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

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

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Photo of Lord Myners Lord Myners Parliamentary Secretary, HM Treasury 9:15 pm, 15th March 2010

My Lords, Clause 5 requires the FSA to prepare a financial stability strategy and, in doing so, to consult the Treasury. Amendment 34 would require the FSA also to consult the Bank of England in this work.

The amendment is not needed, because the effect that the noble Baroness seeks is already provided for in the terms of reference of the Council for Financial Stability. The draft terms require the council to consider the financial stability strategies of the Bank and the FSA. Therefore, the Bank will have a consultative role.

Nevertheless, it is right that the FSA should be required by the Bill to consult the Treasury. As the UK's finance and economics ministry, it is ultimately accountable to Parliament and responsible for decisions that have an impact on public finances. I hope that this provides sufficient reassurance to the noble Baroness that her amendment is not needed, and I invite her to withdraw it.

Amendment 105 seeks to amend Section 2A(3) of the Bank of England Act 1998, which provides that the Bank's strategy in relation to financial stability shall be determined and reviewed by the Court of Directors of the Bank of England. Currently, the court must consult the Treasury before it sets the strategy. The new clause proposed by the amendment would require the Bank also to consult the FSA in addition to the Treasury when setting the Bank's strategy. I reassure noble Lords that this amendment is also unnecessary. The role of the Council for Financial Stability is to act as a forum for discussion and co-ordination of the Bank's and the FSA's financial stability strategies. As noble Lords are aware, the FSA is one of the council's three members and will therefore take an active role in scrutinising the Bank's strategy for financial stability. However, again, it is right that the Bank is required by Section 2A(3) of the Bank of England Act to consult the Treasury, since the Treasury is ultimately accountable to Parliament and responsible for decisions that may have fiscal consequences.

Noble Lords have asked who does the challenging when two parties have already agreed, but I think that it is obvious: it could be one of the two parties to which the noble Baroness referred, having not reached agreement with the other party, or it could be the third party. That is precisely why the Council for Financial Stability is meticulous in its requirement not only that the minutes be published but that attributable comments be included in them as agreed by the three members of the council. That will be the test in teasing out any difference of opinion that might arise.

The noble Lords, Lord Higgins and Lord Howard of Rising, again asked who is in charge or who is responsible. We covered this at some considerable length at both Second Reading and on the first day of Committee. I could again repeat the answers that I gave then: the FSA is the independent financial services regulator responsible for the supervision of financial firms. The Bank of England is the central bank; it is responsible for providing liquidity insurance to the banking system; it has oversight of the payments system; and it is the resolution authority. Finally, the Treasury, as the finance and economics ministry, is responsible for the overall institutional structure of financial regulation and the legislation which governs it. It is ultimately accountable to Parliament and responsible for decisions which impact on the public finances. That could not be clearer. There is no doubt who is responsible for what, and there is no doubt in my mind that the Council for Financial Stability will significantly improve transparency and accountability from its predecessor and therefore represents a good improvement on a model that already worked very well during the crisis.