Baroness Bowles of Berkhamsted:

Moved by Baroness Bowles of Berkhamsted

2: After Clause 5, insert the following new Clause—“Periodic independent review of regulators(1) The Financial Services and Markets Act 2000 is amended as follows.(2) After section 1S (reviews) insert—“1SA Periodic independent review of regulators(1) The Treasury must appoint a group of at least three independent persons to conduct a periodic general review of the effectiveness of—(a) the Financial Conduct Authority,(b) the Prudential Regulation Authority, (c) the Bank of England in respect of its functions under Parts 1 and 5 of the Banking Act 2009 (bank resolution and payment systems) and Part 2 of the Financial Services Act 2012 (recognised clearing houses), and(d) the Payment Systems Regulator.(2) The general review must take place every two to three years and must include a review of—(a) internal operations and controls;(b) systems for responding to whistleblowers, parliamentary correspondence and reports, and public concerns;(c) regulatory perimeters;(d) the effectiveness of rules and the regulatory burden;(e) whether all statutory and public policy objectives have been met;(f) the operation and effectiveness of engagement practices before and during rule making;(g) the skills base of staff;(h) any other matter the independent persons consider relevant;(i) follow up from the previous review and any other intervening review under this Act;(j) any other matter requested by the Treasury or a relevant Committee of the House of Commons or House of Lords.(3) On completion of the review, the persons conducting it must make a written report to the Treasury—(a) setting out the result of the review, and(b) making such recommendations (if any) as the persons consider appropriate.(4) A copy of the report must be—(a) laid before Parliament, and(b) published in such manner as the Treasury considers appropriate.”(3) In section 1T (right to obtain documents and information) after “1S” insert “or 1SA”.”

My Lords, this Amendment is an evolution of the amendment I tabled in Committee and called the “Skilled person review of the regulators”. I thank the noble Lord, Lord Sikka, for adding his name on Report.

Since Committee, I have received growing expressions of interest in the concept as an important process for improving financial services regulation—indeed, one that could be replicated for other systemic regulators. My purpose in tabling the amendment here is further exploration. I have reframed the amendment to be an independent person’s review via a new Section 1S(a) in FSMA that broadly follows the format and definitions already contained in Section 1S. Under the section, the Treasury can establish an independent person review of the FCA. However, it has not been deployed as a routine matter, but rather to deal ad hoc with specific instances, as have reviews under Section 77. My proposed new Section 1S(a) would provide for general review by at least three independent persons and would take place after every two to three years. That period has been chosen so that it can reflect when there are changes in appointments of the regulators. It also broadly reflects the two-year cycle envisaged in Australia for its financial regulator oversight board and the EU’s three-yearly reviews of the ESAs. Today, the ABI circulated a note supporting the idea, but it thinks that a longer period might be better, as indeed I first proposed.

I have also added to the list of regulators which are to be subject to the review to cover not only the PRA and the FCA, but the Bank of England for its other regulatory functions and the Payment Systems Regulator. I did that on the suggestion of UK Finance, which has also taken an interest in my amendment as potentially filling in a gap in accountability. It has argued in response to the Treasury’s framework review consultation that covering all banking and finance regulators is needed for a coherent and consistent approach to the whole sector while structural changes are breaking down the distinctions within it. I thought that a fair point and have included it as food for thought.

The list of issues for review are largely taken from the matters found to be at fault in the Gloster report, such as internal operations and controls, responding to whistleblowers, regulatory perimeter and the skills of staff. It also covers the effectiveness of rules and regulatory burdens, which it is important to study periodically as a check. But it is important to note that I do not propose some kind of routine second-guessing on rules as they are made, but more like an impact assessment after they have bedded in.

A long list may not be needed and could perhaps be left to the independent person to prioritise, but one other addition I have made is to follow up on any other intervening review. The amendment also provides a similar right to information and documents, as a Section 1S review would have, by adding proposed new Section 1S(a) to the existing provision in Section 1T of FSMA.

In the clauses that immediately precede this amendment, the PRA and FCA are each given the power to make all the policy and rules for financial services save for the broad public interest objectives and “have regard to” measures defined in FSMA. The way that that is done front-runs the conclusion of the future regulatory framework consultations, and I see two consequences. One, which is conceded in the Government’s consultation, is that Parliament will want to undertake additional scrutiny. We will deal with that in later amendments and it is urgent. A second consequence is that we are conferring a lot more power on our regulators, one of which has been the subject of a flow of negative findings. This amendment is not intended to address the first consequence or to diminish in any way the constitutional position of Parliament regarding scrutiny—far from it: it is meant to address the second consequence. It also replaces some of the scrutiny of the EU which included three-yearly reviews of the European supervisory authorities.

With the present ad hoc reviews being a failure, the regulator may or may not reform itself adequately; we just have to hope that it does. That is what Dame Elizabeth Gloster said to the Treasury Select Committee. She also said that she was not a management consultant who could implement those changes. Regrettably, I do not think that the Treasury Select Committee or other committees of Parliament are in that position either. No matter how frequently the regulators may produce reports on their activities or senior executives appear before committees, does Parliament have the capacity to do the type of inspection that is gained in an independent review? If it can, why do we keep needing to have ad hoc reviews?

The parliamentary system may work well for the scrutiny of rules against policy objectives and for pointing out where review into failure is needed, but it is harder for it to look systematically at what goes on in terms of operations and controls, the skills base of staff or how well change management has been brought about. For that, the word of the chair and the executives has to be taken. In all earnestness, I am sure that they believe that they have done a good job and will not say otherwise, but in business, the value of outside eyes is well known, and the regulators also use that in supervision. That is where there is a gap that regular, independent reviews can fill. If the basic concept is accepted, it could indeed be done in other ways, but what is needed is the will to review for quality control and not just after a fault is known.

Before I finish, and because this is the first amendment on Report that deals with oversight arrangements, I will reference briefly, as others may, that since Committee we have had letters from the regulators that lay out broadly how they see accountability at present. The content is somewhat disappointing, given that the debates and suggestions made in Parliament have hardly been secret. I would say that it is unbalanced for the Government and the regulators to grab front-running positions in which constitutional power is removed from Parliament, for that is what removing this layer of statutory instrument does, and not pledge simultaneously to restore equivalent constitutional rights.

Although financial regulation, supervisory processes and oversight have been worked through on previous occasions, they do not yet work or are not yet being worked so as to keep things up to scratch. Having regular, independent reviews can fill that gap and have a place within the future regulatory framework. I beg to move.

My Lords, the issue I want to highlight, as I did at earlier stages, is how to make regulators more accountable, given the well-established phenomenon of regulatory capture. Regulatory capture is where an industry regulator like the FCA and the other bodies mentioned in the Amendment comes to be dominated by the industry that it is charged with regulating. The result is that the agency, which is meant to act in the public interest, works instead in ways that benefit the industry.

I do not think that there is any doubt that this happens, and the question is: what do we do about it? The important point to understand is that this does not happen because of inadequate, ineffective or corrupt individuals—rather, it happens because it is systemic. It is an institutional rather than an individual problem. There are various reasons for why it happens. First, a regulated industry has a keen and immediate interest in influencing the regulator, whereas customers are less motivated. They have normal lives to lead and they engage with the industry only for brief periods. However, participants in the industry are there all the time. Secondly, industries tend to devote large budgets to influencing the regulator, which inevitably has an impact. Lastly, there is the aspect of the whole industry community. People tend to move from the regulator to the industry and back to the regulator. That is bound to have some impact on the personal relationships that are established.

There is therefore no question that the phenomenon exists. How bad it gets and what we do about it is what we need to address. The first step is to acknowledge the problem and to recognise and address the challenge. The next step is to make the regulators as accountable as possible, which poses the question: who regulates the regulators? There are many ways to do that but we have before us in Amendment 2 a proposal for a periodic, independent review of the regulators.

What I have in mind is something akin to a school inspection, which does not happen because a school has demonstrated problems but is just part and parcel of a regular process that focuses the minds of all those involved. At the moment, regulating the regulators is effectively left to the Government whenever they care to turn their minds to the issue. The problem is that Governments have many other things to think about and the result is that addressing the problem tends to happen only after it has arisen. The public become aware that there is some deficiency in the regulator and therefore action has to be taken. How much better it would be to pose questions as to how the system can be improved before we encounter the problems. That happens only under a regular, independent review, as proposed under the terms of the amendment.

My Lords, this is the first time that I have spoken on the Bill on Report and I draw the attention of the House to my interests as set out in the register—in particular, shares that I hold in listed financial services companies.

I have considerable sympathy for the Amendment because the financial regulators are not very accountable. At the moment, there are set-piece appearances before the Treasury Select Committee in the other place and occasional appearances before committees of your Lordships’ House but these do not amount to a systematic and comprehensive examination. The Government often rely on the fact that annual reports are laid before Parliament but the annual reports of regulators get no more attention paid to them than the annual reports of companies. With rare exceptions, they provide few insights of value. By their very nature, annual reports accentuate the positive and shy away from the negative.

The problem of the accountability of regulators is not confined to financial services regulators. I could say much the same about ofcom, Ofgem and other regulators, but we cannot solve the problems of the world in this Bill. The accountability of the PRA and the FCA is covered in the future regulatory framework, the consultation that has recently been completed. We discussed this a little on our first day in Committee and I hope that my noble friend the Minister will provide some information on the next steps when he responds to the amendment. The consultation closed over a month ago and the Treasury must have some idea on what it will be doing next and when.

If the outcome of that review, so far as accountability is concerned, is a well-developed form of parliamentary scrutiny, either jointly between both Houses of Parliament or within each House, the need for an independent review Clause such as that contained in Amendment 2 would recede. Parliamentary committees can look at issues in depth but only if they are properly focused and well resourced. On that basis, the noble Baroness, Lady Bowles of Berkhamsted, might want to await the legislation implementing the outcome of that review rather than tackle the issue in this legislation, because action could be set in a broader, more holistic context regarding how the regulators will operate overall in due course.

If the noble Baroness, Lady Bowles, wishes to pursue her amendment—I thought I heard her say that it was more of a probing amendment for today—it would be wise to look again at its drafting because it calls for one review covering four regulators, but they are all different in what they do and how they do it. I am not convinced that there would be sufficient focus if one review tried to cover all the regulators—the two major ones and the two smaller units with regulatory responsibilities, one in the Bank of England and the other being the Payment Systems Regulator in the FCA.

In addition, I, like the ABI, wonder whether a review every two or three years is too frequent for the kind of in-depth review that the noble Baroness, Lady Bowles, has in mind. A rolling series of reviews, perhaps carried out over five years but concentrating on individual regulators, would provide more information of value to those seeking to hold them to account. However, the noble Baroness, Lady Bowles, has the right ideas in the amendment, although it may not be right for this Bill.

My Lords, it is a great pleasure to support Amendment 2. Throughout the earlier stages of the Bill, a number of noble Lords have drawn attention to the failures of financial regulators. Essentially, it was argued that they are captured by the finance industry and therefore advance its interests. They are too slow to protect people from malpractices. Over the years, numerous financial products have been fraudulently sold, including pensions, endowment mortgages, precipice bonds, split capital investment trusts, interest rate swaps, payment protection insurance and much more. The names of the products change from the aforementioned to mini-bonds and supply chain finance, but the basic problems are still the same and the regulators have failed to secure positive change in the culture of financial services enterprises.

During debates, Ministers have emphasised the tax contribution of the finance industry but have been silent on the costs imposed by that industry on society. Scholarly research shows that between 1995 and 2015 the oversized and scandal-ridden finance industry made a negative contribution of £4,500 billion to the UK economy, equivalent to around £67,500 for every woman, man and child in the UK. Of the £4,500 billion, £2,700 billion is accounted for by misallocation, whereby resources, skills and investments are diverted away from productive non-financial activities to the financial sector. The other £1,800 billion arises from the 2007-08 banking crisis that ushered in never-ending austerity. The economy and most people are yet to recover from that. That £4,500 billion is a massive cost and we simply cannot afford it. The status quo is not tenable and it is too expensive. The cost of the financial curse for the UK cannot be reduced by carrying on the regulatory business as usual, which is what the Government seemed to indicate in Committee.

Our regulators need to be effective and proactive but they seem to neglect their duty to the people. This is well documented in the reports on London Capital & Finance and the Connaught Income Fund. The FCA knew that mini-bonds were a problem but was slow to act at London Capital & Finance, and the same pattern has now been repeated at Blackmore Bond. The FCA does not welcome public scrutiny. Just look at the excuses it concocted to conceal the report on frauds at HBOS. The saga is still not resolved and same goes for frauds at RBS.

It is well documented that thousands of people are trapped in the £3.7 billion collapse of Woodford Investment Management. The Woodford Equity Income Fund was first authorised by the FCA in 2014. In 2015, the FCA was informed about the fund’s precarious existence as it was investing excessively in unlisted securities that affected its liquidity, but the FCA ignored the information until at least 2017.

The Woodford empire was able to manufacture compliance with the FCA rules by treating investments in securities partially listed on the Guernsey stock exchange as liquid. The Guernsey stock market is incredibly thin and many of the securities held by Woodford had no trade at all for quite some time, yet they were still treated as liquid. Over the last three years of its life, four of the firms in which Woodford invested issued preference shares in Guernsey, although there was no trade in those shares. This simple trick of having securities listed on an obscure stock exchange enabled Woodford to classify them as liquid, rather than illiquid, and to flatter its balance sheet and manufacture compliance with the FCA and the PRA rules. They took no action. The FCA and the PRA continued to manage by numbers and did not drill down to see what these numbers represented. We still await an independent inquiry into the FCA’s handling of the Woodford collapse.

Too many corrupt practices also fall between regulatory stools. The noble Baroness, Lady Bowles of Berkhamsted, mentioned a number of regulators. I have counted at least 41 regulators—maybe there are more—connected with the world of finance. That is simply too many and must be looked at too. Nevertheless, matters continue to fall between the stools. There is considerable evidence that banks have forged customers’ signatures. The FCA has done nothing. Perhaps this is a job for the National Economic Crime Centre, which has done nothing about these cases either. The NECC was launched in October 2018 and is yet to prosecute a single case. In September 2020, the FCA failed to secure its first criminal conviction, a case against Konstantin Vishnyak, a former banker at Russia’s VTB Bank, for alleged destruction of records relating to insider dealings.

It may be evident that our regulators are not properly equipped and probably do not have enough financial resources. This is a good reason to have the review proposed in this amendment. The FCA has levied a few fines for misconduct, but no company or board of directors is held responsible. The biggest losers from this inactivity are the ordinary people who thought that regulators were there to protect them. There is a total failure by our regulators to take robust action.

It is often said that those who do not learn from history are doomed to repeat it, and so it is with our financial regulators. For years, the problem of supply chain finance, also known as reverse factoring, has been highlighted. It was highlighted again by the collapse of Carillion. I declare an interest, as I was an adviser to the Work and Pensions Committee during its investigation of Carillion. Supply chain finance, or reverse factoring, is a popular method of finance because there is little transparency about it. This source of finance is mostly classified as “trade payables” or “other payables” rather than debt. This understates leverage and hence the financial risk of a business. The FCA was required to ensure that Carillion did not provide misleading information to investors and the markets, but it was asleep and not alert to financial engineering at all. The other side of the equation is in the balance sheet of the banks providing this source of finance; the FCA and the PRA do not appear to appreciate the impact of supply chain finance on the balance sheets of banks.

The parliamentary report on Carillion drew attention to the dangers of supply chain finance, but that did not spur the Government into action. There was no urgency by the FCA or the PRA either, long used to managing regulation by numbers. Were they aware of the impact of reverse factoring on the balance sheet of Greensill Capital and other banks? They needed to examine the business model of Greensill Capital, but did they? The stress and capital adequacy tests cannot be just number-crunching exercises. The Greensill episode draws attention to the qualitative aspects of financial risks, which again seem to have been ignored.

Almost every week there is another financial scandal; I have just mentioned two or three in passing. They are man-made and the outcome of failed institutional structures and the absence of effective democratic oversight. Scandals can be checked and require a new approach to regulation, as was ably argued by the noble Baroness, Lady Bowles of Berkhamsted. This amendment seeks to guide the FCA, the PRA and other regulators through external reviews. The focus is on their conduct and whether they are fit for the purpose of meeting their statutory duties, or whether those duties are adequate for protecting the people. The review would focus upon all kinds of resources which the regulators need. It would be laid before Parliament and become a key mechanism for building trust in regulatory bodies to ensure that they carry out their main mission, which, above all, should be to protect people from malpractice.

My Lords, my noble friend Lady Bowles has already indicated that she does not intend to call a Division on this Amendment, which I think is right. However, this is probably one of the most important amendments that we have discussed under the umbrella of the Bill. It opens up a new area to consider: how we make our regulators accountable and whether the committee system and traditional structures of Parliament can do the whole job or whether support is needed from some additional bodies. What the noble Lord, Lord Davies, called an outside pair of eyes on this issue could be extremely useful to Parliament by bringing a particular expertise. There could be periodic reviews, looking, for example, not at the decisions made by the regulator but at its capacity and mode of operation—those core issues which determine whether a regulator is effective. The noble Lord compared it to a visit from Ofsted, which is probably a little light-touch and simple but it takes the conversation in the right direction.

I have a strong suspicion that three or four years from now, we will be back to this discussion and looking much at an independent arrangement to look at our various regulators in order to provide information when appropriate to Parliament, so that it can get on with the areas of scrutiny in which it has most capacity, which is to ensure that the rules fit with the mandate that Parliament has given it in primary legislation. This is an extremely important area with some very interesting thinking.

I hope that the Treasury takes note. It would be lovely if it was picked up in the financial framework review, but that might be hoping for too much. That review has gone on a very limited and very traditional route. It would be good to challenge it with some new thinking, and to open its process to break through and work out how effective accountability can be put in place. This affects our fundamental economy and the capacity of a Government to deliver on public services, so the consequences are significant. Real attention paid to this area would be exceedingly welcome.

I will not pick up the other scrutiny issues because we will deal with those on the second day on Report. I will discuss some of the letters we have had from the regulators then. However, I want to put down a marker that this is an area and a thought process that must be taken seriously. I hope that the Government see that as an opportunity.

My Lords, I was tempted to start my speech with the famous quotation from Juvenal, “Who guards the guardians?”. But, given the strictures by the Leader of Another place against speaking in foreign languages—although he was referring to Welsh—I will instead begin with a different quotation, from the late Lord Keynes. In the introduction to The General Theory of Employment, Interest and Money, he says:

“It is astonishing what foolish things one can temporarily believe if one thinks too long alone, particularly in economics.”

Well, we have certainly had many examples of regulators believing foolish things. The sorry history of the regulatory response to the role of credit derivatives in the expansion of credit in the run-up to the financial crisis of 2007 to 2009 is a clear example of the folly of thinking alone. Hence, a periodic review of the thinking of regulators—whether the prudential regulator or the conduct of business regulator—would certainly be worthwhile; it would be a useful challenge to groupthink.

However, this particular aspect is not best achieved by three independent persons, because there would be a grave temptation to appoint three expert regulators—just the sort of people who would think in the same way. However, they would, no doubt, come up with recommendations that deal with the operational objectives in this Amendment, so I see the review activity as falling into two parts: the operational assessment; and the core policy issues, about which I would have less confidence in the approach of the three independent persons. Peer reviews are all very well, but I assure you that any academic economist will tell you that they not only tend to embody the status quo but often stifle innovation and can perpetuate error.

That is why I and others in the House have argued that the intention of the amendment with respect to policy would be best met by a parliamentary scrutiny committee. It is the nature of parliamentarians to be sceptical, to pose without embarrassment the naive question, to entertain the views of mavericks and free-thinkers, and to relate the performance of any organisation to its statutory objectives—after all, they are responsible for the statutes. So we have two tasks before us: a review, as proposed in the amendment, which would be a valuable check and assessment of operational matters; and the review of policy and thinking, which could be the regular component of the work programme of a scrutiny committee.

But first, of course, we need the acknowledgement from Her Majesty’s Government that they would support the foundation of such a scrutiny committee, giving it appropriate powers to work with the regulators in an effective and constructive manner and to commission regular reviews of policy issues of the sort sought by the noble Baroness, Lady Bowles. We will discuss this matter later; so much hangs on the issue of the general scrutiny of the activities of regulators, voiced by Members on all sides of the House, that we will certainly return to this matter later in consideration of the Bill.

My Lords, as the noble Baroness, Lady Bowles, has helpfully explained, the Amendment seeks to introduce a statutory obligation for the Treasury to launch an independent review of the financial services regulators every two or three years, and sets out the topics that such a review would need to cover.

I will begin by saying that I absolutely understand where the noble Baroness is coming from in tabling the amendment; indeed, having yesterday reread the two very eloquent speeches she made on the subject in Grand Committee, and having listened today to the noble Lord, Lord Davies of Brixton, my mind, like that of the noble Lord, Lord Eatwell, also turned to the Roman poet Juvenal’s famous question. The noble Baroness is concerned about the need for oversight of those who oversee, and I entirely appreciate her reasons for wanting reassurance on that issue. However, where she and I differ is over her contention—express or implicit—that there is currently a deficiency of mechanisms to provide meaningful oversight of the regulators and to ensure that they are working effectively. I set out a number of these mechanisms in Grand Committee; they include tools both for examining detailed operational or policy matters and for scrutinising more general, overarching issues. This I think was part of the distinction made by the noble Lord, Lord Eatwell.

As noble Lords will be aware, the Government appointed Nikhil Rathi as the FCA’s CEO in October 2020 and fully support the ongoing transformation programme that he is leading. This programme will support the FCA’s transition to being a data-led regulator, capable of taking action quickly and effectively to reduce harm to consumers and markets. More generally, on an ongoing basis, the Economic Secretary to the Treasury frequently meets the CEOs of the FCA and PRA to discuss both policy and operational matters, while of course recognising the independence of those regulators.

This is in addition to the FCA being subject to full audit by the National Audit Office, which has the associated ability to launch value-for-money studies on the FCA. The NAO has published a number of reports examining the work of the FCA, the PRA, the Payment Systems Regulator and the Bank of England. Importantly, there are also effective mechanisms for scrutiny of the UK’s regulators by international experts. The International Monetary Fund’s financial sector assessment programme, in which the UK participates, sees teams of experts assess, among other things, a country’s regulatory framework, the quality of its supervision of the financial sector and the ability of regulators to respond to systemic stress. The findings of these substantial assessments are published by the IMF and provide a highly detailed, independent review of the UK’s regulatory system—which I am concerned that this amendment would risk duplicating. The last assessment was completed in 2016, and another one is currently under way.

On the specific points proposed in the amendment that such a report should include, I reassure the noble Baroness that such information is already available, through both statutory and non-statutory mechanisms. The regulatory perimeter is discussed in an annual dedicated meeting between the Economic Secretary to the Treasury and the FCA chief executive, which I believe demonstrates the Government’s existing capacity to analyse complex regulatory policy issues such as this on an ongoing basis. More broadly, the FCA is required to consult before making changes, including changes to its fee structure or its rules. It is also required to maintain four statutory panels to represent the interests of practitioners and consumers and must consider representations from those panels throughout the policy development process. It must also publish responses to any representations received from the panels.

Regarding whistleblowers, the FCA and PRA already have strong protections in place. They have established rules, first, to ensure that all employees are encouraged to blow the whistle where they suspect misconduct and, secondly, to ensure that the employees can be confident that their concerns will be considered and that there will be no personal repercussions. The Government are confident that the protections already available to whistleblowers in the UK financial services sector are appropriate and proportionate.

In addition to these mechanisms to scrutinise and oversee of the effectiveness of the regulators, the Treasury has powers under Section 77 of the Financial Services Act to require the FCA to conduct an investigation into particular events where this is merited. The recent independent review by Dame Elizabeth Gloster into the FCA’s regulation and supervision of London Capital & Finance is one such example. In response to concerns about the FCA’s regulation of LCF, Dame Elizabeth’s report takes an appropriately forensic approach, considering the full range of relevant factors and identifying nine recommendations for the FCA. The FCA’s response to that review details the significant steps that it has taken and is continuing to take to transform the organisation. These steps include a substantial investment in technology and skills to further enhance the FCA’s operational effectiveness. The FCA has committed to reporting publicly on the progress of this transformation until Dame Elizabeth’s recommendations have been substantially implemented.

We will return to the important issue of parliamentary scrutiny and accountability in later debates and I went into some detail on this in my remarks on the amendment in Committee, so I hope that my noble friend Lady Noakes will forgive me if I just briefly touch on some of the mechanisms currently available to Parliament. As my noble friend reminded us, the regulators must account for their performance in annual reports to Parliament, explaining how the regulator has discharged its functions in relation to its statutory objectives and how operational objectives have been advanced. The Treasury Select Committee has the opportunity to conduct pre-commencement hearings with the FCA CEO and chair and senior appointees to the Bank, including the governor and deputy governors and members of Bank committees. It also regularly holds hearings with these and other senior Bank and FCA officials.

As noble Lords will know, the wider issues around scrutiny and accountability are under the spotlight in the future regulatory framework review. My noble friend Lady Noakes asked me for an update on that. Briefly, the Treasury received 120 responses to our consultation on the future regulatory framework. We are considering these carefully and will publish a more detailed consultation later this year. As my noble friend suggests, the Government consider this to be the appropriate place to consider any changes to the existing arrangements for scrutiny and oversight of the regulators.

Given all that I have said, I contend that the requirement proposed by this amendment to hold such wide-ranging reviews every two or three years would place a significant time and cost burden on the regulators. I equally contend that this would be disproportionate, given the mechanisms and processes that already exist to hold the regulators to account and ensure that relevant information is in the public domain. I hope that the noble Baroness, on reflection, will agree with that assessment. Skilled oversight can take a number of forms, as she rightly observed in Grand Committee. I listed those that I think are key, not the least of which, as I mentioned, is the added degree of transparency, to which the new CEO of the FCA has committed himself in response to the Gloster report. In the light of all that I have said, I hope that the noble Baroness will feel sufficiently comfortable to withdraw her amendment.

My Lords, I have received no requests to speak after the Minister, so we will go straight back to the noble Baroness, Lady Bowles.

My Lords, for the purposes of Report, I must remind the House of my interests in the register, which I omitted to do when I first spoke today.

I thank all noble Lords who have spoken in this interesting debate. The noble Lord, Lord Davies, reminded us of the effects of regulatory capture and the way in which that is just something that is endemic within the system, not least because of the overwhelming volume of meetings that take place and contacts that are made with the industries, both in policy terms and as they are regulated. As my noble friend Lady Kramer observed, he drew a slight parallel with Ofsted—there is a point that somebody from outside has to come in. I agree with the noble Lord, Lord Davies, that at the moment this does not seem to be something to which the Government are turning their minds often enough, because otherwise we would not keep having to have reviews about failure.

I thank the noble Baroness, Lady Noakes, for thinking that I got the right ideas. Some of my drafting might have been a bit adrift; I meant that each regulator had its own review and certainly the concept of a rolling review was what I would have had in mind. I agree with her that set pieces make it difficult to get into the systematic operational review that lies at the heart of my Amendment, even if I, perhaps accidentally, strayed too widely. I also agree that annual reports concentrate on the good. Responses to the report and parliamentary engagement with the report are, in fact, intended to be via the Treasury, but that indirect link is not satisfactory as far as Parliament is concerned.

The noble Lord, Lord Sikka, reminded us of the cost of failures in regulations. He asked whether, because of the history and where we are at, it can be business as usual. We have had examples of the FCA making excuses for slowness and failures. As the Minister said, there is a new CEO, whom I know extremely well. He made some good points when he appeared before the Treasury Select Committee about having brought in some outside people to bolster the system, using exactly what I said is the understood way of doing things in business: you need outside eyes. He has done his best in that sense by bringing some fresh blood into the FCA.

When it comes to parliamentary reports, as the noble Lord, Lord Sikka, reminded us, the one about Carillion, for example, did not trigger action. If they do not trigger action, something is missing. My noble friend Lady Kramer explained exactly where I think we are. I am testing the water and exploring; I am asking whether our traditional roles are sufficient. We will have a little time to see. Like my noble friend, I think that we will be back here in due course. The noble Lord, Lord Eatwell, put his finger on the distinctions between operational and policy and what would belong with Parliament and what would belong with independent review. That is a useful distinction, which, going forward with these ideas, I can take to heart.

The Minister again said that there is plenty of opportunity for reviews to be done. The point is that they are not being done; they are only being done in default. They are not being done in a systematic way that is quality controlled. I do not disagree that there might be, within legislation, sufficient scope to do some that are more like quality control. If the Minister is saying, “Well, right, we will have a look to see whether that can be done,” I might agree. At the moment, however, there is a hole. The Minister says that it might be expensive but, as the noble Lord, Lord Sikka, pointed out, it is very expensive on the industry that has to cough up compensation if needed and if it comes from the central compensation funds. When things go wrong, it is expensive and probably more expensive than if one had done the proper quality-control monitoring.

The IMF and the Basel reviews are not UK-based reviews and are not debated in the public forum within the UK. They are also reviews done by regulators of regulators, which is absolutely one of the things that I am trying to get away from. Again, I agree with the noble Lord, Lord Eatwell: yes, they have to be skilled people but, no, they jolly well should not be regulators or recent regulators, and maybe not even former regulators, because otherwise you do not get away from the groupthink. I am sorry, but IMF and Basel are part of the groupthink.

Finally, I am interested that there were 120 to 121 responses; there have been another six if you take today’s discussions into account as responding to the future financial structure. I admit that I have been introducing an idea that I have sprung on your Lordships, having put it in my own response to the FRF review. Now that I have aired it, more people are interested—not just in this House but within industry. It is not urgent because a periodic review would be, even by my estimation, two or three years away when the new powers have been operational for a while and embedded in, and indeed, new parliamentary scrutiny embedded in.

In that spirit, I may return with this idea in another Bill, maybe after having consulted other noble Lords who have shown an interest. For now, I beg leave to withdraw my amendment.

Amendment 2 withdrawn.

We now come to the group beginning with Amendment 3. Anyone wishing to press this or anything else in this group to a Division must make that clear in the debate.