Financial Services Bill

The quotes that my hon. Friends and I have cited—there is a feast of quotes—demonstrate the fundamental failure of the architecture that the Government are putting in place through the Bill. Two of the three authorities that form the tripartite body demonstrate a lack of confidence in the arrangements, and the evidence from Mr. Coles shows that even those who are regulated by a part of the structure—the FSA in his case—lack confidence that the outcome will be any better than that under the standing committee. We need to address that problem, and new clauses 11 and 12 are an attempt to do that by drawing together the parties to the arrangement more closely. In new clause 11 we reflect on the fact that the Banking Act 2009 gave the Bank of England responsibility for financial stability, although the Governor argues that it was given responsibility without powers, which is addressed by new clause 12. It is clear that when the Bank of England undertakes its role of maintaining and enhancing financial stability, it should have some regard to the council for financial stability when devising its strategy, and that is what new clause 11 would achieve. Mr. Footman responded in the Public Bill Committee's evidence session to the Governor of the Bank of England's evidence to the Treasury Committee in which concern was expressed about the lack of powers to implement financial stability objectives. When I asked Mr. Footman what additional powers he thought the Bank needed, he identified the need for the Bank to have the power to collect information, saying:""Our slight discomfort with the Bill is because the process of collecting all the information is entirely with the FSA. With the best will in the world, operating through someone else to get something that you need is less efficient than trying to do it directly. For that reason, at various points we have asked for the Bank to have a direct power to get information from the financial institutions, consistent with the statutory powers that it has."" He continued:""On the special resolution authority role, we do not have an information power, and we would like to have one directly."––[Official Report, Financial Services Public Bill Committee, 8 December 2009; c. 48, Q138.]" Under the Bill, the Bank is entitled to receive resolution plans as part of the living will procedures, but it will not have the power to request information from relevant institutions with regard to recovery and resolution plans. That is why new clause 12 would give the Bank of England, through amendment to the Banking Act 2009, new powers to request information, either in pursuit of its financial stability objective, or in relation to recovery and resolution plans. It would ensure that that linkage was there. I have already discussed amendment 3, which would delete clause 1. It signals our unhappiness with the arrangements that the Government have put in place. The Bill also sets out how we will be able to hold accountable the council for financial stability. One way to do that is publish the annual report, as set out in clause 3. There is a carve-out for commercially sensitive information—I understand the reason for that—and subsection (3) states:""The copy of the annual report laid before Parliament may omit… anything in the report relating to any action to be taken by any of the relevant authorities the purpose of which may be impeded or frustrated by being included in the report laid before Parliament"." We recognise the risk that would emerge if sensitive information were disclosed to Parliament. That may undermine confidence in financial markets—we accept that—but my amendment 6 would ensure that, once the need for confidentiality had passed, that information was laid before Parliament. The proposal was prompted by the disclosure last November of the fact that emergency loans totalling £61.6 billion had been made to RBS and HBOS the preceding autumn, although that was not made known through the usual mechanism of informing the Chairmen of the Treasury and the Public Accounts Committees. It emerged as a consequence of evidence given by the Governor of the Bank of England to the Treasury Committee and the notes to the prospectus issued by Lloyds to support its rights issue. We need to strike a careful balance between confidentiality and ensuring that Parliament and taxpayers know how taxpayers' money has been spent—the Minister and I have had conversations about that at a number of points—but it is worth reiterating that taxpayers should know what is happening to the money that is being spent when it is appropriate for that to be known. Clause 5 gives the FSA a new objective—a financial stability objective. During the passage of the 2009 Act, we asked whether the FSA needed a financial stability objective comparable to that in relation to the Bank of England. The answer was, "No, it is already implicit in its responsibilities for market confidence." However, the Government have now decided that we must make explicit what is implicit. In determining that strategy, the FSA should ensure that it has regard to the work of the council for financial stability. It seems odd to give the FSA the duty to set up the new council on a statutory basis, but for there to be no linkage between the FSA's work on financial stability and the role of the council. That is the basis of my amendment 5. Again, if we are to persist with the Government's notion that there is equal responsibility among all members of the new council, one would have thought that the FSA—the "Authority" in clause 5—should consult not only with the Treasury, but with the Bank of England, given that it collects data on the macro economy, analyses some of the risks and publishes the outcome of the review of risks in the financial stability report. One would have thought it sensible to ensure that the FSA consulted with the Bank in that respect when determining its financial stability strategy. Amendment 8 would require the FSA to produce an annual report when discharging its duty under clause 8, which is entitled "Promotion of international regulation and supervision". The report would set out the range of measures agreed and dealt with at global level, as well as how they were being implemented in the UK, comparing implementation in the UK with that elsewhere in the world. It would also ensure that there was some discussion of the consequences of any divergence from the globally agreed measures and of how the FSA had chosen to implement them. That will be a growing issue for the financial services sector and for regulators in the future. A number of initiatives are being dealt with at global level now, where implementation is carried out at either European or national level. The part of the Bill that deals with remuneration contains a framework for the FSA to deliver rules that reflect the agreements reached at the G20, but from talking to people in the financial services sector I know about the concern over divergence in how those rules are being interpreted here in the UK and implemented elsewhere in the world. It is helpful to have clarity on how those divergences occur. However, that is not to say that we should act only where there is international agreement, and given the size of the UK's financial services sector relative to its economy, there may be areas where we want to take unilateral action to implement some of those global agreements in advance of consensus on how they will be implemented. We seem to be leading the way on living wills and the FSA is doing a lot of work to consider the impact of resolution and recovery plans on a sample of banks. The FSA's work may not only inform its implementation of those plans, but perhaps lead it to go ahead faster than the international consensus. That may be a reasonable thing to do. We have highlighted other issues concerning how to resolve the tension arising from integrated banks where retail and high-risk activities take place within the same entity. We argued in our White Paper that we have a significant concern about those matters, but that they could be resolved only at global level. The tax on the liabilities in banks that President Obama proposed last week is a measure that could be implemented only on a global level. If it was not, banks would simply opt to go to a low-tax or no-tax jurisdiction, rather than pay a high tax on their liabilities. That is another matter in which global consensus and agreement may be needed before a country would take action. It is important, particularly given the increasing concerns about the impact of those reforms on competitiveness, to ensure that there is a vehicle for flushing out some of those issues and ensuring that there is proper formal consideration as between what we are doing here in the UK and what is happening elsewhere in the world. My amendment 6 would provide a vehicle for that to happen. To conclude, in a way, we seek to be helpful by tying the arrangements more closely together. We also tried to be helpful in Committee, but the Minister did not seem to be very keen on our proposals. Fundamentally, a weakness exists that these reforms do not address. That is why we tabled amendment 3, which would simply strike out clause 1. We argue strongly that the Government's reforms are cosmetic, as the Treasury Committee said. They will leave in place the chaos and confusion over who is in charge, as shown by the evidence given in the oral evidence sessions at the start of consideration in Committee. The Government have simply failed to learn from the mistakes made in the run-up to the previous financial crisis. Unless we have significant reform, there will be a risk of those mistakes repeating themselves.