Financial Services Bill — Committee (2nd Day) (Continued)

Part of the debate – in the House of Lords at 9:08 pm on 15th March 2010.

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Photo of Baroness Noakes Baroness Noakes - Shadow Minister, Shadow Minister 9:08 pm, 15th March 2010

I shall speak also to Amendment 105. Under new Section 3A(3) of FSMA, which is inserted by Clause 5(3), the FSA is to determine and review its strategy in relation to its financial stability objective and must consult the Treasury. When the Bank of England was given its financial stability objective in last year's Act, an identical clause was set up, with the Bank consulting the Treasury on its financial stability strategy. It is clearly right that each body should develop its own strategy because each has its own responsibilities and powers. My amendments do not call for a common strategy but for the FSA and the Bank to consult more widely than the Treasury. If there is to be any meaning to tripartite working, it seems odd that each one must consult the Treasury but not each other.

Amendment 34 calls for the FSA to consult the Bank of England on its strategy, and Amendment 105 returns the compliment by making the Bank consult the FSA on its strategy. The draft terms of reference for the Council for Financial Stability has a go at this area. It says that the council,

"in considering strategic developments ... will consider the statutory financial stability strategies of the Bank and the FSA-the Council will act as a forum for challenge and co-ordination of these strategies but determination of individual strategies will be a matter for each independent Authority".

So we have the Bank and the FSA working on their own strategies and consulting the Treasury, and then those strategies are put before the Council for Financial Stability, which might challenge them or even co-ordinate them. Will the Minister explain what happens if there is a challenge? Two of the three council members have already been involved in the preparation of the strategy. At a council meeting, presumably it is only the third member who will challenge because it is only his organisation that has been excluded from the preparation process.

Will the Minister explain what the co-ordination of the strategies is about? If the FSA and the Bank have individually prepared their strategies in divergent ways, what is co-ordination about? Is this code for sending one or both of the FSA and the Bank back to the drawing board? All this is very mysterious. No further light was shed on Report in another place when, in response to the equivalent amendment, the Minister said:

"In our view, it is unnecessary"- that useful ministerial concept again.

"The draft terms of reference for the council for financial stability already specifically require it to consider the financial stability strategies of the Bank of England and the FSA".-[Hansard, Commons, 25/1/10; cols. 631-2.]

My amendments are not about ex post consideration but about involvement ex ante in the development of strategies. As the Committee will be aware, our policy would eliminate the gap between the FSA and the Bank of England in relation to financial stability. In our world one body would produce a holistic strategy for financial stability and would, of course, consult the Treasury. In the fragmented world of the Government's creation, the Bill misses opportunities to close the gaps between the tripartite bodies. I do not believe that this is a sensible way to proceed even within the Government's own construct of the tripartite authorities and financial stability. I beg to move.