My Lords, in moving Amendment 25, I will speak also to Amendment 28. Amendment 25 adds a new subsection to Clause 3. Amendment 28 adds a new clause after Clause 4. They both concern informing Parliament about financial support. Both focus on financial assistance.

Noble Lords may know that the inspiration for the amendments came from the late disclosure of the emergency loans of £62 billion given to HBOS and RBS in October 2008 by the Bank of England. The Treasury indemnified the Bank as this was clearly way beyond the capacity of the Bank’s own balance sheet. This was made public only when the Governor of the Bank of England revealed it during evidence to the Treasury Select Committee in another place in November last year. The Chancellor of the Exchequer was then forced to make a Statement to another place setting out the facts. It was revealed not only that these extraordinary loans were kept secret for over a year from shareholders and Parliament but also that the Chancellor had not even informed the chairman of the Public Accounts Committee or the Treasury Select Committee on a confidential basis. This brings me to my two amendments.

Amendment 25 is concerned with the annual report and the minutes of the Council for Financial Stability. In any case of financial assistance, once the conditions of secrecy set out in Clause 3(5) and Clause 4(3) cease to exist, a report should be laid before Parliament. This report would obviously contain the information redacted from the minutes and the annual report.

Amendment 28 concentrates on financial assistance to the Bank of England, which would be the normal route for such assistance. This lays on the Treasury the basic obligation to report to Parliament. That report should be made as soon as possible but may be delayed if there is a threat to financial stability. There is no need for a commercial confidentiality let-out here. Parliament must be told if taxpayers’ money is being put at risk unless there is a reason at the national level to withhold such information. Importantly, the amendment provides that, if such a report is delayed, there is a positive obligation on the Chancellor to inform Members of Parliament on a confidential basis. It is for him to determine which Members of Parliament that should be. This is the area where the Chancellor badly let Parliament down in relation to RBS and HBOS last year. We must not allow that to happen again.

These amendments overlap to some extent, but I hope that together they demonstrate the range of concerns that should be addressed in this Bill in response to the serious concerns arising from the non-disclosure of the RBS and HBOS arrangements. I beg to move.

Amendment 25 explicitly concerns information about financial assistance as defined in Section 257 of the Banking Act 2009. The amendment would provide for information of this nature that was discussed in a Council for Financial Stability quarterly meeting but not minuted or covered by the annual report of the council to be made public in a report to Parliament when the confidentiality concerns in Clause 3(3) no longer apply.

As I am sure the House is aware, there are already appropriate reporting mechanisms in place for financial assistance under the Banking Act 2009. It might be useful to set out these processes. First, under Section 228(6) of the Banking Act 2009, where funds for financial assistance are paid directly from the Consolidated Fund, the Treasury shall as soon as reasonably practicable lay a report before Parliament specifying the amount but not the identity of the institution to or in respect of which it is paid. This would normally take the form of a Written Ministerial Statement such as in the case of the £1.6 billion payment made under Section 228(5) in March 2009.

Secondly, under Section 229(6), where a loan for financial assistance purposes is made from the National Loans Fund, the same reporting requirement as under Section 228(6) applies. No financial assistance loans have been made from the National Loans Fund to date.

Finally, under Section 231, the Treasury is required to lay before Parliament a report about any arrangements which may involve or require reliance on Section 228(1). This will include financial assistance payments made from voted money or directly from the Consolidated Fund under the Banking Act. It will also cover guarantees and commitments entered into as financial assistance where the making of future payments could require reliance on the Banking Act. The report must not specify individual arrangements or identify, or enable the identification of, individual beneficiaries.

These arrangements provide the right framework for reporting financial assistance under Section 257 of the Banking Act. There is no need, therefore, for further reports as part of the reports made by the Council for Financial Stability on its activity, especially as the council would not itself be taking any decisions about the giving of financial assistance.

In terms of disclosure of financial assistance to the Bank of England, the Government are in discussion with the chairs of the Public Accounts Committee and Treasury Select Committee about how extremely sensitive information would be notified to Parliament in the unlikely event of additional confidentiality being needed in the future. As Sir Nicholas Macpherson, the Treasury’s Permanent Secretary, indicated to the Public Accounts Committee when he appeared before it on 14 December:

“The Chancellor and indeed the official Treasury are acutely aware of the importance of parliamentary accountability”.

We would work to establish an arrangement for exceptional cases, such as the assistance that the Treasury made available to provide emergency liquidity against security—not a giving of benefit, as suggested by the noble Baroness—to HBOS and the Royal Bank of Scotland.

These arrangements are in addition to the normal processes for managing public money, which require the department to notify Parliament of statutory liabilities in the form expected by the legislation and any other major non-standard liabilities using a standard form of minute. These departmental minutes describe the amount and expected duration of the proposed liability; they explain which bodies are expected to benefit and why; and they explain how the authority for any expenditure required under the liability will be sought. As well as being laid in the House 14 sitting days prior to the liability being taken on, they are copied to the chairs of both the Public Accounts Committee of another place and departmental committees. In cases of particularly large or unusual liabilities, a ministerial Statement accompanies the minute. The Government are in discussion with the chairs of the Public Accounts Committee and the Treasury Committee to agree a process that will work effectively and ensure appropriate confidentiality. That will ensure that no action places at risk the very financial stability that we are seeking to achieve. Accordingly, I invite the noble Baroness to withdraw her amendment.

My Lords, I thank the Minister for that response. He said that the Council for Financial Stability would not get involved in any such decisions and that Amendment 25 was therefore not necessary. We have pretty well established that the Council for Financial Stability does not have any real meaning, so perhaps Amendment 25 is not relevant.

However, I am less clear about Amendment 28. We know that the Government did not inform Parliament about the HBOS and RBS arrangements until the Governor of the Bank of England had informed Parliament. That clearly did not work, and the fact that the Permanent Secretary at the Treasury is acutely aware of parliamentary accountability seems not to have achieved a result that many would have found satisfactory. I am not sure whether we can leave it to Ministers of the day, as advised by their Permanent Secretaries. I shall withdraw Amendment 25, but I give notice that, in a minute or so, I shall press Amendment 28 formally.

Well, my Lords, I am at a loss for words. As noble Lords will be aware, that does not very often happen. I shall move Amendment 29 and speak to Amendment 32. Both of these amendments concern the differences between the financial stability objective for the Bank of England, which was created in last year’s Banking Act, and that for the FSA which is created in Clause 5. The Bank of England’s financial stability objective is set out in Section 2A of the Bank of England Act 1998, which says that the objective is,

“to contribute to protecting and enhancing the stability of the financial systems”,

in the UK. We had several discussions during the passage of the Banking Act last year about whether a more precise definition should be given, but the Government refused to budge on that.

When we come to this Bill, the FSA’s new financial stability objective in the proposed new Section 3A(1) of FiSMA is phrased in much the same way as it is for the Bank, but new Section 3A(2) goes on to say that the FSA has to “have regard to” some very sensible things; namely:

“the economic and fiscal consequences for the United Kingdom of instability”,

in,

“the UK financial system; … the effects … on the growth of the economy of”,

the UK and,

“the impact … on the stability of the UK financial system of events or circumstances outside”,

the UK. My Amendment 29 simply adds those sensible things to which the FSA should have regard to the financial stability objective for the Bank of England. I cannot think that the Government would want the two bodies to be working to substantially different terms of reference for financial stability, so I am sure that the Minister will agree with my amendment.

The second amendment in this group, Amendment 32, adds a new clause after Clause 4. It also probes a difference between the wording used for financial stability in last year’s Banking Act and in this Bill. Last year, the wording referred to the financial systems of the UK, while this year the parliamentary draughtsman has used, “UK financial system”; that is, last year, there was more than one system, and this year there is one. If the courts ever come to interpret this Bill and last year’s Act, there would be a prima facie case that the Government intended different things, since they have used different language. The normal interpretation from that is that the difference was deliberate. Amendment 32 says:

“For the avoidance of doubt”,

the financial systems wording means the same as this year’s wording. I beg to move.

Amendment 29 would give the Bank of England a list of factors to which it must have regard when considering its financial stability objective. These three factors are identical to those set out for the Financial Services Authority by Clause 5. They are the economic and financial consequences of instability for the UK, any effects on economic growth of the FSA’s stability-enhancing measures and any impacts of overseas events or circumstances on UK financial stability. I understand why the noble Baroness might think that it is sensible for the FSA and the Bank of England to have their financial stability objectives framed in precisely the same way. However, I will explain why this is neither necessary nor appropriate.

The amendments to the Financial Services and Markets Act proposed by the Bill follow the existing style of that Act. As noble Lords are aware FiSMA sets out a detailed legislative framework by which the FSA must operate. Section 2(3) of the Act lists a number of matters to which the FSA must have regard. The list of factors to which it must have regard when pursuing its financial stability objectives have been drafted to be consistent with this approach. FiSMA currently focuses on providers and consumers of financial services and does not mention taxpayers or the wider economy. The style of FiSMA offers no flexibility on the FSA’s objectives and “have regard to”. The list inserted by new Section 3A(3) in Clause 5 requires the FSA to consider these wider factors when undertaking its detailed statutory functions and operations.

The Bank, on the other hand, is generally not constrained in the same way. Although the Bank of England Act 1998 goes into some detail it is not the case that all the Bank’s operations are set out in detailed statute. For that reason, the Government do not believe that it is appropriate to give the Bank the same parameters as the FSA for its financial stability objective. The Bank and the FSA have different roles and different tools. Until the financial crisis, the FSA was focused on micro-level regulation. We are now giving it a wider set of factors to consider, but the Bank has always had a wider macroeconomic approach. I agree that it should consider the factors set out in the new clause to the extent it judges appropriate, but it can already do so. In contrast, it is an extension of scope for the FSA to be asked to look beyond the narrowly defined financial services sector. I hope that I have explained why the proposed new clause is not necessary and urge the noble Baroness to withdraw her amendment.

I now turn to Amendment 32, which would include specific provision such that where the Bill refers to “the UK financial system”, it means the same as,

“the financial systems of the United Kingdom”,

as in the Banking Act 2009. That expression is not defined in the Banking Act but is used in a number of places, mainly in Part 1 in relation to the special resolution regime. Under normal principles of statutory interpretation as set out in the Interpretation Act, words in the singular include plural and vice versa unless the contrary intention appears. Accordingly, we do not consider that there is any need to include a provision in the Bill along the lines of the amendment that has been tabled. I therefore ask the noble Baroness not to press it.

Many people have voiced their differences on the tripartite government system, and we are all concerned with that. Are not the Government building into this system further potential problems by having different definitions? The Minister explained it by describing what was required of the FSA but I cannot see that by putting in the definition of what the Bank of England has to look at in any way binds or changes what the FSA has to look at. Perhaps the Minister can explain that. He explained it via the FSA but the amendment has to do with the Bank of England.

I thank the noble Lord, Lord Howard of Rising, for his contribution. However, I have already addressed his point. I made it very clear that the Bank of England already has very wide powers to take into consideration macro factors and does not need these to be further memorialised in statute. The Bank of England has made no request to us when we were drafting the Bill that that should be considered.

I am a bit mystified. Which sections of any of the Bank of England Acts contain these macroeconomic factors that they have regard to? I cannot remember which sections he is referring to.

I did not say that I was referring to the Act. I said that they already take into consideration a wide range of macro factors.

I am mystified by this. The Bank of England Act is not specific on this. The only broader references might be in relation to the specification of the Monetary Policy Committee’s objective in the 1998 Act. However, I do not think that the 1948 Act—if that is the right year—the 1998 Act or last year’s Banking Act specified these broader aspects. We continually refine what the Bank of England is supposed to do. Surely it is right to use best practice from other parts. We have the FSA with the financial stability objective expressed in different ways from the Bank of England. Are they not supposed to be achieving the same thing? Are they achieving different things? The Minister has not explained why they should be expressed differently.

I can only go over the ground that I have already covered. No one is suggesting that there are any weaknesses at the moment in the authorities and powers of the Bank of England or its approach to the management of the stability of the financial system. The Treasury has come across no situations in which it believes that the Bank might be inhibited or restricted by statute from performing the function which we would look to the Bank of England to carry out, nor has the Bank of England in the representations that it has made to us in connection with the Bill cited this as an area where it would suggest that it would be appropriate to mirror the wording which is used for the FSA.

Well, my Lords, I am sorry about this. The creation of tripartite authorities gets messier and messier. As the Government try to tidy one bit up—the FSA—we get other bits of untidiness. We cannot allow this to continue. I would like to test the opinion of the House.

My Lords, I thought that the Committee might like to move on to Clause 5. Amendment 33 is the first of a small series of amendments which will tease out the relationships between the Bank, the FSA and the Council for Financial Stability.

When we looked at amendments to the earlier clauses we were looking at the interrelationships from the perspective of the council, which is where they come together. I now seek to probe the interrelationships when seen from the other end of the telescope, namely from the perspective of the FSA or the Bank.

Clause 5 amends the Financial Services and Markets Act 2000 and sets out a new objective for the FSA to contribute to financial stability. Clause 5(3) expands on the financial stability objective, and sets out in subsection (2) of new Section 3A of FSMA various things to which the FSA must have regard. My amendment adds to that list and says that in considering the financial stability objective, the FSA must have regard to the proceedings of the Council for Financial Stability.

In another place, the Minister said that the amendment was unnecessary and that nothing was to be gained by it. He said:

“The FSA will clearly take account of the discussions in the council when considering how best to meet its objective of contributing to financial stability”.—[Official Report, Commons, 25/1/10; col. 632.]

This is a traditional ministerial defence of government drafting. First you say that it is unnecessary and then say that it will happen anyway. Some of us have become cynical about this defence. The noble Lord, Lord Myners, used it last year in connection with the Banking Bill debates, when he resisted the substance of what is in this clause. Last year he said that the FSA did not need a financial stability objective because it was already implicit in its market confidence objective. He said that a financial stability objective was not appropriate. If something is not in plain language in the Bill, we cannot assume that it will be taken for granted. The Minister cannot give a Dispatch Box assurance about what the FSA will or will not do, and so we have to judge the Bill for what it says, not what the Minister would like it to mean. I beg to move.

Amendment 33 would require the FSA to have regard to the proceedings of the Council for Financial Stability when considering its financial stability objective. I can agree with the spirit of the amendment but I do not believe that it is necessary. The Government are creating the Council for Financial Stability precisely to be a forum for effective co-ordination between the authorities responsible for financial stability. Clause 1(3) is clear that the council has to monitor and co-ordinate, and paragraph 17 of the terms of reference clearly specifies that the council will consider the financial stability strategies of the FSA and the Bank.

I am confident that the FSA, like the Bank, will work in close partnership with the other authorities in the work of the council. For this reason, we fully expect the FSA to take due account of the council’s discussions and that the actions of all the authorities will be informed by the views, actions and approach of other council members.

In addition, paragraph 26 of Schedule 2 to the Bill amends Section 354 of FSMA, which concerns the FSA’s duty of co-operation. Paragraph 26 will extend this duty by adding a new subsection which states:

“In pursuing its financial stability objective, the Authority must take such steps as it considers appropriate to co-operate with other relevant bodies (including the Treasury and the Bank of England)”.

Therefore, nothing would be gained by adding the proceedings of the council to the list of matters to which the FSA must have regard. I therefore invite the noble Baroness to withdraw her amendment.

Could the Minister direct me again to the reference in Schedule 2?

I referred the noble Baroness to paragraph 26 of Schedule 2 to the Bill.

My Lords, clearly paragraph 26 will repay most careful study, which I undertake to do before returning to this part of the Bill. I beg leave to withdraw the amendment.

I shall speak also to Amendment 105. Under new Section 3A(3) of FSMA, which is inserted by Clause 5(3), the FSA is to determine and review its strategy in relation to its financial stability objective and must consult the Treasury. When the Bank of England was given its financial stability objective in last year’s Act, an identical clause was set up, with the Bank consulting the Treasury on its financial stability strategy. It is clearly right that each body should develop its own strategy because each has its own responsibilities and powers. My amendments do not call for a common strategy but for the FSA and the Bank to consult more widely than the Treasury. If there is to be any meaning to tripartite working, it seems odd that each one must consult the Treasury but not each other.

My Lords, we seem to be getting in a position where everyone is looking for stability in the financial system and everyone is consulting everyone, except for some reason at this point the FSA consults only the Treasury and not the Bank of England. However, the real trouble with this arrangement is that one really does not know where the buck stops at the end of the day. It is dividing all over the place, everyone is consulting with everyone, but no one appears ultimately responsible. Which of the three is it?

My Lords, I cannot see how the Government can reasonably resist this amendment. Either we will have a position where the Treasury is calling the shots all the time or we will have a tripartite co-ordinating structure, which I think is the Minister’s plan. He keeps telling us that the council has no Executive responsibility and is a co-ordinating body. The authority does not have to consult the other two members; only one of the other two members is consulted. Surely the very essence of the co-ordination that the Minister has in mind should require all three parties to dance at the same time.

My Lords, when the Minister answers, it would be helpful if he could tell us where the buck stops, as my noble friend Lord Higgins has asked. One of the weaknesses of the tripartite system is that there is no buck-stopper around. The Minister should look very seriously at this amendment. Anything that welds the tripartite authority together to make it a more unified structure whereby each part supports the others rather than argues with them is to be applauded.

My Lords, Clause 5 requires the FSA to prepare a financial stability strategy and, in doing so, to consult the Treasury. Amendment 34 would require the FSA also to consult the Bank of England in this work.

The amendment is not needed, because the effect that the noble Baroness seeks is already provided for in the terms of reference of the Council for Financial Stability. The draft terms require the council to consider the financial stability strategies of the Bank and the FSA. Therefore, the Bank will have a consultative role.

Nevertheless, it is right that the FSA should be required by the Bill to consult the Treasury. As the UK’s finance and economics ministry, it is ultimately accountable to Parliament and responsible for decisions that have an impact on public finances. I hope that this provides sufficient reassurance to the noble Baroness that her amendment is not needed, and I invite her to withdraw it.

Amendment 105 seeks to amend Section 2A(3) of the Bank of England Act 1998, which provides that the Bank’s strategy in relation to financial stability shall be determined and reviewed by the Court of Directors of the Bank of England. Currently, the court must consult the Treasury before it sets the strategy. The new clause proposed by the amendment would require the Bank also to consult the FSA in addition to the Treasury when setting the Bank’s strategy. I reassure noble Lords that this amendment is also unnecessary. The role of the Council for Financial Stability is to act as a forum for discussion and co-ordination of the Bank’s and the FSA’s financial stability strategies. As noble Lords are aware, the FSA is one of the council’s three members and will therefore take an active role in scrutinising the Bank’s strategy for financial stability. However, again, it is right that the Bank is required by Section 2A(3) of the Bank of England Act to consult the Treasury, since the Treasury is ultimately accountable to Parliament and responsible for decisions that may have fiscal consequences.

Noble Lords have asked who does the challenging when two parties have already agreed, but I think that it is obvious: it could be one of the two parties to which the noble Baroness referred, having not reached agreement with the other party, or it could be the third party. That is precisely why the Council for Financial Stability is meticulous in its requirement not only that the minutes be published but that attributable comments be included in them as agreed by the three members of the council. That will be the test in teasing out any difference of opinion that might arise.

The noble Lords, Lord Higgins and Lord Howard of Rising, again asked who is in charge or who is responsible. We covered this at some considerable length at both Second Reading and on the first day of Committee. I could again repeat the answers that I gave then: the FSA is the independent financial services regulator responsible for the supervision of financial firms. The Bank of England is the central bank; it is responsible for providing liquidity insurance to the banking system; it has oversight of the payments system; and it is the resolution authority. Finally, the Treasury, as the finance and economics ministry, is responsible for the overall institutional structure of financial regulation and the legislation which governs it. It is ultimately accountable to Parliament and responsible for decisions which impact on the public finances. That could not be clearer. There is no doubt who is responsible for what, and there is no doubt in my mind that the Council for Financial Stability will significantly improve transparency and accountability from its predecessor and therefore represents a good improvement on a model that already worked very well during the crisis.

My Lords, I cannot leave unchallenged that this model worked very well in a crisis. We all know that this model failed abjectly the first time it was put to the test, which is why this Bill tries to pretend that the arrangements that used to work just need a little bit of tweaking and improving to make them work even better. We know that is not the case.

The concept that the Minister is really putting forward is that financial stability is not one thing where everybody is working together. The FSA does a little bit working on its own and perhaps with the Treasury. The Bank does its bit perhaps working with the Treasury. The Treasury does whatever the Treasury does and then they come together in this shiny new concept called the Council for Financial Stability and somehow this all works.

I think the Minister does not really believe that this will all work. This is really all rather silly. I am getting bored with the Council for Financial Stability. All the Minister has said has not endeared the Council for Financial Stability to my party. I do not think that we are any more impressed with it at the end of these amendments than we were at the beginning of day one of Committee. However, I think it is time to move on from the Council for Financial Stability. I beg leave to withdraw the amendment.

My Lords, Amendment 35A adds two new subsections to proposed new Section 3A of FSMA as inserted by Clause 5(3). The financial stability objective is not defined in this Bill, as it was not when the Bank of England was given its financial stability objective in last year’s Banking Act. We sought then to get a definition in the statute or, failing that, a requirement to define what is meant by “financial stability” in the code of practice. As I recall, more than one definition had surfaced during the consideration of that Act and we thought that clarity would be aided by a definition. We did not succeed in that.

However, we now have a financial stability objective proposed for the FSA and rather different considerations apply. The FSA will be able to use some of its powers solely on the basis of it being desirable for its financial stability objective. Under Clause 7, the FSA’s powers are proposed to be considerably enhanced. For example, its own-initiative power in Section 45 of FSMA could, if Clause 7 is passed into law, be used by the FSA if it is desirable in order to meet any of its regulatory objectives. At present, the FSA can use this power only in relation to consumer protection. Similarly, the general rule-making power in Section 138 of FSMA is extended from consumer protection to all of the FSA’s objectives by Clause 7.

These are massively widened powers and we will debate them when we get to Clause 7. For the purposes of Clause 5, the relevance is that the FSA has an undefined financial stability objective which it can now invoke to justify the use of various of its powers. I hope that the Government share our belief in regulatory powers needing to be clear in order to give certainty to the regulated community. Clause 5, taken with Clause 7, creates major new uncertainty.

The Banking Act creates a requirement for the Treasury to issue a code of practice setting out how the special resolution powers would be used. This was welcomed by the financial services sector even if the content did not always satisfy those who looked to the code for answers. I believe that this Bill would be improved by something similar.

Amendment 35A calls for the FSA to issue a statement of policy of both its understanding of the objective and in what circumstances it intends to use its powers to achieve its objective. It also requires the FSA to consult the Treasury, the Bank of England, and people who could be affected by the statement. It would clearly not bind the FSA in all circumstances, but it would give reassurance to the financial services bodies that might be affected by what is meant by it.

The amendment was prompted by the memorandum submitted by the City of London Law Society to the Public Bill Committee in another place. It is concerned about the breadth of the rule-making powers and the lack of constraints on the use of those powers. In relation to Clause 5, it believes that a statement of policy is the very least of the amendments that should be made to give greater clarity about the objective. The City of London Law Society said that it understood that the Government’s main concern was to ensure that the FSA took account of the systemic risk posed by common patterns of behaviour by, and relationships between, regulated firms. I do not know if that is what is intended to be covered; I suspect that there are other things as well—but whatever that is, the FSA ought to be clear about it. I hope that the Minister will share that desire for clarity. I beg to move.

My Lords, other noble Lords may have seen the briefing from the British Bankers’ Association that deals with the point made by my noble friend and the issue that her amendment seeks to address. The association says, inter alia, that the provision of a financial stability objective should not be taken as a licence for the FSA to place unreasonable information demands on banks and that there will be a need for full and open dialogue on what further data capture and reporting requirements this may involve. It says that the provision should not be taken as a licence for the FSA to act other than on the basis of proportionate action, based on established need, and a full understanding of the consequences of its action.

This is clearly an issue that concerns the British Bankers’ Association a great deal. The amendment that my noble friend moved would go a long way towards ensuring that these concerns are addressed because of the way she requires the FSA to plan and prepare and to explain why it will act in a proportionate way.

Amendment 35A would require the FSA to issue a statement about its understanding of its financial stability objective and how it plans to use its power to achieve this. It would also require the FSA to consult the Treasury, the Bank of England and any other person whom it considers will be affected by the statement. While I agree with the sentiment of this amendment, I must argue that it is superfluous, because it is already covered elsewhere. I begin by referring the noble Baroness to new Section 3A(3) in Clause 5, which states:

“The Authority must, consulting the Treasury, determine and review its strategy in relation to the financial stability objective”.

The section may not refer specifically to a statement of policy, but this is just a matter of wording. The content is clearly there.

As for the FSA consulting the Bank on its strategy for financial stability, I assure the noble Baroness that provisions for this are already in place. As noble Lords are aware, the Bank of England is a member of the Council for Financial Stability. The terms of reference for the council clearly specify that it will consider the financial stability strategies of the FSA and the Bank. Ipso facto, the Bank will have a role in scrutinising the financial stability strategy of the FSA, which already takes a proactive approach to consulting industry and consumers on its policies. I have no reason to doubt that this will be any different where the FSA’s financial stability strategy is concerned. When the FSA makes rules, it is required to consult in accordance with Section 155 of the Financial Services and Markets Act. When making rules under Section 138, the FSA will still have to follow the procedures in Section 155, including consulting industry and other stakeholders and undertaking a cost-benefit analysis. It will also have regard to its general duties in respect of the desirability of maintaining the UK’s competitive position and the need to be proportionate in its regulation. I hope I have clearly explained why this amendment adds nothing to the Bill, and I therefore urge the House to resist it.

I have had some difficulty because the noble Lord is reading out the answer to the questions raised by my noble friend behind me rather than making it up in his own words—it is always much easier to understand when he does not simply read it out.

I have some difficulty in seeing from the Bill as it stands where the FSA will not be in danger of demanding too much information from banks—although if it had demanded rather more in the past it would probably be to our general advantage. In particular, I am not clear about how duplication is to be avoided. If information is to be demanded from the banks, is it to be done by the FSA or the Bank, and how are they going to arrange this? Which will be the lead person in demanding information, and then, presumably, in ensuring that it is enough for both the Bank and the FSA? At the moment it is not at all clear from the Bill why any burden is placed on the FSA not to demand excessive information on the one hand, or to ensure that there is not duplication between the Bank and the FSA on the other.

I thank the noble Lord, Lord Higgins, for his intervention. My experience is that when I make up the answer as opposed to reading it I invariably get myself into difficulty. Common sense tells me that on the whole I should stick to developing my skills in reading aloud rather than in trying to convey to the House my understanding of why we are making particular proposals and how I think they will operate. It is precisely because of my tendency to extemporise that I found myself challenged earlier by the noble Lord, Lord Lawson of Blaby, as to whether I had misled the House on issues in Canada. Having used the dinnertime break to check the facts assiduously, I am increasingly confident that I did not mislead the House, although I still have to do a little further work in answering that point.

This takes me back to the more substantial point made by the noble Lord, Lord Higgins: the question of what prevents the FSA from making unreasonable requests. The FSA is required to have regard to costs and proportionality in the inquiries and requests that it makes for information. I agree with the noble Lord that the balance of argument is strongly in favour of the fact that in recent years the FSA should have been asking more questions. I would even go a little further and say that it should have been asking more questions about business strategy and managerial competence rather than simply gathering data. However, both in the Turner review and in its forensic analysis of the failure of Northern Rock, the FSA itself admits that it needs to change its style of engagement. The question of whether it asks for too much information has to be addressed through processes of open consultation.

On the matter of who asks the banks for information, the noble Lord asks a very good question. Our view is that regulatory institutions should not be bombarded with requests for information from the Treasury, the Bank of England and the FSA in connection with financial stability. That is why we require that those questions are channelled through the Financial Services Authority. If the Bank requires additional information, it will seek it through the FSA.

One of the troubles with new Section 3A(2), to be inserted by Clause 5, is that it states:

“In considering that objective the Authority must have regard to”,

three broad categories. However, it does not focus, as the amendment does, on what is important, which is the FSA’s understanding of the objective and how it will be achieved. That is why I support my noble friend’s amendment.

The noble Lord’s answer was very helpful in its context, but are we to understand that the Bank of England will not approach banks at all to ask for information but will always ask the FSA to get it and then pass it on?

With the agreement of the noble Lord, Lord Northbrook, I will first answer the question asked by the noble Lord, Lord Higgins, which followed on from his earlier one. Of course, there is a lot of contact between the Bank of England and the banking community, particularly through Mr Paul Tucker, the deputy governor, and Mr Paul Fisher, another executive director of the Bank. I doubt whether there is a day when they do not meet people from the banking industry. But we are talking about the collection of data from banks. That data collection will go through the FSA because the first stage must be for the Bank of England to seek an understanding from the FSA where it already has the data or has data that will provide the answer to the question that the Bank is seeking to address. If that is not the case, that information request will be channelled through the FSA, which has formal links for the purposes of information gathering with all regulated and supervised banks in the United Kingdom.

On the point made by the noble Lord, Lord Northbrook, the three categories described are very broad, but that is consistent with our principle-based approach. If we are too specific, there is a danger that we limit ourselves and then find that new circumstances emerge that are not precisely contemplated in legislation. The language that focuses on principles and broad areas of authority without being too narrow or specific is consistent with the approach that we are seeking to adopt and will be supportive of the intention of the Bill.

I thank my noble friends Lord Northbrook, Lord Higgins and Lord Hodgson for their passionate observations. My noble friend Lord Higgins hit the nail on the head in relation to information, because it emerged in evidence sessions for the Public Bill Committee in another place that information powers are one of the few things that the Bank wanted but that are not in the Bill. We have an amendment somewhere in the 300s that will address that.

I was helpfully trying to point out that the direction of the question asked by the noble Lord, Lord Higgins, as the noble Baroness might have noted, might not be entirely consistent with an amendment that we may reach in the late autumn if we proceed at this pace with the Committee stage of the Bill.

That is entirely correct and my noble friend Lord Higgins would have come to appreciate the importance of information powers for the Bank before we got to that stage.

It is perfectly clear that written right at the top of the Minister’s brief is “resist”, that word that appears on most ministerial briefs. One could tell that the Minister's heart was not quite in it. He told me that my amendment was superfluous because somehow a strategy was the same as a statement of policy. Since the City of London Law Society, which I respect greatly, has seen the Bill, which talked about a strategy, and still said that we needed a statement of policy, I rather took that as being important. There is no requirement here to issue or publish a strategy. There is no sign that it is the same thing. There is no consultation on the strategy beyond the Treasury, whereas my amendment would require wide consultation and in particular refers to other persons who,

“may be affected by the statement”,

of policy. The Minister is resisting something which is entirely sensible for the regulated community. There is an inability to see the kind of concerns that genuinely exist out there. If the FSA just had this objective without widening the powers to cover this, it might have been an easier matter. It is not an easy matter because the powers are to be broadened at the same time. For that reason, I would like to test the opinion of the House.