Tuesday, 26 February 2013.
My Lords, if there is a Division in the House, the Committee will adjourn for 10 minutes.
Police and Fire Reform (Scotland) Act 2012 (Consequential Provisions and Modifications) Order 2013
Considered in Grand Committee
That the Grand Committee do report to the House that it has considered the Police and Fire Reform (Scotland) Act 2012 (Consequential Provisions and Modifications) Order 2013.
Relevant documents: 17th Report from the Joint Committee on Statutory Instruments, 27th Report from the Secondary Legislation Scrutiny Committee.
My Lords, I will provide the Committee with a brief summary of what the order seeks to achieve. It is made under Section 104 of the Scotland Act 1998, which allows for necessary or expedient changes to legislation in consequence of an Act of the Scottish Parliament. The order is made in consequence of the Police and Fire Reform (Scotland) Act 2012, which received Royal Assent on 7 August 2012. I shall refer to this as the 2012 Act.
The 2012 Act creates a single Police Service of Scotland, which will be maintained by the Scottish Police Authority. This service will replace the eight existing police forces maintained by local police authorities and the two central bodies which currently provide national policing services in Scotland. The 2012 Act, together with this order, repeals the Police (Scotland) Act 1967 and replaces it with a new statutory framework for policing.
The 2012 Act also creates a single Scottish Fire and Rescue Service. This newly created service replaces the two unitary fire and rescue authorities and six joint fire and rescue boards which are currently in place. The 2012 Act amends the Fire (Scotland) Act 2005 to establish this single fire service.
Additionally, the 2012 Act provides for the Police Complaints Commissioner for Scotland to be renamed the Police Investigations and Review Commissioner, with expanded powers to carry out investigations into serious incidents and other matters relating to the police. The 2012 Act also places independent custody visiting in Scotland on a statutory footing, ensuring compliance with the Optional Protocol to the Convention Against Torture.
As will be seen, it is a very substantial order in terms of size, but I can assure the Committee that it is entirely consequential in content. Its intention is not to make any new policy but simply to ensure the continuity of current arrangements when the 2012 Act comes fully into force on 1 April by updating existing legislation to refer to the newly created Scottish Police Authority, Police Service of Scotland and Scottish Fire and Rescue Service.
The order makes provision for mutual aid and collaboration agreements between the new Scottish services and other forces and services in the United Kingdom. For police, this replaces provision in the Police (Scotland) Act 1967 and, for fire, it provides a clear statutory footing to ensure that the current relationships continue to work effectively. The order will also make certain transitional and savings provisions, again for the purpose of guaranteeing continuity of services.
Following its scrutiny of the order, the Secondary Legislation Scrutiny Committee drew the attention of this House to the instrument on the grounds that it gives rise to issues of public policy which may be of interest to it. I take this opportunity to thank the committee for its consideration of the order and address the issue that it raised.
Article 9 of the order makes it an offence to cause disaffection among members of the Police Service of Scotland, the British Transport Police or the Civil Nuclear Constabulary. It also makes it an offence to induce a member of any of those forces to withhold services.
With regard to the scope of the offence, I assure your Lordships that it is not the intention that an individual would be charged under the offence set out in Article 9 for merely expressing an opinion or legitimate concerns. The UK Government would expect a prosecution to follow only where there was a real and serious attempt to cause disaffection. Such action could lead to a breakdown in the ability of the police to maintain public order and to protect society. Any attempt to undermine the role of the police in this way is a serious matter and must be addressed. That is why we consider this offence to be necessary.
Offences parallel to that proposed in Article 9 already exist in relation to all UK police forces and the specialist forces; namely, the British Transport Police, Civil Nuclear Constabulary and Ministry of Defence Police. The Home Office has confirmed that there is no intention to remove the offence in England and Wales, and it is my understanding that its repeal is not being contemplated in Northern Ireland either. These offences are considered to be essential to the proper operation of policing. The intention of the order is to ensure that the new Police Service of Scotland can continue to work effectively with the other police forces within the UK. Not to include this offence would cause a discrepancy between constables of the Police Service of Scotland and those of other UK forces. It would also cause a discrepancy, for example, between members of the British Transport Police operating in Scotland and their colleagues in England and Wales.
It may well be the case that your Lordships’ House will wish to consider the terms of this offence in a wider context. I would submit that the purpose of this order is simply to maintain continuity and consistency between the new Police Service of Scotland and other forces across the UK. It would not be appropriate if the Scottish Government had proposed removing the offence for forces operating in Scotland as this would leave a significant gap for effective policing throughout the United Kingdom. Moreover, if your Lordships’ House continues to have concerns about the general policy surrounding the offence of disaffection, it would not be appropriate to use this technical piece of subordinate legislation to address such wider concern here as this order is concerned with maintaining effective policing in Scotland and ensuring continuity of current policing arrangements.
With regard to the instrument as a whole, it is worth noting that this order is part of a much wider legislative programme to provide a smooth transition to the new police and fire services in Scotland. Indeed, 15 other instruments have been laid to date in the Scottish Parliament, and I understand that 10 more are planned, while a related order, the Scottish Administration (Offices) Order 2012 (SI 2012/3073) was considered by Her Majesty in Council and subsequently laid before this Parliament on 19 December 2012.
Work on this consequential order has been undertaken by more than 20 departments within the United Kingdom Government, the Scottish Government, the Northern Ireland Executive and the Welsh Assembly Government, who have agreed that the provisions in this order are necessary to ensure the effective operation of the new police and fire services in Scotland and the continuation of effective relationships with their partners throughout the UK. With the 2012 Act completing its passage through the Scottish Parliament only in June last year, agreement on the policy and the drafting of the instrument has been concluded at an excellent pace, with great credit to all those involved across the different Governments.
It is also fair to point out that neither coalition party in the Government here at Westminster was supportive of the measure when it went through the Scottish Parliament. Indeed, my party opposed it and the Conservative Party abstained. Nevertheless, I believe that it is consistent with the spirit and mutual respect that we give effect to an Act properly passed by the Scottish Parliament. Indeed, it was passed by 101 votes to six with 14 abstentions. I believe that it demonstrates the United Kingdom Government’s commitment to working with the Scottish Government to make the devolution settlement work. I hope that this Committee will agree that this order is a sensible use of the powers in the Scotland Act and that the practical result is an example of how we can make devolution work. I commend the order to the Committee. I beg to move.
My Lords, I am perfectly happy with what the Scottish Parliament has legislated for and I am happy with the order. I should like to record my surprise at the strategy of going for a national police force in Scotland. It certainly has been the tradition in Scotland and across the whole of Britain as an island that policing should be organised locally. At home, I have maps which point out where the Alloa borough police force was: it had a chief constable, a sergeant and 10 constables. The tradition in Britain has been one of local policing.
I also acknowledge that in another part of English-speaking Europe, in Ireland, that it always has had national policing. After 1922, the Royal Irish Constabulary was replaced by two national forces—the RUC and the Garda Siochana. I want to record the fact that I am surprised by the strategy which apparently we want to have in Scotland, while I am very happy about us having a strategy in Scotland.
My Lords, the Opposition support the measure, which as yet is another example of continuing devolution. I will not pay tribute to the Minister’s staff today because the last time I praised one of them, she mysteriously vanished and we have never seen her again. I do not know quite what he has done to her but I hope that she survives and makes a further appearance. The noble Earl, Lord Mar and Kellie, has mentioned the Scottish tradition of policing but we all have to recognise devolution and its implications. There was a consultation process that was very supportive and there did not seem to be any dissenting voices to the proposal. As the Minister rightly says, this is necessary after the 2012 Act. I cannot quite remember the context in which he mentioned torture, but I do not think that that has relevance on this.
There are comparisons with other nations and regions of the United Kingdom—we all understand the Northern Ireland one—but the Scottish Government have considerable powers and I can understand why there are reservations about having a national police force against a background of the police always being regionally organised. I was on the police and fire committee of Strathclyde regional council, which has a very good operation. The Minister mentioned that there were 14 abstentions in the Scottish Parliament—I presume that that was his own party, or did the Liberal Democrats vote against? I welcome the conversion and hope that we can have further co-operation like that.
Although the report is rightly subject to scrutiny and questioning, I want to develop a wee bit further the principle of disaffection. As a trade unionist, the word “disaffection” towards anything raises questions. It has been mentioned that some of the clarification that the Minister’s staff was able to pass on was on questions asked by the committee regarding who could be charged with disaffection. The initial reply seemed to indicate that only certain police could be charged with disaffection, but further clarification suggested that it could apply to a member of the public as well. Although I totally accept the Minister’s point that the Government do not envisage anyone being charged with this wrongly, unfairly, or whatever, he will know better than I do that legal history is full of people who have been prosecuted for offences for which at the time it was indicated they would not be prosecuted. So, I would like further clarification on disaffection because the police are different. It is acknowledged that they are not allowed to join trade unions. We have to have law and order and a legal system, so it is right that in case anybody tries to suborn or undermine the police in carrying out their duties, the defence should stay in.
I press the Minister to go a bit further in giving us assurances that no “innocent bystanders” who have had a pint too much on a Saturday night and preach treason—I have certainly done that myself a few times with pints of soda water and lime, I hasten to add—will be prosecuted. I seek assurances that ordinary members of the public, letting off steam—to use one of the expressions mentioned—will not be liberally prosecuted. I will leave it at that and hope that the Minister can give us some of those answers. That will reassure me.
My Lords, I thank both my noble friend Lord Mar and Kellie and the noble Lord, Lord McAvoy, for their contributions to the debate. I note the concerns of my noble friend with regard to the establishment of a national police force. He will be aware, as I indicated in opening, that our Scottish Liberal Democrat colleagues in the Scottish Parliament voted against this. At one point the noble Lord, Lord McAvoy, suggested that the 14 were Liberal Democrats—if only we had 14 Members in the Scottish Parliament. It was five Liberal Democrats and one Green who voted against and 14 Conservatives who abstained. The point is not about whether we support this policy intent, but that the Act was properly passed by the Scottish Parliament, and by a large majority. It is very consistent and in the spirit of the devolution settlement that this Parliament, through the use of a Section 104 order, should give effect to the intentions of the Scottish Parliament in areas where, because of its competence, it was not able to do so. It is in that spirit of making the devolution settlement work that we bring forward this order.
The noble Lord, Lord McAvoy, asked particularly about Article 9 and the issue that was raised by the Secondary Legislation Scrutiny Committee. He is right on disaffection inasmuch as it is not just members of the police force who could possibly commit such an offence. Anyone attempting to persuade a member of the police force not to serve could expose themselves to a possible prosecution but, as I indicated and the noble Lord accepted, this is not about expressing an opinion or engaging in debate. We said in response to questions from the Secondary Legislation Scrutiny Committee—I think it had been in one of the earlier responses about the chat in the pub—that we presumed that the committee meant a chat in the pub between police officers. That was why the context of the reply was framed as it was, in an attempt to give a directed answer to the committee’s concern. However, it is possible for the offence to be committed by persons who are not members of police forces in the first instance. I hope this clarifies it. The first sentence contained a general statement to set the scene before focusing on the perceived aspect about which the committee was concerned.
I hope I can give some assurance to the noble Lord, Lord McAvoy, in that we are not aware of any prosecution having been raised in relation to the provisions which are currently in Section 42 of the Police (Scotland) Act 1967. They have been on the statute book for more than 45 years and there is no reported case; nor indeed does there appear to be any reported case involving equivalent offences in other legislation which applies to other police forces within the United Kingdom. The lack of any cases implies that the sort of conduct which appears to be the cause for concern has not hitherto given rise to a criminal prosecution since 1967 but that does not mean, as I hope I explained in my opening remarks, that it is not relevant in 2013. The offence has a powerful impact in deterring behaviour which could otherwise undermine the effectiveness of the police forces.
As I think the noble Lord also recognised, if there is to be a debate on changing this provision, it would be better if that took place in a wider debate and not simply through the mechanism of this order. With that response to the questions that the noble Lord asked and the point raised by my noble friend, I urge the Committee to support the Motion.
Damages-Based Agreements Regulations 2013
Considered in Grand Committee
My Lords, as regards the draft Conditional Fee Agreements Order 2013 and the draft Damages-Based Agreements Regulations 2013, perhaps I may remind noble Lords that conditional fee agreements, or CFAs, are means of funding litigation that are usually entered into by claimants where the lawyer agrees not to take a fee if the claim fails. If the claim is successful, the lawyer may charge an uplift known as a success fee, in addition to their fee. Under the existing regime, the success fee is recovered from the losing defendant, in addition to the base fee.
The statutory power under which the draft Conditional Fee Agreements Order 2013 is made governs the regulation of CFAs and the recoverability of success fees payable under a CFA. Under Section 44 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012—the LASPO Act—the success fee payable under a CFA is no longer recoverable from the losing party, but will be payable by the successful client subject to a prescribed cap.
Lord Justice Jackson, in his report, Review of Civil Litigation Costs, argued that the current regime had led to excessive costs in civil litigation, with risk-free litigation for claimants and additional costs being paid by defendants. He therefore recommended that recoverability from the losing side should be abolished in all cases, and this has been reflected in the provisions of Section 44 of the LASPO Act.
Lord Justice Jackson also recommended that CFA success fees in personal injury cases should be limited to 25% of damages, excluding damages awarded for future care and loss. The Government accepted this recommendation and agreed that claimants who have been compensated for personal injury should have their damages protected from having too much deducted by their lawyer as a success fee.
The draft order revokes the 2000 CFA order, but replicates its provisions in Articles 2 and 3. Subject to the cap in personal injury cases, the maximum success fee that can be charged remains 100% of the solicitor’s base costs.
Article 4 makes provision for a cap on success fees in personal injury cases only. The aim of the cap is to protect claimants’ damages, specifically those relating to future care and loss, which can run into many thousands of pounds in the most catastrophic injury cases. This cap will apply similarly, although not identically, to lawyers’ fees under damages-based agreements—or DBAs—under the draft Damages-Based Agreements Regulations 2013, to which I will come later.
Article 5 sets the cap. This means that in personal injury claims, the CFA must not provide for a success fee which is greater than 25% of the damages awarded to the claimant, excluding those for future care and loss. In effect, this means that the success fee can be taken only from general damages for pain, suffering and loss of amenity, and damages for past loss.
I know that there has been concern about the 25% cap and some representatives argue that this should be against all heads of damages. However, the Government have said consistently—including on many occasions during the passage of the LASPO Act through Parliament—that there will be a cap on the amount of damages that may be taken as a success fee of 25% of the damages, excluding damages for future care and loss. This follows Lord Justice Jackson’s recommendation and, as I said, is intended to protect claimants’ damages, and specifically those relating to future care and loss.
Article 6 contains a transitional and a saving provision. Essentially, this means that the order will not apply to any CFA entered into before Section 44 of the LASPO Act comes into force on 1 April 2013.
Furthermore, the order will not apply in respect of those proceedings for which implementation of Part 2 is delayed. Those proceedings are personal injury claims in respect of diffuse mesothelioma, privacy and defamation proceedings and proceedings in respect of and relating to insolvency.
I now turn to the draft Damages-Based Agreements Regulations 2013. A damages-based agreement or DBA is a privately funded arrangement between a representative and a client whereby the representative’s agreed fee is contingent on the success of the case, and is determined as a percentage of the compensation received by the client. Until now, DBAs have not been permitted in litigation before the courts, but their use has developed in non-contentious business—that is, work that falls outside the courts, including employment matters. However, Lord Justice Jackson recommended that DBAs should be extended to all areas of civil litigation. He argued that this would provide litigants with a choice of funding methods and the freedom to choose the one that they considered most appropriate for their case.
Section 45 of the LASPO Act therefore permits the use of DBAs in all areas of civil litigation. This section enables the Lord Chancellor to regulate their use and, in particular, to specify the maximum payment that may be made from damages under a DBA in particular proceedings. The draft regulations revoke the 2010 DBA regulations but replicate their provisions in respect of employment matters. The draft regulations prescribe the requirements with which an agreement between a client and a representative must comply in order for it to be an enforceable DBA in both civil proceedings and employment matters.
Under the existing regulations governing DBAs in employment matters, the maximum percentage of damages that a representative may take as a fee is 35%, and that continues. Lord Justice Jackson recommended that the lawyer’s fee under a DBA in personal injury proceedings should not exceed 25% of the claimant’s damages, excluding damages for future care and loss. The Government agree that claimants should have their damages protected from excessive legal fees.
As I mentioned earlier, a similar, although not identical, approach has been taken for CFAs. The Government believe that there should be a cap of 50% of the damages that may be taken as the lawyer’s fee in all cases outside of personal injury and employment matters. This is to protect claimants’ damages, and is based in part on a recommendation by the Civil Justice Council.
In order to be enforceable, a DBA in civil proceedings must meet the requirements specified in these regulations. Regulation 3 requires the DBA to specify the circumstances in which the payment from the claimant’s damages will be payable. It will be for the representative in civil proceedings to consider his likely costs before reaching agreement as regards the payment to be made from the claimant’s damages. The definition of payment excludes expenses—for example, medical reports—but specifically includes counsel’s fees, which would be paid for as a disbursement by the representative.
Regulation 4 sets the cap as I have outlined. Regulations 5, 6, 7 and 8 replicate the provisions from the 2010 regulations for employment matters. These detailed provisions in relation to information and other matters are necessary because employment matters may be undertaken by non-lawyers such as claims managers. On the other hand, civil litigation can be undertaken only by qualified legal representatives, who are subject to regulation by their professional bodies and whose conduct may be subject to challenge through those bodies. It is therefore considered that further regulation at this stage is not required.
In drafting these regulations we have borne in mind the indemnity principle. Put simply, the indemnity principle means that the losing party cannot be ordered to pay more in costs than the successful party has already agreed to pay his representative. The Civil Procedure Rules have been amended to provide that the court may not order the losing defendant to pay a claimant any costs that exceed the agreed payment, and thus breach the indemnity principle.
The claimant will need to pay his lawyer only if the costs recovered are less than the agreed payment. This means that, as well as possibly paying a sum directly from their damages, claimants might also be required to pay an additional sum to their representative to meet these expenses.
Both these instruments are important elements of our reforms.
Sitting suspended for a Division in the House.
My Lords, both these instruments, which are important elements of our reform, come into effect on 1 April 2013. The reforms overall are intended to make civil costs more proportionate. They also include particular provisions to protect claimants and damages, as I have set out. These instruments have been subject to consultation, and we have improved the drafting as a result. I believe they are proportionate and appropriate. I therefore commend the draft instruments to the Committee.
I have only one simple point to make. It is a question to the Minister regarding the Conditional Fee Agreements Order, particularly the 25% cap, which does not apply to any future losses. In proposing this legislation, the Minister rested his case heavily on proposals made by Lord Justice Jackson in his review. Is the Minister aware of a lecture Lord Justice Jackson gave on 29 February last year? In this lecture, he made a point, which appears in the footnote, stating:
“The Personal Injuries Bar Association (PIBA) and the Bar Council have recently sent to me forceful submissions that the 25% cap should apply to ALL damages, as it did before April 2000. I can see the sense of allowing that dispensation in appropriate cases provided that the success fee is only payable by the client as it was pre-April 2000”.
That seems reasonable and it seems doubly reasonable given that the author of these proposals, Lord Justice Jackson, himself had second thoughts which he expressed in public last year. I am wondering, therefore, why the limitation to past losses survives into this statutory instrument and whether the Minister could take this away and follow the latest thinking of Lord Justice Jackson, which is supported by the Bar Council and, I suspect, the Law Society.
My Lords, I always like to be consistent and it certainly would be inconsistent of me not to begin with a complaint about the process here. These regulations come to us some five weeks before they are to take effect. The Bar Council has drawn attention to this, rightly stressing that a major change in the law, particularly in relation to DBAs, is being introduced with very little time before they come into effect for people to work out how they are going to be applied.
As the Minister has said, it has always been permissible for damages-based agreements to be implemented in non-contentious matters in tribunals. As he has also said, these were extended by regulations to employment cases. That opened the way to the revival of what used to be called “champerty” in previous times, which of course was unlawful. We are now legalising it under the new nomenclature of damages-based agreements and I can see that there is a case for doing that. Nevertheless, significant issues and questions arise from the Government’s proposal.
Reverting to the timescale, it should be pointed out that other changes affecting contentious litigation are in hand. These include changes to the Road Traffic Act portal and small claims limits in cases, including, potentially, personal injury cases. With all that happening, one might have thought that it would be sensible to bring all the changes together and to do it at a time which allows the parties and the professions to prepare adequately. I hope that the Minister will look again at the timetabling with a view to deferring implementation of whatever regulations finally emerge for six months until October of this year. I am particularly indebted to those who have briefed me, and no doubt other Members of your Lordships’ House and perhaps of this Committee, in relation to these matters, including the Association of Personal Injury Lawyers, the Bar Council, the Law Society and, especially, Professor Rachael Mulheron.
A number of issues arise and I hope that the Minister will be patient while I list them. If he is not able to reply to them all today—he may well not be—I hope that he will take these matters back and consider them. I was going to raise the question of the cap, which was raised by the noble Lord, Lord Phillips. I, too, identified the change of mind by Lord Justice Jackson, to which the noble Lord referred. It is notable of course that the 25% cap in terms of damages-based agreements applies only to personal injury cases. It is a 35% cap in employment cases, which can equally be quite substantial, although not, I guess, running into the millions of pounds of the exceptional cases of clinical evidence and the like to which the Minister referred. Nevertheless, it certainly can be comparable with many ordinary personal injury cases. In those cases, the cap is 35% including future loss, so there is a serious question about the composition of the figure against which the percentage is to be calculated.
There is also a perverse situation, which the Minister explained by reference to the indemnity principle, where if recoverable costs—that is to say, costs which would normally be payable by the defendant—exceed the cap, the claimant and his advocate, the solicitor, cannot recover them from the defendant. That is a perverse consequence of the way the regulations are drafted. That makes damages-based agreements less attractive to the professionals who will undertake that work.
There is similarly a problem about including VAT in the cap. Of course, rates of VAT can change. The Government increased VAT by 2.5% 18 months ago. If agreements had been in place at that time, the cap would effectively have been lower because of the increased VAT that would then have been levied on the fees above what had been originally envisaged. Rates can change and with them, in effect, the agreement will change automatically, whether or not the parties wish it to do so.
There is a similar issue—except in employment cases, interestingly—for counsel’s fees. Counsel’s fees are included in the cap for the ordinary PI case but not in employment cases. Why should that be the case? There is another issue about after-the-event insurance. It is not clear from the regulations whether the cost of after-the-event insurance is to be contained within the cap or not. The Civil Justice Council working party recommended that that matter be clarified. Perhaps the Minister could do so—again, if not today, subsequently.
In commercial cases, the question is whether the percentage recovered includes party and party costs, or is that also to be on a non-recoverable basis? In connection with personal injury cases, again there is the issue of the inclusion of general damages and past loss. I still do not see the justification for that. As the noble Lord, Lord Phillips, and I have mentioned, Lord Justice Jackson took a different view. There is also a question about how you deal with where a global offer is made. Offers are not always split under particular headings; a composite offer can be made. How will that be dealt with for the purpose of calculating the success fee?
In terms of process, the regulations and the scheme do not set out any system of regulation or, indeed, for the termination of such agreements. The Civil Justice Council working party suggested that should be embodied in the regulations; it does not appear. The Government seem content to rely on the professional codes of conduct of the Law Society and the Bar Council. Indeed, in answer to a recent parliamentary Written Question, the Minister replied that it was not the Government’s intention to regulate the industry, which leaves claims management companies outside the scope of regulation—except, as it happens, in the case of employment. That is another inconsistency between the approaches to employment cases and other cases.
Why are the Government content to rely on claims management companies, which might well get involved in these agreements, to regulate themselves? It is one thing for a profession to do that—although even that might be regarded as inadequate in certain quarters—but it is certainly another for claims management companies to do so, especially given the reputation that they have acquired over the past few years. There is not even any provision in the regulations on the information that is to be provided for clients by the providers except, again, in the case of employment law. Why is there a distinction between employment law and other cases in that respect? In short, as the Civil Justice Council effectively inquired, why is there not one set of regulations for all kinds of case? Why are there differences between the different categories?
There is also the question of potential liability for the payment of the defendant’s costs and whether these could be covered by after-the-event insurance. Another issue relates to defendants. The regulations are cast on the basis that we are concerned only with damages-based agreements for claimants, but of course, defendants have a financial interest in these matters as well. The regulations speak only about a percentage success fee in relation to the money recovered but not to money saved. If a defendant is successful and saves money, how will the fee be calculated? Is there a basis for a damages-based agreement, as it were, when a successful defendant saves money under such an agreement? It is unclear what will then happen.
It is instructive to look at some of the experience of other jurisdictions—particularly the American experience. A whole industry has grown up in this arena and I had the benefit of meeting representatives in America who are dealing with these issues. They expressed some interesting views about how the system works. Going back to the lawyer/client relationship, in practice it is not the lawyer who has control of the case in the American system with the professional disciplines that might apply. Effectively, it is the commercial organisation that is engaged in putting up the money for these cases—a kind of hedge fund for legal claims. I used that phrase when the Bill was going through. That is in marked contrast to the position of professionals with their ethical obligations, to which the Minister referred. I understand that 25 funders are already established in the UK for damages-based agreements, of which only nine have signed up to their own self-regulated Association of Litigation Funders. They are not even joining their own association, let alone being responsible to any independent and impartial organisation to oversee their work. Again, I invite the Minister to reconsider whether there should be such a system of regulation. There is apparently around £1 billion already held by organisations in the UK to fund these arrangements. Some of them, interestingly, are apparently based offshore—a sort of Starbucks of the damages-based agreement world. One can only imagine where any profits will ultimately go.
There are also questions about class actions. The organisation I met from America was essentially very concerned about the potential growth of class actions from the point of view of potential defendants. Nevertheless, there is an issue as to whether the scheme should apply to class actions. I understand that the Department for Business, Innovation and Skills is looking into this. I wonder whether the Minister can advise us on the current state of thinking in those cases.
With regard to damages-based agreements, there are, as will be seen, a great many questions that are raised by the regulations but not answered by them. Again having regard to the timescale, I urge the Minister to consider whether it would be sensible to look into all these, and other points that might be raised by other noble Lords today or in the House of Commons when the matter is debated there, and, if necessary, to defer implementation until these issues are clarified. A few months’ delay does not seem to be too much to ask in order to get things right from the beginning.
Some of the same arguments apply to conditional fee agreements—again, the issue of damages for the purposes of the calculation of a success fee, not including future loss, the question of VAT and the like. In my submission, it would also be sensible to look at these two sets of regulations together to see whether they can be improved in order to fill the quite evident gaps that exist, which cannot help the new system to bed in. The risk is that if there are problems of this kind, the Government’s purpose in promoting DBAs, or indeed the new regime of CFAs, as an alternative to legal aid will not succeed because the professions will not undertake the risks or, alternatively, it will not be the professions that run the show but commercial organisations with very little regard necessarily to the proprieties with which litigation has been, and should be, conducted in this country. I urge the Government to think again, look again at the Civil Justice Council’s recommendations and see whether changes can be made at this stage before implementation to make what is a pretty defective-looking set of regulations workable.
Before the noble Lord, Lord Beecham, sits down, does he agree that in his own extremely eloquent exposition on these two statutory instruments, and indeed in my own offering, there was a notable absence of reference to the basis upon which I suspect he, and certainly I, put forward our points—that is, access to justice? The majority sitting in this Grand Committee are lawyers, and we take it so much for granted that what we are seeking to amend in these regulations is exclusively for the benefit of improving access to justice. I invite him to concur with me that anyone reading Hansard who saw no reference to that in the course of our two offerings should know that this underpins everything that we have said.
I am grateful to the noble Lord for making explicit what was certainly implicit in what he and I were saying. Access to justice is certainly the core argument here. I should perhaps also have declared an interest in that from time to time as we have discussed these matters I have put in time as a now unpaid consultant with the firm of solicitors in which I was formerly a partner.
My Lords, as a non-lawyer—perhaps the only one in the Room—I fully appreciate that the noble Lords’ interventions were about access to justice. As I have told the noble Lord, Lord Beecham, on earlier occasions, my legal qualifications rest on one of nine papers that I did for part one of my degree on English legal institutions. I remember champerty and maintenance from that paper. It came as quite a shock to me to find, in the process of the Bill, that not only was champerty not outlawed, it was now to become legal. But there we are—such is the passage of time.
The noble Lord, Lord Beecham, set me a formidable exam paper, and I will try to answer the questions he raised. If I miss any out or do not answer with sufficient clarity for those who will read our deliberations, I will write to him and put a copy in the Library of the House so that noble Lords and interested parties can be fully informed. It is of course always a dilemma for government, because if they move at one speed they are accused of moving too fast, yet at another speed they are accused of dragging their feet. I would say that there is nothing in these regulations that has not been well aired over the two-and-a-half years that I have been in this job, and they have been well discussed in the House.
I am pleased to see my old adversary, the noble Lord, Lord Bach, in his place. I hope he thinks that the young man who succeeded him is doing a—
Actually, I knew that. As Harold Wilson said when he retired and Jim Callaghan succeeded him, “I have made way for an older man”.
I take the point made by the noble Lord, Lord Phillips, but let me be blunt. I am always suspicious of Ministers who at any time rest too much on a report, no matter how learned. I do not rest the case for the 25% cap on that being Lord Justice Jackson’s original recommendation, although indeed it was. A sharp-eyed lawyer would say that the noble Lord’s quote about Lord Justice Jackson did not endorse the counterview but simply said that it had merit, which is not the same as advocating that the Government change their policy. Even if it were, this is the Government’s policy. It is the right policy because it protects the future earnings and the future cover for victims in these cases. It remains our policy on that merit, and we are willing to defend it on that basis.
I understand the point made by the noble Lord, Lord Beecham, about speed. I pointed out that very little of what we are doing is entirely new. We fully recognise that at this time there is a need for ability, nimbleness and fleetness of foot in all parts of the legal profession, if we are to take advantage of the changes that are going through. We are not persuaded that the timescales we have set are unreasonable, and we will not be deferred from the course that we have set. We have taken account of reasons for delay regarding mesothelioma and privacy, which I quoted. However, these orders will go through to take account of the fact that LASPO comes into effect on 1 April 2013.
Perhaps I might deal with a number of the specific questions that the noble Lord, Lord Beecham, raised. He was very correct to raise the issue of the American experience in DBAs. I also met the organisation that came over to present its case. I left that meeting with some of his concerns about what this might bring into our legal system. The noble Lord’s description of hedge funds for legal claims is something that we are very conscious of. What we have decided so far is to keep the matter under review. That phrase can often hide weasel words and weasel intent, but we want to see just how much this is going to become a factor in our legal system, while making sure that some of the warning signs that the noble Lord has quite legitimately raised are on the radar of Ministers as well. We will keep this matter closely under review.
The noble Lord raised the issue of VAT on the 25% cap. The 25% cap on success fees is as recommended by Lord Justice Jackson. Including VAT on the success fee on lawyers’ fees within the cap will provide further protection for the claimant’s damages and add certainty for the claimant as to the likely deduction from their damages. This approach is also consistent with the existing cap of 35%, inclusive of VAT, on payments to be made from damages in respect of DBAs in employment matters. The noble Lord also asked about the indemnity principle. DBAs are an alternative method of funding and it would be for solicitors to advise their clients on the most appropriate method of funding according to the circumstances of each case. He also mentioned there being one set of regulations. There is one set of regulations covering both civil litigation and employment cases, as recommended by the Civil Justice Council. We have listened to the concerns of the Law Society and others that there should not be too much regulation in respect of civil litigation in these instruments. This is because failure to comply with the provisions in the instruments would make the agreements unenforceable. As I have said, lawyers are properly regulated in any event.
The noble Lord asked whether the cost of ATE insurance is within or outside the 25% cap. This is an expense and is therefore outside the cap. On why DBA regulations do not contain requirements on termination for civil litigation, as in employment cases, the DBA regulations of 2010 made provisions for employment cases which can be taken forward by non-lawyers. Detailed safeguards need to be built in as a result. Civil litigation can be conducted only by lawyers, who are subject to their own professional regulations.
I think that that covers most of the issues. If not, perhaps I might say to the noble Lord that I welcome the thoroughness with which he has examined these regulations and, as I say, if I have not covered the questions in precisely the detail that I should have done I will make sure that a suitable letter is lodged in the Library of the House. I nevertheless think that the timetable that we have set, the consultation that we have undertaken and the changes that we have made after that consultation, with our having listened to the Bar Council, the Law Society and other interested parties, make the regulations fit for purpose. I therefore recommend them to the Committee.
My Lords, before my noble friend the Minister sits down, I have one question on the point made by the noble Lord, Lord Beecham, about damage-based agreements for defendants. It is my understanding of the regulations that DBAs are not appropriate for defendants, whereas conditional fee agreements are and always can be available to defendants. DBAs depend upon the damages awarded to the client or monies paid by another party to the party entering into the DBA. Clarification on that from my noble friend may be helpful, but it is certainly my understanding.
I am grateful to my noble friend for that question. I am informed that neither the Act nor the regulations enable defendants to use DBAs, not least because a DBA is enforceable only where the agreement makes provision for the payment of the fee from damages awarded. My noble friend asks an extremely pertinent question and I hope that I have given a clear answer.
It is a clear answer, but there does not seem to be a particular rationale for excluding defendants from this process. If they secure the retention of a sum of money claimed under the agreement, why should the DBA not be available to them? To confine it to claimants seems too narrow a concept. If the intention of the Government, as it clearly is, is to use the DBA as an alternative method of financing, it should be available to both sides because nobody is being compelled to undertake a DBA. That still requires some further thought.
Conditional Fee Agreements Order 2013
Considered in Grand Committee
Criminal Legal Aid (Determinations by a Court and Choice of Representative) Regulations 2013
Considered in Grand Committee
My Lords, I shall speak also to the draft Legal Aid (Information about Financial Resources) Regulations 2013 and the draft Civil Legal Aid (Costs) Regulations 2013.
The draft Criminal Legal Aid (Determinations by a Court and Choice of Representative) Regulations 2013, which are being made under the Legal Aid, Sentencing and Punishment of Offenders Act 2012, replace relevant regulations in the Criminal Defence Service (General) (No.2) Regulations 2001, made under the Access to Justice Act 1999.
The regulations mirror the Access to Justice Act regulations in effect, although there are differences in terminology and structure. For example, the regulations refer to making a determination that an individual qualifies for legal aid, rather than to granting a representation order following a decision that an individual qualifies. This change of terminology is made only to reflect amended wording in the Legal Aid, Sentencing and Punishment of Offenders Act 2012, which I will refer to from here on as LASPO.
Operational practices will not need to be altered in any way as a result of the regulations. The key change is that under the Access to Justice Act 1999, the default position is that a court makes a decision that an individual qualifies for legal aid, unless specified otherwise in regulations. However, due to the rollout of means testing in the magistrates’ court and subsequently the Crown Court, the circumstances in which a court may grant legal aid have been gradually reduced. LASPO reflects this shift, and the default position is that it is for the director of legal aid casework to make a decision that an individual qualifies for legal aid, unless otherwise stated in regulations. The regulations set out the limited circumstances in which a court can make a decision that an individual qualifies for legal aid. That merely codifies current practice.
The regulations also limit the circumstances in which an individual can select a representative of their choice in criminal proceedings, and set out the specified circumstances in which a court can permit an individual to select enhanced representation. The regulations specify the circumstances where the court may permit an individual to select a different provider to the provider selected by a co-defendant.
In relation to advocates, the regulations generally provide that individuals may not select an advocate in proceedings before a magistrates’ court, and set out circumstances where the court may permit an individual to select an advocate in the magistrates’ court. The regulations also provide that individuals may select only a provider and a single junior advocate in proceedings in the Crown Court and above, and set out circumstances where the court may permit an individual to select a Queen’s Counsel or more than one advocate. The provisions have the same effect as the current provisions in relation to choice of representative under the Access to Justice Act.
The draft Legal Aid (Information about Financial Resources) Regulations 2013 make provision in relation to requests for information by the director of legal aid casework to the Department for Work and Pensions, Her Majesty’s Revenue and Customs and relevant Northern Ireland departments to facilitate decisions about an individual’s financial resources for the purpose of legal aid available under Part 1 of LASPO. This could include, for example, a determination that an individual is financially eligible for legal aid, or is liable to make a contribution toward the cost of their representation when in receipt of legal aid.
The draft regulations replace regulations in relation to criminal legal aid under the Access to Justice Act 1999 but they will also extend to civil legal aid, so that information-sharing in relation to both criminal and civil legal aid are on the same statutory basis. This will allow the director, as the authority responsible for granting legal aid, to properly verify information provided by an applicant for legal aid about their financial status.
The regulations provide an information gateway so that a person making a decision on the financial eligibility of someone who is applying for legal aid or is in receipt of it can request certain information to confirm their benefit status with the Department for Work and Pensions or to confirm details of an individual’s employment or whether they are carrying on a business, trade or profession with Her Majesty’s Revenue and Customs or the equivalent departments in Northern Ireland.
Efficient and secure data-sharing between the DWP, HMRC, the relevant Northern Ireland department and the Legal Aid Agency will safeguard taxpayers’ money by limiting the opportunity for fraud and dishonesty and improving the administrative efficiency of the financial eligibility tests for legal aid.
I stress that these arrangements will make no substantial difference to defendants, solicitors or courts in terms of forms or process. There is therefore no risk of any delay to existing court proceedings or any additional burden on defendants or solicitors. Nothing within the new legislative framework dilutes the Government’s obligation to protect an individual’s personal information and maintain confidentiality. Indeed, the primary legislation specifically makes it a criminal offence to disclose the information for any purpose other than to facilitate decisions about an individual’s financial resources for the purposes of legal aid.
Lastly, the draft Civil Legal Aid (Costs) Regulations 2013 make provision about costs orders in civil proceedings in favour of or against a legally aided party and, in certain circumstances, against the Lord Chancellor. They substantially reproduce provisions that currently exist in regulations made under Section 11 of the Access to Justice Act 1999.
These draft regulations bring together the rules on costs into a single set of regulations. The existing rules on costs appear in both the Community Legal Service (Cost Protection) Regulations 2000 and the Community Legal Service (Costs) Regulations 2000. Provisions relating to the statutory charge, which currently appear in the Community Legal Service (Costs) Regulations 2000, will be brought forward separately.
Section 26(1) of LASPO sets out the general principle that costs ordered against a legally aided party to civil proceedings must be reasonable, having regard to all the circumstances including the financial resources and conduct of the parties to the proceedings. This is known as “cost protection” and is a feature of the existing civil legal aid system. It caps the amount of money that a legally aided party may be ordered to pay if they lose their case. The intention of this is to ensure that they are not deterred from resolving their issues through legal action for fear of being personally liable for unaffordably high costs.
The definition of family proceedings in these regulations has been amended to reflect the treatment of family proceedings in the LASPO Act. Under these regulations more types of family cases are subject to the exclusion from cost protection, although those that have been added are very similar to the existing list. We have maintained the position in the current regulations whereby cost protection applies to applications for domestic violence protection orders and public law children cases.
Part 2 of the draft regulations provides that cost protection does not apply to lower forms of civil legal services. Cost protection applies in relation to forms of service that permit the legally aided party to be represented in court proceedings because such a party will have satisfied a more stringent merits test than for lower forms of assistance.
Part 3 of the draft regulations sets out the rules governing costs orders against a legally aided party as well as the grounds on which a costs order might also be made against the Lord Chancellor where he has provided civil legal aid to a party to proceedings.
The draft regulations provide that in limited circumstances a court can order the Lord Chancellor to pay to the non-legally aided party the whole or part of the costs incurred by that party in the proceedings, other than the costs which the legally aided party is required to pay. The draft regulations also make provision about the assessment of resources and procedures in relation to costs orders against the legally aided party and the Lord Chancellor. The final part of the draft regulations sets out the principles to be applied when a costs order or a costs agreement is made in favour of a legally aided party.
Subject to the changes that I have just outlined and some amendments to structure and terminology, these draft regulations substantially replicate the effect of the existing regulations made under the Access to Justice Act 1999. I therefore commend these draft regulations to the Committee and beg to move.
Sitting suspended for a Division in the House.
I will deal first with the Criminal Legal Aid (Determinations by a Court and Choice of Representative) Regulations 2013. Again, I have a series of questions that arise partly from the drafting and partly from my ignorance. Again, I trust that the Minister will be generous enough to reply, if not today then subsequently.
I begin with Regulation 9, which deals with the withdrawal of determinations by the court and prescribes that the court before which criminal proceedings are listed may withdraw determinations in certain circumstances. I draw attention in particular to Regulation 9(c), where a reason would be that the provider named in the representation order that recorded the original determination declines to continue to represent the individual. The previous two conditions I can quite understand; first, the individual declines to accept the determination terms that he was offered—arguably, that is not unreasonable—and, secondly, the individual requests that the determination is withdrawn, which is also reasonable. However, I do not understand why, if the provider named in the representation order declines to continue to represent the individual, the determination should be withdrawn unless that determination relates specifically to that advocate. If that is the intention, it should perhaps be clearer, but if it is broader than that it would presumably leave the party unrepresented. Perhaps that needs some clarification.
Regulation 11 says:
“The … court may make a determination … only if it has considered an application made in accordance with”,
the subsequent paragraph. To comply with that, the application must,
“be made by the individual seeking the determination”—
that is obviously straightforward—
“be in writing; and … specify what the relevant court is being asked to determine and the grounds upon which it is being asked to do so”.
My question relates to whether that process is covered by legal aid or advice, or whether the individual is simply left to make his own representations. For some defendants, that could potentially be a matter of considerable difficulty. What is the process to facilitate the making of an application by an individual in those circumstances?
Regulation 12 identifies the right to select a provider, except for a number of categories—or, rather, the other way round; it limits the choice except for a number of categories. The first one is that,
“the provider … is employed by the Lord Chancellor to provide criminal legal aid”.
I find it a curious word to use, that the Lord Chancellor purports to “employ” advocates on behalf of a defendant. To me, that has connotations that might be a little invidious, bearing in mind the recent decision of the courts that recorders and part-time judges are deemed to be employed by the Lord Chancellor and therefore are required to be included in the pension scheme. If employment is to be used in this context, might that not also lead to some potential complications in relation to the status of people “employed” by the Lord Chancellor and possibly even lead to them being included in some sort of governmental pension scheme? The wording needs some explanation.
Regulation 13 deals with the position where there are co-defendants. Under these circumstances, the regulations prescribe that,
“the right of an individual … does not include the right to select a provider who is not also instructed by the individual’s co-defendant”—
in other words, to have two advocates as opposed to one—
“unless the … court or the Director determines that … there is a conflict of interest between the individual and that co-defendant; or … there is likely to be a conflict of interest”.
Again, I ask whether there is any process of appeal against such a decision. After all, the question of whether a conflict of interest might exist would not necessarily be straightforward. What is the process for determining in these circumstances whether there is likely to be a conflict?
Curiously, the regulation then goes on to provide that Regulation 13(1), the basic provision about instructing co-defendants,
“does not apply where the provider selected by the individual is an advocate”.
I simply do not understand what that means. This may be a failing on my part, but I do not understand the purpose of that provision.
Finally, I come to Regulation 16 which deals with criminal proceedings before a magistrates’ court. With a limitation to which I will refer in a moment, on proceedings before a magistrates’ court,
“the Act does not include a right to select an advocate”.
I do not know why that should be the case—I do not know whether it is a new or an existing provision—but it would seem to require some explanation. Why should a defendant not have the right to select an advocate?
The proviso in the regulation says:
“The relevant court may determine that the individual can select an advocate”,
on two conditions. The first is that,
“the proceedings relate to an extradition hearing … or an indictable offence”;
and the second that the,
“court determines that because there are circumstances which make the proceedings unusually grave or difficult, representation by an advocate would be desirable”.
One would have thought that in any extradition proceedings, and on most indictable offences, it would be almost a matter of course that the appointment of an advocate would be desirable. What are the circumstances in which it is thought that it would be inappropriate for an advocate to be selected by the defendant? By definition, these look to be significant matters. Again, what is the procedure to appeal any such decision? Supposing the court was to find that, in its view, these proceedings were not,
“unusually grave or difficult”.
That is very largely a subjective judgment. What is the purpose of this and why are the Government going to these lengths to put barriers in the way of a defendant selecting an advocate?
Happily, I have much less to say about the other two sets of regulations. Indeed, I have nothing to say on one set at all. However, in respect of the Civil Legal Aid (Costs) Regulations, there is a point to question. First, I noticed that there was no consultation on these regulations, which is a slight surprise—although it is fair to say that I think no specific question was asked in response to the original consultation. Nevertheless, I would have thought it sensible to have invited comment on the draft regulations.
Finally, we come back to the matter of timing. Paragraph 9 of the Explanatory Memorandum says that guidance is,
“not being prepared specifically on this instrument”,
“A programme of training and guidance is being prepared by the Legal Services Commission to support the transition to the new arrangements. This will be … available to legal aid providers ahead of the commencement of the Act on 1 April 2013”.
What exactly has happened about this? To what extent has training taken place and has it been in conjunction with the Bar Council and the Law Society? Will the profession—and, for that matter, the courts—be ready as of 1 April 2013 to deal with these matters? What training and support has been given to the courts, especially the magistrates’ courts, to deal with the new regime?
My Lords, again, I am extremely grateful to the noble Lord, Lord Beecham, for what he quite rightly termed a cross-examination. I will try my best to cover the points he raised, along with the same health warning that I gave last time, which is that if I find on reflection that I have not fully covered the point he raised, I will write to him and make that letter available in the Library of the House and to interested parties.
On the withdrawal of a determination under Regulation 9(c), the relationship between a defendant and a solicitor could break down, for example, so legal aid might be withdrawn but that would not leave the party unrepresented. They could apply for transfer to a new firm. Regulation 11(2)(c) applies, for example, where an individual seeks a QC or two advocates, so would already have legal aid for solicitors and a junior advocate to assist. The noble Lord also asked about determinations by a court under Section 16 of the Act and pointed out that there seem to be very limited circumstances in which the court may grant representation.
The framework laid out in the Access to Justice Act 1999 is different from that laid out in the Legal Aid, Sentencing and Punishment of Offenders Act 2012. Under the Access to Justice Act, the default position is that the court can grant representation. However, with the rollout of means tests to magistrates’ courts and later to Crown Court, the circumstances in which the court can grant representation have gradually reduced. The responsibility for granting representation has therefore gradually passed to the Legal Services Commission—although, in practice, Her Majesty’s Courts and Tribunals Service staff make the decision. The Criminal Defence Services (General) (No. 2) Regulations 2001 reflect that position. LASPO reflects that shift, and the default position is that it is for the Director of Legal Aid Casework to decide whether to grant representation. The court may do so only when expressly authorised by regulations. The regulations set out the limited circumstances in which a court may do so—for example, where an urgent determination is required in a case of contempt of court.
The noble Lord, Lord Beecham, queried the use of the term “employed”—people being employed by the Lord Chancellor. That is the same language as in the current regulation, and covers the staff of the Public Defender Service, currently operated by the LSC, who will be employed by the Lord Chancellor under LASPO. Is there a process of appeal for conflicts of interests under the regulations? No, there are no provisions for appeal, but the person concerned could renew the application. As to why there has been no consultation on costs of regulation, as the draft regulations substantially replicate existing cost regulations, there is no need for consultation on the precise terms. The principles are well known, used and understood.
We are confident that the programme of training and guidelines will be rolled out in advance of implementation. On the question of representation in magistrates’ courts, I explained the situation under Regulation 16. The only challenge will be via judicial review. Our experience over the past 10 years is that existing provisions work well. Both LASPO and the current thinking of the Secretary of State and Lord Chancellor indicate a move on representation via legal aid.
The Secretary of State for Justice has asked whether access to criminal legal aid is being given in a way that provides the right balance between the needs of justice and the needs of the public purse. The Ministry of Justice has begun work on how we might find a better balance between costs and the needs of justice, and we will bring forward proposals and changes in due course. In the mean time, though, as I say, these regulations very much reflect present position, with the minor shifts that were involved in LASPO. In those circumstances, I commend them to the Committee.
Legal Aid (Information about Financial Resources) Regulations 2013
Considered in Grand Committee
Civil Legal Aid (Costs) Regulations 2013
Considered in Grand Committee
Bank of England Act 1998 (Macro-prudential Measures) Order 2013
Considered in Grand Committee
That the Grand Committee do report to the House that it has considered the Bank of England Act 1998 (Macro-prudential Measures) Order 2013.
Relevant documents: 18th Report from the Joint Committee on Statutory Instruments, 26th Report from the Secondary Legislation Scrutiny Committee.
My Lords, the background to these regulations is the failure of the previous system for regulating financial services to provide clear responsibility for financial stability, which was shared in an opaque way between the Treasury, the Bank of England and the FSA. This meant that it has been all too easy for the identification and management of risks to financial stability to fall between the cracks in what those organisations believed were their respective roles in protecting and promoting stability in the financial sector. That confusion was a key contributing factor to the emergence of the financial crisis in 2007. None of those three institutions was effectively horizon-scanning to identify macroprudential risks to stability across the system as a whole.
In the light of those failings, the Financial Services Act gives the Bank of England clear responsibility for financial stability. The Bank will no longer,
“contribute to protecting and enhancing”
financial stability; it will “protect and enhance” it. To support this objective, the Act creates a new committee of the Bank, the Financial Policy Committee, with a role of identifying, monitoring and managing systemic risks to the UK financial system. In order to carry out this role, the FPC will need macroprudential measures to mitigate the risks to stability that it identifies.
The FPC will act through the regulators that work directly with financial institutions. The FPC will do this in two ways: primarily through recommendations, which can be made to the regulators, to industry, to the Treasury, within the Bank and to other persons—and, where appropriate, through directions to the PRA and FCA. The FPC’s direction power will be limited to the measures set out in this order. The regulators must comply with a direction but they will have discretion over the timing and implementation method of the direction.
Before discussing the measures that will be granted to the FPC, it is worth noting that there is international consensus on the need for macroprudential regulation. International regulations such as Basel III and CRD4 go some way towards establishing minimum standards while retaining room for national discretion, although areas such as the leverage ratio remain under discussion. The UK strongly supports the ability of national supervisors to exercise discretion where appropriate.
In February 2011, the Government and the Bank established an interim FPC to undertake, as far as possible, the work of the statutory FPC ahead of the passing of the relevant legislation. One of the tasks set for the interim FPC was to analyse and recommend macroprudential measures for which the statutory FPC should have direction-making powers. Following the interim FPC’s recommendations in March 2012 on the tools that the committee should have, the Government consulted on these tools, seeking comments on our intention to: make the FPC responsible for setting the level of the UK’s countercyclical capital buffer; provide the FPC with a direction-making power to impose sectoral capital requirements; and provide the FPC with a time-varying leverage ratio direction-making tool, but no earlier than 2018 and subject to a review in 2017 to assess progress on international standards.
The statutory instrument relates to the ability to set the sectoral capital requirements, or SCRs. I will deal with this tool first, then briefly cover the others. The interim FPC recommended that the statutory FPC should have a power of direction to vary financial institutions’ capital requirements against exposures to specific sectors over time, arguing that often the overexuberance that precedes crises begins in specific sectors before spreading further. The Government agree that this targeted approach would allow these risks to be managed in a more effective and proportionate manner than raising capital requirements more generally.
There are, of course, risks associated with the use of these tools. Although the majority of respondents to the Government’s consultation supported the introduction of SCRs, some noted that the FPC risked being perceived as applying an industrial policy via the application of sectoral capital requirements. The FPC has stated that it would wish to avoid an “overly activist, fine-tuning approach”, which should limit this risk. However, there may be times when using the tools in a granular way would be necessary. The Government will keep the use of this tool under review to ensure that it is being used in an effective, proportionate way. There is also a risk that imposing sectorally specific requirements would merely displace excessive risk-taking in other sectors. The FPC will need to monitor carefully the impact of any policy interventions using this tool and may need to consider adjusting more general capital requirements if displacement is a significant problem. I should take the opportunity to highlight one change that the Government have made to the order since the version that was published for consultation. The current order excludes investment firms that are not regulated by the PRA from the FPC’s SCR power. This will ensure that systemically important firms are captured, while smaller firms are not subject to additional requirements.
I now move on to discuss briefly the other macroprudential tools that the Government intend to give the FPC: the role of setting the UK’s countercyclical capital buffer—the CCB—and from 2018, the power to intervene to limit leverage ratios. These are not covered by the draft order, but give useful context to the debate. The CCB is part of the Basel III agreement and will be implemented in Europe by the capital requirements directive, known as CRD4. It aims to ensure that banking sector capital requirements take account of the macrofinancial environment in which banks operate. It will be deployed by national jurisdictions when excess aggregate credit growth is judged to be associated with a build up of system-wide risk to ensure that the banking system has a buffer of capital to protect it against future potential losses. Requiring banks, building societies and larger investment firms to build up capital during periods of overexuberance should help to increase the resilience of the financial system and might also dampen the credit cycle. Unwinding these requirements in the downturn once the particular threat has passed might help to mitigate contractions in the supply of lending. It is clear that with its macroprudential focus, the FPC will be the body best placed to determine the level of the CCB. This was supported by the results of the Government’s consultation.
As the CCB is expected to be provided for in the CRD4, the simplest way to incorporate it into UK law is via regulations made under Section 2(2) of the European Communities Act 1972 to transpose into UK law the provisions of the CRD4 which relate to the CCB. It is vital that the FPC’s decisions in relation to the CCB should be subject to comparable procedural and reporting requirements to the FPC’s other tools. Therefore, in addition to the requirements imposed by the EU legislation, the Government intend to ensure that the CCB will be subject to the same transparency requirements as other FPC decisions, with a summary of the FPC’s discussions when taking decisions on the CCB set out in the FPC’s meeting record and the FPC’s use of the CCB covered in the biannual FSR. The Government will make any necessary changes to achieve this in the regulations which incorporate CRD4 into UK law.
As with the SCRs, small investment firms will be excluded from CCB requirements, although the exact terms of the exclusion have yet to be determined. The interim FPC also recommended that the statutory FPC should have a power of direction to set and vary a minimum leverage ratio. A leverage ratio could indeed potentially be a useful macroprudential tool for the FPC. The unweighted nature of this measure would guard against risk weights underestimating the true riskiness of assets in firms and provide a directly comparable figure across firms. The leverage ratios of firms were a useful indicator of failure during the last crisis, and the period immediately preceding the crisis was characterised by sharp increases in leverage.
The Government strongly support the inclusion of a backstop leverage ratio in the EU prudential toolkit and consider it an essential measure to ensure that leverage remains at sustainable levels. It is also important to maintain consistency with international and European standards, and it is clear that a leverage ratio will not be implemented across the EU until 2018. The Government intend to provide the FPC with a time-varying leverage ratio direction-making tool, but no earlier than 2018 and subject to a review in 2017 to assess progress on international standards. The precise design of the tool will depend on the provisions of the relevant European legislation and will be set out in secondary legislation at the time.
Finally, the Government will, of course, be able to add to this suite of macroprudential tools in future by further orders subject to the approval of this House and the other place. At the moment, however, we believe that the measures I have just described are an appropriate and sufficient starting point for the FPC. The Government expect the FPC’s toolkit to adapt and evolve as the international debate and academic literature on this subject develops and empirical experience becomes more widely available. We expect the FPC to make recommendations to the Treasury if its macroprudential measures require amendment or new measures are required. I hope that that explanation has been helpful. I beg to move.
My Lords, that was interesting introduction to this order as it spent most of its time discussing measures that are not included. It also began with a preamble that was an extraordinary rewrite of history, referring to a failure to identify macroprudential risks prior to 2008. Will the Minister specify any Government or regulatory document that includes a reference to macroprudential risk before 2008 and before publication of the Turner review? He will be hard put to find it. There are some academic articles on systemic risk but the whole issue of macroprudential risk was simply not on the horizon at that time.
I was also somewhat distressed to find that the Government still believe that following the Basel III approach of using capital related to risk-weighted assets is still at the centre of the approach to the determination of stability, particularly in the banking sector. This is using weapons with which we fought the last war to try to deal with the new war. It is an excessive emphasis on the asset side of the balance sheet to the detriment of the liability side, and indeed has been criticised very strongly recently by the IMF. I hope that the Government will rethink their approach and not continue to rely on this outdated measure.
I want to talk about some of the measures before us rather than some that might appear in the future, although the Minister has tempted me to ask what is happening with the leverage ratio. Leverage collars, which after all apply to the liability side of the balance sheet, have been demonstrated to be far more effective than risk-weighted capital requirements. Do the Government still plan to weaken the Vickers proposal of a leverage ratio of 25:1 and to fix the requirements simply on the Basel minimum of 33:1? When thinking about the leverage ratio, is the FPC planning any distinction between deposits and wholesale funding in the specification of a leverage cap?
In its earlier consideration of these measures, the FPC rejected the adoption of a loan-to-value ratio in mortgage finance, arguing that this was a political decision. In this instrument, though, we find the requirement on financial institutions to maintain additional own funds with respect to exposure to residential property. Will that not have the same effect? Is it not a back-door method of introducing loan-to-value restrictions by the requirement to hold additional capital against residential exposures?
Turning to the sectors specified in this instrument, it is striking that the measures are confined to financial instruments issued by financial sector firms. Why is that? If there were a bubble in the stock market, it could involve predominantly financial instruments issued by non-financial firms. Why is this legislation restricted only to instruments issued by financial institutions?
Another peculiarity of the drafting of this instrument is that it refers only to an increase in requirements of holding of own funds. It refers to “additional funds required” and that the PRA may require additional own funds both by banks and by other financial institutions. How will the PRA reduce the amount of funds required since the instrument only allows it to require additional funds? How will that happen?
I also regret the exclusion of smaller firms, to which the noble Lord referred in his introductory remarks. The Treasury seems to have totally failed to understand that a significant amount of the financial crisis was due to the aggregation of a large number of small firms doing the same thing at the same time, which had the same consequence as a large firm doing the similar thing in terms of the development of systemic risk.
The measures also refer to the requirement to ask or require that banks treat particular exposures as if they give rise to an increased level of risk, which is true not just of banks but also of investment firms. How is this level of risk to be specified by the FPC? Is it as a risk weight or as a modification of the stochastic distribution model used in the calculation of the firm’s value at risk? How is it to be done? If it is with respect to the modelling, does that now mean that the ability of firms to use their own risk models is to be modified and that there is to be a standardisation of risk models used by firms in the calculation of capital requirements?
The noble Lord referred to the use of these measures in what he called a granular way and what in the instrument is referred to as a solo basis. What will the relationship be between the FPC’s requirements of measures and competition policy, in the sense that imposing measures on a single firm would have competition implications? Will the views of the competition authorities be taken into account?
I assume that this is the first of a series of instruments that will implement the various proposals aired in the consultation papers issued by the interim FPC. Perhaps it would be helpful if the Minister gave us some timetable as to when those other instruments will be laid before the House.
I am grateful to the noble Lord for those extremely thoughtful questions, and I will do my best to answer them. He said that systemic risk was not on the horizon before the crisis. I think that the phrase was first used in academic literature in 1979. Although the phrase was not in common parlance, it was well understood, at least by some people, that a bubble was building up that was capable of creating systemic risk. The first problem was that it took a long time for the authorities and the Government to accept that there was a bubble. The second was that when they realised that there was a problem, and indeed when there was a crisis, it was far too late to forestall it. It was then necessary to deal with a crisis rather than dealing with a problem at an early stage.
The noble Lord said that we rely far too much on Basel III and that it is a weapon of the last war. We are part of an international discussion on Basel III. Although Basel III is part of the armoury that we use, it is only one part. Indeed, the measure that we are looking at today is not a Basel III measure. Even if the noble Lord was correct that Basel III does not deal with every issue that we will be grappling with, it is not the only tool that we are looking at.
The noble Lord asked me about the leverage ratio, and whether we still plan to weaken the Vickers ratio. I do not believe that the Government’s view on this has changed.
The Government said in response to Vickers that they believed he was going too far, and I do not believe that that view has changed. The noble Lord asked about the loan-to-value ratio and whether that tool would not have the same effect as introducing a loan-to-value ratio. In an aggregate sense, in many ways it does so. However, the advantage of this approach over adopting a loan-to-value limit is that it places an overall requirement on an institution in terms of its lending to the property sector, but still gives that institution the flexibility to provide loans at a high loan-to-value ratio. This might take place, for example, in a minority of cases in which the circumstances of the person to whom the loan is being given makes that loan prudent. In many ways it could have the same overall effect on the sector, but it gives institutions greater flexibility than a prescriptive loan-to-value ratio.
The noble Lord asked why the stock market was not included and why we were not including firms in that sector. The answer is that at this point the FPC believes that the definition of which firms are covered includes those firms that are most likely to cause a problem. The FPC has taken the view that firms in the stock market are not creating an equivalent risk to those elsewhere and those already covered. That is its judgement, which one can take a view on. The noble Lord disagrees, but that is the answer to the question.
The noble Lord asked about the order using the word “increase” and how it is envisaged that any increase might be unwound. When the FPC considers that any increase is no longer required, it will revoke the direction.
My Lords, I do think that that is an eventuality that the order caters for because, as the noble Lord says, it uses “increase”. If I am wrong on that, I shall let him know but, as he has said, the order is relatively straightforward. It will be for the PRA to decide whether it wants to do that, and it may do so, but obviously I will correct the record if I am wrong. It may require an amendment to the order for it to do that.
The noble Lord asked about the aggregation of a large number of small firms. This issue formed part of the consultation. The strong view came back that the effect that was being sought could be achieved by limiting the order at this point to larger firms. If any evidence built up that a large number of small firms could cause a risk beyond that currently envisaged, it would be for the FPC at that point to make appropriate provision.
The noble Lord asked how the FPC would specify risk. It will be for the PRA to determine capital models allowed by firms within the overall levels set by the FPC.
The noble Lord asked me about the timetable—whether there would be more orders and when they were going to be. There may be more orders, but none is envisaged at the moment. There is not a conveyor belt of other orders that are half-thought of. The view is that these measures are adequate for the time being. It is always open for further orders to be brought forward, but there is no perceived need for any further orders at this point.
There is one issue that I have not dealt with concerning the relationship between the FPC and the competition authorities. I hope that the noble Lord will forgive me if I write to him on that subject.
Before the Minister sits down, perhaps we could go back to how an increased level of risk is to be specified by the FPC. Is that to be specified as a change in risk weights in old-fashioned Basel I structures, or is it to be specified as a modification of the value at risk models used by the financial institutions? If it is the latter, are we moving away from the ability of institutions to use their own value at risk modelling towards a standardised model?
Financial Services and Markets Act 2000 (PRA-regulated Activities) Order 2013
Considered in Grand Committee
That the Grand Committee do report to the House that it has considered the Financial Services and Markets Act 2000 (PRA-regulated Activities) Order 2013.
Relevant documents: 18th Report from the Joint Committee on Statutory Instruments, 26th Report from the Secondary Legislation Scrutiny Committee.
My Lords, I shall speak also to the other three orders made under the Act. As I said in respect of the previous order, the Financial Services Act establishes a system based on clarity of responsibility and focus for the new regulatory bodies, avoiding the confused and ineffective tripartite system that it replaces.
The new system will make the Bank of England clearly responsible for financial stability and will provide for two focused regulators with clear remits. The Prudential Regulation Authority, or PRA, will be responsible for the prudential regulation of firms that manage complex risks on their balance sheets. The Financial Conduct Authority, or FCA, will be a focused conduct of business regulator. This group of statutory instruments relates to the scope of the responsibilities and powers of the PRA and FCA. The Government’s guiding principle in all these orders is that there should be clarity of responsibility and effective co-ordination mechanisms where necessary.
First, I turn to the draft order made under Section 22A of the 2000 Act, which establishes which activities will be prudentially regulated by the PRA. The draft order provides that deposit-taking, effecting and carrying on contracts of insurance, and certain other activities in relation to the Lloyd’s market will all be PRA-regulated activities. All firms that carry them out will be regulated by the PRA. That reflects the complex nature of the risks borne by firms that engage in such activities and the need for specialist prudential regulation. Additionally, the activities of some investment firms are of such scale and complexity or are interconnected with other firms to such an extent that they may pose risks to the entire financial system or to other PRA-authorised firms. The PRA will be able to designate such investment firms to be prudentially regulated by the PRA.
The draft order sets out the criteria which the PRA will apply when considering whether an investment firm should be designated. First, the firm must hold, or be seeking to hold, permission to deal in investments as principal. In other words, it must be an investment firm or be applying to be an investment firm. Secondly, the firm must be of a type and size that is required to have initial capital of €730,000 under the capital adequacy directive. This means that it must be relatively large and complex. Finally, the PRA must conclude that designation is desirable, having regard to its objectives.
When deciding on the designation, the PRA must also give consideration to certain other factors. It must consider the assets of the firm in question. If the firm is part of a financial group, the PRA must also look at the size and complexity of other investment firms in the group, and at whether the activities of the firm in question could affect their safety and soundness. The draft order was first published more than a year ago and it has the overwhelming support of consultation respondents. I hope that it will be equally acceptable to the Committee.
Next, I turn to the threshold conditions order. The threshold conditions are the minimum requirements that firms need to meet to become authorised. They are a key supervisory tool and provide the basis for triggering certain of the regulators’ powers to intervene. On the recommendation of the Joint Committee on the draft Financial Services Bill, which carried out pre-legislative scrutiny on the Bill, the Government reviewed the threshold conditions to ensure that they support judgment-led and forward-looking regulation.
The revised conditions set out in the draft order will provide clarity about which aspects of a firm’s business are of interest to each regulator. They will also deliver clear, relevant and unambiguous standards which firms are required to meet and which will be used by the PRA and FCA in exercising their judgment. Lastly, they are aligned with the priorities of the FCA and the PRA—for example, including a reference to whether firms are “resolvable”, which will be a key consideration for the PRA in understanding the risks posed by individual firms to the financial system as a whole.
I turn next to the Financial Services Compensation Scheme order. The FSCS plays a crucial role in the financial services sector, supporting consumer protection and confidence in financial services while serving to protect and enhance financial stability. The Government are committed to retaining a single Financial Services Compensation Scheme, so that there is a single point of contact on compensation for consumers. However, given the important role that the FSCS plays in the financial system, both regulators will interact with the FSCS, and the Government have legislated that in the new regulatory system the FCA and PRA will have joint oversight responsibility for the FSCS and split rule-making responsibility.
As the scope of prudential regulation by the PRA is set out in secondary legislation, it is also necessary to specify the claims that each regulator may or may not make compensation rules for by statutory instrument. Broadly reflecting the division in regulatory responsibilities between the PRA and the FCA, the order makes the PRA responsible for making compensation rules in relation to claims for deposits and claims under a contract of insurance.
The order also provides that the PRA may make compensation rules relating to the activities of managing the underwriting capacity of a managing agent at Lloyd’s, or arranging contracts of insurance written at Lloyd’s. The inclusion of these activities in the order reflects the PRA’s regulatory responsibility in these areas but does not mean that the PRA will be expected to make compensation rules for them. To be clear, the FSA does not currently make compensation rules for these activities and it is not expected that the PRA will do so. Conversely, the FCA will be responsible for making rules to deal with claims for all other matters. This will include claims for mis-selling.
Finally, I turn to the mutuals order. The FSA’s most important regulatory functions and powers were established in the Financial Services and Markets Act 2000. However, the FSA also has a range of functions under the legislation that governs the establishment and operation of mutuals. This order does two things. First, it replaces references to the FSA in the various pieces of mutuals legislation with references to the FCA, the PRA or, in some cases, both. Secondly, it inserts mechanisms similar to those in the Financial Services Act requiring the two regulators to consult each other and co-ordinate their actions in certain cases.
The division of the responsibilities under mutuals legislation follows the general division of responsibilities between the PRA and the FCA under FiSMA. The PRA is given all of the FSA’s mutuals functions that are relevant to the safety and soundness of PRA-authorised mutuals. The FCA will take over the other functions of the FSA, including those related to registration, the register and the public file, the enforcement of offences and the majority of the functions related to administering mutuals in general.
I draw to the Committee’s attention that the order applies the PRA’s objectives to its functions under mutuals legislation but not the FCA’s. Applying the PRA’s objectives means that when carrying out a function under mutuals legislation, such as directing the merger of two building societies, the PRA will be held to account for whether its actions promote its objectives. However, the FCA’s tasks under mutuals legislation are mostly administrative in nature. It will have little discretion as to how it goes about them, so it would not really be possible to hold the FCA to account for whether it was approaching its tasks in a way that advanced its objectives. In the legal sense, there is little to which the FCA objectives could apply. The FCA’s objectives of course apply to all its regulatory activity in relation to mutuals that is carried out under FiSMA, such as making rules and imposing requirements.
With that explanation, I commend these orders to the Committee and I beg to move.
My Lords, I am grateful to the noble Lord for introducing these orders. Like him, I will deal with them altogether. Before doing so, I declare an interest as a non-executive director of a financial services firm as set out in the Register of Lords’ Interests. Turning first to the PRA-regulated activities order, I still am somewhat puzzled as regards the whole definition of the large investment firm. Are we simply relying on the CRD definition expressed as €730,000-odd or is there some broader definition of what is meant by a “large investment firm” which the PRA has in mind?
Also with respect to that, under Article 6.5, what is the procedure if the FCA disagrees with the PRA’s decision to withdraw a designation? The consultation process should form a check on the PRA and not just act as a rubber-stamping on behalf of other bodies. There should be some scrutiny of important decisions that the PRA wishes to undertake, although of course without undermining its powers. What will be the dynamic when there is some form of disagreement and how are those disagreements to be mediated?
The threshold conditions are entirely appropriate but I want to focus on Article 2A about suitability. I found the discussion of suitability as a threshold condition—a very important threshold condition in any regulatory system—to be rather more vague than I would have expected. For example, under Article 2E(e) those who manage the affairs in investment firms have to have “adequate skills and experience”. Who defines adequate? What is meant by adequate? Does adequacy refer to a particular examination standard or standards of experience which might be expected?
In addition, the PRA might be expected to act with probity. Do we need a more precise definition of probity or will we simply regard it as having not yet been caught? How will we determine the conditions of suitability? Should they not be more precise, as individuals who wish to work in the financial services industry surely should have precise conditions and not be turned down on the basis of those rather general statements?
I have rather more questions on the Financial Services Compensation Scheme. Again, I will start with the problem of consultation between the PRA and the FCA. It seems to me that the PRA and the FCA are required to develop rules for access to the FSCS. How will they disclose that? What is the rule-making procedure referred to in this instrument? What will the procedure look like? Will they review the FSCS’s current rules? Presumably, they will. When we have had that review, will there be a transparent report to Parliament of the substance of that review?
There is a relationship between the discussion of mutuals and the FSCS. As the noble Lord will be aware, there has been considerable disquiet, to put it mildly, among mutuals with respect to the contributions that they make to the FSCS relative to those made by banks. I may have missed it, and if I have I apologise, but has there been any development on the levies made on mutuals in their contributions to the FSCS?
Turning specifically to the order before us, are there any substantial changes to the functions of the regulator in relation to mutuals contained in this order, or is it purely a transfer activity? Let us take one example which attracted my attention as I read through the order and raised this question. Paragraph 5 of Schedule 1 states that the FCA has an obligation to,
“maintain arrangements … to determine whether persons are complying with requirements”.
That is pretty vague. What sort of arrangements do we mean? Could there be some clarity as to what is to be implemented here?
Given the Government’s determination to make five regulators where there was once just one, what will happen with respect to consultation between the PRA and the FCA when action is required rapidly; for example, in criminal proceedings? How can we ensure that the consultation procedure will be prompt?
Overall, we are broadly content with the orders. We are concerned specifically about a lack of clarity at various points, to which I have referred, and about the introduction of additional complexity because of the requirement for consultation at various stages between the PRA and the FCA. I would like some reassurance on those points.
My Lords, if there is a leitmotif running through the noble Lord’s questions, it has to be about how the two bodies work together. This theme ran also through previous debates in your Lordships’ House and gets to the core of arguments about whether the Government were right to split the FSA at all. The view that we took is that we needed to give greater focus to the two elements of regulation. It was very important, having done that, we then set in place ways in which the two regulators would work together. As the noble Lord knows, there are a number of points in the Act where the two bodies are required to establish memoranda of understanding explaining exactly how they are going to work together. The success of the new structure will depend to a very large extent on that working. I know that the bodies as they are establishing themselves are absolutely aware of that and are putting co-ordination and consultation procedures in place.
Perhaps I may deal with some of the specific points that the noble Lord raised. He asked whether the designation of a larger firm was simply the €730,000 capital requirement. The order takes a number of criteria into account, not all of them from the CRD. I read some of them out. The PRA, for example, has to conclude that designation is desirable, having regard to its objectives—this is part of the regulator exercising judgment. That is an additional criterion beyond the €730,000; it is not automatic.
The noble Lord asked what would happen if the FCA disagreed with the PRA’s decision to withdraw designation. This is a decision for the PRA. We expect it to give considerable weight to the views of the FCA, but it is ultimately a matter for the PRA.
The noble Lord asked whether the definitions should be more precise, in particular the definition of “probity”. The Government do not consider that the concept of probity is significantly more subjective than other criteria against which the regulator must make regulatory judgments. Recent conduct and mis-selling scandals have shown more than ever how important it is that firms conduct themselves with probity, and it is right that the regulators can make an assessment on whether this is the case and take action where it is needed. A general question for legislation is how far it attempts to define terms which are in common parlance and have a common understanding. Our view is that in this respect the legislation goes as far as it should do.
The noble Lord asked about mutuals and whether there had been a change in class. This has been a long-standing beef of the mutuals; they feel that they have to bear the burden of the incompetence, folly and recklessness of others. That is a question for the authorities to decide, but for the time being they remain in the same levy class that they have already stayed in.
I shall try to deal with one or two other points. The noble Lord asked about the procedure for FSCS rules. The same procedure applies as for other rules; there is a duty to consult but no duty to carry out a cost-benefit analysis. There are no plans to change the rules as part of the transition. Once the transition has taken place, it will obviously be for the new regulators to decide whether they are happy with them, but we are not planning to do that at the same time.
On the question of consultation between the FCA and the PRA on mutuals functions, the order makes express provision for consultation where it is needed. The general provisions relating to the FCA/PRA MoU, which I referred to earlier and which are set out in Section 6 of the Act, will apply in this area as they will in many others.
I hope that I have answered the majority, if not all, of the questions posed by the noble Lord, and I commend the regulations to the Committee.
Financial Services and Markets Act 2000 (Threshold Conditions) Order 2013
Considered in Grand Committee
Financial Services and Markets Act 2000 (Financial Services Compensation Scheme) Order 2013
Considered in Grand Committee
That the Grand Committee do report to the House that it has considered the Financial Services and Markets Act 2000 (Financial Services Compensation Scheme) Order 2013.
Relevant documents: 18th Report from the Joint Committee on Statutory Instruments, 26th Report from the Secondary Legislation Scrutiny Committee.
Financial Services Act 2012 (Mutual Societies) Order 2013
Considered in Grand Committee
Committee adjourned at 6.13 pm.