Financial Services Bill

My Lords, I apologise to the noble Baroness that I was not in the Chamber to hear her speech, but I was watching it on the monitor. I am afraid she provoked me to come across here to intervene in the debate on this clause standing part. At one point she said that one of the problems with the FSA was that it was taking too much time engaging in consumer protection. I declare my interest as chair of Consumer Focus. That canard, which has run through quite a lot of commentary on the failures of the banking regulation system, is a complete misinterpretation. We have to ask ourselves what the banking system is for. The banking system is not for itself, nor is it for the City of London. It has a good benefit on the balance of payments in making a profit, and we should recognise that, but essentially the banking system is to provide the oil and the money to ensure that the rest of the economy and society operate. Its responsibility is to its depositors, to those who take loans from it and to the other people who take up its financial services. It is therefore an absurd argument to say that the regulator has undermined the industry by forcing it to take too much notice of its customers. If you step back and think whether it could make sense to apply that to any other industry, then the absurdity becomes apparent. I had some criticisms of the FSA and the way it pursued its consumer protection agenda—I still have, and I still have some concerns that the Bill might be slightly diluting that. However, the alternative which the noble Baroness and, as I understand it, the Conservative Party are proposing is the abolition of the FSA and the complete separation of the issue of supervision of the financial system from its responsibility to its customers. There will be another quango with no leverage and much less authority which will look after consumer protection. That is a move in completely the wrong direction. We need to associate all forms of supervision of the financial sector with its responsibilities to the business and individual consumers of the services of that industry. If that fails, then it is not just the banking system or a few banks which fail; it is the whole economy, with wider implications for society, individuals and families. This is admittedly a pretty substantial failure of financial regulation here and in other parts of the world. However, if the conclusion we draw is that the regulators should stop worrying about consumers, whether they are businesses or individuals, and start worrying solely about macroeconomic affairs, then that is the wrong conclusion. The two have to go together. The banks have to operate on a prudential basis, and they should be supervised more effectively by the regulator in that regard. That also has to go with the way in which the banks are performing a service to the rest of us. Therefore, the solution that seems to be behind the opposition to this clause standing part, and the policy of the Opposition in this regard, is taking us down a blind alley. I much prefer, with a few criticisms which I may voice later in Committee, the approach that the Government are taking to tighten up the regulation and leave a regulator which is looking after both sides of the performance of the financial sector, and not just one.