My Lords, this amendment is about the regulatory decisions committee that the Parliamentary Commission on Banking Standards proposed, giving responsibility for banking enforcement decisions taken by the FCA and the PRA to a new, statutory autonomous body within the FCA. Unfortunately, to date the Government have rejected that proposal.
In our evidence sessions we took evidence from a number of bodies, such as the medical and legal professions. In these established professions, a number of steps are taken to separate disciplinary functions from the supervision of professional development. In the legal profession, for example, the Solicitors Disciplinary Tribunal is totally separate from the Solicitors Regulation Authority and has a mixture of lay and professional members. The SRA has no say in its composition. It is in effect a prosecutor before a tribunal.
We took evidence from Sir Peter Rubin, who chairs the General Medical Council, who described similar recent developments in the medical profession. He told us that following the Shipman inquiry, it was pointed out to the GMC that its previous arrangements, whereby it was the police, the Crown Prosecution Service, the judge, jury and everything else, in his words, were incompatible with Section 6 of the Human Rights Act. Essentially, no one should adjudge their own cause so last year, as he told us, they hived off the adjudication process under which cases against doctors are heard to a separate body in a separate building. It is still funded by the GMC but, crucially, a judge now runs the adjudication process. It is now petitioning Parliament to give the GMC the power to appeal when it does not agree with one of its findings. In his opinion, that would really get the complete separation going.
In our deliberations the commission noted that an entirely separate statutory body for enforcement could be a solution but we recognised that there were a number of obstacles to that, not least because it would generate a new regulatory body that could be a source of confusion and conflict. An independent enforcement body would still be reliant on supervisors for many
referrals that could in effect result in fewer cases if there were any problems co-operating with the FCA and the PRA. The body that we mentioned should be chaired by someone with senior judicial experience.
We also recommended a joint review by the regulators of their enforcement arrangements in 2018 but to date the Government have been silent on that issue. In the debate in the House of Commons, our chairman Andrew Tyrie made the point that the Government have rejected the need to wind up United Kingdom Financial Investments, and that the regulatory reforms to provide statutory autonomy for the decisions committee is especially regrettable. I would like the Government to give us their views on that joint approach by 2018.
We are seeking a body to be appointed by agreement between the boards of the PRA and the FCA with a majority of members with a non-banking or financial services background, containing several members with extensive and senior banking experience. It should be chaired by a person with senior judicial experience. In that way, it could publish a separate annual report of its activities and of the lessons for banks that emerged from its decisions.
When the FCA representatives were giving us evidence, Tracey McDermott, the director of enforcement, told us that the FSA had still not solved the problem of ensuring that senior figures were properly subject to the enforcement process. She said:
“The focus on senior management is something that we have talked about a lot in the FSA but we have found it very difficult to bring home the responsibility, particularly in larger firms, to those who are further up because of confused lines of accountability and because of confused responsibility”.
I would ask the Minister to keep in mind that there is an inherent tension between the role of real-time regulators and the enforcement function that can involve reaching judgments on which matters supervisors were involved in at the time, and that regulators are focused on the big picture, such as maintaining financial stability. Again, from experience I have witnessed the enforcement process being devalued in that area. There were a number of areas where the FSA at the time should have been on to enforcement procedures, particularly in the 2004-06 period of the financial crisis. It avoided those areas.
The proposal that we are making here is quite a modest one. It is for a statutory autonomous body within the FCA, and in 2018 there should be a review. I hope that Government will take those propositions seriously, reflect on them and come back to us. I beg to move.