The Bill came out of the other place only last Wednesday night and it was heavily amended there. It is the most complicated, and one of the most important, pieces of financial legislation for decades.
Much of what we are considering today amends provisions in the Bill, which themselves amend the Financial Services and Markets Act 2000 and the Bank of England Act. The Bill is incomprehensible without constant referral to FSMA. I would go further and say that it is incomprehensible in parts even after considerable referral to FSMA. We now have a piece of legislation that passeth all man’s understanding, like God’s will. FSMA itself was arguably the most complex piece of legislation ever passed by Parliament. I was on the Bill Committee and it was certainly pretty testing.
We are now legislating in a huge rush to get this on the statute book by the end of the year in order to meet an entirely arbitrary deadline. The deadline has been rendered all the more absurd by the fact that we will be back here next year anyway amending it as part of the banking Bill, which is required to give effect to the Vickers commission’s recommendations, parts of which have to be done by amending FSMA and cannot be done in any other way. I am not making some recondite point about parliamentary procedure; I am making a point about how to make the Bill effective. It is a point that is being made to me right now by senior regulators, who would very much prefer that we just take a little bit more time to get the legislation right.
This group of amendments deals largely with Bank of England governance. Everyone is agreed that Bank of England governance is in a huge mess. That is why last April the Treasury Committee took the highly unusual step of tabling a new clause in an effort to try to sort it out. I am particularly grateful to colleagues from four parties on the Committee who all co-operated to
enable that amendment to go down with unanimous support. I am also particularly grateful to my deputy Chairman, who is sitting on the Opposition Benches, who assisted with the tabling of that clause. It was needed because the Bank has ramshackle governance arrangements that reflect their 17th century origins, as the name “court” demonstrates. As has already been pointed out, better governance would improve its accountability to Parliament. But much more important in some respects, it would also improve the Bank of England’s authority to act and to speak to the rest of the country as it takes tough decisions, such as those that have just been referred to. This is a point that is not lost on very senior people in the Bank of England right now, on the Monetary Policy Committee, the Financial Policy Committee, and also a number of deputy governors.
The Treasury Committee clause would not have solved all that, but it would have gone some way to bringing the Bank into line with good practice on corporate governance generally. It would have placed a duty on the court to conduct retrospective reviews of Bank performance and to publish the results, and it would have required the court to publish its minutes. I withdrew the amendment in the Commons only when the Government gave undertakings to make those changes in the Lords. I will come back to that.
In May, the Treasury Committee took another highly unusual step of reporting on the Financial Services Bill, after we had looked at it in the Commons, in order to assist the other place with its examination. Most of the conclusions that we came to in that report were raised as amendments in the Lords. The Government responded to some of them and that is what we are debating now. The Government’s Lords amendment 3 sets up, as we have heard, an oversight sub-committee of the court’s non-executives. That would give the court the power to commission retrospective reviews of the Bank’s performance —that is a step forward—to be carried out either externally or internally. The Government have also inserted an amendment to require the publication of court records of its meetings. While these amendments improve the Bill, they fall well short of what we were hoping for, and what in our view is still required, for several reasons.
First, the amendments place the power of review in the hands of a sub-committee of the court, rather than the court itself. This will further confuse the lines of accountability, not least to Parliament and to the Treasury Committee. These accountability lines are now very complex. I urge the Minister to try drawing them on the back of an envelope. I wager that he will have quite a task on his hands. Senior regulators agree that they will not do as they stand, and they have been telling us that publicly and privately. They want an improvement. They want the legitimacy for their decisions that comes with effective parliamentary scrutiny. Senior people in the Bank of England have seen how the Monetary Policy Committee has been strengthened and bolstered as a result of effective scrutiny by the Treasury Committee.
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Secondly, the amendments fall short of what is needed because they require publication not of the minutes of court meetings, but merely of a record of such meetings, which I do not think would necessarily amount to much. A moment’s thought can tell us how unrevealing a mere record might be.
Thirdly, the Bill does not properly reform the court. It does not bring governance of the Bank into line with what most of us would consider to be the norms of corporate practice, whether public or private, right across the country.
Fourthly, no statutory obligation is placed on the court or the oversight board to respond to reasonable requests for information from the Treasury Committee. In practice, they can stonewall. I do not think that is acceptable if we are to have high-quality governance. I think that good-quality scrutiny by Parliament will be much more difficult without such an obligation being placed on the court. I worry that, at worst, the sub-committee could end up owing more to form than to substance. That is, of course, what has been wrong with the court as a whole; it has been as dignified over the years as it has been ineffective.
Fifthly, the Governor’s central and enhanced position is unaffected and the Bank’s hierarchical nature, with him at the apex, will remain. He is a single institutional point of systemic risk in the new governance arrangements. The danger of group-think will remain. Bill Winters recently drew attention in his review to that hierarchical problem and the need to place a requirement on the Governor to consult others, particularly the deputy governor.