Financial Services Bill

The hon. Gentleman raises a very real issue. He will recall that in 2007 there was a great deal of concern about the role of credit rating agencies, especially in rating the products that had managed to get the system into so much difficulty. I shall shortly be touching on EU proposals to make sure that credit rating agencies are supervised on a Europe-wide basis, because by their nature such agencies operate across several countries, so regulation by one country alone would not be sufficient. That is a major step forward, but America has to do the same thing, because credit rating agencies are based there too—indeed, sub-prime products and certain other products emerged from that side of the Atlantic. The hon. Gentleman makes a strong point. I want to say a few words about the UK regulatory architecture, which is one of the areas on which there is a difference between the two sides of the House. I may be able to anticipate one of the arguments that will be advanced from the Conservative Benches about the architecture of our present system of regulation. To attempt to blame what has happened in the UK on our system of regulation, or the architecture or set-up we have in this country, does not hold water. If we look around the world, we see that just about every country has been affected by the problem, and whereas in this country we have two bodies responsible for regulation—principally the FSA, but also the Bank of England—most countries have rather more. In the United States, for example, several different organisations are all involved in the business of regulation. As I said when we discussed the matter briefly in the Queen's Speech debates last week, the US is trying to address that issue. Every country's system has encountered problems, but what matters—certainly in my experience—is what the regulators actually do, and the judgments that they exercise. I strongly believe that any changes to the system need to build on experience and to address areas in which there have been deficiencies. The changes need to be practical and workable, which is why I am not persuaded about upheaval in the regulatory regime, or that bringing everything together in terms of monetary and regulatory policy for institutions large and very small makes any sense. Obviously, the functions of institutions—the central bank, the financial regulator, and finance and economics Ministries, which in our case means the Treasury—are central to the maintenance of financial stability in just about every country. The organisational relationship we now have in the UK—involving the FSA and the Bank, which is responsible for financial stability too—is much simplified compared with what we had, and we can build on it.