It is a great pleasure to have an opportunity to speak in what, in the main, has been a well-informed and thoughtful debate, and I pay tribute to all who have contributed to it. I want to pick up on some of the themes in the Joint Committee report, which my right hon. Friend Mr Lilley has highlighted.
While the proposed structural reforms are welcome, there must also be changes in the culture and behaviour of the regulators and the firms they are dealing with if we are to deliver an appropriate system of financial regulation. We need a change in the regulatory culture and philosophy that will enable regulators to tackle issues as they emerge, rather than after the event.
We also need a culture in which politicians allow the regulators to do their jobs. I will be looking for reassurances from Ministers that they will not interfere with regulators and that regulators will be empowered to do the job given to them in law. As we have seen from the FSA report into RBS, under the last Government politicians were all too keen to tell the FSA to back off from being overly intrusive in its regulation. There can be no accountability if politicians get in the way of regulators doing their jobs as set out in law.
We must also ensure that the new regulators do not fall victim to regulatory capture. There was much criticism of the FSA following the collapse of HBOS and the revelation that a whistleblower had warned about the management of risk within the business. The FSA did write to HBOS and asked that action be taken in response to the issues highlighted by the whistleblower, but clearly the action taken was not sufficient. It might be noted that Sir James Crosby, the former chairman of HBOS, became the deputy chairman of the FSA. There are, of course, advantages in attracting senior practitioners to the boards of the new regulators. As we have discussed, we need people in place who understand the models of business and the financial products. However, we must not allow relationships between firms and the regulator to become too cosy and thereby to prohibit effective challenge.
I particularly welcome the creation of the new financial conduct authority, which gives an opportunity to deliver much stronger protections for consumers. I say that as somebody who used to be a regulator in the consumer division at the FSA and an adviser to the Financial Services Consumer Panel. One of the comments made at the time of the financial crisis was that the FSA had spent too much time looking at conduct issues and not enough time considering prudential issues. In my experience however, it was not particularly good at conduct either. Again, we return to the point about the FSA not being empowered to do its job. It took five years for the FSA to deal with payment protection insurance mis-selling. The industry hired lots of lawyers to argue that there was no regulation to stop what it was doing, leaving the FSA powerless to take action without legal challenge even though it was blatantly obvious that the industry was mis-selling and ripping off consumers.
In such an environment, the regulator needs real teeth. It also needs the support of politicians and Ministers. It does not need politicians getting in its way; instead, it needs their support. The regulator will never be able to match the legal resources that the amassed banks can mobilise and it will therefore face an unequal fight unless we stand behind it when there is consumer detriment. Ministers need to be prepared to set out what behaviours they consider to be unacceptable. We have talked about naming and shaming. We need to think about how much further we might go in that regard. We might learn from what the Prime Minister did with the energy companies just a few months ago. If we were to give a signal that such behaviour will not be tolerated, that would give the regulator the clout to encourage firms to change their behaviour.
Clearly, that has been absent from our financial services regulatory regime. Instead, we have had an environment where the Prime Minister, the Chancellor and the City Minister were calling for light-touch regulation. That led to pressure on the FSA. We have heard today about the 8,000 rules that led to calls for light-touch regulation, but that focus on rules clouds the issue. What was needed was an environment where the regulator could tackle the risk of consumer detriment within the business it was supervising. We needed fewer rules, not a less active regulator.
That is where we come back to the whole issue of culture and behaviour by the regulator and the firms. We need a regulator that provides an appropriate challenge, and one which can exploit the source of profit in the business model and ensure that institutions treat their customers fairly. We need a regulator that challenges the behaviour of the firm, not its compliance with individual rules, and which will make it clear who is accountable for what in the regulatory system.
Finally, I wish to give my support for the transfer of the regulation of credit to the new financial conduct authority. Consumer debt is probably the biggest cause of detriment to our financial industry and it has always lacked any transparency; it was not clear who was responsible for regulating that. The Office of Fair Trading has been a rather anonymous organisation to the public. As we have heard, the proposal also gives us the opportunity to ensure that the new high-cost lenders can be tackled. We have heard lots of discussion about the need for price regulation and caps, but this is about having responsible lending rules and making sure that a suite of products are offered to fit every consumer’s circumstance. I look forward to engaging in the debate further as the Minister develops those proposals, and I give my wholehearted endorsement to the Bill.