My Lords, I declare my interests as set out in the register. In particular, I am the senior non-executive director of Metro Bank, the new retail bank, and a commissioner of the Guernsey Financial Services Commission and thus myself a regulator. I also led for the Conservative Opposition 13 years ago in Committee in the other place for FiSMA, and even before that, back in 1974 I was briefly seconded to the Bank of England lifeboat, which did a pretty reasonable job in sorting out a lesser but very serious banking run at that time.
On FiSMA, I was fiercely of the opinion that the central bank should retain responsibility for supervising the banking sector. It seemed natural that a central bank would be more likely to know what is going on. I spoke out equally strongly against the tripartite committee because when a crisis comes someone needs to be in charge. Both these issues were demonstrated most unfortunately in the 2007-10 crisis. I accept that the Bank of England has not acquitted itself that well recently. Indeed, in 2007-08, the Bank was still relying on its economic model, which told it that everything in the garden was dandy, and failed to spot a major banking run gathering momentum right outside its back door, where there was a Northern Rock office with queues of people lined up. The Bank of England needs some re-equipping and some intelligence restored in order to do the job that is going to be put on it and on the PRA.
I would like to stress concerns voiced by others about the costs. I see it from the other side of the coin. In various investment management businesses, I see piles of paper that do no one any good, when really all that is wanted is integrity and, if you breach integrity, serious punishment. Everyone seems to forget that it is the consumer who pays. When interest rates are artificially low and equity markets have done nothing for a decade, no wonder no one wants to save when there are now enormously substantial regulatory costs as well. The noble Lord, Lord Hunt, was quite right: what is wanted is proportionality; regulation generally needs slimming down and looking at more effectively on a cost-benefit analysis. I also make this point to many of the consumer lobbies, who want more and more-allegedly in the interests of consumers-and forget that it is their consumers who are going to have to pay for it.
It is dangerous to bury "buyer beware" completely. People need to understand what they are investing in and buying. Telling them, "Oh, it doesn't matter, the Government will look after you. If anything goes wrong, you will get refunded", is an extremely unwise mentality in the marketplace. Neither the FSA nor the new body should be expected to educate mature adults, which is a waste of time anyway, but much more should be done in schools. Financial literacy should be part of the core curriculum. It is gradually gaining momentum in terms of some tuition, but it is still pretty thin and most schoolteachers regard it as something with which they do not want to get their hands dirty, so more requirement should be made in that area.
Another noble Lord made the point that the Bill does nothing at least to look at how the accuracy of data in reporting to regulators should be checked; nor has it done anything about FRSA, which contributed greatly to the banking crisis by hugely overstating bank profits in good years and vice versa in bad years and led to bank accounts that no one can understand. The accounting profession has some blame to bear and needs some reform as well.
I hope that the Government will accept that the Bill needs quite a bit of tidying-up before it becomes law. I pick on one or two particular areas in the PRA. Life companies and their balance sheets are very different from banks. They need fair representation and need to be handled very differently from banks. The transfer of consumer credit arrangements, which I argued for 15 years ago, is something of a halfway house and needs looking at before this legislation is passed.
The new fashion in transparency is fine up to a point, but excessive transparency can have dangerous, contrarian effects. Banks will write minutes as they think the regulator wants to see them and decisions will be taken outside the board meeting. Let us not have excessive transparency. In the area of publishing warnings, I know of situations in which the FSA got a major warning of a company completely wrong. If that had been published, the business might have been irrevocably damaged quite unjustly.
The main innovation in the Bill is obviously the FPC, to provide macroeconomic and market oversight. I agree with my noble friend Lord Lamont and the noble Lord, Lord Desai, that the MPC and the FPC have to be one; if they are not, not only will there be conflict between the two but both bodies will overlap in the tasks that they are there to perform.
The PRA and the merged FPC and MPC need pro-growth as well as stability mandates. As many others have pointed out, the financial services are a major employer and the biggest industry in this country. I am sure the Minister will say that they are not anti-growth, but, as with the Fed, there should be a balance.
There is the question of accountability. Should those committees be ultimately accountable to the Treasury Select Committee? There is a star chamber element to the powers proposed for the FPC, and again there is room for at least some consultation with the industry.
My two main points are about competition and governance. We have competition as a major objective for the FCA only in relation to the consumer. It seems blindingly obvious that a big part of our problems has been oligopoly in the banking sector. I remember arguing in about 2000 with Sir Eddie George that, post-Barings, it was very unwise that lender-of-last-resort powers were limited to banks that were too big to fail-a lot of the smaller banks, such as Hambros, closed down and one had the very moral hazard problem that I thought the situation would lead to. Although competition will not solve anything, the more competition and the more providers you have the better. As we see in America, it is much easier to let banks fail if you have a wide range of providers. We should face the fact that one of the major problems in the banking sector is oligopoly.
Perhaps not intentionally but because regulators are frightened of making mistakes, the FSA is a major anti-competitive force against new banks and new banking licences. We in Metro Bank had to spend about £15 million before we were even led to hope that we might get a banking licence. The FSA changed its mind on several key factors several times and took a year and a half to decide. I certainly understand that we do not want a repeat of 1970 to 1974, when banks were given licences too easily, but we have gone a long way in the other direction. Even at a more humdrum level, all the anti-money laundering legislation requirements make it a nightmare to change your bank account. The transferability of bank accounts is now perfectly possible technically, so I should like the Bill include a requirement for the banking system to put bank account transferability in place, which would do a lot for competition. It is expensive for new banks to access the payment systems cartel. That needs opening up and the PRA should be thus empowered.
Secondly, the PRA should be required to protect the competitiveness of this country in the financial services industry. One of my main concerns with both the Bill and the Vickers report is that we will end up making this country uncompetitive. Our banking industry is already the second most unprofitable in the world, so that will not be good news for jobs.
On the issue of accountability and governance, I cannot see why the court should not be a proper board. The Guernsey Financial Services Commission is a proper board: we have to meet to take decisions about everything; we can sack the head of the commission if he is no good; and we are held accountable in turn. The days of the court being an ornament are gone. It should be a proper board with, bluntly, the power to sack a governor if he turns out to be no use, and the governor should certainly be properly accountable to that board.
I conclude by saying that I give great credit and acknowledgement to my noble friend Lord Sassoon for the work he did in opposition in planning the reorganisation of our supervisory and regulatory arrangements, which was clearly needed. The gist of what is before us is very much in the right direction. I hope-and I think-that the Government realise that there are quite a few items to be thought about further and tidied up, that sufficient time will be left and that the deliberations in Grand Committee will be such that we end up with good legislation.