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Banking and Financial Services

Volume 706: debated on Thursday 11 December 2008


Asked By

To ask Her Majesty’s Government what steps they will take regarding the comprehensibility of offerings made to the public by the banking and financial services industries.

My Lords, the Government have given powers to the Financial Services Authority and the Office of Fair Trading to ensure that financial services firms provide clear explanations of their products. The FSA has set firms a deadline of the end of this year to improve their documentation where it has identified deficiencies, and it will continue to review the situation.

My Lords, I thank my noble friend for that Answer, but I have had sight of the Lloyds TSB offer for HBOS. Does he agree that you need Galileo’s lenses to read the small print, Roger Bannister’s stamina to get through the 349 pages and Wittgenstein’s brain to understand it? Will he impress upon the banks that they need to communicate effectively with the public and give them some plain speaking about plain English?

My Lords, I am surprised that my noble friend has asked that question, as I thought that he had the qualities that he identified to cope with the issues. Of course, I agree that the complexity is daunting. The authorities are concerned to ensure that the basic outline of the documents is clear and that potential investors know the exact nature of the product. A great deal of complexity is bound to be attached to a rights issue and there is bound to be a longer document as well. If my noble friend’s burden is that there should be clarity about financial products, that is exactly the Government’s objective.

My Lords, will the Government take on board the need for clarity in their own advice to the banks? In particular, can the Minister explain how the banks are expected to improve their lending to businesses and others while paying penal rates for the money provided by government and, at the same time, being urged by the Government to repair their capital reserves? Surely the banks are being told by the Government to do one thing in public and another in private.

My Lords, I do not think that that is the case at all. The noble Lord will be all too well aware that throughout history banks have had to balance these competing demands, and that requires judgment. That is why, where they are successful in business, they merit the rewards, and in the past they have often had quite high rewards for the work that they do. The current position facing the banks is challenging, but does anyone doubt that the current position facing all businesses in this country is challenging, when we are facing the greatest downturn for a considerable number of decades? The noble Lord will appreciate that when the banks are asked, in particular, to ensure that families and small businesses are supported and are able to get finance, that is a proper and legitimate demand from a Government who have invested considerable public sums in making the banks viable.

My Lords, if I may be allowed to return to the Question on the Order Paper, is not the problem much more to do with the general public using a bit of common sense? If, for example, Northern Rock were offering depositors a higher rate of interest than Nationwide, surely the general public should simply be told, “Why don’t you use your common sense?” Is Northern Rock better at running an organisation than Nationwide, or is it, as it turned out, run by a bunch of chancers?

My Lords, my noble friend seeks to tempt me, as he often does, in these difficult areas. Of course, we expect an informed public to use common sense and judgment on the respective valuation that they attach to the products of different banks, building societies and financial agencies. However, we are concerned about the levels of financial literacy in this country. Education has somewhat neglected this crucial part of the citizen’s role. In this day and age it is important to recognise that we need to inform our citizens better and provide the educational background on which that can be established.

My Lords, I declare a vague interest as a solicitor admitted to the roll of solicitors of the Supreme Court. As noble Lords know, it is a profession that never uses one word when 10 will do. I should like an acknowledgement from the Minister that if the knee-jerk reaction to the banking crisis is to be more and more regulation, the result will be more and more complicated documents from the legal profession and its clients. The only way in which to comply with the regulation will be to draft everything to cover everybody’s posterior, and we will end up with a more, rather than a less, incomprehensible system.

My Lords, I had not realised that the noble Lord, Lord Jones, was capable of a vague interest in anything; he always shows the most extraordinary enthusiasm about all matters. Of course the issue he raises is important. In the way in which this present crisis is tackled, we have thoughtful policies that will produce results for the long-term health of the economy. This is not a knee-jerk reaction but a prompt reaction because the crisis requires urgency. It is not a knee-jerk response as the House will see as we develop our debates on the Banking Bill. The Government have thought the issue through carefully and that will stand the scrutiny of the House. On more general policies, it is pretty obvious that the only criticism voiced by critics of the Government, and by the main Opposition party in particular, is, “We don’t know what we would do”.

My Lords, the noble Lord referred to an initiative being taken by the FSA, but as the noble Lord, Lord Harrison, implied, this initiative appears to have failed so far. Will the Government look at the example of the pharmaceutical industry where there is a distinct professional body of medical writers whose sole role in life is to try to bring some clarity to the product coming from that industry? Will the Minister suggest to the FSA that it should look towards establishing a new cadre of financial writers whose sole role in life will be to make products clear for consumers?

My Lords, I am grateful to the noble Lord for that constructive suggestion. We all appreciate the fact that there have been improvements in communications to the general public about medicines. If we can learn lessons from that to apply to financial products, I am sure that the FSA will do so.