Financial Services Bill

I was going to answer my noble friend’s point at an appropriate stage. Perish the thought that I would seek to avoid doing that. I am not sure where the date of 1 April comes from, other than it being both April Fools’ Day and my birthday. I have lived with that all my life and I am fairly impervious now to the jibes. We will make as much progress as Parliament permits. I am encouraged by the speed with which we are progressing on this first group of amendments and by the clear message that I am getting from the other side of a real determination to get on with this and to see Parliament make appropriate progress. As the noble Lord, Lord Newby, said—he put it better than I possibly could—the noble Baroness’s amendments misunderstand the concept of the Council for Financial Stability. It is a consultative and co-operative body, not an executive body. I shall answer the questions a number of noble Lords asked about who is in charge, and I shall address the points raised by the noble Lord, Lord Higgins, about the resourcing for the Council for Financial Stability. Amendment 1 would provide for the council to be able to direct each member of the tripartite authorities. This together with Amendment 20, which provides the Chancellor with the ultimate power to direct the council, represents a different model to that which is proposed in Clauses 1 to 4. To set the context of the debate, I remind the House of what we are proposing and why. In reforming financial markets, the Government took a considered analysis of the financial crisis and identified reforms that were needed to strengthen the financial system for the future. In evaluating the existing standing committee and the wider tripartite arrangements it was clear that, while many different institutional frameworks exist in different countries across the world, no one model of financial regulation was successful in fully insulating a country from the crisis. The Government’s position is that what the regulators do—their behaviours and the judgments they exercise—matters much more than the institutional framework within which they operate. However, we need an institutional framework which makes sense and has clarity. I fully agree with what the noble Lord, Lord Howard of Rising, said about the need for clarity and structures and I shall address that point in a moment. Change to the institutional system—moving specific responsibilities from one body to another—will not by itself make any difference, other than to cause a significant disruption at a time when attention should surely be focused on practicable, workable improvements to regulatory performance and decision-making. The same institutional functions—central banks, financial regulators, finance and economic ministries—are central to the maintenance of financial stability in every major economy. The UK is no different in this respect. The Bank and the FSA, alongside the Treasury, have key but distinct roles in protecting the financial stability of this country, each within its own individual remit. The Government have concluded that the existing tripartite framework is the right model and remain committed to the approach of having a single independent financial services regulator in the form of the FSA. We should always remember the confusion that existed before the creation of the FSA, with multiple regulators and inconsistent rules and principles. The concept of a single regulator has proved to be absolutely critical to efficient regulation; we should not dispense with it lightly. "Who is in charge?", is the question put by the Treasury Select Committee to the Governor of the Bank of England. In his precise way, he quite correctly said, "What do you mean by who is in charge?". He meant, "In charge of what?". His answer was clear that there was an understanding of who was in charge of each approach. This issue was raised by the noble Lord, Lord Northbrook, by the noble Baroness in her speech in support of the amendments and, in particular, by the noble Lord, Lord Howard of Rising, who questioned whether one would ever support one organisation with three CEOs. I agree that that would be a highly unusual structure; it is not one that I have ever attempted to date in my business career. However, this is not a single organisation: it is a co-ordinating body for three separate organisations, each of which has a clear role and each of which has a CEO or someone in charge. Let me recap. The FSA as an independent financial regulator is responsible for authorising and supervising financial firms and markets. It triggers the special resolution regime. The Bank of England, of which I and the noble Baroness have served as members of court, is an independent central bank and is responsible for providing liquidity assistance to the banking system. It has oversight of the interbank payment system and it is the resolution authority under the special resolution regime. The Treasury, as the UK’s finance and economics ministry, is responsible for the overall institutional structure of financial regulation and the legislation that governs it. It is ultimately accountable to Parliament and responsible for decisions that have an impact on public finances, which I think answers the question that my noble friend Lord Stoddart of Swindon raised. The Bank of England and the Financial Services Authority are also accountable to Parliament and can be, and are, called to give evidence in this respect to the Treasury Select Committee. Their annual reports are also subject to parliamentary and other scrutiny. The key point is that these three entities, each of which has clear responsibility, are appropriately aligned and co-ordinated through the co-operative process proposed by the Council for Financial Stability. The council will be chaired by the Chancellor, who is ultimately accountable to Parliament and the taxpayer, but the council is not an executive body, as the noble Lord, Lord Newby, observed. There will be no votes. The council will have secretarial support, which will be provided by the Treasury. Over time, it might be concluded that it requires its own secretariat, but we have had two meetings of the council in shadow form to date which have worked rather well in accordance with the terms of reference and with secretarial support provided by the Treasury in the preparation of the minutes. The papers presented to the council come from the Bank of England, the FSA and the Treasury, depending on the specific subject being addressed. When it comes to clarity of how the model will work and who is in charge, we have clear answers; I do not believe that the Opposition have clear answers. They need to explain who in their model will be in charge. Will it be the Governor of the Bank of England? Will it be the Chancellor of the Exchequer? Simply proposing to move around the deckchairs by getting rid of the FSA and transferring its powers to the Bank of England, a step which fundamentally misunderstands the competency, structure and culture of the Bank of England, achieves no good purpose and certainly does not answer the question of who is in charge. If one achieves this move, I do not think that anyone believes for one moment that the current or any future Governor of the Bank of England would perform the role currently carried out by the chief executive of the Financial Services Authority. That role would still need to be performed. There is clarity under the current model as to who is in charge and what they are in charge of. If noble Lords reflect on what I say, I hope that they conclude that I have answered some of the doubts that they may have in this respect. The Government believe that the co-operative framework can be enhanced, however, through a more formal structure, with regular meetings, greater transparency over proceedings and clear lines of accountability to Parliament. This, I would say to the noble Lord, Lord Stewartby, is where the Council for Financial Stability represents a further step forward in the tripartite process. There will be more formality around the agenda for the quarterly meetings; there will be publication of minutes, which will provide additional transparency; and those minutes will allow for accountable and attributable comments to be reported, so that if there is a disagreement of emphasis it will be faithfully reported in the minutes. The Council for Financial Stability will also receive, after their publication—I emphasise that; I shall explain why in a moment—the reports which the Bank of England and the FSA publish on financial stability and financial risk assessment. We will debate those reports and will note any actions or views that they have in terms of mitigation required in response to an emerging risk. I emphasise that it is after the publication of the report because by ensuring that process is followed we do not fetter the independence of the Bank of England or the FSA to publish their own assessments of risk in the system and potential risks to stability in the future. Likewise, the Treasury will produce an annual report on the Council for Financial Stability which will review the operations of the council. I say to the noble Lord, Lord Stewartby, that this is a significant step forward in terms of transparency. It will ensure that if there are ever differences of opinion—and let us be frank, there will be circumstances in which the central bank might reach a different assessment of risk from the regulator or from the Treasury—they become public knowledge and become available for public discussion. I think that represents quite a material step forward. I refer here to the quarterly meetings. There will be other meetings in between which deal with specific issues relating to individual corporations or sectors. These will not be subject to normal public minuting because of the confidentiality involved. The noble Baroness will be tabling amendments in due course relating to some of those provisions. However, the annual report will, to the extent that it is possible, ensure that we also have public insight into the matters that are discussed in the non-standard meetings. For the time being we are having meetings on a monthly basis and we have had two already in shadow form: one of which was a quarterly strategic meeting, if you like, and the other was a more regular monthly meeting. We have published the minutes. They did not receive a great deal of attention, but they actually were quite thorough and quite detailed and gave a very clear indication of what was discussed at the council. The council will comprise the Chancellor as chair, the Governor of the Bank of England and the chairman of the FSA. As necessary it will be able to draw on external expertise. There is a facility where experts can be invited to come and present or give advice to the council and if the governor and the chairman of the FSA or the Chancellor are not available they can nominate deputies to attend. By ensuring that the date of meetings, particularly of the critical quarterly meetings, are set well in advance one would reasonably expect to have very high and consistent attendance. The council will be responsible for considering emerging risks to the financial stability of the UK and global financial system and co-ordinating an appropriate response by the UK authorities. It will deal with both immediate and operational issues and longer-term strategic issues. It is essentially a forum to bring together leaders of authorities responsible for financial stability and enable them to monitor emerging risks, analyse assessments of those risks and co-ordinate appropriate responses without encroaching on independence. The council will do this in partnership. The Bank of England is the independent central bank. The FSA is the independent regulator. The proposals are not about the council or the Chancellor having direct authority over other members. They are about a mature partnership. I am therefore unable to accept the noble Baroness’s amendment because it essentially addresses a very different model from the one which we have in mind. Amendment 20 ploughs a similar furrow to Amendment 1. This time the amendment aims to make clear that where the council cannot reach agreement, the Chancellor is "in charge". This allied with Amendment 1 will provide the Chancellor with ultimate executive authority for financial stability and authority over the Bank and the Financial Services Authority. This is a very major step, and I really wonder whether the Conservative Party is minded to seek to exercise such authority over the Governor of the Bank of England. When I read comments from Mr Osborne about interest rates, I think that the Conservative Party is straying dangerously towards saying that it intends to take power away from the Bank of England or begin to direct it in respect of interest rates. I see shaking of heads from the opposition Front Bench; I am delighted to see that that is the case, as it would be a very dangerous move for the Conservative Party to contemplate. Certainly, it would not be consistent with the model that we propose for the Council for Financial Stability for the Chancellor to have the power to take ultimate executive decisions in respect of the FSA and the Bank of England.