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Lords Chamber

Volume 749: debated on Wednesday 27 November 2013

House of Lords

Wednesday, 27 November 2013.

Prayers—read by the Lord Bishop of Wakefield.

United Nations: Secretary-General


Asked by

To ask Her Majesty’s Government what is their strategy in relation to the appointment of the next Secretary-General of the United Nations, and what criteria should be paramount in that appointment.

My Lords, we do not expect discussions on the current Secretary-General’s replacement until the start of 2016. No candidates have emerged yet and, as such, we believe that it is too early to speculate on a successor to Ban Ki-Moon. However, we would want to see a proven leader who is fully committed to the values of the UN, with sufficient political authority and expertise as well as the ability to lead and manage such a large and complex organisation.

In our highly interdependent but highly unstable bipolarised world, is it not true that the UN has a potentially more significant role than ever and that the appointment of the Secretary-General is therefore an absolutely crucial international appointment? Should not the criteria for that appointment have maximum possible international agreement and be transparent—irrespective, of course, of gender? Does the Minister agree that the days when we can cobble together some sort of compromise behind closed doors in the Security Council or the P5 are over and that credibility depends on as much transparency and international agreement as possible?

I thank the noble Lord for his question. I pay tribute to the work that he has consistently done with the UN Association going back many years and for being persistent in relation to this question. It is important for us to keep focusing on how we can improve these international appointments and the elections that take place for them. We continue to focus on the fact that we want the best candidate for the job, but the candidate must also command the greatest possible support from the international community as well as that of the P5. We must conduct the process in a way which does not form divisions within the international community to ensure that the office bearer, once elected, has the greatest amount of support rather than undermining them through the process.

My Lords, given that by 2016 it will be nearly 70 years since the establishment of the United Nations, does my noble friend agree that it would be helpful if we could see a woman at the helm after all this time? On criteria, does she accept the general view that the two terms a Secretary-General gets may not be adequate given the desire for regional representation? Could we possibly contemplate from the United Kingdom the Canadian proposal for a longer single term—similar to that recently proposed for the House of Lords, incidentally?

Of course, I would be delighted to see a woman in the position of UN Secretary-General. Indeed, this House has produced some fantastic international appointments in the past—we have only to look at the noble Baroness, Lady Ashton, to see what amazing work she is doing on the international scene. However, I come back to what I said at the outset: it is important to have a transparent system and to make sure that we get the best possible candidate for the job, who may well be a woman. It is important also that we maintain consensus during the process, because UN reform is a difficult enough subject without the Secretary-General having to do the job when he does not command the support of the General Assembly.

My Lords, can the noble Baroness tell the House that the Government will do their best to prevent what is called regional pre-emption—that is, the presumption being established ahead of time that a particular region will provide the next Secretary-General? That, of course, narrows the candidate list enormously. If the Government were to push hard against that with other influential members, that would count. Will she also consider the possibility that, on this occasion, we might try to broker a gentlemen’s agreement between the five permanent members that none of them will exercise a veto at the next election?

The process that the noble Lord mentions involving the concept of a regional rotation has of course happened in practice, but the UK has never endorsed the idea of a formal rotation. We believe that every region should have the opportunity to put forward a candidate—no region should be denied that. The noble Lord will be aware of the speculation as to which region that will be next time round. Going back to the issue of consensus, it is important that the discussions between the P5 take place in accordance with protocol in a way that builds consensus so that we do not end up with public splits which could damage the process.

Does my noble friend further agree that real reform of the United Nations cannot be done without the Security Council being modernised in a much more fundamental way to reduce the traditional excessive dominance of the United States and some of her close allies?

We of course agree that the United Nations Security Council has to be reformed. Many proposals have been put forward for both its operation and its membership. I think that it needs to go further than that. As the Minister with responsibility for the UN, I have been pushing for a United Nations that is much more responsive and competitive, and that in a difficult economic climate gives us better value for money, improves its performance management and makes better use of IT. Much could be done to reform the UN.

Does the noble Baroness agree that our credibility on openness would be much greater if we did not tacitly collude in the IMF for Europe and the World Bank for the United States?

I think that the noble Lord’s question may go beyond the remit of this Question, but I am quite prepared to read it in Hansard, consider it and write to him formally.

NHS: Clinical Commissioning Groups


Asked by

To ask Her Majesty’s Government what discussions they have had with NHS England regarding proposals to change the funding allocation formula to Clinical Commissioning Groups.

My Lords, I beg leave to ask the Question standing in my name on the Order Paper and refer noble Lords to my health interests in the register.

My Lords, the Government have been discussing health funding, including progress on the fundamental review of allocations, at regular accountability meetings with NHS England. This NHS England-led review began in December 2012. The independent Advisory Committee on Resource Allocation, ACRA, is providing advice on changes to the formula. NHS England will consider ACRA’s recommendations. Initial views should be available to inform 2014-15 allocations.

My Lords, my understanding of the formula is that it would move resources from areas where people have worse health outcomes to areas where they have better health outcomes. The noble Earl has said that he and his ministerial colleagues are in discussion with NHS England. Can he confirm that this is a decision for NHS England? If that is so, what is the nature of the discussion that has taken place between Ministers and NHS England? Is it being left to NHS England to decide?

My Lords, very definitely yes. It is precisely to avoid any perception of political interference that we made NHS England responsible for the allocation of resources to clinical commissioning groups. However, we were very specific in the mandate, as the noble Lord will recall, that the principle on which NHS England has to operate is equal access for equal need, with particular attention being paid to health inequalities while not destabilising the NHS. Those are the things we discuss in our regular meetings with NHS England but the actual nature of the formula that it will decide in its board meeting next month is entirely up to it.

My Lords, we know that the single most significant factor associated with poor health outcomes is deprivation, particularly for diseases such as chronic lung diseases, cardiovascular diseases and cancers—and, even more importantly, for chronic diseases in children. Would it not be wrong therefore if the tariff did not include the deprivation in the population when setting it for the community?

My Lords, the CCG target formula recommended by ACRA this time a year ago was rejected by NHS England for the very reasons that the noble Lord cites: because it did not include an adjustment for deprivation and health inequalities. At a recent Health Select Committee hearing, Paul Baumann, the chief finance officer of NHS England, indicated that the proposed new formula would have an adjustment for a health economy’s unmet need—in other words, an adjustment for deprivation where low life expectancy suggests that people are not accessing health services.

My Lords, can my noble friend the Minister clarify that responsibility for the development of primary care is to be shared between CCGs and NHS England area teams, particularly as CCGs now control two-thirds of the NHS budget?

My Lords, at present primary care is commissioned by NHS England and has three broad ingredients: primary medical care, primary pharmaceutical services and primary dental services. However, we are looking at ways of making the whole process of primary care commissioning more creative. That could well involve a joint process by NHS England and clinical commissioning groups.

In light of what the Minister said before, are we being assured therefore that age and gender will not be given priority over gross health inequalities and needs in areas of social deprivation, such as in the north of England? If that is not the case, surely the principles on which the National Health Service was created are being undermined.

My Lords, age is and has always been, in the formula, the primary driver of an individual’s need for health services. The very young and elderly, whose populations are not evenly distributed throughout the country, tend to make more use of health services than the rest of the population. Having said that, the formula contains elements relating to unavoidable differences in the costs of providing services due to location alone—that is, the market forces factor—and a number of other measures of adjustment. As I say, we are assured by NHS England that deprivation will feature in the formula that is published for next year.

My Lords, is the noble Earl aware that in Yorkshire, many of the hospitals which are PFI are very seriously in debt? Is there not a rumour that the poorer north will have its money taken to the richer south?

It was for very much that reason that NHS England decided last year not to interfere with the formula but to give a 2.3% real-terms uplift to all CCGs. The last thing we want to do is to take money away from areas where health outcomes are the worst.

My Lords, does the Minister accept that in the north-east of England huge concern has been expressed about the initial proposals? This has been widely and repeatedly trailed in the press in the north-east. While I welcome what the Minister said about tackling health inequalities, can he give us an assurance that the most vulnerable communities and the most vulnerable people will not lose out as a result of this consultation?

There are two elements to consider here. One is the target allocation, which is what NHS England is currently working on, and the other is the actual allocation—the money given to individual areas. The task for NHS England will be to decide how quickly or slowly to move from current allocations to the target. The key will be not to destabilise any NHS area in that process.

I do not think the noble Earl answered my noble friend Lord Hunt’s Question about the discussions that have taken place between the Government and NHS England on this topic. Will he tell us what steer the Government have given on these matters?

We give no steer. As I said to the noble Lord, Lord Hunt, the principles on which NHS England should operate are clearly of concern to Ministers—namely, equal access for equal need, the need to take account of health inequalities in an area, and not destabilising the NHS. We also believe that NHS England should be transparent in whatever it does. Those are legitimate concerns for Ministers, but we do not seek to steer NHS England in any particular direction.

Will the Minister reassure me that child and adolescent mental health services will be given sufficient weight in these discussions?

My Lords, ACRA has recommended that CCG mental health services allocations should be set using the same overall approach as that for other hospital and community health services. That means that a large part of the allocation is linked to the diagnoses reported for people registered with each GP. That makes the formula very sensitive to need. It has the potential to improve the way we allocate resources for mental health services, in particular.

My Lords, will the noble Earl arrange for NHS England to meet interested parliamentarians before it takes its decision at the meeting next month?

EU: Regulation on Chemicals


Asked by

To ask Her Majesty’s Government what steps they are taking to enable small and medium-sized enterprises to meet the requirements of the European Union Regulation on the Registration, Evaluation, Authorisation and Restriction of Chemicals.

My Lords, we recognise the concerns, particularly of small businesses, about burdens arising from the EU regulation on the registration, evaluation, authorisation and restriction of chemicals. We welcome the recommendations for better guidance for small businesses in the recent report of the Prime Minister’s business task force. These closely reflect the work that we have been doing to bring together those interested, including the Commission and UK industry, to develop guidance that is more focused and relevant to SMEs.

I thank the Minister for that reply. I know that he is very knowledgeable and has a lot of expertise in this matter so perhaps I may ask him to spell out in a little more detail, in relation to SMEs, whether they will they be given financial assistance; whether they will be allowed to use these substances until alternatives are brought forward; how this will be licensed; and whether they will have the right of appeal.

My Lords, it would take me quite a while to answer all those questions properly. However, in the context of the financial question he asked, there are two aspects to this—the first is about fair cost-sharing, and the second about fee levels. Businesses tell us that a major concern is the lack of transparent and fair cost -sharing when companies are pooling data on the same substance. As a result, that was the top recommendation for helping SMEs in the review report. There is a commitment across the board to sort that out, and we are playing a major role in it. As regards fee levels—that is, for fees payable to the European Chemicals Agency—the revised fee levels were voted through by the UK and other member states and came into force in March. They mean that the smallest companies are now eligible for fee discounts of up to 95%, which can mean a one-off registration fee of as little as €64.

My Lords, is this not another example of the perverse effects of EU overregulation? Thousands of products that have been with us and fully approved for many decades by our own safety regulation authorities are now to be banned; and that, in many instances, will put out of work small businesses which cannot afford the very high costs of trying to prove that something that is safe, is safe. Is this really the sort of democratic situation we want to be in—where our own Ministers can do nothing to put this matter right except mumble about trying to ease the pain in some way or another? The actual effect will be devastating on small businesses. It is a gross pity that we cannot control these affairs ourselves.

My Lords, it might be helpful if I quote the words of the Chemical Industry Association to the business task force. It said that,

“we see REACH as a positive development and support its principles. It has made many businesses outside our sector realise that they do in fact use chemicals every day and that they also have to comply with controls. For us, this is an important step towards achieving safe chemical management and we support the scope and objectives of the legislation as a consequence. However”—

in line with what my noble friend says, it goes on to say that—

“interpreting the legislation is proving extremely complex”.

Reducing those burdens is the focus of our attention here and in Europe.

My Lords, I think that the whole House is concerned about the future of manufacturing in the United Kingdom, and we are keen to see a strong manufacturing base. My noble friend Lord Hoyle has touched on a very complicated industry on which the Minister has given positive answers. Therefore, could the Minister advise—

No? Can he tell me then—can he tell the House—how applications from companies in the United Kingdom to use banned substances while alternatives are being developed will be judged? What will be the cost of such applications to the companies themselves? Is the Minister happy with that?

My Lords, I touched on the matter of cost earlier, but the noble Lord will appreciate that this is definitively a complex area, regardless of how we regulate it. Chemicals are a complicated business and they need careful attention. However, I am now going to go into some technical language.

Adding a substance to annexe 14 is a multi-stage process involving several factors. The ECHA has recently finished conducting a public consultation on its draft recommendation. It will then consider the opinion of the member state committee in its final recommendation to the European Commission. It is important to stress that this is a recommendation. The ECHA does not have the power to ban a chemical. It is the European Commission, in conjunction with member states and the European Parliament, which decides whether to take a recommendation forward to add a chemical to annexe 14. I emphasise that if a substance is added to the annexe, it does not constitute a ban. Instead, it is the trigger for industry to make the case for continued authorised use of a chemical.

My Lords, is my noble friend’s quote from the trade association not a classic example of how big business loves regulation which destroys small business and removes its competition? What has happened to the Government’s initiative to stop the continuing gold-plating of legislation from Europe? Is it simply to say that nothing can be done because we cannot change European regulations?

As my noble friend asks about gold- plating, perhaps I may say that REACH is a directly acting regulation so there is little scope for gold-plating. However, the UK approach is in fact the opposite of that; for example, our approach to enforcement is to help companies get back into compliance. My noble friend might like to know that the Environment Agency has developed helpful tools for that process. It uses its expertise to look for illegal use of restricted chemicals, and it can then focus on suspected wrongdoing with little or no burden on compliant companies.

My Lords, there are significant consequences for small and medium-sized enterprises of incomplete registration. Can the Minister please tell us how many businesses have already been informed by the European Chemicals Agency that their registration is incomplete, and what action has he taken to ensure that businesses complete all of the agency’s registration requirements in time to avoid those significant consequences?

In terms of specific numbers, no, I cannot. However, I will write to the noble Lord on his question.

My Lords, I will ask the question that I tried to ask. Would not the best tool be the use of plain English which everyone can understand, whether they are in small business, medium business or any other sort of business?

My noble friend, as always, speaks so much sense. I am discovering, as Defra’s science Minister, that the world of chemicals does not easily lend itself to simple language. However, I will do my best for my noble friend.

Care Sector: Minimum Wage


Asked by

To ask Her Majesty’s Government what steps they will take to enforce minimum wage legislation in the care sector, in the light of publication by Her Majesty’s Revenue and Customs of figures disclosing non-compliance with the legislation.

My Lords, employers found not to pay minimum wage must pay arrears plus a penalty, and may be prosecuted. From 1 October 2013, all those who break minimum wage law will be named, as an additional deterrent alongside existing financial penalties. Non-compliant employers identified during this evaluation in the care sector will meet the new criteria for naming if investigated from 1 October this year. HMRC continues to investigate every worker complaint from the care sector.

My Lords, the announcement of naming and shaming and perhaps heavier financial penalties is welcome. However, given that the HMRC investigation showed that 48% of care sector employers surveyed were paying staff below the minimum wage and that only a tiny number of prosecutions had been brought, what further steps will the Government take to enforce the law. and what additional resources will they make available for this purpose?

My Lords, in addition to the naming and shaming, the noble Lord will have heard the Prime Minister announce today that the maximum fine payable under the law will be increased fourfold. However, the work that is done with key stakeholders is a very important element of ensuring that the law is enforced and indeed understood. The Government work very closely in this sector with the UK Home Care Association and the trade union enforcement group, of which UNISON is the principal member.

My Lords, is the Minister aware—I have mentioned this to the House before—that self-employed carers are often paid as little as £3 per hour, and that there is no control whatever over the self-employed? People who work officially for care sources are paid the minimum wage per hour but get nothing for the travel time between jobs. It could be that for every hour they work as a carer there is another unpaid hour, which surely makes a nonsense of saying that they are getting that amount per hour. What does the Minister believe can be done to improve the situation, because the care service is very important?

My Lords, if people are paid the minimum wage for hours when they are working and not being paid for travelling time between periods of work, that brings down the average amount paid per time at work to below the minimum wage. Therefore, employers are acting illegally. One of the principal findings in the study, which is the subject of this Question, is that the travelling time of people working in domiciliary care is one of the main reasons for people being paid below the minimum wage. HMRC operates under a contract from BIS to manage this process. The system has remained essentially unaltered since the minimum wage was introduced some 15 years ago, and the resources made available to it have been protected during the period of this Parliament.

My Lords, does the Minister agree that the biggest single problem regarding deprivation and poor health is, in fact, low pay? Will the Minister therefore show support not just for the minimum wage but for a living wage?

I agree with the noble Lord; the Government encourage employers to pay the living wage. However, another thing we are doing is that my colleague Vince Cable has asked the Low Pay Commission to see what scope there is for increasing the minimum wage beyond the rate of inflation without having a significant negative impact on jobs.

My Lords, how many actual prosecutions have there been of those who failed to comply with this legislation?

My Lords, in the period since 2006 there have been nine prosecutions. The policy on prosecutions was set by the previous Government and is based on the concept of selective and exemplary cases. That is why the number of prosecutions is relatively low, whereas the amounts of arrears collected and the number of employers who have received penalties are significantly greater. The number of employers who received a penalty in the past financial year is 708.

My Lords, the Minister mentioned stakeholders. I believe the Government are committed to seeing service users and patients as the most important stakeholders in service provision. Since care workers often have the first and the closest contact with such service users, does the Minister believe that the way we value and support such workers is of the utmost importance? Does he further believe that the current problems with local authority budgets are bound to have an effect on both the number and the quality of care workers?

My Lords, I certainly pay tribute to the work done by care workers. Obviously, local budgets are constrained. However, to the extent that local authorities are commissioning care, they have an obligation to ensure that their commissioning is done in such a way that the people providing it are not in breach of the conditions on low pay. One of the key points in this area is the provision by HMRC of a free pay and work rights helpline for people who feel that they may be suffering because they are not getting the minimum wage as a result of things such as the travelling time problem that we discussed earlier. The helpline is heavily used, but everybody who rings it will have their case looked into.

Does not this report indicate the determination of the Government to insist on compliance with the minimum wage legislation? Within what timetable does the Secretary of State for Business expect his investigation on linking minimum wages to the living wage to come to fruition?

My Lords, the Secretary of State at BIS—Vince Cable—very recently asked the Low Pay Unit to look into this matter with considerable urgency, although I do not think that he has put an absolute date on it. However, the Government take this issue extremely seriously. We hope very much that we can make quicker progress than we have in the past in raising the level of the minimum wage.

Gambling (Licensing and Advertising) Bill

First Reading

The Bill was brought from the Commons, read a first time and ordered to be printed.

Humber Bridge Bill

Third Reading


Moved by

My Lords, I reassure the House that I do not seek to oppose the passing of the Bill although it is worth remarking that we are only three years off the 50th anniversary of the timely decision by Barbara Castle during the Hull North by-election to agree to the building of the bridge.

I take the opportunity of the Chairman of Committees being at the Dispatch Box to ask him about the arrangements for obtaining copies of Scotland’s Future, the document published yesterday by the Scottish Government. My understanding is that because it is a Scottish government document the arrangements are that there is one copy in the Library of this House and one copy in the Library of the Commons. I understand why the Scottish Government might not want your Lordships to consider all the pages of the full document, but to expect noble Lords to download it will cause great concern and overtime among our rather lowly and inadequate printers. Will the Minister arrange for noble Lords to receive copies when they wish to have one?

My Lords, further to the matter raised by my noble friend Lord Hunt, this is a very serious matter. The Scottish Government are proceeding as if this so-called White Paper is of no concern to the people of the rest of the United Kingdom—indeed, of no concern to this Parliament—yet constitutional matters are still reserved to this Parliament. Thanks to the noble Lord, Lord Forsyth, next Thursday we are going to have a debate of only an hour to discuss an astonishing unilateral declaration by the Scottish Government of the date of independence, assuming that this matter is going to go through without any difficulty. Much more is needed than this and I am glad that, as well as the Chairman of Committees, the Leader of the House, the Chief Whip and the Deputy Leader of the House, who is very knowledgeable on these matters, are in their places.

I suggest that, as well as what my noble friend has suggested, every Member of this House should be provided with a copy of this document. It is relevant to us and we should be considering it. Further, there should be a Statement in this House and in the other House of the implications of this document for the rest of the United Kingdom and, as well as the one-hour debate that the noble Lord, Lord Forsyth, has secured, there ought to be a full day’s debate in government time so that we can discuss the implications. If not, we are going to sleep-walk into the break-up of the United Kingdom. If that is what other noble Members want, it is certainly not what I want and I hope that we will do something about it.

I could just say yes, but let me say a little more. The future of the United Kingdom is clearly a constitutional matter. The constitution, under the Scotland Act 1998, is a reserved matter, so the publication and the contents of the guide are clearly a matter of legitimate interest to all Members of this House but technically, because it is a Scottish government publication, the noble Lord is right: it is not deposited in the Printed Paper Office and the Scottish Government have not made paper copies of the guide available to the PPO. However, photocopies of the abstract of the guide have been in the PPO since yesterday. The PPO will print, on demand, copies of the full 670-page guide for those Members who need one. Members who would like a copy of the full guide should accordingly ask for one from the PPO. However, in the interests of economy, to say nothing of saving quite a few trees, copies of the full guide will also be available for consultation in the Library.

Bill passed and returned to the Commons with amendments.

Delegated Powers and Regulatory Reform Committee

Membership Motion

Moved by

That Lord Horam be appointed a member of the Select Committee, in place of Baroness Gardner of Parkes, resigned.

Motion agreed.

Small Companies (Micro-Entities’ Accounts) Regulations 2013

Motion to Approve

Moved by

That the draft regulations laid before the House on 23 October be approved.

Relevant document: 12th Report from the Joint Committee on Statutory Instruments, considered in Grand Committee on 26 November.

Motion agreed.

Financial Services (Banking Reform) Bill

Report (2nd Day)

Relevant documents: 8th and 12th Reports from the Delegated Powers Committee.

Clause 30: Overview

Amendment 122

Moved by

122: Clause 30, page 42, line 9, leave out “38” and insert “(Publication)”

My Lords, the Government are committed to bringing payment systems under formal economic regulation to address deeply rooted failures in the UK’s payments market. In Committee, the Government tabled amendments to establish the new Payment Systems Regulator. The Government are now introducing a small number of further provisions and making amendments to some of the clauses previously tabled to ensure that the regulator is able to perform its functions effectively and that the right procedures apply to powers contained in the Bill.

First, these amendments will introduce provisions modelled on measures in the Financial Services and Markets Act 2000 which prohibit the regulator and those working for or on behalf of it from disclosing confidential information without the consent of the information owner. The prohibition will be enforced by a new criminal offence. However, further provisions will permit confidential information to be disclosed to certain prescribed persons in specific circumstances, including the provision to the regulator of certain information held by the Bank of England. This will be an important element of the Payment Systems Regulator’s regulatory regime. Without a prohibition on the disclosure of confidential information, people may be dissuaded from providing to the regulator important information which would assist it in the discharge of its regulatory functions.

The Government are bringing forward a number of other amendments which mirror provisions that already exist for the FCA under the Financial Services and Markets Act. The FCA will be able to collect levies for the purpose of maintaining adequate reserves for the regulator, which will help it to meet any contingencies. Another amendment will require that the regulator uses a sum equal to its enforcement costs for the benefit of its regulated population by reducing their levy the following year. A further amendment will ensure that the FCA does not have to produce a cost-benefit analysis when drawing up fee-levying rules to govern the collection of fees to meet the costs of the Payment Systems Regulator.

The other amendments tabled today will ensure that the right procedural requirements apply in respect of certain powers in the regulator clauses. The regulator will have a power to direct participants to take or not take specified action, and amendments are tabled to expand the concept of a “general” direction that applies to more than one person. The consequence will be that more directions fall within the category to which consultation requirements apply. Another amendment will require the Treasury to publish its decisions to designate payment systems to bring them within the regulator’s scope. The amendments also make some technical drafting changes to assist the reader of the legislation, as well as some consequential amendments to other legislation to include references to the regulator—for example, to ensure that the Freedom of Information Act applies to information held by it.

Overall, this set of provisions will contribute to the creation of a robust and well functioning regulatory regime for payment systems that can deliver on the Government’s objectives. I commend these government amendments to the House.

There is also an amendment in this group in the name of the noble Baroness, Lady Noakes. In Committee, the Government tabled amendments which included a provision for the regulator to order banks to give indirect access to payment systems to other financial institutions. The noble Baroness has tabled amendments to this power with a view to addressing a concern that ordering a bank to provide another institution with indirect access to a payment system would expose the access-providing bank to additional operational and compliance risks. I should like to reassure the House that the amendments tabled by the noble Baroness are not required to address the concerns that have motivated them.

This power was designed to serve as a necessary back-stop in case banks with direct access to payment systems reacted to being brought within the regulator’s scope by ceasing to provide indirect access. This would have left smaller players with no access to the vital systems. The Government envisage that the regulator will be likely to exercise this power only in such a situation. It would be used to safeguard the position of the smaller banks reliant on the larger banks for continued access to the systems and to prevent the detrimental consequences for competition in UK retail banking if such access were denied.

The Government are confident that the regulator will not exercise this power in any way that results in banks having to take on undue operational or compliance risks. The power can be exercised only if an institution applies to the regulator to exercise it. The regulator would, in practice, inform the bank which it was proposed be ordered to grant the access and would consider the circumstances of the applicant. It would be open to the bank that was subject to any order to make representations to the regulator about the applicant or any other matter concerning the application. The regulator would consider any such representations in making its decisions. It would not exercise the power if it thought to do so would expose the bank, the subject of the order, to additional risks which it would not be reasonable for it to bear. The Government would expect the regulator to provide in industry guidance more detail on the circumstances and manner in which it would consider using its powers. In the light of that, I would ask the noble Baroness to withdraw her amendment.

At this point, I shall deal with the amendments tabled by the noble Lord, Lord Brennan, to certain of the provisions of the proposed regulatory system for payment systems. I should like to reassure the noble Lord that his amendments are not necessary to achieve the end of a proportionate and balanced regulatory system, which I am sure we share. The noble Lord has proposed some additional safeguards to the Treasury’s power to designate payment systems so that they fall within the regulator’s scope. I should like to reassure the noble Lord that the power would be exercised by the Treasury only after proper consideration and where it is genuinely satisfied that the available evidence indicates the designation criteria are met, and that the exercise of its discretion to designate is necessary and proportionate in the circumstances. It is not necessary to make this an express requirement in the Bill. No such provision was included in the precedent power, contained in Section 185 of the Banking Act 2009, under which the Treasury recognises systems for Bank of England oversight. I should also like to reassure the noble Lord that the additional matters that he has proposed should be considered by the Treasury when deciding to designate a system would in any event be considered, and that it is not necessary to state them in the Bill.

Under the procedural provisions, the Treasury must notify operators of payment systems that it proposes to designate and consider any representations made, so we do not believe it is necessary to write into the legislation that the operators must be consulted as that is, in practice, what the Treasury would do. The drafting of this provision matches that contained in the precedent—Section 186 of the Banking Act 2009. In relation to the regulator’s competition objective, it is important to maintain flexibility as to the matters to which the regulator may, rather than must, have regard when considering the effectiveness of competition, particularly given the fast-moving, high-tech nature of the payments industry. The Government do not think that it would be right to accept the noble Lord’s proposal to change this discretion to a duty. The regulator should be free to consider the factors which it considers relevant at any given time to its assessment of the effectiveness of competition. The Government also do not think it is necessary to add to the list of factors the two proposed by the noble Lord. The consistency of treatment of payment systems operators and the impact of any past or proposed regulatory intervention are matters to which the regulator will generally be obliged to have regard as a matter of good administration. For the same reason, the Government believe that the amendments tabled by the noble Lord to the regulatory principles to which the regulator is to have regard are unnecessary. The regulator, as a public authority, would need to act fairly and consistently, and not take action if not necessary or not justified on the basis of the evidence available.

In relation to the regulator’s innovation objective, the Government believe that the noble Lord’s suggestion to supplement it with the objective of promoting the creation and sustaining of a regulatory environment that is conducive to innovation is unnecessary. It is implicit that the regulator will consider how its system of regulation can best support innovation, and it will exercise its regulatory powers only where it thinks that will serve to promote innovation.

On the regulator’s power to order a disposal of an interest in an operator of a payment system and its power to vary certain agreements relating to payment systems, the Government disagree with the noble Lord’s proposal that these powers should be exercisable only where the Competition and Markets Authority has decided that the interest held in the operator of the system has resulted, or is likely to result, in a substantial lessening of competition. This is a power that the Government want the regulator to be able to exercise independently, given the specific knowledge and expertise it is hoped the regulator will acquire in relation to the markets in payment systems and the services provided by them. However, it is important that the interests of all concerned are adequately protected, so the use of this power, and the power to vary agreements concerning payment systems, will be subject to appeal to the Competition and Markets Authority, which could, on the application of the appellant, suspend the effect of the regulator’s decision pending the determination of the appeal. It would be open to the CMA to quash the regulator’s decision and substitute its own for that of the regulator.

In summary, the Government believe that the legislation as drafted provides a balanced and fair regulatory system. In light of that, I would ask the noble Lord not to move his amendments.

My Lords, as the Minister has said, I have Amendment 138 in this group. He has explained the amendment and the answer to it so well that I did not need to bring my speaking note with me. I thank him for the comments he has made, which have fully answered the points that lay behind my tabling of the amendment. He asked me to withdraw the amendment but as I have not moved it I cannot withdraw it. However, I confirm that I shall not be moving it when we reach the appropriate time on the Marshalled List.

My Lords, I congratulate the Minister on his patience and courtesy in always being the Minister to answer my criticisms of the Bill. The patience and courtesy with which he meets my generosity in this regard fairly ought to be shared at some stage by the noble Lord, Lord Deighton.

The purpose of the amendments is to raise with the House and the Government two broad questions: first, on the need to avoid regulatory overload; and, secondly, on the need to ensure the adoption of robust regulatory principles in dealing with different sectors of the banking world. The amendments are directed at card payment systems, not the interbank arrangements to do with BACS, CHAPS, the clearance of cheques and so on, which have caused a great deal of difficulty.

First, on regulatory overload, this system, described in more than 60 sections, will be under the overall control of the Financial Conduct Authority, albeit the payment system regulatory structure will have its own chairman and board. It is a matter of real concern to note how much the FCA is being given to do in so many different regulatory contexts. This is a concern, first, as to manpower; secondly, as to skill and competence; and, therefore, thirdly, as to effectiveness.

Yesterday afternoon, in one of our debates, it was pointed out to me that the banking sector, or the financial sector, will pay for these regulatory costs. That is to state the obvious. The reality is, I assume, that the regulatory system hereby created will not be permanently in debt and bailed out annually by the financial services sector. Rather, it sets a budget a year ahead and the financial system pays it at the end of the second year in arrears. That gives the regulators two years of a relatively fixed budget. So, in determining how much responsibility to give to the regulators, including the Payment Systems Regulator, particular regard should be had to their capacity to carry out the job effectively.

It is therefore very important for the regulatory principle that the FCA and the PSR should not be given jobs they feel they have to do when present circumstances do not require them to do them.

The card payment system works whereby you go into a shop and use your own bank card to acquire goods, the merchant bank and your bank exchange information, and the transaction is completed. The way it is carried out is that MasterCard, Visa and Amex act as the intermediate processors. It involves £140 billion a year of purchases in this country. We are number one in volume of e-commerce. The vast majority of the consultation rounds that took place in 2012 and 2013 was directed at bank lending arrangements such as I have described, CHAPS and so on, not the card payment system. Indeed, references to that system in the consultation papers were modest in the extreme and gave no real cause for any present concern. As a result, no serious regulatory impact assessment has been made of how these new powers will affect our card payment system. In the rush to put so much into this Bill in order to make sure that everything is covered, the card payment has been put in on the side, so to speak—just in case and while we are at it—not because of any present need.

In the circumstances, good regulatory principles would suggest that where a regulator is given the task of managing a sector where at present there is no significant risk, the task should be circumscribed. Do not create teams. Do not multiply unless the evidence and the circumstances require it. If you are going to interfere in a system of such great commercial importance to ordinary life in this country, make sure that the evidence is strong enough, be transparent about it and involve all those who play a part in making the system work, so that the consumer is properly looked after. Do not lurch from one temporary, superficial assessment to another inadequate reaction. This is serious stuff. If the card payment system were to be adversely affected by ill judged and inadequately prepared financial regulatory systems, in terms of their competence, our economy would rapidly suffer, as it has in several countries where people have tried to interfere without proper cause.

I am not here simply to describe the card payment system. I have put these amendments down to ensure that the regulators are not drowned in a series of things that they are expected to cover when circumstances do not presently require that. I am not objecting to an ultimate designation power provided that it is based on proper evidence which is fully debated at the time, or to the exercise of proper regulatory powers if that step becomes necessary, provided that the same regulatory standards are applied. Finally, if the objectives of all this are to promote competition and innovation, as the statute states, that also should be a high regulatory principle to be observed by the people who will be carrying out the regulation. We are being put under pressure to pass this Bill in order to ensure that the public are safeguarded. Regulation at this level is of the highest national importance in order to remedy that which is wrong, but not to overload the system by telling people to get ready to deal with that which is not yet wrong, nor is there any evidence that it might be. Yesterday, I was talking about anti-money-laundering and the fact that there were only 22 people dealing with it. The answer is not that the financial services sector will pay for it; the answer is to make it efficient and have an Act when it is necessary.

I turn briefly to the amendments, which I shall not go into in detail. The first batch of amendments, dealing with Clauses 35 and 36, relates to designation. If the regulator feels that he must interfere, he must do so by reference to clear principle and good evidence. The second set refers to process—to make sure that everybody is properly involved and consulted. The third set of amendments aims to promote competition and innovation. I assume that means that the regulator is not just a disciplinary entity: it has a range of disciplines, where required, to improve competition and innovation. Is the PSR equipped for that? Do we know—I certainly do not—how expertise is to be introduced into it to meet its statutory objectives? I do not want to be unduly critical of the Government. It is a major piece of legislation of great public importance, but it is our responsibility to ensure that it is made to work for the benefit of the public.

I close on a reasonably reassuring note: the sentiment expressed by the Government is that the PSR, and above it the FCA, will do their best to produce the best kind of regulatory activity. We are really here to talk about regulators following principles, not just rules. I hope that the Government, in reply, will seek to satisfy the House that in this particular area of card payments, safety from commerce, high principle and effective regulation will be the order of the day.

My Lords, I support what the noble Lord, Lord Brennan, had to say about the card payment system. Having looked at it in some detail, it strikes me that it is a classic situation of, “If it ain’t bust, don’t fix it”. There are so many other priorities that I urge the Government to think again about this one.

My Lords, I think the burden of the case of the noble Lord, Lord Brennan, is that the Government are acting disproportionately in seeking to regulate something that is working very well and, in doing so, if they are not careful, they will cause major problems to a system that is currently without major problems. I hope I can reassure him that the principles that he set out at the end of his speech are ones that the Government share. There is no sense in which this regulator is being established with a remit to deal in the heavy-handed way that he fears. Given that we want to cover all payment systems, it would have been remiss to have excluded credit card payment systems. There is, however, no sudden plan to start a new, hugely intensive regime.

The noble Lord made the perfectly valid point that the regulator is slightly unusual in that it not only is a classic regulator but has a function to promote innovation as well. He raised a perfectly valid concern about the staff and whether we will be able to find people with the relevant expertise. We believe that there are people who have the relevant expertise and that it is an extremely interesting area in which innovation can be developed. The FCA will therefore be successful in finding staff who have the expertise and can do the job satisfactorily.

As I say, I am content that we are acting proportionately. We are not going to disrupt a system that is working well and we will be able to find people with the relevant expertise to manage it.

Amendment 122 agreed.

Amendment 123

Moved by

123: Clause 30, page 42, line 18, after “to” insert “(Disclosure of information by Bank to Regulator) contain information and investigation powers and provision about the disclosure of information.

( ) Sections 81 and”

Amendment 123 agreed.

Schedule 4: The Payment Systems Regulator

Amendments 124 to 133

Moved by

124: Schedule 4, page 134, line 1, after “imposing” insert “generally-imposed”

125: Schedule 4, page 134, line 1, leave out from “45” to end of line 2

126: Schedule 4, page 135, line 32, at beginning insert—

“(A1) For the purposes mentioned in sub-paragraph (A2) the FCA may make rules requiring participants in regulated payment systems to pay to the FCA specified amounts or amounts calculated in a specified way.

(A2) The purposes are—

(a) meeting the relevant costs (see sub-paragraph (1)), and(b) enabling the Regulator to maintain adequate reserves.”

127: Schedule 4, page 136, line 1, leave out sub-paragraph (2)

128: Schedule 4, page 136, line 4, leave out “(2)” and insert “(A1)”

129: Schedule 4, page 136, line 16, at end insert—

“( ) But the requirements to carry out a cost benefit analysis under section 138I of FSMA 2000 do not apply in relation to rules made under this paragraph.”

130: Schedule 4, page 136, line 19, leave out from “Treasury” to end of line 20 and insert “its penalty receipts after deducting its enforcement costs.

(1A) The Regulator’s “penalty receipts” in respect of a financial year are any amounts received by it during the year by way of penalties imposed under section 63.

(1B) The Regulator’s “enforcement costs” in respect of a financial year are the expenses incurred by it during the year in connection with—

(a) the exercise, or consideration of the possible exercise, of any of its enforcement powers in particular cases, or(b) the recovery of penalties imposed under section 63.(1C) For the purposes of sub-paragraph (1B) the Regulator’s enforcement powers are—

(a) its powers under sections 62 to 65;(b) its powers under any other enactment specified by the Treasury by order;(c) its powers in relation to the investigation of relevant offences;(d) its powers in England and Wales or Northern Ireland in relation to the prosecution of relevant offences.(1D) In sub-paragraph (1C) “relevant offences” means—

(a) offences under this Part;(b) any other offences specified by the Treasury by order.”

131: Schedule 4, page 136, line 24, leave out paragraphs (a) and (b) and insert—

“(a) specify descriptions of expenditure that are, or are not, to be regarded as incurred in connection with either of the matters mentioned in sub-paragraph (1B),(b) relate to the calculation and timing of the deduction in respect of the Regulator’s enforcement costs, and (c) specify the time when any payment is required to be made to the Treasury.( ) The directions may also require the Regulator to provide the Treasury at specified times with specified information relating to—

(a) penalties that the Regulator has imposed under section 63, or(b) the Regulator’s enforcement costs.”

132: Schedule 4, page 136, line 30, at end insert—

“10A (1) The Regulator must prepare and operate a scheme (“the financial penalty scheme”) for ensuring that the amounts that, as a result of the deduction for which paragraph 10(1) provides, are retained by the Regulator in respect of amounts paid to it by way of penalties imposed under section 63 are applied for the benefit of participants in regulated payment systems.

(2) The financial penalty scheme may, in particular, make different provision with respect to different classes of participant.

(3) The financial penalty scheme must ensure that those who have become liable to pay a penalty to the Regulator in any financial year do not receive any benefit under the scheme in the following financial year.

(4) Up-to-date details of the financial penalty scheme must be set out in a document (the “scheme details”).

10B (1) The scheme details must be published by the Regulator in the way appearing to it to be best calculated to bring them to the attention of the public.

(2) Before making the financial penalty scheme, the Regulator must publish a draft of the proposed scheme in the way appearing to the Regulator to be best calculated to bring it to the attention of the public.

(3) The draft must be accompanied by notice that representations about the proposals may be made to the Regulator within a specified time.

(4) Before making the scheme, the Regulator must have regard to any representations made to it in accordance with sub-paragraph (3).

(5) If the Regulator makes the proposed scheme, it must publish an account, in general terms, of—

(a) the representations made to it in accordance with sub-paragraph (3), and(b) its response to them.(6) If the scheme differs from the draft published under sub-paragraph (2) in a way which is, in the opinion of the Regulator, significant, the Regulator must (in addition to complying with sub-paragraph (5)) publish details of the difference.

(7) The Regulator must, without delay, give the Treasury a copy of any scheme details published by it.

(8) The Regulator may charge a reasonable fee for providing a person with a copy of—

(a) a draft published under sub-paragraph (2);(b) scheme details.(9) Sub-paragraphs (2) to (6) and (8)(a) also apply to a proposal to alter or replace the financial penalty scheme.”

133: Schedule 4, page 137, line 17, at end insert—

“Freedom of information13 In Part 6 of Schedule 1 to the Freedom of Information Act 2000 (public authorities to which Act applies), at the appropriate place insert—

“The Payment Systems Regulator established under section 31 of the Financial Services (Banking Reform) Act 2013.”Equality14 In Part 1 of Schedule 19 to the Equality Act 2010 (public authorities: general), under the heading “Industry, business, finance etc.”, at the appropriate place insert—

“The Payment Systems Regulator established under section 31 of the Financial Services (Banking Reform) Act 2013.””

Amendments 124 to 133 agreed.

Clause 35: Designation criteria

Amendments 133A to 133F not moved.

Clause 36: Procedure

Amendments 133G to 133J not moved.

Amendment 134

Moved by

134: After Clause 38, insert the following new Clause—


(1) The Treasury must publish any designation order.

(2) If the Treasury amends a designation order, the Treasury must publish the amended order.

(3) The Treasury must publish any revocation of a designation order.”

Amendment 134 agreed.

Clause 40: The competition objective

Amendments 134A and 134B not moved.

Clause 41: The innovation objective

Amendment 134C not moved.

Clause 43: Regulatory principles

Amendments 134D and 134E not moved.

Clause 44: Directions

Amendments 135 and 136

Moved by

135: Clause 44, page 48, line 15, leave out paragraph (b) and insert—

“(b) in relation to—(i) all operators, or every operator of a regulated payment system of a specified description,(ii) all infrastructure providers, or every person who is an infrastructure provider in relation to a regulated payment system of a specified description, or(iii) all payment service providers, or every person who is a payment service provider in relation to a regulated payment system of a specified description,”

136: Clause 44, page 48, line 20, after “(3)(a)” insert “or (b)”

Amendments 135 and 136 agreed.

Clause 45: System rules

Amendment 137

Moved by

137: Clause 45, page 48, line 32, at end insert—

“(3) A requirement under this section that is imposed on—

(a) all operators of regulated payment systems, or(b) every operator of a regulated payment system of a specified description,is referred to in this Part as a “generally-imposed requirement”.”

Amendment 137 agreed.

Clause 46: Power to require granting of access to payment systems

Amendment 138 not moved.

Clause 48: Power to require disposal of interest in payment system

Amendments 138A to 138D not moved.

Clause 49: The Regulator’s functions under Part 4 of the Enterprise Act 2002

Amendment 139

Moved by

139: Clause 49, page 50, line 14, leave out “(“the concurrent functions”)”

Amendment 139 agreed.

Clause 50: Restrictions on exercise of functions under Part 4 of the Enterprise Act 2002

Amendments 140 and 141

Moved by

140: Clause 50, page 51, line 11, leave out “has the same meaning as in section 49” and insert “means the functions which by virtue of section 49 are concurrent functions of the Payment Systems Regulator and the CMA.”

141: Clause 50, page 51, line 19, leave out “has the same meaning as in section 49” and insert “means the functions which by virtue of section 49 are concurrent functions of the Payment Systems Regulator and the CMA”

Amendments 140 and 141 agreed.

Clause 52: Duty to consider exercise of powers under Competition Act 1998

Amendment 142

Moved by

142: Clause 52, page 52, line 16, leave out “requirment on all operators of regulated payment systems)” and insert “generally-imposed requirement);”

Amendment 142 agreed.

Clause 66: Appeals: general

Amendment 143

Moved by

143: Clause 66, page 57, leave out line 22 and insert “generally-imposed requirement),”

Amendment 143 agreed.

Schedule 5: Procedure for appeals to the CMA

Amendment 144

Moved by

144: Schedule 5, page 145, line 35, at end insert—

““appellant” has the meaning given by paragraph 3(4);”

Amendment 144 agreed.

Clause 71: Power to obtain information or documents

Amendment 145

Moved by

145: Clause 71, page 60, line 38, leave out subsections (4) to (9)

Amendment 145 agreed.

Clause 72: Reports by skilled persons

Amendments 146 to 148

Moved by

146: Clause 72, page 61, line 23, leave out “(“the relevant participant”)”

147: Clause 72, page 61, line 24, after “to” insert “the person’s participation in”

148: Clause 72, page 61, line 27, at end insert—

“The person whose participation in the payment system is to be the subject of the report is referred to in this section as “the relevant participant”.”

Amendments 146 to 148 agreed.

Amendments 149 to 153

Moved by

149: After Clause 80, insert the following new Clause—

“Restrictions on disclosure of confidential information

(1) Confidential information must not be disclosed by a primary recipient, or by any person obtaining the information directly or indirectly from a primary recipient, without the consent of—

(a) the person from whom the primary recipient obtained the information, and(b) if different, the person to whom it relates.(2) In this section “confidential information” means information which—

(a) relates to the business or other affairs of any person,(b) was received by the primary recipient for the purposes of, or in the discharge of, any functions of the Payment Systems Regulator under this Part, and(c) is not prevented from being confidential information by subsection (4).(3) It is immaterial for the purposes of subsection (2) whether or not the information was received—

(a) as a result of a requirement to provide it imposed by or under any enactment;(b) for other purposes as well as purposes mentioned in that subsection.(4) Information is not confidential information if—

(a) it has been made available to the public by virtue of being disclosed in any circumstances in which, or for any purposes for which, disclosure is not precluded by this section, or(b) it is in the form of a summary or a collection of information that is framed in such a way that it is not possible to ascertain from it information relating to any particular person.(5) Each of the following is a primary recipient for the purposes of this section—

(a) the Payment Systems Regulator;(b) the FCA;(c) a person who is or has been employed by the Payment Systems Regulator or the FCA;(d) a person who is or has been engaged to provide services to the Payment Systems Regulator or the FCA;(e) any auditor or expert instructed by the Payment Systems Regulator or the FCA;(f) a person appointed to make a report under section 72;(g) a person appointed under section 73.(6) Nothing in this section applies to information received by a primary recipient for the purposes of, or in the discharge of, any functions of the Payment Systems Regulator under the Competition Act 1998 or the Enterprise Act 2002 by virtue of section 49 or 51.

(For provision about the disclosure of such information, see Part 9 of the Enterprise Act 2002.)”

150: After Clause 80, insert the following new Clause—

“Exemptions from section (Restrictions on disclosure of confidential information)

(1) Section (Restrictions on disclosure of confidential information) does not prevent a disclosure of confidential information which—

(a) is made for the purpose of facilitating the carrying out of a public function, and(b) is permitted by regulations made by the Treasury under this section.(2) For the purposes of this section “public functions” includes—

(a) functions conferred by or in accordance with any provision contained in any enactment;(b) functions conferred by or in accordance with any provision contained in the EU Treaties or any EU instrument;(c) similar functions conferred on persons by or under provisions having effect as part of the law of a country or territory outside the United Kingdom;(d) functions exercisable in relation to specified disciplinary proceedings.(3) Regulations under this section may, in particular, make provision permitting the disclosure of confidential information or of confidential information of a specified kind—

(a) by specified recipients, or recipients of a specified description, to any person for the purpose of enabling or assisting the recipient to discharge specified public functions;(b) by specified recipients, or recipients of a specified description, to specified persons, or persons of specified descriptions, for the purpose of enabling or assisting those persons to discharge specified public functions;(c) by the Payment Systems Regulator to the Treasury for any purpose;(d) by any recipient if the disclosure is with a view to or in connection with specified proceedings. (4) Regulations under this section may also include provision— In relation to confidential information, each of the following is a “recipient”—

(a) making any permission to disclose confidential information subject to conditions (which may relate to the obtaining of consents or any other matter);(b) restricting the uses to which confidential information disclosed under the regulations may be put.(a) a primary recipient;(b) a person obtaining the information directly or indirectly from a primary recipient.(6) In this section—

“confidential information” and “primary recipient” have the same meaning as in section (Restrictions on disclosure of confidential information);

“specified” means specified in regulations.”

151: After Clause 80, insert the following new Clause—

“Offences relating to disclosure of confidential information

(1) A person who discloses information in contravention of section (Restrictions on disclosure of confidential information) is guilty of an offence.

(2) A person guilty of an offence under subsection (1) is liable—

(a) on summary conviction— (i) in England and Wales, to imprisonment for a term not exceeding 3 months or a fine, or both;(ii) in Scotland, to imprisonment for a term not exceeding 12 months or a fine not exceeding the statutory maximum, or both;(iii) in Northern Ireland, to imprisonment for a term not exceeding 3 months or a fine not exceeding the statutory maximum, or both;(b) on conviction on indictment, to imprisonment for a term not exceeding 2 years or a fine, or both.(3) A person is guilty of an offence if—

(a) information has been disclosed to the person in accordance with regulations made under section (Exemptions from section (Restrictions on disclosure of confidential information)), and(b) the person uses the information in contravention of any provision of those regulations.(4) A person guilty of an offence under subsection (3) is liable on summary conviction—

(a) in England and Wales, to imprisonment for a term not exceeding 51 weeks (or 3 months, if the offence was committed before the commencement of section 280(2) of the Criminal Justice Act 2003) or a fine, or both;(b) in Scotland, to imprisonment for a term not exceeding 3 months or a fine not exceeding level 5 on the standard scale, or both;(c) in Northern Ireland, to imprisonment for a term not exceeding 3 months or a fine not exceeding level 5 on the standard scale, or both.(5) In proceedings against a person (“P”) for an offence under this section it is a defence for P to prove—

(a) that P did not know and had no reason to suspect that the information was confidential information;(b) that P took all reasonable precautions and exercised all due diligence to avoid committing the offence.(6) In this section “confidential information” has the same meaning as in section (Restrictions on disclosure of confidential information).”

152: After Clause 80, insert the following new Clause—

“Information received from Bank of England

(1) The following are regulators for the purposes of this section—

(a) the Payment Systems Regulator;(b) the FCA.(2) A regulator must not disclose to any person specially protected information.

(3) “Specially protected information” is information in relation to which the first and second conditions are met.

(4) The first condition is that the regulator received the information from—

(a) the Bank of England (“the Bank”), or(b) the other regulator where that regulator had received the information from the Bank.(5) The second condition is that the Bank notified the regulator to which it disclosed the information that the Bank held the information for the purpose of its functions with respect to any of the following—

(a) monetary policy;(b) financial operations intended to support financial institutions for the purposes of maintaining stability;(c) the provision of private banking services and related services.(6) The notification referred to in subsection (5) must be—

(a) in writing, and(b) given before, or at the same time as, the Bank discloses the information.(7) The prohibition in subsection (2) does not apply—

(a) to disclosure by one regulator to the other regulator where the regulator making the disclosure informs the other regulator that the information is specially protected information by virtue of this section;(b) where the Bank has consented to disclosure of the information;(c) to information which has been made available to the public by virtue of being disclosed in any circumstances in which, or for any purposes for which, disclosure is not precluded by this section;(d) to information which the regulator is required to disclose in pursuance of any EU obligation.(8) In this section references to disclosure by or to a regulator or by the Bank include references to disclosure by or to any of the following—

(a) persons who are, or are acting as, officers of, or members of the staff of, the regulator;(b) persons who are, or are acting as, officers, employees or agents of the Bank;(c) auditors, experts, contractors or investigators appointed by the regulator or the Bank under powers conferred by this Part or otherwise.(9) References to disclosure by a regulator do not include references to disclosure between persons who fall within subsection (8)(a) or (b) in relation to that regulator.

(10) Each regulator must take such steps as are reasonable in the circumstances to prevent the disclosure of specially protected information, in cases not excluded by subsection (7), by those who are or have been—

(a) its officers or members of staff (including persons acting as its officers or members of staff);(b) auditors, experts, contractors or investigators appointed by the regulator under powers conferred by this Part or otherwise;(c) persons to whom the regulator has delegated any of its functions.”

153: After Clause 80, insert the following new Clause—

“Disclosure of information by Bank to Regulator

(none) In section 246 of the Banking Act 2009 (information), in subsection (2), after paragraph (c) insert—

“(ca) the Payment Systems Regulator (established under section 31 of the Financial Services (Banking Reform) Act 2013);”.”

Amendments 149 to 153 agreed.

Clause 87: Power of PRA to require Regulator to refrain from specified action

Amendments 154 and 155

Moved by

154: Clause 87, page 72, line 33, after “system,” insert—

“( ) threaten the continuity of core services provided in the United Kingdom,”

155: Clause 87, page 73, line 7, after “section” insert “—

“core services” has the same meaning as in FSMA 2000 (see section 142C of that Act), and”

Amendments 154 and 155 agreed.

Clause 89: Consultation in relation to generally applicable requirements

Amendments 156 to 158

Moved by

156: Clause 89, page 73, line 35, after “direction” insert “under section 44”

157: Clause 89, page 73, line 36, after “a” insert “generally-imposed”

158: Clause 89, page 73, line 36, leave out from “45” to end of line 37

Amendments 156 to 158 agreed.

Clause 92: Competition scrutiny

Amendments 159 and 160

Moved by

159: Clause 92, page 77, line 8, leave out “requirements imposed” and insert “generally-imposed requirements”

160: Clause 92, page 77, line 8, leave out from “45” to end of line 9

Amendments 159 and 160 agreed.

Clause 95: Interpretation of Part

Amendments 161 and 162

Moved by

161: Clause 95, page 77, line 35, at end insert—

““CAT-appealable decision” has the meaning given by section 66(4);

“CMA-appealable decision” has the meaning given by section 66(7);”

162: Clause 95, page 78, line 4, at end insert—

““generally-imposed requirement” has the meaning given by section 45(3);”

Amendments 161 and 162 agreed.

Clause 104: Continuity of supply

Amendment 163

Moved by

163: Clause 104, page 83, line 30, at end insert—

“(f) staff.”

My Lords, the purpose of this amendment is to restrict the early termination of contracts by suppliers of staff to infrastructure companies in respect of which a FMI administration order has been made.

Part 6 of the Bill establishes a special administration regime, to be known as FMI administration, which will be capable of applying to what are known as infrastructure companies. These infrastructure companies are the operators of payment and settlement systems and designated service providers to those operators. Clause 104 is a continuity of supply provision, which restricts the ability of suppliers to terminate the provision of certain listed supplies to an infrastructure company once the company has entered FMI administration. The supplies that are currently within the scope of the restriction are: computer hardware or software; financial data; infrastructure permitting electronic communication services; data processing and access to secure data networks.

This amendment would add the provision of staff to this list of supplies. Agency staff are critical to the functioning of payment and settlement systems, and several payment systems are staffed entirely by agency staff. The early termination of a contract for the supply of staff could result in the discontinuation of the provision of critical services by the payment or settlement system. This amendment will ensure that staff will continue to be supplied during the period of FMI administration.

The FMI administrator would pay for the provision of staff throughout the period of the administration. If during the period of the administration the supplier goes unpaid for 28 days or more, the supplier will be entitled to terminate the supply. I beg to move.

Amendment 163 agreed.

Amendment 164

Moved by

164: After Clause 113, insert the following new Clause—

“Review of the effects of the exemption of certain business and financial contracts from the Gaming Acts

(1) The Treasury must institute a review of the effects of certain business and financial gaming contracts having been made enforceable at law by the repeal of certain provisions of the Gaming Acts pursuant to the Financial Services Act 1986 (as amended).

(2) “Effects” shall include the national social, cultural and ethical effects as well as the commercial and economic effects.

(3) The Treasury shall appoint one or more persons to undertake the review after consultation with the Bank of England, the PRA and the FCA and such others as it shall decide on such terms as it thinks fit.

(4) The review shall culminate in a report to the Treasury within two and a half years of the coming into force of this Act.

(5) The Treasury must lay the report before Parliament and thereafter publish the same.”

My Lords, when this amendment was moved in Committee on 15 October there were 10 of us here at 10.20 pm. On that occasion my noble friend Lord Newby, summing up the debate, said that the amendment was superfluous, might have problems with EU law; and was,

“not proportionate or objectively justified”.—[Official Report, 15/10/13; col. 528.]

I shall endeavour to briefly answer those objections this afternoon.

Talking of superfluity, nothing in the Bill touches on the issue of gaming and gaming trades of all sorts. I will give a few statistics in a minute to show just how huge gaming now is in the City of London. Then we have the issue of the EU. If I may say so, it is slightly premature for the Government to anticipate the outcome of any recommendations that the review I am suggesting might come out with. That is a long way down the line: two and a half years is the time given for the review and heaven knows what that outcome might be, least of all whether it would be in any way in breach of EU law, which is in any event changing.

Lastly, perhaps the most important ground for rejection was the thought that this proposal to set up a review to look at the effects of gaming on the wider culture—social, ethical and cultural as well as economic and commercial—would be unnecessary and objectively unjustified. If one considers that these gaming trades now amount to many trillions—some estimate quadrillions; I had never heard that word before—it seems bizarre to say that this modest proposal is disproportionate.

The background to all this is the legislation brought in in 1986 in anticipation of the big bang. The Financial Services Act 1986 contained provisions that for the first time ever said that the gaming laws of the land would not apply to these City gaming contracts. Since then there has been a staggering explosion of such contracts. They are simply massive across the world, not just here. Derivatives, which are the most common form of gaming contracts or trades but not the only one, are largely below the radar, although steps are being taken to make them more transparent and measurable. The Bank for International Settlements has calculated this year that the value of derivatives alone—the over-the-counter derivatives, as they are called—is $693 trillion. Others reckon that if you add in the other form of gaming contracts, that goes up to a figure of $1.2 quadrillion in terms of face value, which may work out in real terms at some $20 trillion, or 30% of global gross national product—or gross international product, I should say.

Let us look briefly at the collapse of the world financial centres, particularly Wall Street and London. Lehman Brothers, had 1.2 million derivative contracts on its books when it collapsed in 2008, of which the face value was $39 trillion—that is one bank. It is calculated that 80% of the income of Lehman Brothers before it collapsed was from such gaming trades. Bear Sterns’ proportion of income from gaming was even higher than 80%. The statistics show capital debts of $384 billion against a capital of $11.8 billion; that is, 30 times more. If you look at the collapses of AIG, MF Global, Merrill Lynch, Northern Rock, Countrywide, Wachovia and so on, you will find in all cases that derivative gaming was absolutely central, usually key, to them. I just throw that back at my noble friend when he says that a review of all that, in terms of its cultural outfall, is not objectively justified.

Banks of course are still doing it today and it is creeping up, and I have no doubt that it will go on and on with its potentially malevolent effects just as heretofore. Huge profits are made from these types of contract, but on the other side of the coin they are matched by huge losses, which was the principal spur to this devastating collapse, a collapse which, do not let us ever forget, was stemmed internationally only by Governments moving in with massive sums of money—what was it here, $800 trillion? Not trillion, million—or am I wrong?


I want to see, and I think that this may commend itself to the House, a cool look at just what the consequences are beyond the merely financial—you can scarcely use “merely” in terms of the numbers concerned. In Committee, I tried to remember a quote from John Maynard Keynes in 1936, when this type of trade was trivial when compared with today. He stated in his great book, The General Theory of Employment, Interest and Money:

“When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done”.

How pre-eminently true that is. The noble Lord, Lord Turner of Ecchinswell, made the bold but timeless statement when he was head of the FSA that a great deal—I am not sure that he did not say the majority—of what the City now does is socially useless, because, sadly, only a tiny proportion of these gaming trades has any commercial purpose whatever. They are pure gambling. It is not that they are buying forward raw supplies for some manufacturer to even out the ebb and flow of world prices in whatever commodity or mineral it is—nothing to do with it; it is pure, unalloyed gambling.

My Lords, I am trying to follow my noble friend’s argument. Precisely what contract is he describing as a gaming contract?

I will do my best to explain. Let us consider Merrill Lynch. It cornered, it is estimated, 50% to 80% of the world’s copper in a series of purchases last year, I think it was. That was pure gaming. It was not to satisfy any of its customer needs; it saw potentially vast gains in moving into the world copper market and simply buying it up. Can you imagine: 50% to 80% of all the world’s copper was purchased? That was pure gaming. In fact, I think that it went wrong and was part of the collapse, but I would not lay my life on that.

These are extremely difficult issues. The cultural and ethical aspects are deep. The vast majority of people engaged in such trading are decent, good people. They are not all crooks, but the system in which they are trapped is one which, first, was at the root of the disastrous financial and banking collapse from which we are still suffering—and there is a long way yet to go. Also, we should be interested in the wider outfall. The noble Lord, Lord Lawson, coined a rather vivid phrase last night about the cultural contamination that can go on when one part of a system loses all contact with any ethical underpinning.

Let us consider what is happening in our nation at large, and the extent to which gaming is now spreading rapidly. This week, I heard of one medium-sized town that has more than 70 betting shops. In my town, they have spread like a disease. I am the first to accept that it will be a difficult set of issues to address, but taking a cool, calm look at the wider effects of what is going on in the City of London must surely be for the public benefit.

My noble friend may argue that we have review overload and that the City must be allowed to settle down and not have any further big inquiries. We have had all sorts of them, have we not? That would be a profound mistake, because, often, the more difficult the inquiry, the more important the potential outcome. This proposal has no pre-judgment. Some of my remarks in opening the debate on the amendment, and some of my assumptions, may, in the light of a deep, extended inquiry that looks at all aspects of these difficult matters, be proved wrong. As I emphasise, it would be an open-eyed inquiry.

I refer to the Kay inquiry, which was published in July 2012. Many noble Lords will remember it. John Kay undertook an interesting and important inquiry. He stated that,

“trust and confidence are not generally created by trading between anonymous agents attempting to make short term gains at each other’s expense. Trust and confidence, or their absence, are the product of the prevailing culture”.

I want a better hold on what the prevailing culture is and what part in it is played by the City of London, which is central to our economic future and our thriving.

I hope that there will be support for this proposal. Even if the Government do not like some of the detail, I hope that they will take the nub of it away and, conceivably, come back at Third Reading with their own amendment. Such a review will speak to the prevailing values of Britain today and to the spirit of our times. In a profoundly and dangerously materialistic society, surely nothing could be more material to us all than to seek to get beneath these complex and technical facts and issues, in order to understand the wider underlying effects. I beg to move.

My Lords, I confess I was a little puzzled by the introduction to the amendment of the noble Lord, Lord Phillips. He portrayed it as being so broad as to cover virtually all derivatives trading, whereas I had presumed that he was focusing on those derivative trades that are classified as gambling—in other words, financial spread betting. The crucial issue with respect to financial spread betting is that it is free from capital gains tax and stamp duty, and that traders are typically free from income tax. This is a really extraordinary form of tax avoidance within the financial services industry. If that was what the noble Lord really sought to focus on, a review of such forms of transaction would be very useful, particularly in light of the fact that the Australian Government have now declared that those forms of contracts are not exempt from tax. Indeed, they are subject to both income tax and capital gains tax under Australian tax law. What is remarkable is that the number of these contracts being traded in Australia has dropped dramatically.

If the noble Lord, Lord Phillips, hopes to reduce the scope of what he referred to, especially in quoting Keynes, as the financial casino, it would perhaps be valuable if there were a review—I would encourage the Government to think about having one—of the designation of particular derivative contracts as gambling, which has had these unfortunate consequences, including a significant loss of revenue to the Treasury.

My Lords, I add my support to what the noble Lord, Lord Eatwell, said in specifying these particular contracts, not only for their tax avoidance capacity but because participation in them within the trading community leads to obvious conflicts of interest between their main work during the day, for their employer, and any potential gains or losses they have through the spread betting operations which they are capable of undertaking. In other words, it is very much a cultural problem and it is specifically to do with contracts that are considered to come under the purview of the gaming Acts. That is how I understood this amendment to apply, rather than more generally. From my point of view, I am not certain that it needs to be in the Bill, but it would certainly be useful if the Government were to say that the scope and impact of this should be looked at.

My Lords, the purpose of the amendment is to require the Treasury to undertake a review of the consequences of exempting certain gaming contracts from the rule that used to provide that no gaming contract or wager could be enforced in a court of law. Such a review would consider the national, commercial and economic effects, in addition to the social, cultural and ethical effects, proposed in the equivalent amendment in Committee. I understand my noble friend’s desire to know more about the consequences of what appears to have been an extensive gambling culture in the City of London, which flourished in the derivative markets that expanded significantly following the gaming contracts rule change but was not limited to those markets.

The financial crisis exposed serious problems in derivative markets—particularly, as the most reverend Primate pointed out during our last debate on the equivalent amendment, in OTC activities. Clearly, the proliferation of such activities and the lack of adequate regulation showed up a need for change.

Following extensive international regulatory debate, a set of significant international reforms was agreed by the G20 to address these concerns. It may be helpful if I provide noble Lords with a short update on what they are. They include measures to ensure transparency by requiring all OTC derivatives transactions to be reported to trade repositories, and the requirement for all standardised derivatives to be centrally cleared and, where appropriate, traded on electronic platforms. These reforms are now being implemented in the UK and should go some way towards limiting the risks associated with these instruments.

So far as the wider effects of gaming in the City are concerned, the PCBS undertook an extensive and wide-ranging examination of the professional standards and culture of the UK banking sector. Its final report made a number of findings on the existing standards and culture in the banking sector, and recommendations as to what might be done to improve the position. We are seeking to give effect to those recommendations in this Bill. As the noble Lord will be aware, we will have a debate on the broader cultural aspects of the PCBS’s report next week.

In the circumstances, I am not sure that a formal Treasury review, as proposed by the noble Lord, is the best way forward. In Committee, I suggested to him that a more appropriate way forward to address his concerns might be for him and, possibly, other Members of your Lordships’ House to work with a think tank that specialises in financial services to undertake such a review. The precedent I had in mind was the review of the banking sector undertaken in the previous Parliament. The Future of Banking Commission was chaired by David Davis MP and included not only my colleague Vince Cable but the noble Lord, Lord McFall. That report had a major impact at the time in influencing the consideration of how we should be looking at the banking sector. The advantage of such a structure over a formal Treasury structure is that it enables a wide range of individuals, including serving politicians, to sit on it. That is much more likely to happen if it is done under the aegis of that sort of think tank than if it is initiated by the Treasury. As a result, when the report came out, it commanded a broad degree of public respect.

I take the point made by the noble Lord, Lord Eatwell, and the most reverend Primate the Archbishop of Canterbury about the specific consequences of potential tax avoidance or evasion by people involved in this sector. I undertake to discuss that with my colleagues in the Treasury in the context of measures that might be brought forward in a future finance Bill. I agree that at first sight it appears to be a loophole that we should have a look at. As noble Lords know, the Government have devoted considerable resource and attention to these issues. I am sure my colleagues in the Treasury will be happy to have a look at the issue.

With those suggestions, I hope my noble friend will feel able to withdraw his amendment.

I thank the Minister for what he said. I am particularly pleased to hear him say that he will take up the two practical points made by the noble Lord, Lord Eatwell, which are entirely germane to the review that I was thinking of. That will be an important step forward. I am obviously disappointed that the Government will not go further, but I do not think that I can take the matter any further today.

In opening, I should have said how grateful I was to two professors at the University of Essex, on whom I relied substantially for a lot of the statistics: Professor Sikka and Professor Markose. With that, I beg leave to withdraw the amendment.

Amendment 164 withdrawn.

Amendment 165

Moved by

165: Before Clause 114, insert the following new Clause—

“Duty of care

At all times when carrying out core activities, a ring-fenced body shall—(a) be subject to a fiduciary duty towards its customers in the operation of core services; and(b) be subject to a duty of care towards its customers across the financial services sector.”

My Lords, as noble Lords will see on the Marshalled List, Amendment 165 would insert a new clause entitled “Duty of care”. Over the past several months, we have seen a variety of scandals which have, let us say, polluted the relationship between banks and their customers, particularly those holding household accounts or those which are small or medium-sized enterprises. We have had the PPI scandal, the scandal over the mis-selling of interest rate swaps and now newspaper headlines cover the accusations which come from within the Government that RBS has been winding up small firms and seizing their assets to its own advantage. Just yesterday, the Governor of the Bank of England, Mr Carney, referring to RBS, said that this behaviour is a fundamental violation of the integrity of the banking relationship.

The amendment is addressed directly towards the banking relationship. It is in the best interests of the banking industry and, indeed, of the UK economy as a whole, that that relationship is repaired and that trust is restored between the ordinary customer and his or her bank. The amendment is carefully drawn. It proposes first that, with respect to core services, a ring-fenced body will have a fiduciary duty towards its customers. Not being a lawyer, I went to the law library in my college to check that I knew exactly what “a fiduciary duty” actually meant. I quote from a law textbook, which says:

“A fiduciary relationship encompasses the idea of faith and confidence and is generally established only when the confidence given by one person is actually accepted by the other person. Mere respect for another individual’s judgment or general trust in his or her character is ordinarily insufficient for the creation of a fiduciary relationship. The duties of a fiduciary include … reasonable care of the assets within custody. All of the fiduciary’s actions are performed for the advantage of the beneficiary”.

The law textbook which I consulted also went on to describe the way in which the courts have interpreted this relationship, embracing,

“legal relationships such as those between attorney and client, Broker and principal, principal and agent”.

It is striking that the Securities and Exchange Commission in the United States has now passed a regulation which imposes a fiduciary responsibility on those regulated by the SEC.

The fiduciary duty to which I refer in the amendment is with respect to “core services”. I remind the House what that means. The core services are the facilities for the accepting of deposits or other payments into an account which is provided in the course of the core activity of accepting deposits, facilities for withdrawing money or making payments from such an account, and overdraft facilities. It is that relationship of depositing your money in the bank which then says that the bank has your best interests at heart in looking after your money. That is the case of the fiduciary responsibility.

The amendment goes on to say that, with respect to other financial services provided by a ring-fenced organisation, there should be a “duty of care”. I returned to the law textbook, just to make sure that I knew the difference between fiduciary responsibilities and “duty of care”. I was told that a duty of care is a,

“legal obligation which is imposed on an individual requiring adherence to a standard of reasonable care while performing any acts that could foreseeably harm others. It is the first element that must be established to proceed with an action in negligence”.

It goes on to discuss the case law and common law associated with the notion of duty of care.

It seems that in restoring trust to our banking system, which has been so seriously eroded by the various scandals to which I referred, nothing could be better than a clear fiduciary duty with respect to the acceptance of deposits and a duty of care with respect to the other activities of a ring-fenced bank. Therefore, for example, if a small or medium-sized enterprise is in trouble, it will be the duty of the bank to help that enterprise wind up if necessary in a way which best safeguards the owner of the small or medium-sized company. It would not be a duty of care if the bank simply forced a small company into receivership in a way which resulted in financial benefit to that bank. This amendment would therefore first impose the fiduciary relationship which I am sure most people thought they had with their bank but did not have, and the duty of care, which has been so sadly neglected over the past few years.

In reply to the discussion of this amendment in Committee, the noble Lord, Lord Deighton, put forward four objections. He said that, first, the main thing the Government were doing to protect customers was to encourage competition. Of course, competition may be helpful and may help to protect customers. However, we are dealing with an industry in which there is severe asymmetric information—that is, the information and the skills that the bank has are not matched on the other side by the skills of the customer. That is why we need to ensure that the bank regards its responsibility as a responsibility of trust with respect to the customer.

The noble Lord then said that surely this was covered by contractual relationships. However, we are not looking at a contractual relationship—a division of rights and responsibilities previously agreed and divided between equal partners to a contract. We are considering simply the deposit of a family’s or of a small firm’s money within a bank, and the bank’s attitude towards its responsibility to that family or small business. Therefore we are not talking about contractual relationships.

The noble Lord, Lord Deighton, then said that if bankers were given a fiduciary responsibility, they would not understand it; they would not understand the range of their responsibilities. First, since other professions are perfectly capable of understanding the notion of fiduciary responsibility, why should bankers not understand it? The alternative he proposed of listing specific responsibilities always has the problem that once you have a specific list you leave things out at the end. In an industry in which there is so much innovation, specific lists are likely to be inadequate. Finally, the noble Lord said that this is unnecessary because we have FiSMA rules that already cover it. If those rules already cover the situation, why are we having this succession of extraordinary scandals, which are damaging the banking industry so badly?

Therefore, this is a point in the Bill at which we can really address the issue of the culture of banking today, by restoring trust in our banking system with a fiduciary responsibility with respect to deposits, and a duty of care with respect to other elements in financial activities. If we do that, we will have performed a major service for the banking industry, for the British economy, and for ordinary households and small firms throughout this country. I beg to move.

Before the noble Lord sits down, why does he not propose extending his fiduciary liability to all banks rather than just the ring-fenced entities?

That is because I think the distinction between commercial banking and investment banking is relevant in this case. One would expect investment bankers to behave honestly and in an appropriate manner in their business transactions. I would not expect an investment banker necessarily to display a duty of care and certainly not a fiduciary responsibility whereas I really would expect a commercial banker to exercise those responsibilities in all circumstances when dealing with families and small businesses.

Before the noble Lord sits down again, I ask for a brief clarification. Ring-fenced banks may well have dealings with local authorities and pension funds, but I think that under the terms of the Financial Services Act 2012 and the FSA rules these are not legally customers; they are eligible counterparties. Did the noble Lord mean to exclude local authorities and pension funds from the protections he sets out in his amendment?

I am very grateful to the noble Lord for his comments. I had overlooked that point. Once the House has accepted this amendment, we can move on, perhaps at Third Reading, to add the elements that the noble Lord suggests.

My Lords, before the noble Lord sits down again, I offer another friendly thought—I hope. I have it in mind because the Netherlands has reintroduced a bankers’ oath analogous to an oath for physicians. As part of that move, we should note that the relationship with the persons who are here designated as customers should, indeed, properly be that of a client. This is a professional service and the fiduciary duties are in place precisely because this is a relationship not to a customer from whom one might make money but to a client to whom one owes a service.

I am grateful to the noble Baroness. I am sure that her suggestion and, indeed, the example of the Netherlands might well be followed here.

My Lords, I have a reputation for introducing sidetrack issues which distract the House. However, I have just listened very intently to the noble Lord, Lord Eatwell, and I think that I disagree with most of what he said. I would like to cite a case history and then invite him to say how what he said would relate to it.

I was very concerned to read in recent weeks about the Royal Bank of Scotland being accused of deliberately pulling down companies. I believe that I have been involved in one of those cases as the person brought in from outside to engineer the kind of scenario that that bank has been accused of engineering. I shall explain what occurred and then ask the noble Lord, Lord Eatwell, how this relates to his perceptions of a duty of care and fiduciary responsibility.

Once upon a time in a muddy field in the Herefordshire area, a man who had come back from the war bought a caravan in which he lived with his wife. He hit upon the idea of a much more efficient process for aerating water for soft drinks and decided to go into production. He went from very small beginnings, with nothing more than his Army gratuity from the war, but by 1986 he was making £19 million a year profit and doing very nicely indeed. However, at that point his wife found him sleeping with his secretary and thought that that was pretty poor loyalty for nearly 40 years of dedicated support, so divorce proceedings were instigated but by this time they had a son. The son brought an action to prohibit his parents divorcing and dividing his asset between them. I believe that it is the only such action that has ever been brought.

He won his case so they had a settlement whereby the wife went to live in Monte Carlo, the husband stayed with the company and the son owned the company. However, the son now decided that his father had really not done very well with the company, although he had got it to £19 million a year, and that he could do a great deal better. So he went to Lloyds Bank. The company had nil borrowings at that time, not a penny. This is where I disagree with the noble Lord’s analysis, because it is not a question of what you do with the deposits—there is no cash being used from a bank at all here. He said, “Give me £75 million of borrowings and I will create a much bigger and better company out of this, in which we can all have a vast amount of earnings”. Lloyds Bank looked at his plan and his options and said yes. I challenge the noble Lord, Lord Eatwell, on this. The first breach in fiduciary responsibility was that the bank said yes. It was not a question of what happened with the deposit, but a question of an ill advised loan, because the company was quite adequate as it was.

Lloyds gave him the £75 million and he went out and bought the plushest factory and upgraded every bit of engineering he could to put into it. Finally, after two years he re-opened and immediately found that he was losing £600,000 a month, at which point Lloyds sent for me. I found that the company was not losing £600,000 a month. It was losing more than £1.5 million a month and at that level we would be way out. All that the bank wanted was to get its money back. One might say that it did not deserve to get it back—in some respects I would agree with that—but we got it back in the end because we were able to break the business up into its various components. The splendid factory could be sold to Mitsubishi for quite a lot of money, the business streams could be sold for another £30 million or £40 million, and then we discovered that the company had the most valuable crop of freshwater springs in the Lake District of any British company. We sold it for tens of millions of pounds and got the bank out 100%, whereupon the son decided that he wanted to sue the bank for failure of fiduciary responsibility for lending him the £75 million in the first place. He said that the bank had engineered to bring the company down so that it could strip it out, take all his money and ruin his family and descendants for all time.

This is the reality behind what noble Lords are hearing about the Royal Bank of Scotland at the present time. Banks are pressured into making bad decisions to lend and they then take appropriate defensive action on behalf of their shareholders and depositors. That is discharging their fiduciary responsibility, but they have been put under pressure by other market forces to invest in businesses which really do not know what they are doing and when the time comes to dismantle, dismember and unbundle them, we get the sort of consequence we have had here. This individual failed in his action against the bank for having stolen his company, as he put it. He is now very ill, I am sorry to say, and is unlikely to last long in this world. His family is ruined completely—it has lost everything. Is that a fiduciary responsibility? Yes. The bank should have looked much more closely at the options that were available to the business at the time and should have looked to see what expertise was going to be brought in, and it did not. As to whether there is a duty of care, that is a very simple and separate issue running alongside. I think that there is and that that is where the concentration should be.

I should point out to the noble Lord that the case he has described would come, under the terms of my amendment, under duty of care, not fiduciary responsibility.

My Lords, as a lawyer I have always believed that I have a contract with my bank, inasmuch as it is making an offer capable of acceptance and I have accepted it, in the case of provision of deposit and current account services, which I believe are the areas which my noble friend Lord Eatwell is proposing to cover. I do, however, support the amendment. It never does any harm to repeat these things. By analogy with part of the criminal law, it has been illegal since 1861 to beat one’s wife, but it took the Domestic Violence and Matrimonial Proceedings Act 1976 to remind the general public and the police of their duties in the matter.

The real problem lies with how to enforce any of this. Through all these debates I have found myself wondering where our lawyers are. Why have we not been suing banks? In many cases there is a perfectly clear case of action against a bank. The answer, of course, is that they are many times bigger than us and have more resources than any individual. If the purpose of the amendment is to encourage, or indeed force, the regulators to take the action on our behalf, which we are not about to do because of the risk of very severe financial consequences, it will be well received by everyone. In any case, I support the amendment.

My Lords, I simply add that there is surely a strong duty of care to the depositors, whose money a bank is lending. The bank has a balancing role of looking after the interests of its depositors and looking after the interests of its loan customers. I also echo the point made by the noble Baroness, Lady Cohen. The “treat your customer fairly” principle has been applied across the financial services sector and I think that, in the main, the investment management industry has put it into practice well. However, it is a nightmare to police. If the individuals are not going to be motivated to act properly, then the law, or whatever is in the regulations, will not necessarily lead to that. We can say that we will pass a law and everything will be wonderful but the question is: will people behave correctly?

My Lords, I am sorry that when we discussed this amendment on a previous occasion, the Government failed to convince the noble Lord, Lord Eatwell, that his amendment was not necessary. I hope that I will have more success this time because I believe that the amendment is neither necessary nor helpful.

We all share the objective of driving up standards in banking and improving the treatment of customers. That is why the Chancellor set up the Parliamentary Commission on Banking Standards and why we have accepted the vast majority of its recommendations. However, we remain unconvinced that the noble Lord’s amendment will add anything meaningful to these reforms.

The regulator’s FSA Principles for Business already includes what is virtually a fiduciary duty. Principle 10 states:

“A firm must arrange adequate protection for clients’ assets when it is responsible for them”.

As other noble Lords have mentioned, these high-level principles also already include the principle that:

“A firm must pay due regard to the interests of its customers and treat them fairly”.

I am not sure how the noble Lord’s amendment would improve standards or help bank customers; nor do I think that he has explained what the new duties on firms really mean. When he spoke in Committee, he said:

“This will increase consumer protection and help to restore confidence of the retail customer in banks. It will raise standards of conduct because banks will know they are responsible for acting according to these duties”. —[Official Report, 23/10/13; col. 1092.]

But my question is: how will it do that? How will it, as he hopes, stop the kind of scandals that we have had in the past? I think that that is an extremely difficult question for the noble Lord to answer in that neither “fiduciary duty” nor “duty of care” in this context describes a specific, precise obligation. As I have explained before, regulators’ rules provide very specific obligations.

I should add that the Official Opposition in the other place seemed to understand this difficulty. When an identical amendment was considered in Committee there, the opposition spokesperson, Cathy Jamieson MP, acknowledged the risk of unintended consequences or lack of clarity. She emphasised that the purpose of the amendment was to ensure that,

“customers are looked after and that banks are clear about their responsibilities and remember the part of the contractual relationship with customers that is about looking after their money”.—[Official Report, Commons, Financial Services (Banking Reform) Bill Committee, 16/4/13; col. 247.]

Of course, that is what we all want. That is why the Government introduced the regulatory reforms and new properly focused regulators. The FCA, in particular, will focus on protecting consumers and maintaining market integrity.

This Bill will take the process further by strengthening the regime of individual accountability and standards for those who work in firms, in line with the recommendations of the Parliamentary Commission on Banking Standards. These rules will be specific. They will be precise. They will set out the responsibilities of banking staff and senior persons to their customers. Moreover, they will be enforceable by the regulator. If they are broken, those people will be punished and could be subject to fines or public censure.

If we were to have the general duty of care or fiduciary duty as set out in the amendment, how would that be enforced? In law a fiduciary duty is enforced by the person to whom the duty is owed taking action in the courts. Does the noble Lord really believe that those people, some of the most vulnerable at the sharp end of bank practices, are likely to pursue their bank through the courts? Instead, the Government’s reforms have established a regulator with real teeth, of whom the banks will genuinely be scared—indeed, I think they are. Bolstered by a clear and binding set of banking standards rules, which specify codes of conduct and personal responsibility through the senior persons regime, this will mean a real change for consumers. The noble Lord referred to the SEC introducing a fiduciary duty in the United States. The proposed fiduciary duty in US securities law is not comparable. The proposal, on which incidentally the SEC itself has not yet taken any clear position, extends only to covering activities that involve giving advice. In any case, in the UK, when a firm provides advice to a customer, a duty of care already exists under the general law. In that respect, the US is simply looking to catch up.

To sum up, attempting to add duties of care or fiduciary duties of the kind proposed in this amendment would add nothing to the existing protections for customers. It is unnecessary and would not add any clarity to existing requirements. I hope, therefore, that the noble Lord will withdraw the amendment.

My Lords, I regret that the Government seem to have learnt nothing since Committee stage. We have heard the repetition of high-level principles of the regulator protecting customers. What has actually happened? There have been successive scandals when customers were not protected by the regulators and successive scandals in which treating customers fairly was simply a joke.

The noble Lord also referred to a number of specific provisions. That is the great weakness of the regulatory structure. We have simply specified conditions. As we all know, that which is not specified is permitted. The whole point of having a fiduciary responsibility and duty of care in the terms that I set out when I moved the amendment is to create a general responsibility that will be enforceable in law by individuals and, indeed, by collective actions. Therefore, it seems to me that simply saying, “We have made things better by making them more specific and providing regulators with teeth”, is not the same as providing protection for the individual, which is exactly what the amendment would do. Given that the notions of fiduciary duty and duty of care are successful in other professions, why—the Government failed to answer this question—can they not be successful in the banking profession? That question was not answered. This is so important that I wish to test the opinion of the House.

Schedule 8: Functions of FCA under competition legislation

Amendment 166

Moved by

166: Schedule 8, page 157, leave out lines 11 to 14

My Lords, in Committee, the Government proposed that the FCA should be given competition powers, to be exercisable concurrently with the Competition and Markets Authority, to make sure that the FCA has the right tools to get the job done. The amendment that we tabled to achieve this set out the scope of the FCA’s concurrent competition powers as applying to “financial sector activities”, defined as relating to,

“the provision of financial services”.

The amendment also included a delegated power that would allow the definition of “financial services activities” to be changed in future. It was felt that allowing this definition to be amended by order helped to future-proof the legislation by providing the flexibility to adjust the scope of the FCA’s competition powers should this be warranted—for example, because some new activity that arose in the future did not qualify as the provision of financial services.

However, concerns over this were raised by the Delegated Powers and Regulatory Reform Committee, particularly that the power was too wide-reaching and unnecessary, given the breadth of the definition of “financial sector activities”. I am grateful to the committee for its efforts in scrutinising the Bill and the Government’s amendments. In the light of the already very wide definition of “financial sector activities” and the views of the committee, the Government have decided to remove this power, along with procedural provisions concerning its exercise, from the proposed legislation.

The Government have tabled another amendment to ensure that the competition powers conferred on the FCA are capable of being exercised effectively. One of the powers conferred on the FCA is the ability to conduct a market study in the context of markets for the provision of financial services. If the FCA discovers competition-related concerns, it can refer the market for investigation by the Competition and Markets Authority. The amendment we are discussing today serves to ensure that a legal restriction on the FCA disclosing confidential information would not prevent the FCA from sharing with the Competition and Markets Authority confidential information which was relevant to a CMA market investigation. The amendment would also ensure that the provisions concerning treatment of confidential information that apply to other regulators with concurrent competition powers would also apply to the FCA, ensuring consistency. I beg to move.

Amendment 166 agreed.

Amendments 167 to 171

Moved by

167: Schedule 8, page 157, line 26, leave out “financial sector activities” and insert “the provision of financial services”

168: Schedule 8, page 158, line 7, leave out from beginning to “and” in line 8 and insert “the acquisition or provision in the United Kingdom of financial services,”

169: Schedule 8, page 158, line 23, leave out “financial sector activities” and insert “the provision of financial services”

170: Schedule 8, page 160, line 24, at end insert—

“In section 348 of FSMA 2000 (restrictions on disclosure of confidential information by FCA, PRA etc), after subsection (6) insert—

“(7) Nothing in this section applies to information received by a primary recipient for the purposes of, or in the discharge of, any functions of the FCA under the Competition Act 1998 or the Enterprise Act 2002 by virtue of Part 16A of this Act.

(For provision about the disclosure of such information, see Part 9 of the Enterprise Act 2002.)””

171: Schedule 8, page 160, line 42, at end insert “; but this sub-paragraph is not to be regarded as limiting the effect of the definition of “functions” in paragraph 1.””

Amendments 167 to 171 agreed.

Amendment 172

Moved by

172: After Clause 116, insert the following new Clause—

“Arrangements for consulting practitioners and consumers

After section 2L of FSMA 2000 (the PRA’s general duty to consult) insert—“2LA PRA duty to consider representations from the FCA Consumer Panel

(1) The PRA must consider and respond to representations made by the Consumer Panel established by the FCA under section 1Q of the Financial Services Act 2012.

(2) The PRA must from time to time publish in such manner as it thinks fit responses to the representations.””

My Lords, Amendment 172 derives from, and is a response to, an amendment that the Government successfully moved in Committee, which gave the PRA a secondary competition objective directly related to issues of market structure and performance. We have developed in this Bill, and in the previous Financial Services Bill which we also considered in this Session, a twin-peaks approach to financial regulation, with the Financial Conduct Authority looking at conduct of business and the Prudential Regulation Authority looking at issues associated with the prudential behaviour of firms.

Given that the PRA now has a competition objective, we should not allow the twin peaks to isolate consumer representation. The FCA consumer panel has an important role in advising on and responding to FCA proposals with respect to conduct of business but, with the PRA now having a competition objective, the issues which affect consumers directly will involve the competition element of prudential regulation. It is important, and entirely appropriate, that the PRA at least considers and responds to representations made by the FCA’s Consumer Panel—that is all we are asking for—so that decisions which the PRA makes with respect to market structure and performance have an appropriate consumer input. I beg to move.

My Lords, this amendment concerns the important issue of consumer representation at the PRA and requires the PRA to consider and respond to representations from the FCA’s Consumer Panel.

There is much to welcome in the approach suggested. It is important to ensure that there is sufficient regard to consumer concerns at the PRA, especially where there are specific issues of consumer protection that the PRA should take into account. I welcome the recognition that it will not require the creation of a completely new body in order to achieve this. We need, of course, to be mindful of maintaining flexibility on the best way for the PRA to take into account representations from consumers and the need to avoid overly burdensome arrangements.

Following the earlier discussions on this issue, the regulators have considered how best to ensure consumer interests are communicated to the PRA. The regulators have come to the view that there should be arrangements for the FCA Consumer Panel to be able to raise concerns with the PRA, and I believe that it is worth considering putting arrangements on a statutory basis. We will therefore consider coming back at Third Reading with amendments, subject to reflection on the best way to do that without incurring unnecessary costs or burdens for the regulators or the panel. We would be happy to discuss further with noble Lords opposite the most effective approach to doing this. In view of that, I hope that the amendment can be withdrawn.

There I was with my notes saying how inadequate the noble Lord’s answer was going to be. I am delighted that the Government have recognised the power of this argument and I look forward to discussions with them and to the moving of amendments at Third Reading.

Amendment 172 withdrawn.

Clause 117: Fees to meet Treasury expenditure relating to international organisations

Amendment 173

Moved by

173: Clause 117, page 92, line 14, at end insert—

“(2) In section 3A of FSMA 2000 (meaning of “regulator”), in subsection (3)—

(a) omit the “or” at the end of paragraph (a), and(b) after paragraph (b) insert “or(c) the meaning of “regulator” in sections 410A and 410B (fees to meet certain expenses of Treasury).””

Amendment 173 agreed.

Clause 118: Amendments of section 429 of FSMA 2000

Amendment 174

Moved by

174: Clause 118, page 92, line 21, leave out from “(e)”,” to end of line 22

Amendment 174 agreed.

Amendment 175

Moved by

175: Before Clause 119, insert the following new Clause—

“Leverage ratio

(1) The Treasury must make an order under section 9L of the Bank of England Act 1998 (macro-prudential measures) enabling the Financial Policy Committee to give a direction under section 9H in respect of a leverage ratio for relevant authorised persons.

(2) The direction above may specify the leverage ratio to be used.

(3) For the purposes of this section “leverage ratio” has the meaning which the Financial Policy Committee considers that it has in European Union Law or procedure from time to time.

(4) The order under subsection (1) must be made within the period of 6 months beginning with the day on which this Act is passed.

(5) In this section, “relevant authorised person” has the meaning given in section 71A of FSMA 2000.”

My Lords, this amendment stands in my name and in the names of the noble Lords, Lord Turnbull, Lord Lawson and Lord McFall. The issue of leverage ratios may at first sight be less emotionally gripping than some of the other things that we have been discussing over the past few days, but it is central to the recommendations made by the commission. The leverage ratios that banks employ are a vital backstop in ensuring that they hold adequate capital, and ensure the safety and security both of individual banks and the industry as a whole.

A remarkable lecture given by Andy Haldane of the Bank of England sets out the necessity for this amendment. It is called The Dog and the Frisbee and I warmly recommend it, not least for its light humour. Essentially, as the Basel process has gone on through Basel I, Basel II and Basel III, there has been an exponential increase in the complexity of the internal measurements of different categories of loan for the amount of capital that had to be set against them. This opened the way very effectively to banks using different internal measures and to the inability of regulators to audit and examine adequately the ways in which banks were setting aside capital for particular risks.

A leverage ratio, because it is relatively if not absolutely simple, acts as a backstop which sets minimum levels of security and safety. The debate around a similar amendment in Committee was rather confusing. Although, as I have mentioned previously, I was unfortunately not able to be in the House that day owing to other duties, I have looked at the Hansard and concluded that the Government’s position on this recommendation seems unclear. On the one hand, the House was told that the amendment was not needed, as the Financial Policy Committee had the power to set the leverage ratio; on the other, the Minister indicated that responsibility for setting the leverage ratio would be considered once the international levels were implemented through Basel III, which would be some time in 2017 or 2018.

In the light of this, the commission warmly welcomes the clarity of an announcement made yesterday that the Financial Policy Committee will conduct a review into the role of the leverage ratio within the capital framework of UK banks, as this indicates that the Treasury and the Government recognise that they are an important part of the structures that guide the banking system and that it is necessary that we move forward without delay. My commission colleagues and I are grateful to the Government for their willingness to allow the FPC to conduct a thorough and wide- ranging review of its current powers and to make recommendations on further powers it needs. We would welcome a clear statement that the review will not seek to establish whether it is right for the FPC to request this power but that it will have the power and the review will be about how it will exercise it.

We also welcome warmly the accelerated timetable set out in the Government’s announcement. It is right that this power should be available to the FPC as soon as possible and the expectation that the Bank of England will complete its review within 12 months reflects this need. I hope that the Minister can confirm these points. I beg to move.

My Lords, I support the sentiments expressed by the most reverend Primate, in particular in pointing out the considerable confusion in the Government’s position in Committee when they told us, on the one hand, that the FPC had this power already and, on the other hand, that they proposed to give the FPC the power in 2018. We were told both things at once and it was not at all clear that the Government really knew what was happening with respect to the development of the use of the leverage ratio as an important element in the FPC’s toolkit.

However, the matters have been clarified by the correspondence between the Chancellor and the Governor of the Bank of England which was made available to us yesterday. I would like to hear confirmation from the Government that this is a case not of whether a leverage ratio will be available to the FPC, nor of whether the FPC will have that within its macroprudential toolkit, but simply of when this power will be available—I hope that it is sooner rather than later—and perhaps how it might be exercised. However, given that the use of macroprudential tools is already set out in great detail in the previous Financial Services Act, even that may be unnecessary.

My Lords, I support strongly what the most reverend Primate the Archbishop of Canterbury and the noble Lord, Lord Eatwell, have said. I speak in support of them because this is a particularly important issue.

In constructing a safe banking system, a number of things are taken into account, including risk-weighted assets and other matters of that kind, but there is no doubt that the leverage ratio is the single most important element in having a strong and robust banking system. This amendment is not about what number it should be. I mention en passant that the Government say that we must not interfere with what the Vickers committee recommended, yet when the Vickers committee recommended a number which they did not like they disagreed with it. Nevertheless, that is water under the bridge.

The review is quite unnecessary—although it will probably not do any harm—because the issue of the leverage ratio is peculiarly simple. Who will be responsible for setting the leverage ratio, the Treasury or the Financial Policy Committee of the Bank of England? The amendment is important because it would give the Minister the opportunity to make a clear statement. There has been movement since Committee. The Governor of the Bank of England, Mr Carney, gave evidence to the Treasury Committee in another place only yesterday saying that his understanding was that it would be the responsibility of the Financial Policy Committee of the Bank of England. We would like to have that explicitly stated by my noble friend here today.

My Lords, the amendment would require the Government to make an order giving the FPC a power to direct the PRA to set a leverage ratio within six months of Royal Assent. It is absolutely the case that it will be the FPC which exercises these powers. It has never been the intention that the Treasury would have those powers. For those who are not so familiar with the context, I shall have another go at being less confusing about the background, because it is important to understand why the review is necessary to get to that end case and what the current situation is.

There was a lot of concern around the idea that the Chancellor has the power to set a leverage ratio, which I think was in part a result of some confusion about how the law currently stands and works—which in turn is partly because of the various domestic and international reforms running to different timescales. We are in a process of change and a lot is moving around.

I tried last time to clarify the current powers of the regulator and the future powers of the FPC during Committee. I thought that I nearly succeeded, because I think that the noble Lord, Lord Lawson, is on record as saying that he was encouraged to some extent. That was a ringing endorsement compared to how I did on some of the other amendments, so I thought that I had done quite well.

The Government have sought to provide further clarity on this point through the recent exchange of letters with the Governor of the Bank of England. I will return to that. I hope that, with that explanation and a description of the steps that the Government will take to clarify matters further, I can satisfy your Lordships that their concerns about what I agree is a very important issue will be addressed.

First, I shall try to explain the current state of the law. Then I will explain our proposals in that context, because I think that that will give noble Lords the full picture.

Under current law, three bodies are concerned with the leverage ratio: the Treasury, the FPC and the PRA. Of course, the last two are part of the Bank of England group. Of those three, one has the direct power to set a minimum leverage ratio now. That is the PRA. Let me make it absolutely clear: it can do that not just on a firm-specific basis but on a system-wide basis. It can do that now; it has that power. It can set the leverage ratio directly, as it did back in June, or on the basis of a recommendation from the FPC. When I replied to the noble Lord, Lord Turnbull, I talked about the June action of the PRA as the killer fact; it was obviously not as emphatic as I hoped.

Under FiSMA, the FPC has two sorts of powers. First, there is a wide power of recommendation on any issue with regard to financial stability, which it makes to the PRA to exercise under its powers on a “comply or explain” basis. For that to work, the PRA must have powers to apply rules across the whole sector, which, as I have just explained, it does. It is envisaged that that is how most of the FPC’s decisions will be enacted. Secondly, the FPC has a narrow set of macro-prudential tools, which are powers to direct the PRA to act. There are currently two powers of direction. Currently, they are a counter-cyclical capital buffer and sectoral capital requirements. The Government also committed—this was the original situation—to giving the FPC a third direction tool to vary the minimum leverage ratio once the minimum was set in 2017.

For the avoidance of doubt, the Treasury plays no role here. If the PRA wants to set a leverage ratio either under its own initiative or under the recommendation of the FPC, it does not have to ask the Treasury, and the Treasury has no veto. The Treasury is the only body of the three that does not have the power or influence to set the leverage ratio. So the debate is essentially about how and when the Treasury grants the FPC that specific power of direction over the PRA, rather than the PRA retaining some discretion in the matter.

That being established, let me turn to the Government’s recent exchange of letters with the Bank of England. The Government have already committed to give the FPC the power of direction to vary the leverage ratio through time in 2018, subject to a review in 2017, but, given progress internationally—all the transformational change that we just discussed—there is a case for such powers being given earlier, or specified in a different form. To settle this debate, the Chancellor asked the governor, who is the chair of the FPC, to review the matter and make a recommendation to him that he could take to Parliament. The Government believe that that is the right approach to granting the FPC additional powers of direction, for a number of reasons.

First, there is an existing process for the FPC being granted such powers, established under the Financial Services Act, which many in this House and the other place, including the chair of the PCBS, helped to design. These are prescribed by the Treasury by order under Section 9L of the Bank of England Act 1998. Before making an order, the Treasury must consult the FPC and make an order in Parliament. This is subject to the affirmative resolution procedure, so must be approved by each House of Parliament.

To fulfil their duty of proper consultation before bringing a proposal under the Act, the Government believe that it is appropriate and necessary that the Bank furnish them with the relevant information from the planned review of the leverage ratio. As noble Lords can see from the governor’s response to the Chancellor, he is more than happy to go along with that process, given the things that are going on this year. Secondly, as a matter of policy, there are a number of outstanding technical issues that will need to be settled before the Chancellor can bring fully fleshed-out proposals back to Parliament.

It would be helpful if I explained some of the technical issues which are alluded to in the Chancellor’s and governor’s letters. The first issue to fix is: at what level should it be set, relative to risk-weighted requirements? That is not currently settled internationally, which is why the Basel process and the European Banking Authority are going through a long process of review and calibration. We envisage that the FPC would have to consider this too for the UK and, most importantly, explain the circumstances in which it would wish to set a higher level for UK banks, if it believes that necessary. Secondly, if this is a macroprudential tool, how will it operate? If the tool gives the FPC the power to direct the PRA to vary the leverage through time, it will need to be clear under what circumstances it would be varied and how it will interact with other tools such as the countercyclical capital buffer, which does a similar thing for the risk-weighting framework. Thirdly, there is the important question of timing. The international timetable will set a minimum in 2017-18, so there is a question for the FPC as to what the right timetable is for the UK and how it should get there.

These are very important and technical questions in the design of a leverage tool. Once that review has provided evidence to support its recommendations, the Government have committed that they will use their existing powers to grant a power of direction to the FPC before the end of this Parliament.

I have a note next to me confirming that the Chancellor is happy with “when”. That is probably what noble Lords really wanted to hear but I thought that it would be useful to have some background. That timetable fits in with the FPC’s own timetable for defining the medium-term capital framework for UK banks. The governor has confirmed, in his letter to the Chancellor, that this timetable is appropriate.

I hope that on the basis of all the background information that I have provided, which I hope gives the context for a very specific answer to a specific question, your Lordships will be comfortable in withdrawing this amendment.

I am very grateful to the Minister for such an extremely technical answer and I beg leave to withdraw the amendment.

Amendment 175 withdrawn.

Amendment 176

Moved by

176: After Clause 119, insert the following new Clause—

“Other provisions about the FCA and the PRAAbolition of strategic objective of the FCA

In FSMA 2000—(a) In section 1B, omit—(i) in subsection (1), paragraph (a) (and the “and” following it)and, in paragraph (b), “operational”,(ii) subsection (2),(iii) in subsection (3), “operational”,(b) omit section 1F,(c) in subsection (1K), omit “operational”,(d) omit section 3B(3),(e) omit section 3D(4),(f) in section 55B(4), for the words after “advance” substitute “any of its objectives”,(g) in section 55H(4), omit “operational”,(h) in section 55I(5), omit “operational”,(i) in section 55J(1)(c), for the words after “advance” substitute “any of its objectives”,(j) in section 55L(6), omit “operational”,(k) in section 55T, omit “operational”,(l) in section 88E, in subsection (1) and in the heading, omit “operational”,(m) in section 89U, in subsection (1) and in the heading, omit “operational”,(n) in section 137A(1), omit “operational”,(o) in section 138A(5), omit “operational”,(p) in section 192C(2), for the words after “advance” substitute “any of its objectives”,(q) in section 194(1)(c), for the words after “advance” substitute “any of its objectives”,(r) in section 232A, omit “operational”,(s) in section 314(1), omit “operational”,(t) in section 316(1A)(a), omit “operational”,(u) in section 318(3A)(a), omit “operational”,(v) in section 340(8), for the words after “expedient” substitute “for the purpose of advancing any of its objectives”, (w) in section 395(3), for the words after “procedure and” substitute “the regulator considers that, in the particular case, it is necessary in order to advance any of its objectives.”,(x) in paragraph 11(1)(b) of Schedule 1ZA, omit “operational”,(y) in paragraphs 6 and 6B of Schedule 1A, omit “operational”, and (z) in paragraphs 3C(1) and 3D(1) of Schedule 6, omit “operational”.”

My Lords, this amendment repeats an amendment tabled in Committee, the aim of which was to delete what the commission thought was an otiose strategic objective for the FCA and thereby increase the prominence and importance of what were previously called its three operational objectives, one of which was the promotion of competition. I thought that the reply from the noble Lord, Lord Newby, was unsatisfactory and I wanted to pursue it a bit further. The noble Lord concluded with the following remarks:

“After taking legal advice, the FCA has subsequently written and confirmed that it is happy with the strategic objective. On that basis, we are happy that the FCA is happy and wish to retain it”.—[Official Report, 15/10/13; col. 508.]

Perhaps I might respectfully comment that the object here is not to make the FCA happy but to make it pursue diligently the competition objective, about which a number of people have reservations. I would like to give the Minister the opportunity to give us some further assurance that the competition objective of the FCA will be pursued with the vigour that I think the Treasury and this House want.

My Lords, I confirm the observation of the noble Lord, Lord Turnbull, that it is of course not our objective simply to make the FCA happy. I will give a slightly longer explanation of why we think that the current situation will work just fine but, to get straight to the point, it is absolutely because we believe that the overriding mission statement is entirely consistent with the vigorous pursuit of the competition objective.

In looking at this from a personal point of view, I am very comfortable with the notion of an overriding mission statement which works in harmony with the operational objectives, can be used to support and enforce them and is very useful when it comes to shades of difference between them. I am very comfortable in this case because the overriding objective of making markets work well is entirely consistent with our mutual objective of ensuring that the FCA is pursing its competition objective with the utmost vigour.

I hope noble Lords have been able to witness that where we have been able to compromise, I have been very keen to compromise, but I am afraid here it is either yes or no, and in this case I ask the noble Lord to withdraw the amendment on the basis of my suggestion that I think it is going to be okay.

My Lords, I have one issue to raise with the Minister. The competitive objective, as I understand it, applies equally to the PRA as to the FCA. As noble Lords may be aware, one of the immediate issues is that the capital requirements for banks of different sizes are dramatically different, such that a small bank’s capital requirement for certain forms of mortgage lending is about 30 times the capital requirement for one of the established clearing banks. The PRA has enthusiastically welcomed changing those arrangements and taking up the challenge to create a more competitive environment, but when I recently asked why the huge difference in capital requirements relating to mortgages had not been addressed, I was told that the PRA could not move until it was able to get agreement from the EU. I am not sure whether that is correct, but it is quite important to know whether meeting the competition objective is not just a question of having our own powers to do it but that EU requirements impinge upon it.

In tabling amendments, there are a number of objectives. The first is to get an amendment accepted, the second is to make a point and the third is to receive an assurance. I think I have achieved the second and third objectives. On that basis, I beg leave to withdraw the amendment.

Amendment 176 withdrawn.

Amendment 177

Moved by

177: After Clause 119, insert the following new Clause—

“Independent Banking Regulatory Decisions Committee of the FCA

(1) After section 1L of FSMA 2000 insert—

“1LA Independent Banking Regulatory Decisions Committee

(1) There is to be a Banking Regulatory Decisions Committee of the FCA (“the Committee”).

(2) The members of the Committee are to be appointed jointly by the FCA and the PRA and hold office in accordance with the terms of their appointment.

(3) The person appointed to chair the Committee must have experience of acting in a senior judicial capacity.

(4) A majority of the members of the Committee must be persons appearing to the FCA and the PRA to have (and to have had) no professional connection with the provision of financial services.

(5) The remaining members of the Committee must include persons appearing to the FCA and the PRA to have extensive experience in senior roles in banking.

(6) The function of the Committee is to exercise the banking regulatory decisions function of the FCA and the PRA.

(7) “Banking regulatory decisions function” means the function of taking decisions for enforcing compliance with relevant requirements, within the meaning of Part 14, in cases where the authorised person is a relevant authorised person within the meaning of section 71A of this Act.

(8) The banking regulatory decisions function of the FCA and the PRA is delegated to the Committee; and references in this Act to the FCA and the PRA in relation to that function are to be construed accordingly.

(9) The FCA shall meet the reasonable costs of the Committee in discharging its function but the Committee—

(a) is not subject to direction by the FCA or the PRA as to the exercise of its function,(b) is not accountable to the FCA or the PRA for the exercise of its function, and(c) may appoint its own officers and staff.(10) At least once a year the Committee must make a report to the Treasury on the discharge of its function.

(11) The Treasury must lay before Parliament a copy of each report received by them under subsection (10).”

(2) The FCA and the PRA must carry out a review of the operation of the Banking Regulatory Decisions Committee of the FCA.

(3) The review must be completed before the end of 2018.

(4) The FCA and the PRA must give the Treasury a report of the review.

(5) The report must include an assessment of whether the function of the Banking Regulatory Decisions Committee would be better discharged by a body that was entirely independent of the FCA and the PRA.

(6) The Treasury must lay a copy of the report before Parliament and publish it in such manner as they think fit.”

This amendment is about the future structure of the Regulatory Decisions Committee. This is avowedly a placeholder amendment to allow further discussion. The commission originally proposed that the RDC should be given statutory autonomy within the FCA and that that new regulatory structure should be reviewed by 2018. On further reflection, my commission colleagues and I put forward a rather different proposition, which is that there should be a wider review but there is no reason why it should not start as soon as maybe.

There are a number of reasons why a wider review is justified. The first is obvious. Although we now have two regulators rather than one—the PRA and the FCA—events where enforcement is justified can arise from either of these domains and enforcement action taken by one could help or hinder the work of the other. The enforcement division and the RDC are embedded in the FCA, and it raises the question of whether the RDC should be placed, in a sense, more equidistant between the two.

The second reason for raising this question is that, in banking at least, enforcement decisions could be taking on a greater significance than in the past. Indeed, the past has been characterised by a surprising absence of enforcement, at least in relation to the events of the financial crisis. There have been some major enforcement decisions and some colossal fines around conduct, but virtually none in relation to events leading up to the financial crash. This therefore raises the question as to whether the RDC needs to be upgraded in terms of its chairmanship and membership so that it is capable of handling bigger and more important cases.

The third reason is that, in response to a regulatory infraction or lapse, there is a balance to be struck between using enforcement as an instrument and the supervisory instrument. We should not get into the mode of thinking that enforcement is always the first and best recourse. Supervisors may take the view that a case is better handled by what elsewhere might be called “special measures”, such as seeing that the people who are responsible for the poor behaviour and decisions are moved on, and possibly even sacked; or by getting new people in; or by securing undertakings from management about future conduct. Often, this can produce a quicker and more effective result, whereas recourse to enforcement can cut across this so that instead of a bank immediately getting into a constructive dialogue about what to do next, it begins to dig in and wait for a long, drawn-out litigation.

We therefore need to ensure that, in any particular case, the full range of options has been considered and that the interests of other regulators have been taken into account. In other words, the RDC should only receive a case after that balancing process has taken place. It would be helpful if the RDC was able to question whether all the options and possible responses have been explored.

The fourth reason is that, in many walks of life, there has been a trend which continues to this day of greater separation between those investigating a case, those who decide whether a prosecution should be undertaken and those who reach a verdict. You could go back to the creation of the Crown Prosecution Service more than two decades ago, and you can see this in a number of professional bodies covering medicine, solicitors and accounting. The hot topic of the moment is the Independent Police Complaints Commission. There is a perception that the RDC is not as independent of enforcement as it could be. It is co-located. It is part of the FCA. Would we be able to achieve both actual enhancement of its independence and, certainly, the perception of that independence if it stood in a more independent position?

Finally, the RDC has to ensure that before any accusation is made in a decision notice that enforcement has been properly researched, the accused has been given a proper chance to put their case, and the case has been gone into thoroughly. This is of particular relevance to smaller practitioners who can be severely damaged by accusations and are not able to clear their name until maybe years later. Unlike big firms, such businesses, such as IFAs, can find that they clear their name but there is no business left to go back to.

All this indicates to me that there is more than enough material on which to base a review and no reason to delay that until 2018, which was included in the earlier amendment. Rather than attempt to legislate now in a process that does not allow proper consultation with practitioners, and which would be confined only to banks, I argue that we should have a wider review. I hope that between now and Third Reading we can have further discussions on this idea. I beg to move.

My Lords, I was a member of the original regulatory decisions committee at the Financial Services Authority, which noble Lords may remember was set up after FiSMA ran head first into the human rights legislation because the regulator was in many cases judge and jury. The RDC was set up as a filter, to be an independent assessor of regulatory decisions by the various divisions of the FSA and to stand as a relatively simple procedure prior to the final stage of going to a tribunal if agreement could not be reached between the regulator and the regulated person. In that respect the RDC and the old FSA worked moderately well—but only moderately.

It did not work so well for two reasons. First, there was considerable confusion over its independence. The noble Lord, Lord Turnbull, has, in this amendment, quite rightly emphasised that the RDC should be independent of the various regulatory authorities. The second reason it did not work very well is, unfortunately, contained within the amendment, which states:

“A majority of the members of the Committee must be persons”,


“no professional connection with … financial services”.

I am afraid that that, on the old RDC, caused us a lot of difficulty. Many of the cases which were quite complicated, with respect to financial services, took a long time because people who were very bright and committed but who had had no previous connection with the industry took a long time to get up to speed on the relevant issues that were considered. That condition in the old RDC arose because the FSA was succeeding the self-regulatory organisations. Therefore that was an overreaction to the role of the self-regulatory organisations such as the Securities and Futures Authority, which I also had the honour to serve on. That was abolished at that time and the reaction was, “Let’s have people from outside the industry in this particular role”.

Therefore, the idea of an independent RDC is a good one. That would avoid some of the very great expense of going to tribunal, where there might be disagreements, and it would also have the great advantage, which the noble Lord, Lord Turnbull, pointed out, of balancing the views of various regulators in any particular case. Of course, that was not necessary under the FSA, but it will be necessary under the new structure. This is worthy of very careful thought and consideration. It could be a very useful, positive step within the sequence of enforcement activities by the regulator.

In the spirit of the noble Lord’s approach, which was to move on from the specific amendment, I will not read out my speaking note, as entertaining and well structured as it is. I thank the noble Lord, Lord Eatwell, for his valuable experience here. I feel as the noble Lord does—something in here needs to be sorted out, but at the moment we are not exactly sure quite what the right thing is. However, it is certainly likely to involve a review, as is recommended as part of the amendment. Therefore I am more than happy, in preparation for Report—I am sorry, I mean Third Reading—to see what we can come up with together on a review.

Amendment 177 withdrawn.

Amendments 178 and 179 not moved.

Amendment 180

Moved by

180: After Clause 120, insert the following new Clause—

“MiscellaneousMeetings between regulators and auditors of relevant authorised persons

(1) The FCA and the PRA must make arrangements to meet the auditors of each relevant authorised person at least twice in each calendar year.

(2) The FCA and the PRA may conduct meetings under subsection (1) jointly or separately (but each relevant authorised person’s auditors must be met separately).

(3) The purpose of each meeting is to discuss matters about which the FCA or the PRA believe that the auditors may have views or information.

(4) A relevant authorised person has a duty to ensure that its auditors attend meetings in accordance with this section (and compliance with that duty may be considered for purposes of the exercise of functions under FSMA 2000).

(5) In this section, “relevant authorised person” has the meaning given in section 71A of FSMA 2000.”

I will try to be brief; I hope that the Government can readily accept this. This amendment concerns the need to have regular meetings between the bank’s supervisors and its auditors. I use the old-fashioned word “supervisors” rather than “regulators” because it gives a more accurate picture. I was very glad that the new Governor of the Bank of England, in his recent speech at some Financial Times junket or other—a very good speech indeed—referred throughout to “banking supervision”, which is a more accurate, old-fashioned term. It is important that there should be this regular dialogue. I will briefly go back a little into the history of this.

When I was Chancellor in the 1980s, I was very concerned to discover that there was no discussion between the auditors and the supervisors of banks—which was the Bank of England at that time, as it is now. I looked into it and discovered that it was because they were prevented from doing so. Under their duty of confidentiality to their client, the auditors were not able to speak to anybody about any concerns they might have had about what was going on in a particular bank. It applied to other clients, but the important thing was that it applied to the banks. Therefore, when I greatly strengthened banking supervision in what became the Banking Act 1987, I included legislation to remove that legal barrier. In introducing that I made it quite clear that I expected as a result that there would be a regular dialogue between the banking supervisors and the bank’s auditors so that each could compare notes about concerns they might have had about a particular bank.

I now regret that that was not in the Bill, but it was a clear expectation, stated from the Dispatch Box. These meetings took place for a number of years. Then, as time went on, fewer and fewer of them took place. In the run-up to the terrible crisis of 2008 it was significant—the Economic Affairs Committee of your Lordships’ House took evidence about this—that the meetings had virtually ceased. They did not happen at all, which was a huge mistake. Therefore the Economic Affairs Committee of your Lordships’ House recommended that there should be a mandatory requirement for those meetings to take place. That is all the more important with banks because with other businesses the auditor can qualify the bank’s accounts if it has a concern which the board of the client does not address. That is a signal that everybody can see. However, no auditor ever qualifies a bank’s accounts, and for a very good reason—because it would lead to a run on the bank. That is all the more reason for this dialogue to happen.

The Economic Affairs Committee of your Lordships’ House recommended this mandatory duty. When the parliamentary banking commission came to look at it again, we, too, recommended that there should be this mandatory duty. The Government have said that they entirely agree that there should be these meetings. They have announced that they have been moving gradually—I hope that they will move a little further—and have said, “Yes, these should take place, specifically at least twice a year”. However, they have so far resisted having that on the statute book. As noble Lords will know, once bitten, twice shy. We have been through this before: although we had all the good intentions, it was not on the statute book, and eventually it did not happen. Therefore, I say to the Minister, the Government have agreed that this should happen, and I cannot see any reason why it should not be in the Bill. Furthermore, from the history I have recounted, I can see a good reason why it would be folly, and dangerous, not to have it in the Bill. I beg to move.

My Lords, as a fellow member of the Parliamentary Commission on Banking Standards, I support the amendment moved by the noble Lord, Lord Lawson. The lack of a relationship with auditors is something that I have noticed since the beginning of the financial crisis. Indeed, at that time regulators told me that, when deciding what regulation banks should be subject to, they sent their less experienced regulators to the smaller banks and their more experienced regulators to the larger ones. By the way, when the regulators go to the larger banks they are sometimes taught by the people working in them because the quality is higher there. So the relationship between the regulators and the auditors is very important.

Martin Wheatley, who is now chairman of the FCA, is on record as saying that the FSA never looked at banks’ business models. In other words, it did not look at the profit and loss element of banks because it felt that it was none of its business. If the FCA is now to adopt the new policy of looking at business models, which tell you everything about a company, then the auditor is going to have a central role to play. I know that the audit profession has been rather taken aback by the criticism of the Treasury Committee and the Parliamentary Commission on Banking Standards, which posed the question, “What is an audit?”. The profession will have to do an awful lot of work on that because it has largely believed that audits cover something that has occurred in the past and not something that will happen in the future. It has not taken high-risk, low-probability strategies or low-risk, high-probability strategies into consideration. Auditors are in the unique position of looking at the business model and so can assist banks in having a forward look at that. They can also help regulators to understand what a business model is about. As the noble Lord, Lord Lawson, said, this measure was not put on the statute book previously and therefore lapsed by default. In the interests of being constructive on this issue and wanting to ensure that we have auditors who keep bank executives on their toes, I agree wholeheartedly with the noble Lord, Lord Lawson, that we need to see this measure written into the Bill.

My Lords, I add the support of these Benches for the commissioners’ amendment. I was particularly struck, as I hope the Government were, by the account related by the noble Lord, Lord Lawson, of what happened when he made these meetings legal but overlooked the need to put them into statute law, with the result that they did not happen. We have an opportunity here to make these meetings take place and be effective. Both the Economic Affairs Committee of your Lordships’ House and the commission stand behind this amendment and the views that have been expressed, and I hope that the Government will as well.

My Lords, we are considering a proposal to mandate the regulators to meet the auditors of all the banks they supervise at least twice a year. Strengthening the quality of engagement between auditors and supervisors is an objective that the Government share. I think that there is absolutely no disagreement between us about how important that is and how it has not always worked well in the past. I listened to the concerns of the noble Lord, Lord Lawson, that voluntary commitments for regulators and auditors to meet regularly could easily fall into abeyance. However, some lessons have been learnt from the financial crisis, and the Government have taken meaningful steps to ensure that the new regulator does not slip into the habit of neglecting engagement with auditors.

FiSMA now includes new Section 339A, which requires the PRA to have arrangements for sharing information and opinions with auditors of PRA-authorised firms, and to publish a code of practice to set out the way in which it will comply with this obligation. This code of practice sets out in detail the principles governing the relationship between the regulators and bank auditors and must be laid before Parliament whenever it is changed. This change to the law has greatly improved the regulators’ engagement with auditors since the crisis, so the Government have taken action here. The Government believe that the action they have taken in this respect is in line with changes to ensure that the regulators now follow a judgment-led approach to supervision that ensures regulators are clear in their purpose and direct resources to the most important cases.

One of the criticisms of the old FSA was that its approach did not focus on the most significant issues and too much resource was taken up by inflexible processes. Operationally, this new legal framework forces regulators to be more diligent and allows them to be held accountable. The essential strength of the new legal framework is that it demands diligence from the regulators through parliamentary review and encourages proportionality by allowing them to specify where they will focus their resources. The result has been that the PRA will meet with firms which have the potential to cause major economic disruption in the case of failure at least three to four times per year. The FCA will meet with the auditors of those firms at least twice a year. This is exactly what we want—prioritised, high-quality engagement where it matters.

The Government therefore remain unconvinced of the value of changing the frequency of this dialogue in statute without some reference to proportionality. Two meetings a year with the auditors of important firms is too little, while the same number for very small firms may be too many. The Government favour the current legal framework with its provisions for diligence and prioritised application of resources. Of course, there may be refinements that can be made in the law to ensure that the requirements on regulators are always express.

For clarification, if my noble friend reads the amendment, he will see that it does not say that the meetings should be held twice a year but that they should be held at least twice a year, so there is flexibility there. I hope that he will take this back and bring forward something better than he has said so far—interesting though that is—at Third Reading, because he has not addressed the critical point of the need to have a statutory requirement for these meetings to take place. He can decide what the right periodicity is; what I am anxious about is that there should be this statutory requirement.

I was just getting to that. The Government believe that there is a superior approach to strengthening the law in this area by clarifying the requirements on regulators to meet auditors enough times to accomplish their objectives. I think we agree that the periodicity should not be the constraint, although perhaps we could deal with that by a requirement to disclose the frequency of meetings with certain types of firm to ensure accountability. Such an approach would, in the view of the Government, be superior and retain proportionality and the judgment-based approach while increasing accountability. If the noble Lord will withdraw his amendment I will be willing to return to it at Third Reading, subject to further consideration of these issues.

Before my noble friend sits down, can we be absolutely clear what he is saying? He is saying that he is going to come forward with an amendment at Third Reading to put this measure on a statutory basis, but leave the frequency point on one side. Is that what he is saying? If not, we should reach a decision on this.

In answer to the useful point of clarification by my noble friend Lord Higgins, will this measure definitely be on the face of the Bill?

Amendment 180 withdrawn.

Amendment 181

Moved by

181: After Clause 120, insert the following new Clause—

“Proprietary trading

(1) The PRA and the FCA must carry out a review of proprietary trading by relevant authorised persons.

(2) The review must be completed before the end of the period of 3 years beginning with the day on which this Act is passed.

(3) The PRA and the FCA must give the Treasury a report of the review.

(4) The report must include—

(a) an analysis of any action taken by the PRA and the FCA to monitor whether and to what extent relevant authorised persons engage in proprietary trading and any action taken by the PRA or the FCA to discourage relevant authorised persons from doing so;(b) an account of any difficulties encountered by the PRA or the FCA in taking that action and an assessment of its efficacy;(c) an account of any requirement imposed on relevant authorised persons which the PRA or the FCA consider may be engaging in proprietary trading to publish a statement of the exposure to risk of relevant authorised persons in their trading operations and of the controls applied to limit that risk;(d) an assessment of the impact of the ring-fencing rules on proprietary trading by relevant authorised persons;(e) an assessment, drawing on experience in countries other than the United Kingdom, of the feasibility of prohibiting relevant authorised persons from engaging in proprietary trading or limiting the extent to which, or circumstances in which, they may do so (having regard, in particular, to any difficulties of definition); and(f) a comprehensive analysis of the advantages and disadvantages of prohibiting relevant authorised persons from engaging in proprietary trading or limiting the extent to which, or circumstances in which, they may do so.(5) The Treasury must lay a copy of the report before Parliament.

(6) The PRA and the FCA must publish the report in such manner as they think fit.

(7) The Treasury must, following receipt of the report, make arrangements for the carrying out of an independent review to consider the case for the taking of action in relation to proprietary trading by relevant authorised persons.

(8) The appointment by the Treasury of persons to carry out the review requires the consent of the Treasury Committee of the House of Commons.

(9) The reference in subsection (8) to the Treasury Committee of the House of Commons—

(a) if the name of that Committee is changed, is to be treated as a reference to that Committee by its new name, and(b) if the functions of that Committee (or substantially corresponding functions) become functions of a different Committee of the House of Commons, is to be treated as a reference to the Committee by which the functions are exercisable;and any question arising under paragraph (a) or (b) is to be determined by the Speaker of the House of Commons.(10) The persons appointed to carry out the review must give the Treasury a report of the review once it has been concluded.

(11) The Treasury must lay a copy of the report before Parliament and publish it in such manner as it thinks fit.

(12) In this section—

(a) “proprietary trading”, in relation to a relevant authorised person, means trading with funds on markets on the relevant authorised person’s own account (whether or not in connection with business with the relevant authorised person’s customers),(b) “ring-fencing rules” has the meaning given by section 417 of FSMA 2000,(c) “relevant authorised person” has the meaning given by section 71A of FSMA 2000.”

This is one of the most important matters that we will have to decide, not merely to make the banking system safer but to address the cultural problem. Proprietary trading is, as noble Lords will be aware, trading which a bank does entirely on its own behalf. There is no client at all. It is the furthest from the culture that we expect of banking, which is a culture of prudence and of servicing clients. Here, there is no client and we know from experience that, far from there being a culture of prudence, proprietary trading tends to be of a highly speculative and gambling nature.

It has also, incidentally, been connected with some of the greatest scandals. The LIBOR scandal, for example, was a proprietary trading scandal. Even when there is not a scandal, even when it is perfectly reasonable—I have nothing against speculation as such—in my judgment it is alien to what the banking culture should be. Speculation should be left to the hedge funds. It is a hedge fund activity par excellence and it should not be conducted by banks. That is my view. The view of the commission was slightly different. It was that, while that is probably so, there are practical difficulties and therefore there needs to be a full-scale review a few years hence to see how this is working.

At the moment, of course, there is very little proprietary trading going on in this country. Before the great crash of 2008, the amount of proprietary trading that some banks were doing accounted for more than 30% of their total business; it was as big as that. It has now disappeared, but it will almost certainly come back. Incidentally, when we had this debate in Committee my noble friend Lord Deighton said that there was no need to do anything now because there was no proprietary trading going on. With the greatest respect, he missed the point. We are saying that we should review this a few years hence when there may well be something going on. In fact, there almost certainly will be something going on. We are not legislating just for the here and now, but for the medium term and, so far as we can, for the long term. There will not be another banking Act for a very long time, so it is important that this review is in place.

There is one other thing that the review will be able to do. My good friend Paul Volcker, a very distinguished former chairman of the Federal Reserve in the United States, has been largely responsible for introducing what is known as the Volcker rule in the United States, which attempts to ban proprietary trading. Their system of legislation is so appalling that the rule has got encrusted with myriad barnacles which may make it less effective, but, nevertheless, the clear intention was to ban proprietary trading. He is a very wise observer of the banking scene over many years and he understands full well the practical and cultural problems that derive from banks engaging in proprietary trading.

A review a few years hence will be able to take account not merely of what is happening in the banking world in England at the time but will be able to see how the Volcker rule has worked in practical terms in the United States—and, if it has been defective in any way, we can learn from their experience. Therefore, I urge my noble friend, who made a remark yesterday, almost en passant, about proprietary trading when we were talking about the ring-fence, to go further today and to accept the amendment which we, as a commission, feel is right. He may want to change the wording in some way or other—I suspect that the period we set was a bit too soon; it might be sensible to have it a little further out—but I will leave that to his excellent judgment. The important thing is that the essence of this must be accepted by the Government. I beg to move.

My Lords, I am interested in a side effect of this amendment. I hope that it may result in us taking a proper look at high-frequency trading, which seems to me to be pretty close to theft, organised on behalf of stock exchanges at the expense of the rest of us in mutual funds and pensions. It seems extraordinary that we allow a certain group of investors privileged access to the stream of information coming out of an exchange, and allow them advantages over real investors. Real investors invest in real funds for long-term real return, performing the function of the market in terms of the allocation of capital and giving people an opportunity to invest their money at risk for return in order to enable them to live in retirement and to prosper from giving other people the use of their money. These are important functions of the market and high-frequency trading seems to me to be parasitical on that.

I have heard it argued that it improves, net-net, the terms on which investors are able to trade. That is not what investors tell me. They say it is as if someone is moving ahead of them. Every time they get into the market they can feel the market being moved ahead by the high-frequency traders. I think that that is an aspect of proprietary trading to which we should pay close attention, and I very much hope that this review will allow us to do so.

I support the amendment. Most of what we are legislating to do is prevent banks doing terrible things to customers. Proprietary trading allows banks to do terrible things to themselves. They are no good at controlling it. The real horrors and the things that, more importantly, threaten the financial system are banks getting proprietary trading horribly wrong. There are examples of distinguished banks coming completely unglued in this. Deutsche Bank, UBS and Morgan Stanley all spring to mind. They seem to have a completely uncontrollable Wild West operation—and if the owners of the operation cannot control it, is it not a serious risk to the financial system and something that, as the noble Lord, Lord Lawson, suggested, should not be taking place inside a bank?

I, too, support the amendment. The problem that we have in the City today is that everything is moving so fast, and that traders have the capacity to use computers for all sorts of things. My noble friend Lord Lucas talked about high-frequency trading. I suspect that in three years’ time the new way of operating and making money will be something that none of us has even dreamt of. It is very important that this is reviewed and that there is an opportunity to take a very close look at it in a few years’ time.

My Lords, the PCBS did express concern, very understandably, despite the fact that proprietary trading is not as big a part of the current challenge as it perhaps was and perhaps will be. The concern is—just to show that I have grasped the point—that it will come back and become a major risk in the future. Therefore, the PCBS tabled an amendment that proposed two reviews. The first is a requirement on the regulator to review the steps it has taken to bear down on proprietary trading, and the difficulties it has encountered. The second, following such a review, would be a review commissioned by the Government into the issue, and into the case for changing the law.

I reassure noble Lords that at present we have a robust set of safeguards to deal with risks from proprietary trading. Indeed, as Andrew Bailey made clear in his response to the PCBS, the PRA thinks that it currently has the appropriate powers and tools to address risks from proprietary trading where it endangers the safety and soundness of a firm. The PRA continually monitors and reviews all risks that banks take, including those from proprietary trading, and it uses the capital regime to make these risks safe.

The new conduct regulator, the FCA, has a similarly wide range of tools, including sanctions, to ensure that banks adhere to a high standard of conduct in their business. Finally, ring-fenced banks, which are at the heart of this new legislation, will already be banned from any proprietary trading, further shielding them from any risks to which it might give rise. Therefore, the Government do not believe that there is a case for reviewing a ban on proprietary trading so shortly after these reviews and before ring-fencing has been put in place.

However, while the regulators are currently equipped to deal with risks if and when they arise, it seems only reasonable that these arrangements should be reviewed over time and that we should take a strategic look at what any future risks from proprietary trading might mean for the UK banking sector as a whole, including whether the regulators’ powers are appropriate.

I believe that the approach recommended by the PCBS on this is the right one. First, it should be for the PRA and FCA to review the situation, assess their powers and recommend further action to the Government. However, it also seems right that we review this matter once ring-fencing is in place and its effects have been analysed. It would therefore make sense for any such review to incorporate the thinking from the wider review into the ring-fence.

Therefore, I propose to noble Lords that the Government commit to a review of proprietary trading if the PRA deems it necessary, having evaluated its powers and practices in this area. The Treasury will therefore ask the PRA whether it feels equipped to deal with any risks from proprietary trading that may have arisen by that time. If the PRA does not think that it has the right tools, the Treasury will conduct a review of proprietary trading and its impacts, including on ring-fenced banks. That review of course will consider further safeguards against potential future risks from proprietary trading, including a ban, should it conclude that such safeguards are necessary.

Any review that does its job will also consider the experience that other countries have had with structural reforms. The Volcker rule in the US would of course be an obvious candidate, as my noble friend Lord Lawson said. By the time of the review, implementation of the Volcker rule—“encrusted with barnacles” was, I think, the phrase used; my notes refer simply to “practical difficulties”—may be further advanced. It is more likely that we can learn lessons then, rather than in three years’ time.

It is reasonable to suggest that ring-fencing should be in place before such a review takes place. I suggest that it should take place only after ring-fencing has been in place for at least a year, and possibly should coincide with the wider review into the operation of the ring-fence. The evidence base will then be much richer.

Therefore, I confirm to my noble friend Lord Lawson that I think we are in vigorous agreement and that we will come back at Third Reading with some agreed wording—in particular, to deal with the timing. On that basis, I ask my noble friend to withdraw his amendment.

I am grateful that my noble friend said that he would come forward with something at Third Reading. That something will have to be not the possibility of a review but a clear commitment to a review. I think that it is a separate matter from the ring-fence. The ring-fence is about a division of banking; this is a ban. As the noble Baroness, Lady Cohen, said, this is not something that banks should be doing at all. It is a perfectly legitimate hedge fund activity, but there is a fundamental difference. On the basis of what my noble friend said—I hope that I have interpreted it correctly—I beg leave to withdraw the amendment.

Amendment 181 withdrawn.

Amendment 182

Moved by

182: After Clause 120, insert the following new Clause—

“Remuneration code

(1) The FCA and the PRA must prepare (and may from time to time revise) a remuneration code.

(2) The remuneration code is to apply to all persons who have approval under section 59 of FSMA 2000 to perform a function in relation to the carrying on by a relevant authorised person of a regulated activity which is designated under subsection (6B) or (6C) of that section as a senior management function.

(3) The remuneration code must—

(a) require that persons to whom the remuneration code applies are, except in specified circumstances, to receive a proportion of their remuneration in the form of variable remuneration,(b) require that a specified measure of profits is to be used in calculating any variable remuneration which is calculated by reference to profits,(c) require that the nature and amount of variable remuneration is to strike an appropriate balance between risk to the relevant authorised person providing it and fair reward for the recipient of it,(d) require a proportion of variable remuneration to be deferred for such period, not exceeding 10 years, as is appropriate to strike a balance between risk to the relevant authorised person providing it and fair reward for the recipient of it,(e) require that no, or only a limited amount of, variable remuneration of a person to whom the remuneration code applies is to be calculated by reference to sales made by the person or by any group of persons employed by the relevant authorised person providing it, and (f) require that non-executive directors of a relevant authorised person are not to receive variable remuneration.(4) A requirement imposed by the remuneration code is a relevant requirement for the purposes of Part 14 of FSMA 2000.

(5) In this section—

(a) “relevant authorised person” has the meaning given by section 71A of FSMA 2000,(b) “variable remuneration” means remuneration (whether in money or in securities or any other form of money’s worth) the amount or value of which varies in accordance with profits, sales or other matters.”

I shall speak also to Amendment 183. This is about whether there should be a statutory basis for the existing remuneration code. One can analyse this at three levels. First, does the current code permit the kind of actions that the parliamentary commission recommended, such as longer deferrals where the nature of the risk justifies it, and more extensive clawback? Secondly, will those powers be used more rigorously than they have been in the past, particularly for banks? Thirdly, is giving statutory backing through the Bill necessary in order to ensure the correct answer to the second question?

Since tabling this amendment, we received a letter from the noble Lord, Lord Newby, on Monday, which in my view gives a satisfactory answer to the first question. All that the parliamentary commission sought, with the possible exception of forfeiture of some pension rights, can be imposed under existing powers. With regard to the second question—will those powers be used more rigorously?—the letter from the noble Lord, Lord Newby, says that the regulators,

“have stated that they will revise the … Code following consultation in 2014. The Government will work with regulators to ensure that …the Code [takes] full account of the views of the PCBS and the debates”,

on this Bill. Therefore, it is a matter of judgment for the House. Does it want to accept those assurances or does it feel that further amendments are needed to embed this presumption more fully? I think that the correct way forward is for there to be some further discussion about precisely what the review and the outcome might be. I look forward to hearing what the noble Lord has to say.

My Lords, I am extremely pleased that my letter has at least partially satisfied the noble Lord. He has left me with a remaining question, which is: are we happy to continue to engage with him and his colleagues as we work towards, and consider, the review? I can give him the absolute assurance that we will be very happy to do so. On that basis, I hope that he will feel content to withdraw his amendment.

Amendment 182 withdrawn.

Amendment 183 not moved.

Amendment 184

Moved by

184: After Clause 120, insert the following new Clause—

“Special measures

(1) This section applies where the FCA or the PRA—

(a) has reason to believe that a relevant authorised person’s systems or professional standards or culture do not provide sufficient safeguards against the commission of actions in respect of which the FCA or the PRA has power to take action, but(b) do not have reason to believe that any such action has been committed (ignoring any action which is already being investigated or in respect of which action has been or is being taken).(2) The FCA or the PRA may give notice to the relevant authorised person of the belief mentioned in subsection (1)(a).

(3) If the FCA or the PRA gives notice under subsection (2), it must invite the relevant authorised person to make representations showing that sufficient safeguards are in place.

(4) Following the giving of a notice under subsection (2) and the receipt of representations under subsection (3) (if any are made), the FCA or the PRA may commission an independent investigation into the relevant authorised person’s systems and professional standards and culture with a view to establishing whether sufficient safeguards are in place; and for that purpose—

(a) “independent” means independent of the FCA, the PRA and the relevant authorised person, and(b) an investigation may not be commissioned from a person involved in the auditing of companies.(5) The relevant authorised person must cooperate with the investigation.

(6) Following receipt of the report of the investigation under subsection (4), the FCA or the PRA may by notice require the relevant authorised person to take measures to provide sufficient safeguards and to monitor their effectiveness.

(7) The relevant authorised person must—

(a) comply with the notice, and(b) appoint an appropriately senior member of the relevant authorised person’s staff to oversee compliance.(8) Compliance by a relevant authorised person with a duty under this section may be considered for the purposes of the exercise by the FCA or the PRA of functions under FSMA 2000.

(9) In this section, “relevant authorised person” has the meaning given by section 71A of FSMA 2000.”

This amendment concerns the concept of special measures. We were again told, as we often have been, that all the powers necessary are there and that, indeed, they are being used. That may well be the case. However, the Minister did not respond to my suggestion that, if this is part of the armoury of the regulators, it would be helpful if they set that out so that there was wider understanding of the special measures regime. I do not think that the regime has an identity in the way that it has in the US, where they talk about memorandums of understanding. Subject to that, I would be happy to put this matter into the box labelled “For further discussions”. I beg to move.

My Lords, I think that this is now having the appearance of a Christmas box, in that the noble Lord is asking the Government to agree to things and we are tending to agree to agree to things.

Given all the powers that the regulators already have, we have been slightly sceptical about whether they need to have, as it were, an Ofsted power of special measures. We do not think that they need more powers but, in order to address the noble Lord’s concern that failings in professional standards and cultures should not be overlooked, we shall be happy to discuss this with him further and to involve the PRA in discussions about how we move towards a firm policy in this area.

My Lords, I am very grateful regarding a number of issues. The Government have said that they are going to move further and will probably —and, in most cases, definitely—bring something forward at Third Reading. That is excellent, but it means that we are going to have a lot of government amendments to consider for Third Reading. I stress what I said yesterday about how important it is that this House has plenty of time to consider the amendments that the Government, to whom I am grateful, will bring forward. They must be tabled at the earliest practicable date and well before the date set for Third Reading otherwise it will be necessary for that date to be postponed.

My Lords, I understand the point being made by the noble Lord. I am not sure at this point, without further discussion, whether we need an amendment at Third Reading. We think that the way forward might be a PRA policy statement, but we can have urgent discussions with the noble Lord on that.

It is indeed a PRA policy statement that I am after. I am trying to establish a regime in which the regulator sees things that are going wrong and gets into dialogue with the company about remedial measures to head off the long-drawn-out agony of enforcement. If it is already doing it, it would be helpful to codify it but I am very happy to work with the Minister on that basis. I beg leave to withdraw the amendment.

Amendment 184 withdrawn.

Amendment 185

Moved by

185: Before Clause 121, insert the following new Clause—

“Power to impose penalties on persons providing claims management services

(1) The Schedule to the Compensation Act 2006 (claims management regulations) is amended as follows.

(2) In paragraph 8 (rules about conduct of authorised persons), in sub-paragraph (2)(b), after sub-paragraph (i) insert—

“(ia) provision enabling the Regulator to require an authorised person to pay a penalty;”.(3) In paragraph 9 (codes of practice about conduct of authorised persons), in sub-paragraph (2)(b), after sub-paragraph (i) insert—

“(ia) enable the Regulator to require an authorised person to pay a penalty;”.(4) In paragraph 10 (complaints about conduct of authorised persons), after sub-paragraph (2) insert—

“(3) Regulations under sub-paragraph (1) may enable the Regulator to require an authorised person to pay a penalty.”

(5) In paragraph 11 (requirement to have indemnity insurance), in sub-paragraph (2)(b), after “Regulator” insert “to require the payment of a penalty by an authorised person or”.

(6) In paragraph 14 (enforcement), in sub-paragraph (4), for the words from “impose” to “authorisation” substitute “require an authorised person to pay a penalty, or to impose conditions on, suspend or cancel a person’s authorisation,”.

(7) After paragraph 15 insert—

“Penalties: supplementary provision16 (1) This paragraph applies in any case where regulations include provision enabling the Regulator to require an authorised person to pay a penalty.

(2) The regulations—

(a) shall include provision about how the Regulator is to determine the amount of a penalty, and(b) may, in particular, include provision specifying a minimum or maximum amount.(3) The regulations—

(a) shall provide for income from penalties imposed by the Regulator to be paid into the Consolidated Fund, but(b) may provide that such income is to be paid into the Consolidated Fund after the deduction of costs incurred by the Regulator in collecting, or enforcing the payment of, such penalties.(4) The regulations may also include, in particular—

(a) provision for a penalty imposed by the Regulator to be enforced as a debt;(b) provision specifying conditions that must be met before any action to enforce a penalty may be taken.”(8) In section 13 of the Compensation Act 2006 (appeals and references to Tribunal)—

(a) in subsection (1), omit the “or” at the end of paragraph (d) and after paragraph (e) insert “, or(f) imposes a penalty on the person.”;(b) after subsection (1) insert—“(1A) A person who is appealing to the Tribunal against a decision to impose a penalty may appeal against—

(a) the imposition of the penalty,(b) the amount of the penalty, or(c) any date by which the penalty, or any part of it, is required to be paid.”;(c) in subsection (3), after paragraph (d) insert—“(da) may require a person to pay a penalty (which may be of a different amount from that of any penalty imposed by the Regulator);(db) may vary any date by which a penalty, or any part of a penalty, is required to be paid;”.”

My Lords, Amendments 185 to 189, 191 to 194 and 197 to 198 are government amendments on claims management companies and non-government amendments on the consumer’s access to redress from CMCs through the Office for Legal Complaints.

Turning first to the government amendments on CMCs, it is clear that bad practice by certain claims management companies operating in the financial services sector has created poor outcomes for both consumers and businesses. As the scale of potential claims for PPI compensation has become clear, CMCs have become particularly active in this market. Unfortunately, this increase in activity has in some cases been accompanied by an unacceptable fall in standards. CMCs have a legitimate role to play in helping consumers claim compensation. However, a minority have been acting irresponsibly. Some CMCs submitted illegitimate claims which clog up the system. This poor behaviour has led to delays in receiving compensation for consumers who have legitimate claims and has increased costs for defendant financial services firms where claims are unsubstantiated. This issue is most prevalent in, but not limited to, the financial services sector and the PPI claims market in particular. Despite the threat of the suspension or cancellation of authorisation, some CMCs act speculatively which can impose unnecessary costs on defendant businesses and ultimately on consumers.

These amendments enable the Secretary of State to make regulations giving the claims management regulator the power to impose financial penalties on those CMCs guilty of misconduct, which will lead to tighter regulation of the industry and better outcomes for consumers and businesses. They also make a number of consequential amendments, ensuring that the provisions of the Bill on secondary legislation, including the power to make incidental or transitional provision, are extended to apply to the Secretary of State as well as the Treasury; that the commencement power applies to these provisions; and that providers of claims management services are referred to in the Long Title of the Bill.

Bolstering the claims management regulator’s enforcement toolkit by giving it a power to fine those engaged in malpractice provides an additional means to deter speculative activity. Further, a power to fine could serve as a useful alternative penalty in cases where it can be disproportionate to vary, suspend or cancel the authorisation of a CMC despite it not being compliant. Where a CMC’s authorisation is suspended or cancelled, for example, it can no longer act on behalf of its clients and this can lead to further consumer detriment. We can ensure that these CMCs go on to work in the best interests of consumers by making sure that they adhere to the codes of practice and Conduct of Authorised Persons Rules issued by the claims management regulator. These rules require CMCs to conduct themselves with honesty and integrity, including requirements to not make speculative claims, to not use misleading advertising, and to not partake in high-pressure selling. I apologise for that stream of split infinitives.

Not only will those who break these rules be subject to fines, the claims management regulator is also currently consulting on these rules in parallel to this amendment to further strengthen the consumer, business and third-party protections they offer. This ability to impose a financial penalty will be implemented by secondary legislation. It will be done by way of amendments to the existing regulations—the Compensation (Claims Management Services) Regulations 2006. A public consultation regarding the detail of the necessary changes to facilitate a claims management regulation financial penalty scheme will be launched in early 2014. Also, any changes to these regulations, including the measure of the financial penalties to be imposed, will be subject to the affirmative procedure, allowing for necessary scrutiny of the detail of the proposals in Parliament. It is critical that we tackle poor practice in this sector. These amendments, giving the Secretary of State power to permit the claims management regulator to fine claims management companies will mean that those non-compliant CMCs will have to pay the price of their poor behaviour.

I turn now to the amendment tabled by the noble Baroness, Lady Hayter, which, like the power to fine, is aimed at bringing about better outcomes for consumers who engage with the CMC sector. The noble Baroness has raised a very important issue of enabling the Office for Legal Complaints—OLC—to act as an important route of redress for consumers who feel that they have been treated unfairly by CMCs. The Government are in full agreement with the noble Baroness that consumers should be able to seek redress through the OLC. Although her intention is clear in tabling the amendment, in its current form it does not fully bring about the changes that she seeks to implement. However, as the Government support the spirit of the noble Baroness’s amendment we will give further consideration on how best to put it into effect. With that assurance, I hope that she will feel able to withdraw it.

My Lords, first, I welcome the government amendments within this group. As the Minister said, this is undoubtedly a useful addition to the regulator’s toolkit. However, although I am of course delighted that the spirit of my amendment is acknowledged, we cannot wait any longer for this. The Legal Services Act 2007 envisaged that complaints against claims management firms would be able to go to the legal services ombudsman. That was widely welcomed by Which? and everybody else. We know that in August last year the Government made the formal announcement that complaints by consumers against claims management firms would be able to go to the legal services ombudsman. That was agreed on both sides of the House and was warmly welcomed by us.

However, that was in August last year. Since then we keep hearing, “Don’t worry about it, don’t worry about it”. I have raised this issue in other Bills and there was an exchange of correspondence between me and the noble Lord, Lord McNally, about the importance of getting this done. Nothing happened—the last letter was in November. I should explain briefly to the House that the absolute desire is that these complaints should go to the legal services ombudsman. The Legal Services Act only enables that procedure to take money from barristers and not from claims management firms to pay for the ombudsman. Of course, because the regulator is the MoJ, that is a form of taxation so the only thing stopping this happening is the technicality of how we fund it.

That was accepted by the Government but they did not seem to come up with a vehicle to do this. I offered to do it for them via a Private Member’s Bill. That was prepared with the help of Which?, particularly Mark McLaren who did a lot of work on drafting that Private Member’s Bill, which we then offered as the vehicle to solve this. Nothing happened to that, although it was not declined until 12 November when the Government laid these amendments—which we were not expecting. The amendments are very welcome but do not solve the problem for two reasons: first, they do not allow consumers to get redress; and secondly, they therefore preclude the intelligence that would come from complaints. Frankly, people complain against something only if they have a chance of compensation.

Although the Government say that they will look at this, that is what they have said continuously since August last year. That being the case, we will want to put this to the House, either today or at Third Reading. I had hoped that the Government would say today that they would bring this matter back by Third Reading. Perhaps they could clarify whether that will be at some time in the future—which basically means another couple of years—or whether they are willing to do it by Third Reading.

My Lords, if we can do it at Third Reading, we will. I am advised that there are a number of technical and procedural issues that we have to go through. I hope we can do it at Third Reading. I shall certainly press very hard that we do, and every effort will be made to achieve that.

Amendment 185 agreed.

Amendment 185A not moved.

Amendment 186

Moved by

186: Before Clause 122, insert the following new Clause—

“Orders and regulations: general

(1) Any power of the Treasury or the Secretary of State to make an order or regulations under this Act is exercisable by statutory instrument.

(2) Subsection (1) does not apply to an order under section 34 (payment systems: designation orders).

(3) An order or regulations made by the Treasury or Secretary of State under this Act may—

(a) make different provision for different cases, and(b) contain such incidental or transitional provision as the Treasury or Secretary of State considers appropriate.”

Amendment 186 agreed.

Clause 122: Orders and regulations

Amendment 187

Moved by

187: Clause 122, page 94, line 9, leave out subsection (1)

Amendment 187 agreed.

Clause 124: Power to make further consequential amendments

Amendments 188 and 189

Moved by