My Lords, when the banking crisis hit the UK in 2007 and 2008, no one knew who was in charge. The tripartite authorities took a minimalist view of their respective responsibilities and necessary action fell between three stools. Thus, they failed to maintain financial stability. The tripartite system tried to segregate the regulation of banks from the management of the economy as a whole. I believe we must treat them as one part of a whole system.
The decision to turn the Bank of England into a monetary authority was good, but it was wrong to separate out regulation into the FSA as a micro-regulator. This was likely to fail because no one was in charge of the size of banks' balance sheets-not only in the bust, as we well know, but in the boom as well. The Bill reunites the banks and other financial institutions as part of one system and I strongly recommend this.
I will not oppose the structure of the new financial regulators, but will concentrate on possible amendments to the legislation. I emphasise, as have many other noble Lords, that a major part of the remit of either the MPC or the FPC-I am not quite sure which-should be to encourage economic growth, and that the words "reasonable" and "fair" should be added to "proportionate" in new Clause 3B on page 28. Also, the PRA should appoint practitioner and consumer panels, as well as hold a public meeting to discuss its annual report, as the FSA does.
I also approve of the amount of consultation undertaken by the Government on these proposals. The changes made to the Bill as a result are most welcome. However, it is very important that the proposed supervisory bodies co-ordinate to represent effectively our national interest at European and international levels, including with European supervisory authorities. The financial services industry, the Government and the UK regulatory authorities all have important roles to play in representing the UK in international discussions on financial regulation. However, I draw attention to paragraph 366 of the Select Committee report, which, as many noble Lords have said, states:
"Successful regulation depends more on the regulatory culture, focus and philosophy than on structure".
As the noble Lord, Lord Desai, said, if regulators cannot understand the risks, no regulatory system will be sound. If the company management cannot understand them, that is even worse.
As usual these days, the other place was given far too little time to scrutinise the Bill. In the rest of my remarks, I will focus on areas of MPs' concern that are still outstanding, especially those noted by the head of the Treasury Select Committee, Andrew Tyrie. The first concern, as many noble Lords have mentioned, is over the Court of the Bank of England. On Report in another place, a new clause was proposed to make the court more transparent and to require it to act more like a proper board. In my view, the Bank must have a board that is capable of assessing the institution's performance, but it is explicitly prohibited from doing so at present. The Minister in the other place responded favourably to this idea. Perhaps I may ask the Minister what amendments he might be tabling here.
The second concern was that the appointment and dismissal of the governor would benefit from a parliamentary veto. I can see the attraction of this as, for instance, it might have prevented the appointment of rather weak governors as took place in the 1980s. A fixed term of eight years might be appropriate.
Thirdly, the Financial Policy Committee and the court should publish full minutes. Currently, the Government have said that a so-called record should be published. This has not satisfied the Treasury Select Committee and I agree. Fourthly, as the noble Lord, Lord Burns, has just said, the Chancellor needs a general power to direct the Bank of England in a crisis where public funds are at stake, and not the rather strictly circumscribed powers that the Bill contains.
Fifthly, there needs to be enhanced scrutiny of the secondary legislation that will accompany the Bank of England's macroprudential tools. The Treasury Select Committee wants a super-affirmative procedure, as mentioned by my noble friend Lady Noakes. I agree that we must have something which provides for full debate and time to consider the proposals except in emergencies.
Sixthly, the MPC and the FPC should have a majority of external members. The Treasury Select Committee feels that it is vital in the long term to guard against "group-think" on these committees, with which I agree. Seventhly, we need to look at the Financial Conduct Authority's objectives. The FCA would work better if it focused on a simple set of objectives. The Government in the other place added to the proposals what they describe as overarching strategic objectives. But the Treasury Select Committee feels that they add nothing to the operational objectives in the Bill and might take something away by creating confusion.
Eighthly, the FCA's accountability mechanisms need strengthening. The FCA should publish its own minutes, its chief executive should be subject to pre-appointment scrutiny and it should review its own performance without the need of the Treasury Select Committee to force it to do so. The committee managed to get the FSA to review the collapse of RBS but, apparently, it was hard work getting it to do so.
Finally, I should like to turn to the four specific issues on which I should like the FSA and its successors to focus. The first is to avoid a repeat of the MF Global saga-the derivative trader which collapsed in October 2010. Amazingly, the organisation was considered to be outside the scope of the regulatory authority, yet its balance sheet was more than £40 billion. The capital flows between the UK and the USA were huge and there now appears to be issues of insider trading. Unless there is more co-ordination between national regulators there will be more of these crises.
Secondly, we have the Arch Cru type of problem. Arch Cru was established in 2006 and was sold as a vehicle to provide low-risk cautious management funds. It is reminiscent of Bernie Madoff's venture. Like all investment funds, it was regulated by the FSA. Needless to say, it invested in high-risk property, shipping and ferries. Clause 64(5) states that events occurring prior to December 2001 will not be subject to the power of inquiry. As I understand it, the Government still have the power to institute an inquiry under Section 14 of the Financial Services and Markets Act 2000. I hope that they will still make use of that power and that the FCA will pay particular attention to these types of "low-risk" organisations.
Thirdly, there is the problem of payday loans. While this may be a good and necessary route for very short-term loans, they can become a very dangerous process if allowed to continue for too long. Legislation may be difficult in this area, particularly when borrowers may not get loan finance anywhere else. I hope that the OFT investigation announced in February will produce positive results to allow reputable payday loan companies to continue but, as the right reverend Prelate the Bishop of Durham said, to ban loan sharks. Fourthly, like many others I am sure, I seem to be continually pestered by the PPI ambulance chasers. Even though I am ex-directory I get two or three calls a day. Cannot this cold calling practice be outlawed?
Overall, this legislation is a big step forward from the legislative framework that was in place at the time of the crash and I hope that my suggestions will help to improve the Bill further.