frankfurt. [Interruption.] I love to watch the deputy Chief Whip of the Government-for-the-time-being laughing about that.

I am glad to hear the right hon. Gentleman say that. I am delighted, because all it does is demonstrate the absurdity of his position. He cannot tell that the people of this country are seriously affected. It may be very late in the day, and we may be right at the end of our parliamentary proceedings, but I say, and I shall say again, that nothing will stop me from defending in this Parliament the rights and interests of the people in this country. This legislation, whether or not it goes through in a wash-up and is fast-tracked, involves a disgraceful procedure, but at least it gives people like myself the opportunity to stand up for the United Kingdom, which I will do irrespective of deputy Chief Whips-for-the-time-being.

In line with the many times that I have raised this point with our shadow Chancellor and my hon. Friend the Member for Fareham, I trust that when we win the next election we will resist any attempt whatever to allow our City of London to be regulated by European regulations. We must insist that our City of London, our financial services, are dealt with under our laws, not under European or international legal jurisdictions.

I shall briefly respond to the points that have been made during this debate.

I agree with my hon. Friend the Member for Thurrock (Andrew Mackinlay) about clause 8 and disagree with the hon. Member for Stone (Mr. Cash) and his comments on it. I agree that dropping the clause will not prevent the Financial Services Authority from engaging in international forums, but the fact that it has not had its role formalised is disappointing. It is very strange that such an important activity has not been formally reflected on a statutory basis in the FSA’s objectives.

I heard what my hon. Friend said about Northern Ireland credit unions, and I share his strong desire to see them come under the auspices of the FSA. That is why, during Commons stages of the Bill, I said to Members that, if it were possible for the Northern Ireland Assembly to agree on an approach, we would see what could be done in the Bill. Lord Myners tabled a new clause in the other place, but there was no opportunity to debate it. Primary legislation is not actually needed to bring about those changes, but it is important to send the right signal, and I hope that the next Government will continue to look at the regulatory reform of credit unions.

The House will be aware that there is a joint Treasury-Northern Ireland Department of Enterprise, Trade and Investment consultation on proposals for the regulatory reform of credit unions in Northern Ireland, and that was launched on 30 March. As responses are received, I am sure that it will be possible—early in the next Parliament, I hope—to bring in any necessary changes at an early opportunity.

The hon. Member for Fareham (Mr. Hoban) made three main points. On collective proceedings, the House is now aware that the amendments will drop clauses 18 to 25 from the Bill. However, I stress that, in terms of collective proceedings and providing for the rights of individuals collectively to take action, there is an important principle that needs to be pursued. We explored the issue in some detail in Committee, but it is clear from some reactions outside the House, which were reflected in the other place, that more work is needed in that area. That is why I am happy not to pursue those clauses at the moment, and to see more work done. However, the House will need to return to the matter, because it involves some important points of principle about how we ensure that such collective rights can be exercised.

The hon. Gentleman also raised a highly relevant point about clause 26. He will be aware of the actions that we have taken through amendment 33, and the agreement that it would be enacted separately. We just gave up on his amendment 43. I still do not think that it is a necessary part of the Bill, but in the other place I think they just decided, “Oh, all right then. Let’s go on, let’s do it. It won’t do any harm.” It certainly will not do any harm. The other concessions that we made in the other place have helped to improve the Bill; his amendment does not do so substantially, but there we go.

I should like to say two final things. First, I thank the hon. Members for Fareham and for South-East Cornwall (Mr. Breed), with whom I have debated on many occasions over the past couple of years. If I may return their compliments, I must say that they have been unfailingly courteous and well reasoned in their arguments. Although I have not been able to agree with them on every occasion, I have always carefully considered what they have said; and, where I have thought it appropriate, I have asked officials to draft and bring forward amendments, as we have done during the passage of this Bill.

Secondly, and lastly, I should like to thank my Bill team. Bills such as this require an awful lot of work on the part of many civil servants. My committed, dedicated and able team have provided me with terrific advice. I hope that I have not mangled their sentences too much in what I have said during the debates on the Bill. It is to their immense credit that so much of the Bill will be enacted very shortly, and that will be of benefit to people in Britain. So I say thank you very much to my team, and thanks also to hon. Members.

Lords amendment 5 agreed to.

Lords amendments 6 to 49 agreed to, with Commons financial privileges waived in respect of Lords amendments 45 to 48.