Amendment made: 3, page 49, line 12, at end insert—
‘( ) In paragraph 14 for “submit a monthly” substitute “, at least 8 times in each calendar year, submit a”” —(Harriett Baldwin.)
This amendment changes the frequency with which the Monetary Policy Committee is required to report to the court of directors from once a month to at least 8 times a year. This is because Clause 8(4) replaces a requirement for monthly Committee meetings with one for meetings at least 8 times a year.
Queen’s consent signified.
I beg to move, That the Bill be now read the Third time.
It has been a pleasure to take this legislation through this House. There has been a good level of interest from Members from all parts of the House, and a wealth of suggestions and recommendations have been made, which is a testament to how important the issues in this Bill are. Indeed, some of the suggestions have made their way into the Bill.
The Bill will: make the Bank of England more transparent and accountable to Parliament and the public; further strengthen standards in the financial services sector; and strengthen protections for consumers, especially when accessing the new pensions freedoms. Building on the fundamental reforms to the regulatory architecture introduced by the Financial Services Act 2012, the Bill delivers a set of important evolutionary changes to the Bank. It ends the subsidiary status of the Prudential Regulation Authority and creates a new Prudential Regulation Committee, on the same footing as the Monetary Policy Committee and Financial Policy Committee. It makes the oversight functions the responsibility of the whole court, ensuring that every member of the court, executive and non-executive, can be held to account for the use of these functions. It also enhances the accountability of the Bank to Parliament by making the whole Bank subject, for the first time, to National Audit Office oversight. If I may, Mr Deputy Speaker, let me correct something I said in error earlier, when I confused NAO with FOI—freedom of information. Of course, FOI has applied to the Bank of England for some time; this Bill brings in the NAO oversight.
The Bill also implements the remaining recommendation of the Warsh review, updating requirements for the timing of MPC publications and meetings. As my right hon. Friend Mr Tyrie said on Second Reading, this Bill
“brings the Bank of England more up to date as an institution, and in doing so it should greatly improve the scope for making it accountable to Parliament and the public”.—[Official Report,
Vol. 605, c. 667.]
During the passage of this Bill we have rightly devoted considerable time to the question of the appropriate role for Parliament. The Treasury Committee plays a crucial role in providing effective scrutiny of the FCA’s chief executive, and the agreement that we have announced today reinforces that.
The second aspect of the Bill is that it strengthens conduct in the financial sector by extending the senior managers and certification regime to all firms covered by the discredited authorised persons regime that we inherited. We all agree on the vital importance of high standards of conduct in the UK financial services industry. This Government have already taken the initiative in this area; we took a key step by bringing in the regime for the banking sector in March this year. The expansion of this new regime to all authorised persons will enhance personal responsibility for senior managers across the industry and raise standards of conduct more broadly.
Thirdly, the Bill introduces support for consumers accessing the new pension freedoms. To support consumers who, from April 2017, will be able to sell their annuity income stream in the secondary market for annuities, the Bill will extend the scope of the Pension Wise guidance service to cover these consumers, and introduce a requirement that, in effect, ensures that consumers with a high-value annuity receive appropriate financial advice before making the decision to sell their annuity income stream. These measures will help make consumers better informed and less vulnerable to mis-selling and scams.
In order to ensure fairness for people seeking to access their pensions early, the Bill will also give the FCA a new duty to cap early exit charges that act as a deterrent. This will provide real protection to consumers in contract-based pension schemes who are looking to make use of the freedoms.
The Bill also supports the Government’s consumer protection objectives by giving the Treasury a new power to provide financial assistance to illegal money-lending teams tasked with tackling loan sharks. Today, we have also added the amendment tabled by my hon. Friend Mr Walker.
In closing, I thank all right hon. and hon. Members who have contributed to the debates, both by speaking and by tabling amendments. In particular, I thank all the members of the Public Bill Committee for their efforts and for the time spent going through the Bill clause by clause. The hon. Members for Leeds East (Richard Burgon) and for Wolverhampton South West (Rob Marris) provided challenging discussion throughout the passage of the Bill. The hon. Members for East Lothian (George Kerevan) and for Kirkcaldy and Cowdenbeath (Roger Mullin) gave close scrutiny to the Bill. My right hon. Friend the Member for Chichester made valuable contributions that have been most helpful and insightful, particularly on Treasury Committee matters.
I also thank the Treasury Whips, my hon. Friends the Members for Truro and Falmouth (Sarah Newton) and for Central Devon (Mel Stride), who have provided me with much support both during and outside Bill debates. The Chairs of the Public Bill Committee, my hon. Friend Mr Brady and Phil Wilson, and you, Mr Deputy Speaker, have handled our scrutiny well.
I thank my Parliamentary Private Secretaries, who took on the important and thankless task of sitting behind me during our sittings and ensuring that I got the right briefing, for supporting me generally throughout this process.
Finally, I give thanks to the organisations that have assisted us in developing the Bill—the Bank of England, the National Audit Office and the Financial Conduct Authority. I must also give sincere thanks to Treasury officials, lawyers and parliamentary counsel, who spent many hours in the box, drafting amendments and briefings for these debates.
We have had useful and wide-ranging debates, and our discussions with Members in all parts of the House were constructive, even when we did not agree and had to settle matters with a vote. We have shown an understanding of each other’s position and improved the legislation as a result. The Bill will now go back to the other place, where their lordships will consider the useful changes that we have made to the Bill. I hope that they will welcome the legislation in its current form.
In conclusion, this Bill makes changes to strengthen the governance and accountability of the Bank of England. It will contribute to the Government’s commitment to strengthen standards across the financial services industry and ensure that consumers are well protected. I commend its Third Reading to the House.
It is my pleasure to speak for the Opposition on Third Reading of the Bank of England and Financial Services Bill. The Chair of the Treasury Committee very kindly referred to the good humour and good nature I showed in one of my speeches. I am afraid that, if he were here now, he would be disappointed with the speech that I am about to make. People could be forgiven for thinking that I am returning to what some call my po-faced modus operandi.
The role of Government in legislating for financial stability and in ensuring that the Bank of England acts in the interests of the wider economy is to get the balance of regulation right. Righting the wrongs of the 2008 bankers’ crisis is an important task for any responsible Government—a task that Governments around the world have focused on fulfilling in the past decade. The task has been being attempted since the bankers’ crisis of 2008, and today the bankers’ Chancellor is threatening to set it back.
The Bill has seen a number of changes since it first appeared in the other place, some of them for the better, but the precipitate changes that the Government are making to financial services regulation through their new settlement with the financial sector, including through measures in this Bill, suggest that they have failed to learn the lessons of the 2008 bankers’ crisis.
The Bill is a missed opportunity. The measures we have challenged on Second Reading, in Committee and on Report include the proposed abolition of the Bank’s oversight committee, the proposed veto on the National Audit Office’s powers of investigation, the proposed downgrading of the power of the Prudential Regulation Authority to that of a committee of the Bank, and the proposed reversal of the presumption of senior managers’ responsibility for misconduct cases. However, we also welcome a number of measures, including the Lords-stage concessions on the powers of oversight for the Bank’s non-executive directors, the reversal of the veto on the NAO’s powers of investigation, and the measures announced on funding for illegal money-lending teams in Her Majesty’s Revenue and Customs.
We are disappointed that other proposals have not been accepted by the Government. The leak of the Panama papers in the past fortnight has reawakened public concern about our financial system. There has been publication of thousands of documents detailing the systematic use of tax havens for the registration of secretive trusts and shell companies that are serviced by UK banks and that hold trillions of pounds out of reach of HMRC—a state of affairs that rightly outrages people across the UK and the globe. That is why earlier today we offered the Government an opportunity to demonstrate their commitment to delivering the necessary tax transparency measures through our new clause 14.
That new clause, if the Government had supported it, would have instituted a new principle for the FCA: that of combating abusive tax avoidance arrangements, including by establishing a register of beneficial owners of trusts serviced by UK banks. Of course, that in itself is not sufficient, and Labour has set out its tax transparency enforcement plan. Earlier today, our new clause raised the vital issue of the UK banks’ involvement in the Panama papers, which the FCA has now asked them to report on.
The Government have set out initial plans but, with respect, they have not in our view grasped the bull by the horns. They have been dragged there by campaigners, charities and commentators who have rightly urged action on anti-abuse rules and country-by-country reporting. However, it is on the regulation of banks’ activity here in the UK, which has been such a dominant issue in recent years, that the Government have rolled back, watering down their proposals—or, should I say, U-turning on them.
Under the current presumption of responsibility that applies to senior managers, to avoid being found guilty of misconduct in an area for which they are responsible, they will have to show that they took reasonable steps to prevent that contravention. The Bill removes that onus on top bankers, an onus that is entirely reasonable, entirely proportionate and, as very bitter experience tells the British people, entirely necessary. Misconduct and misdemeanours in financial services are sadly not merely a tale from our history. In 2015, for example, the FCA had to fine firms more than £900 million. There was also the LIBOR scandal, foreign exchange fines and the mis-selling of PPI to the value of up to £33 billion, and the presumption of responsibility was so reasonable and so necessary that the policy was introduced with cross-party support. That should not be forgotten.
It is remarkable that only days after the leak of the Panama papers and the pressure on the Prime Minister to defend his creative financial arrangements, the Government can come to this House and defend their decision to reverse regulation that they chose to bring in back in 2013, following the comprehensive work of the Chair of the Treasury Committee, my colleague Lord McFall, and others on the Parliamentary Commission on Banking Standards. This measure, which the Government are yet to implement, has been rolled back by the bankers’ Chancellor under pressure from those who would have been scrutinised. This change of policy did not take place in isolation; as I say, it was part of the Chancellor’s new settlement with the financial sector.
Another idea that we supported today, alongside our Treasury Committee colleagues, was strengthening the role of the Treasury Committee in the appointment of the chief executive of the FCA. It is the Treasury’s influence over the FCA and financial regulation that has been the subject of so much debate and concern in the past year; there has been debate and concern about the removal of Martin Wheatley and the scrapping of the FCA review of banking culture. More widely, as part of the post-crash debate, there have been concerns about whether bank capitalisation and leverage would be at sufficient levels and whether a suitably strong ring-fence would be implemented.
Added to this toxic cocktail of the bankers’ Chancellor’s own stirring is his unhealthy obsession with flogging off the Government’s Royal Bank of Scotland shares at a huge cost to the public purse. I have previously asked the Minister whether the Government will establish a floor price for the sale of RBS shares, as they have with Lloyds shares—or do they accept that the Chancellor got it wrong when he said that his loss leader last year would lead to better sales?
There is also the issue of pension master trusts. In Committee, the Minister told my colleague the shadow Financial Secretary that the Government would bring forward legislation, but the Minister of State for Pensions has since told the Work and Pensions Committee:
“I have been pressing for a Pensions Bill but so far we don’t have one”,
even though the Government could not protect savers without one. Will the Minister say when the Government will take action?
This Bill is a missed opportunity to demonstrate how the Bank of England could carry out its work in the most efficient way possible, with transparency and accountability in its decision making, serving the interests of the people who have sent us here to represent them, and a missed opportunity to demonstrate that senior managers in the financial sector could continue to do their jobs while being effectively and appropriately regulated. These are more missed opportunities from the missed-target Chancellor.
The context of the Bill is vital to understanding our concerns, and the concerns and demands of the wider public. We are eight years on from the economic crisis—the bankers’ crisis, which brought the financial services sector and our country to their knees. The sector was rescued by the decisive action of the then Prime Minister.
The Prime Minister of the day did step in and take appropriate action. The important thing is that the lessons of the financial crisis and the banking crisis are learned. I believe that the Opposition have learned those lessons, but those on the Government Benches have not.
Do the Chancellor and the Government still not understand the widespread anger out there? Do they not recognise the public’s deep distaste for the ever-expanding horror story of bailed-out bankers not being brought to book? The Panama papers shone a light on the squalid practice of the super-rich squirreling away money offshore that Britain needs for our schools and hospitals, and to bring down the UK debt that has rocketed on the Chancellor’s watch. As I said on Second Reading, all that is taking place while there are cuts to pay, pensions, welfare, councils and services.
The public are right to remember that because of the behaviour of some top bankers, people whom this House is meant to represent lost their homes and their jobs. We should never forget that it was the bankers’ crisis that caused the deficit that this Government have relied on as their justification for their political choice to cut our public services, cut funding to our local authorities, cut the incomes of working people and cut support for the most vulnerable people in our communities. The global financial crash caused the huge increase in the deficit and stalled the economy. It also gave the Government the opportunity to carry out their long-harboured and decades-old ideological desire to cut public services and wither away the state.
We need a healthy and effective banking sector, but one that is appropriately regulated, serves the interests of the whole economy, does not hurt ordinary people or small and medium-sized businesses and delivers the vital investment our country needs for long-term growth. The Conservative Government’s climbdown on the presumption of responsibility, which they previously supported, will hinder, not help, the fulfilment of those ambitions.
Personal responsibility is vital for the operation of our regulatory systems. The Chancellor’s policy U-turn reduces precisely the personal responsibility that the Parliamentary Commission on Banking Standards recommended in its 500-page report. Scrapping a key measures before it has even had a chance to be tested makes no sense—unless, of course, the Chancellor is just following bankers’ orders. The startling and precipitous scrapping of a widely welcomed measure shows that there is a very real risk of failing to learn the lessons of the bankers’ crisis, and that is why we will oppose the Bill today. I urge all hon. Members to do the same.
We, too, will oppose the Bill on Third Reading. During Treasury questions today, the Chancellor said—I wrote the phrase down, because I was rather taken with it—that he was quite certain that we now have “better and tougher regulation of the financial system.” That is a good test, and it is a good test for this Bill. Do we have tougher regulation? As the law stands this evening, if a senior named manager in a major financial institution discovers that there has been major corruption, wrongdoing and regulatory failure at their bank on their watch, they are culpable unless they can prove to the FCA that they took reasonable steps to stop that happening. As we speak, they would be responsible, and that has been the case for a month and a half.
If we pass the Bill tonight, the situation will change. That manager will no longer be personally responsible. They will be able to argue, “Actually, I ticked all the boxes, signed all the forms, went to all the group therapy sessions with those on my trading floor and told them all to be good boys and girls, but do you know what? They weren’t, and they hid it from me.” And so we will go through the whole cycle again. The law as it stands, as passed by this Government and this Chancellor, makes each individual senior named manager responsible, like the captain of a ship or ferry; if something goes wrong, they are responsible and they cannot claim otherwise. If we pass the Bill, far from toughening the law, we will weaken it.
The only explanation we have heard from the Government is that it is a bit more complicated now because the Bill widens to tens of thousands the number of people who will be designated as responsible people when it comes to identifying who is in charge when something goes wrong. I understand that, but it is perfectly possible, as we tried in Committee, to ring-fence and say that the very senior people in the major banks—the systemically dangerous banks—should be held personally responsible, unless they can prove that they took proper steps. But no, the Government are using the widening of the designated persons regime to weaken and water down the current legislation. That tells me that they are not really serious about being tougher; they are more concerned with getting by.
There was an interesting debate in Committee about transfer vehicles. Those are a bit technical, but they are to do with how the insurance market reinsures itself to spread risk. There are clauses in the Bill—this is a good thing to put into it—that give the Treasury powers to regulate the use of transfer vehicles in the reinsurance market in a tougher fashion, to use the Chancellor’s key word.
I do not have time to go into detail about what is happening, but insurers can offset some of their risk in the reinsurance market, and they usually do that by selling some of it to specialist wholesale houses, which buy into the risk, but whose capital covers the risk if something goes wrong. Now, the insurance market is instead moving towards reinsuring through specialist vehicles of the kind that got us into trouble in the mortgage market in the lead-up to 2007.
When the issue was discussed in Committee, it was interesting that Ministers argued that we needed to put in place a regulatory framework that made it easier to shift the burden in the reinsurance market away from wholesalers that are capitalised and towards special vehicles using all the financial markets’ tricks of the trade, which led to the disaster in 2007. That said to me that, deep down in the Bill, the Government are up to their old tricks—they want to deregulate and to have less tough regulation, rather than more regulation. On those grounds, the Bill fails the Chancellor’s test, and we should vote against it.
There are good things in the Bill. In particular, we can pride ourselves on the fact that, through the Committee stage and leading up to Report stage today, the Government have been persuaded—I use that word in inverted commas—to take the Treasury Committee’s advice and to set a precedent, in that the FCA’s chief executive will in future be subject, de facto, to having their appointment approved by the Committee and, therefore, by this House rather than the Executive.
That does two things. First, it makes the FCA more accountable, because it is accountable to the House rather than the Executive. Secondly, it protects the FCA from interference by the Executive. That is a good precedent. If it is extended, we will be able to ensure that all the key regulatory bodies and their senior staff are approved by the House and, in particular, that the Governor of the Bank of England is subject to scrutiny and approval by the House, rather than simply appointed by the Executive. That is important because of the large powers that have been transferred to the Bank of England since the crisis of 2007.
However, there are still loose ends, and so I come to the word “better” in the Chancellor’s little homily. Have things got better? They have got a little better, given the ability of the House to protect the FCA and to have a role in appointing its head, and we can take that further into other regulatory bodies. However, there are loose ends at the FCA. Much of the Bill and much of the debate has been about the FCA. In the last instance, the FCA is the consumer’s champion: it regulates how the banks sell. Many of the problems we have had in the last 10 years have been about mis-selling by the banks. Every Member in the House will know we have a number of legacy organisations and legacy campaigns because we have still not put right the mis-selling that has taken place across a range of banks and products since the turn of the millennium.
The FCA is important, and protecting it is important, because, in the last instance, it is the consumer’s champion. A few weeks ago I went to FCA headquarters and had a meeting with Mr John Griffith-Jones, who is the chairman of the FCA. I put it to him, “You are the consumer champion,” but he demurred. He does not feel that the FCA is the consumer champion. He thinks that that would go too far and that it would be partisan and take up the consumer’s choice. At present, the FCA is still too much the creature of the Treasury. If we want a tougher and better regulatory regime, we have to make the FCA truly independent.
The FCA is getting a new chief executive, but I am not going to offer platitudes and pleasantries. When the new chief executive starts, I think that the chairman of the FCA should consider his position, because I think it also needs a new chairman. We are only starting on the road of making sure that our regulatory bodies are fit for purpose; we have not got there yet.
Finally, many people in Wales, Scotland and Northern Ireland are disappointed that the Government stood on ceremony and decided not to widen the remit of the membership of the core bodies of the Bank of England, starting with its court, to allow proper representation of all of the regions and nations, including the north of England. Most people in this country, and certainly those in the Celtic regions, are long of the view that the Bank of England, the banks and the key regulatory authorities are far too focused on the square mile of the City of London and its needs. We will never have a tougher, better regulatory system unless we widen the remit until the whole of the UK—the individual nations and the regions of England—are represented. Until we do that, the Bank of England is still suspect. That has not been delivered, so there is still a suspicion across the UK that the banking regulatory system operates ultimately in the interests of the bankers, rather than the people. Until that changes, we will not have a better or tougher regulatory system; we will simply have the same old regulatory system dressed up under a different name, and the same old banking crisis will be around the corner yet again.
Question put, That the Bill be now read the Third time.
The House divided:
Ayes 298, Noes 237.