Financial Services Bill

Along with my hon. Friend the Member for Leeds East (Mr Mudie), I represented the parliamentary Labour party in the Commons on the Joint Committee of both Houses that gave the Bill pre-legislative scrutiny. It was a pleasure to serve under the chairmanship of the right hon. Member for Hitchin and Harpenden (Mr Lilley), whom I thank for his fair-minded chairmanship. I also thank the impressive array of witnesses who gave up their time—in some cases very valuable time—to help the Committee in its deliberations. I echo the right hon. Member for Hitchin and Harpenden in commending the Joint Committee's report to the House. The Bill essentially addresses itself to the structure and powers of the financial services regulator. It does so at a time when the whole world is facing up to a debt and liquidity crisis and when the financial services sector is viewed by the public with even more distrust than is normally reserved for politicians and journalists. I do not want to spend much of my remaining eight minutes dealing with the point on which the Chancellor focused. He certainly decided not to waste a good crisis. He focused on the structural questions involved. I do not think that it is primarily a structural question, and that view was shared by the Committee. Structures and architecture are not the root cause of the problem. As my right hon. Friend the shadow Chancellor said, other countries with different regulatory structures faced similar problems. It is not a structural question alone; it is also about the power, scope and information available to the regulator. It is also—dare I say it—about the behaviour of the regulated. Effective regulation flows from getting the culture, focus and philosophy of the regulator right, as we concluded in the pre-legislative scrutiny report. We as a House should be far less tolerant of the evasive and litigious behaviour of some of the regulated. We should expect the regulator to take an interest in gathering market intelligence and anticipating emerging problems. The focus on that is one of the strengths of the proposed new architecture. It will involve co-operating closely with the regulatory authorities in other jurisdictions, particularly the United States. If we believe that it is necessary in the broader public interest to regulate the financial services sector trans-nationally, why are we so acquiescent in the existence of a flourishing shadow banking marketplace? What defensible public purpose does that marketplace serve? What is the justification for the almost impenetrable complexity of its transaction structures? Surely the only two possible reasons for it are to avoid transparency and therefore evade the regulator or, somewhere in the details of the complex structures, to turn a small additional margin of profit on very large sums of money at the expense of the unwary. I ask again: why is that in the broader interests of society? The Committee went to some trouble to establish the balance of power between the proposed new European regulatory architecture emerging from the Basel III process and the new United Kingdom structures. The question is important, and I am pleased that the Chairman of our Committee referred to it. The Commission's intention is that the European Union's regulatory regime will be mandatory for all European member states, including us, and will be asserted centrally, not legislated for by national legislation. The Prime Minister has assured the House that it is the Government's intention that the European Union regulatory regime should apply to the United Kingdom. The European Union regime will act as a constraining factor on UK regulators, a point that the right hon. Member for Hitchin and Harpenden made in his speech and that I hope the Minister will address when he winds up the debate. As I argued earlier, the forward-looking, judgment-based regulatory regime must be well informed if it is to function adequately. I thought that the Governor of the Bank of England was clear on that point when he argued that the Financial Policy Committee should have the power to request information from regulated firms and determine the time frame in which that information should be sent. The Chancellor, in his address to us, seemed to support the regulator having that power. If that is his view, it is mine as well, but to the Committee, the Government seemed to be arguing for a more tortuous process that would require Treasury consent and even parliamentary approval. That does not capture the sense of urgency and the need for firmness. We should back the regulator. While I am on the subject of timely intervention, the Bill is said to be admirably clear on who is in charge during a crisis. The Chancellor made much play of that in his address to the House. The trigger will be the potential need to call on public funds. It is essential, though, that the Chancellor be alerted, at the earliest possible moment, to an emerging situation of that kind. If there is any doubt about that, the Chancellor should get the benefit of the doubt. If he is told only at the last minute, the Chancellor will not be left with a wide range of choices, and none of them will be particularly palatable. The effectiveness of judgment-led regulation will rest on the quality of the individuals working for the regulator. The Governor argued for a dedicated team of public servants working in a public-service culture who are able to look to a dedicated career in regulation. I believe in public service and share the Governor's point of view. Such a career should be well-paid and the public servants should be beyond corruption and intimidation. They should be protected by transparency, powerful criminal sanctions and a new parliamentary committee acting as Parliament's interface with the Governor and his deputies as regulators. The regulatory system should focus on the protection of consumers and the taxpayer.