Clause 14

Financial Services Bill – in a Public Bill Committee on 15th December 2009.

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Suspending permission to carry on regulated activities etc.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury) 10:30 am, 15th December 2009

I beg to move amendment 2, in clause 14, page 19, line 4, after ‘person’, insert

‘or is carrying on a regulated activity in a way that could undermine financial stability’.

It is a pleasure to serve under your chairmanship again, Mr. Benton. It is good to see so many Labour Members of Parliament here today. My recollection of Thursday’s evidence session was that, without the support of Opposition Members, the Committee would have been inquorate, and that would not have aided scrutiny of this important Bill.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

The hon. Member for South Derbyshire was present but, sadly, so many of his colleagues were not. However, it is good to see a few more of them gathered here today to debate an important part of the Bill. The order of deliberation has been changed to bring certain clauses to the front, because they are perhaps less controversial than the earlier clauses, but there are still some important issues that arise in the first group of clauses that we will debate.

Perhaps it would be helpful if I said something about clause 14 to put the amendment into context. The clause gives the Financial Services Authority a new power to suspend permission to carry on regulated activities for up to 12 months. Clause 16 imposes a penalty on individuals performing a controlled function without authorisation and clause 17 extends the period for taking action against individuals from two years from the date on which misconduct took place to four years. That is quite a beefing up of the disciplinary powers of the FSA.

Conservative Members have no problem in principle with the FSA being given more powers. In our white paper, “Plan for Sound Banking”, which was published in July, we said that the powers of the FSA should be reviewed to see whether they were adequate or needed  reinforcement. What we want to do through the amendments that we have tabled today is to understand a little more of the Government’s thinking on why the FSA needs such powers. We want to know more about the circumstances in which those powers could be used. Perhaps the Minister can tell us when they could have been used, if they had been in place under the Financial Services and Markets Act 2000. Perhaps he could explain what the FSA has lacked in enforcement measures for nearly a decade, and could say what changes there might have been if it had had such powers.

We want to understand the proportionality of the new powers given to the Financial Services Authority, in the context of the misuse that it will be seeking to prevent, and we want to understand whether the powers will have the right effect. What will be the consequences for the financial services market as a whole if the powers are given to the FSA, and what will their impact be on individuals under clauses 16 and 17, or firms under clause 14?

In justifying the clause along with other measures, the Government said in their White Paper, published in the summer, that

“The Government is taking steps to ensure that the FSA’s objectives and powers are designed in such a way that enables it to perform the extended role envisaged in the supervisory enhancement programme and the Turner Review effectively.”

We all recognise that there needs to be a much more proactive approach to supervision. Whether we continue to pursue the status quo that the Government seem happy to defend or whether, under our proposals, we reform the regulatory architecture, we are all agreed that a more proactive approach is required if we are to avoid some of the mistakes that we have seen emerge over the past decade.

The question that has been asked by a number of those who have made submissions to us is: “Why are additional powers are being used? What is the rationale behind them?” The Association of British Insurers said in a written submission that is was not clear why the FSA is considered to be lacking in enforcement powers. For example, if an offence is considered to be so serious as to merit suspension using the powers under clause 14, in practice it is likely to be sufficiently serious to justify removal of authorisation.

In an evidence session last week, Angela Knight from the British Bankers Association suggested that there were other tools available to the FSA that would have a similar effect to the measures under clause 14 on the suspension of powers. For example, she suggested that as well as the variance of permission, which the ABI mentioned in its submission, the FSA, using the capital rules—pillar 2 rules, I think—under Basel could require an authorised firm to hold more capital, if it felt that the business that it was conducting merited that. That would be an alternative way of potentially delivering the same type of outcome as the suspension.

We need to understand from the Minister, when he responds to the amendments, quite what it is that we are seeking to tackle through the suspension. The powers in clause 14 are quite broad, as proposed new section 206A gives the FSA various powers. Proposed new subsection (3) says:

“The period for which a suspension or restriction is to have effect may not exceed 12 months”, and proposed new subsection (4) says:

“A suspension may relate only to the carrying on of an activity in specified circumstances.”

What does “specified circumstances” mean? Proposed new subsection (5) says:

“A restriction may, in particular, be imposed so as to require the person concerned to take, or refrain from taking, specified action.”

Those powers are broadly couched. People might think about what happened over the course of the financial crisis and suggest that perhaps those sorts of powers could have been used to prevent banks lending high loan-to-value ratio mortgages, in cases where lenders were offering mortgages of, say, 125 per cent. of the value of a property. Perhaps the FSA could have taken that action and said, “Actually, we will stop this,” or “We will prevent firms from doing that; we will restrict them to being able to lend up to 100 per cent. of the value of the mortgage”—or 90, 80 or 60 per cent. It is not clear whether the powers are designed to tackle that sort of issue or, perhaps, broader issues.

We know that one of the causes of the crisis was the use of particular financial instruments that sliced and diced mortgages, and created collateralised debt obligations, CDO squared, CDO cubed and things like that. Many people say that while that spread risk around the market, it led to a point where banks lost sight of the sort of risks they had on their balance sheet. Would the powers be used to stop such activity from taking place? It would be feasible.

Photo of Charles Walker Charles Walker Conservative, Broxbourne

When looking at the conduct of companies—banks or building societies—offering mortgages, surely one has to look at the overall risk profile of their mortgage book. It may be perfectly legitimate to lend a few people 110 or 120 per cent. of the value of their home, but we would not want to have a preponderance of high-risk mortgages on the books; they need to be balanced. Perhaps the mistake that some of the banks made was to move into risky lending and not to take into account the overall risk on their mortgage book. Would the provisions deal with that?

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

My hon. Friend raises an important point. I am not sure that I know the answer, because we need to know from the Minister what the outcome is of the power that we are discussing. That is the challenge for the Minister in responding to debate on clause 14. He needs to be very clear about what mischief the clause is trying to prevent. The comments from Angela Knight in the evidence session will perhaps bear out what my hon. Friend said. On the breadth of the clause and what it might be able to do, she said:

“It has the power to stop a firm doing one of its regulated activities, which is a pretty broad power. I suppose you are right that it could say to a bank, “You can no longer lend money on mortgages,” or, “You can no longer provide trading facilities for individuals trading their shares.”——[Official Report, Financial Services Public Bill Committee, 10 December 2009; c. 88, Q27.]

The clause is pretty broad; it is a broadly framed power that potentially gives the FSA quite significant powers to intervene in an authorised person’s business model. I look to the Minister for clarification on how that power might be used.

There was some debate in Committee on whether the power would be used for a major retail bank, whether it would be used to deal with the activities of a major national insurer, or whether it would really, in practice, be used simply to deal with problems with the high street independent financial adviser or insurance broker. A lot of comment about that power emerged in last week’s evidence session, such is its potential scale and impact.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

The hon. Gentleman gave the example of offering 110 per cent. mortgages, which is a pretty stupid way to act, but lots of institutions did it. Is he saying that the Financial Services and Markets Act 2000 does not allow that, and that companies have been breaching it for years? If it is allowed under the 2000 Act, then clause 14 would not change that.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

That is part of the challenge that we need to understand. Mortgages are a difficult topic to deal with, because the FSA is currently consulting on changes to the regulatory regime on mortgages that would enable it to regulate products, rather than conduct under the business rules to do with those products. The hon. Gentleman raised the point about what is meant by the requirements of the 2000 Act, by which I think he referred to proposed new subsection 2(a) and (b) on page 19. What do we mean by the “relevant requirement”? It

“means a requirement imposed—

(a) by or under this Act; or

(b) by any directly applicable Community regulation made under the markets in financial instruments directive.”

My amendment seeks to tease out a little bit the circumstances in which those powers could be used.

To digress a little, it would be helpful if the Minister could explain why, of all the many directives that the EU has produced relating to financial services, the only one referred to explicitly in the provision is the markets in financial instruments directive. It would be helpful to understand why that is being singled out for special treatment, when the EU issues directives on a whole host of consumer and wholesale activities.

My amendment tries to probe the scope of the use of the power. The Bill, if it is not amended, will give the FSA a new statutory objective of financial stability and that will be inserted into the Act. It would create a new section 3A, which will, for the first time, give the FSA an explicit duty to contribute to the

“protection and enhancement of the stability of the UK financial system.”

We will have a longer debate about that when we return after the Christmas recess, but I want to tease out from the Minister whether he expects “relevant requirement” to cover financial stability implicitly, or whether we need to broaden the provision to include it explicitly.

I am pleased to see that the hon. Member for Wolverhampton, South-West is on the Committee. We missed him on the Finance Bill because he is very good at picking up both the Government and the Opposition on some of the finer points of technicality. He raised a very good point about whether a 110 per cent. mortgage  was banned from sale under the existing powers in FSMA. Let us suppose that it was entirely permissible to sell that sort of mortgage under that Act. That might not change under the Bill; if it still complies with the relevant requirements a bank could continue to sell those products.

My amendment seeks to tease out what would happen when a product could be sold and was consistent with the Bill, but was seen to be contributing in some way to financial instability. Perhaps it was encouraging banks and individuals to take on more risk, perhaps it was undermining confidence in the financial services sector or perhaps it was going so far that people felt it was not

“contributing to the protection and enhancement of the stability of the UK financial system.”

Would the powers under the proposed new section 206A be sufficient to tackle those issues and prevent a bank from selling what might be perceived to be a very risky mortgage, which if sold on a systemic basis would imperil financial stability? Or is an amendment along the lines of amendment 2 needed to ensure explicitly that when an activity is taking place that has an adverse impact on financial stability, that institution or that authorised person is required to suspend the sale of the particular product or give that type of advice?

Photo of Charles Walker Charles Walker Conservative, Broxbourne 10:45 am, 15th December 2009

I might be in danger of repeating myself, but the role of the FSA is to reduce the overall risk to the taxpayer and the taxpayer now seems to be insuring the financial sector. Surely there will be some banks with an overall conservative lending profile but there will be others with a far riskier lending profile. It will be those banks that the FSA may want to approach and say, “You’ve got to reduce your overall risk to the taxpayer and you are going to start doing that by withdrawing certain riskier products that you have on the market, to reduce the overall level of risk within your mortgage book.”

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

Indeed, and that touches again on the issue of the relevant requirement under the Act. The FSA could produce, and is clearly working towards this in terms of mortgages, a regime that applies to all firms selling mortgages or advising on them, so it is a sector-wide policy. But the FSA might decide, as my hon. Friend says, that a bank or institution—it could be a building society—within that sector is selling mortgages in a way that it feels endangers financial stability. The proposed new section 206A may be sufficient to give the FSA the powers to stop that institution selling those mortgages in that way because of the risk to financial stability, but I am not clear whether the clause, as currently worded, achieves that so I have tabled amendment 2 to broaden it out.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

May I gently suggest to the hon. Gentleman that he is mixing apples and oranges? As I read clause 14, proposed new section 206A sets out the sentence—to use a criminal analogy. Amendment 2 creates a new offence, so the two are in a sense contradictory. He is inserting a new offence—as he is entitled to do—in a provision that, if implemented, would be purely about sentencing, not about the offence per se.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

The hon. Gentleman once again demonstrates his legal expertise as a solicitor and points  out a flaw in my reasoning. However, part of the process of tabling amendments is to probe the Government’s thinking. I could have had an extremely long stand part debate on the nature of—

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

Well, a stand part debate is entirely within the gift of the Chairman, of course, and I do not seek to pre-judge his thoughts on that. But this is an opportunity to raise the issue of what the offence that we are trying to tease out of the Bill is. The hon. Member for Wolverhampton, South-West talked about its being a punishment, and I understand there was some discussion during the passage of the Financial Services and Markets Act 2000 about whether such a power should be included. The punishment was thought to be quite draconian at the time, given the safeguards that were built into the Bill when it initially passed through the House. There were later safeguards—for example, the introduction of the financial markets tribunal, which some would say was a sufficient safeguard to enable such a power or punishment to be introduced in this Bill. I am sure the Minister will address that point in his remarks later.

Amendment 2 is simply intended to trigger a debate about the circumstances in which the sanction could be used. What would “relevant requirement” mean under the Act? Does it include recognition of the new objective of contributing towards financial stability that would be imposed on the FSA? That teases out some of the tension that we have already explored through interventions between what might be a general FSA regulatory policy that applies to all firms, and the specific circumstances in which the FSA might apply a particular sanction to individual firms in individual circumstances. Amendment 2, which is relatively short, tries to establish that.

I want to tease out other issues in the clause, but I will leave them until we discuss later amendments and, if I am unable to tease them all out, perhaps a stand part debate.

Photo of Colin Breed Colin Breed Shadow Treasury Minister

It is a pleasure to serve under your chairmanship this morning, Mr. Benton.

Amendment 2 is a useful probing amendment, which can clarify important aspects, as the hon. Member for Fareham has said. The FSA clearly had powers that it may not have realised it had. Sometimes, it may not have realised the extent of its powers, and it certainly did not use all the powers that it had at the time. The Financial Services and Markets Act 2000 probably needed clarification and the proposal is part of that.

The measure certainly provides increased, wider-ranging powers and potentially greater penalties and disciplinary powers, which may well be necessary in the circumstances in which we find ourselves today. We have to ensure there is a distinction between those who decide on a particular business model, which might include the famous 125 per cent. mortgages, and those who operate under it, such as mortgage brokers who are quite properly selling such a mortgage, or advising people that they may obtain one. If they are reasonably able to do that, I do not think that they are part of the problem. There ought to be a clear distinction between those who decide upon certain products and services—the models—  and those who operate within that market. There are some checks and balances anyway, through the warnings and the tribunal, for example.

The “relevant requirement”, which the hon. Member for Fareham referred to in the last part of his contribution, is perhaps more interesting, and perhaps needs more teasing out. It is an interesting concept, and is probably as broad a concept as can be had. I understand that a “relevant requirement” may not necessarily be wholly and solely in the interests of either the lending party—the provider of the service—or the consumer. It is what the Government may consider a relevant requirement for financial stability, or indeed anything else—a relevant requirement could be anything. A Government could decide what the relevant requirement was and ensure that the FSA implemented it, which might seriously intervene in the normal business relationship between a bank and a customer, or a financial institution and its client. The implementation of a relevant requirement and the FSA’s subsequent embracing of it could suddenly and massively intervene in such long-standing relationships. It may not be in the interests of the bank, the financial institution or the consumer, but they would have to comply with it.

The relevant requirement is mentioned on page 19, line 4, just before where the proposed amendment would be inserted. It would help if the Minister could explain the thinking behind the words “relevant requirement”, and what the extent of that requirement is. It could include almost anything, and the clarification provided by the amendment would limit the requirement, or perhaps direct it towards the financial stability aspect.

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

It is a pleasure to serve under your chairmanship again, Mr. Benton.

The hon. Member for Fareham began his remarks by noting that the measure was a beefing-up of the FSA’s disciplinary powers, and I agree. He set out some of the broader context of what the Government are trying to achieve, and I would like to explain in more detail what clause 14 does, as I think that would help the discussion about the amendment. It may influence your decision, Mr. Benton, as to whether the issues have been fully explored or whether we need a stand part debate when we have debated all the amendments.

Clause 14 amends section 206 in part 14 of the Financial Services and Markets Act 2000FSMA. As the Committee knows, over the past couple of years the FSA has enhanced its supervisory approach and has sought to increase the deterrent effect of its enforcement action to deter misconduct. The FSA has reiterated publicly on many occasions its renewed focus on demonstrating that people and firms guilty of misconduct will be held to account. The purpose of the clause, and the following three clauses, is to strengthen the FSA’s enforcement powers to assist its credible deterrence strategy. The goal, which I am sure we all support, is to increase compliance and to help to foster a sounder financial system.

The FSA’s disciplinary powers in relation to authorised persons who are guilty of misconduct are currently limited to imposing either a financial penalty or public censure. The FSA can suspend a firm only if it is necessary for the protection of consumers, if the firm  does not meet the threshold conditions, or if the firm has not carried on for 12 months a regulated activity for which it has permission. The FSA cannot, however, suspend a firm as a disciplinary sanction. The clause enables the FSA to suspend or restrict a firm’s permission for up to 12 months, as a punishment for misconduct, and the power will supplement rather than replace the FSA’s power to impose a fine or public censure.

We believe that in certain circumstances suspension will be a more appropriate punishment than a fine, and many firms will consider the threat of suspension as potentially more disruptive than a fine. The threat will therefore encourage compliance.

Suspension is also a different type of deterrent, as it has a more direct effect on the offending firm by restricting its ability to do business. It is more visible and creates a direct link between the misconduct and the disciplinary measure.

Photo of Charles Walker Charles Walker Conservative, Broxbourne 11:00 am, 15th December 2009

A business may be indulging in high-risk business practice but not actual misconduct. Are there any powers in the clauses to ensure that a business with a high-risk profile is told, “Your risk profile is too high. It poses a huge risk to the taxpayer, who is ultimately underwriting the business, and you have to change your business practices”? That is not technically the same as committing misconduct.

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

The best reply to the hon. Gentleman is to say that clauses 14 to 17 are about disciplinary powers. If we keep that in mind for the next couple of hours, it will be helpful. They are not about preventive measures or taking remedial action. Some of the debate over the past 30 minutes has been focused on preventive or remedial measures, rather than the disciplinary powers themselves.

Suspending firms for misconduct is not a new concept; it is used in other jurisdictions. The new powers give the FSA a range of penalties to use as appropriate according to circumstances. They range from imposing limitations or other restrictions on a permission to full-scale suspension, which could mean limiting trades by a certain desk or sales of a particular product. I will give examples in a moment in response to the hon. Member for Fareham.

I stress that the clause does not create a new offence; it simply diversifies the range of actions the FSA can take against those who break the rules. This measure, along with others we will discuss shortly, is intended to give a clear signal to regulated entities that the FSA will not tolerate misconduct and that it has a wide range of disciplinary tools to use against those who breach requirements.

The FSA will be required to consult on, and issue, a statement of policy with respect to its use of the new power, in the same way as it currently does in relation to the imposition of financial penalties. The clause will enable the FSA to take more suitable and, where appropriate, tougher actions against those who breach the rules.

The clauses are designed to improve the FSA’s disciplinary powers to punish firms and individuals for misconduct, not to address preventive or remedial enforcement; for those, the FSA already has the powers it needs and can already act in a number of the areas that have been  discussed. It would not be reasonable to speculate on how the powers could have been used in the past, although the hon. Member for Fareham tempts me to do so, but I will give examples of how they could be applied in the future.

The new power to suspend will apply to all regulated activity where the FSA identifies misconduct. That could cover a wide range of activities, from trading in credit default swaps to the selling of payment protection insurance, trading in shares or the selling of endowment policies, car or house insurance, mortgages or pension policies. It is right that the FSA has access to a broad range of different enforcement powers and can decide in each case which is the most appropriate sanction to use. The power is available for use against all firms regulated by the FSA, which covers large firms, as the hon. Member for Fareham mentioned, but also, potentially, small financial advisers. The emphasis is on disciplinary powers and ensuring that the FSA has a wide range of tools available, which it will need to use appropriately according to circumstance.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

I am grateful for the Minister’s explanation. He is in effect arguing that the FSA needs a more granular range of sanctions to apply to firms found guilty of misconduct. What evidence has the FSA presented to him of occasions when it had to go for either a more lenient or a more aggressive sanction, such as suspending permission to undertake a certain type of activity?

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

It will be up to the FSA to make a decision on the basis of the misconduct that it has identified and its judgment as to how serious an offence has been committed. As a public authority, it will be required under law to act reasonably and appropriately.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

My point was not about how the FSA might use its power in the future and what sort of consultation it might go through, but what sort of pitch it made to the Minister for these powers to be included in the Bill? What gaps or failings did it identify in its own previous enforcement actions that led it to argue it needed these powers, as an alternative either to a more lenient sanction or a more punitive one, such as completely preventing a firm from trading in a particular activity, and not just a temporary suspension?

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

As I outlined to the Committee a few moments ago, at present the FSA cannot suspend a firm as a disciplinary sanction. The FSA believes—we support it—that the ability to suspend a firm as a disciplinary sanction is a useful way for the FSA to add to its powers. Many firms will see the threat of suspension—rather than a fine—as a credible deterrent from taking inappropriate action. That is why it is sensible and reasonable to add to the powers.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

The Minister will accept that it is quite a tough power and he argues cogently that it will have a deterrent effect on firms, but he still has not answered my question about whether the FSA identified circumstances in which it would have liked to have such powers—concrete examples of when it had identified  misconduct and felt constrained in the sort of sanction it was able to give. Or is the power just something the FSA could stick into the Bill and that would be nice for it to have?

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

The power is a significant addition to the Bill. I do not want to go back into past cases when it may or may not have been more appropriate to suspend a firm rather than fine it. As the hon. Gentleman will be aware, the FSA has suspended and will suspend firms. A list of firms that have had their permission suspended is available on the FSA’s website so it is not as though the FSA does not take action to suspend firms, as the hon. Gentleman knows. At the moment there is a gap in the FSA’s powers with regard to disciplinary action. He is rightly probing the difference between areas where the FSA will want to take action under its existing disciplinary powers and where it will want to take action, as it can, under the OIVOP—own initiative variation of permission—power. I will say a little more about that in a moment.

However, before doing so, let me respond to the point made by the hon. Member for South-East Cornwall about relevant requirements. Relevant requirements include those imposed directly on firms by the Financial Services and Markets Act and those imposed on firms by the FSA in its rules—for example, to treat customers fairly. FSA rules are subject to a number of safeguards in FSMA, including public consultation, as the hon. Gentleman is aware. Relevant requirements are defined in the same way in the existing disciplinary powers in proposed new section 206A, as well as other provisions in FSMA.

Photo of Colin Breed Colin Breed Shadow Treasury Minister

If a new relevant requirement suddenly arises that the Government feel the FSA should enforce, will it be applied retrospectively?

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

The simple answer is no.

The hon. Member for Broxbourne asked whether the powers could be used to prevent firms from offering high loan-to-value mortgages. As I explained, these are disciplinary powers rather than preventive measures and he will be aware that the FSA is currently consulting on its mortgage policy. The consultation period does not end until 30 January, so it would not be appropriate to say any more about that.

Amendment 2 seeks to enable the FSA to suspend a firm’s permission to undertake an activity if that activity could undermine financial stability. I support the sentiment behind the amendment, but it is not necessary. The FSA has the power, under section 45 of the Financial Services and Markets Act 2000, to vary or cancel a firm’s permission. As I explained earlier, that power is known as the FSA’s OIVOP power, which can be applied to any permission granted under part 4 of the 2000 Act. Clause 7 enables the FSA to use the OIVOP power to meet any of its regulatory objectives, including its new objective for financial stability in clause 5, which we are due to debate in the new year.

If the Committee accepts the clauses, the FSA will be able to suspend or restrict a firm’s permission if it is believed that the firm’s activities were undermining financial stability. I support the sentiment behind the amendment—it has usefully probed the Government’s thinking for those who follow these matters from the outside—but it is not necessary, because clauses 5 and 7  widen the FSA’s ability to act in the interest of financial stability and to use the powers in clause 14. I invite members of the Committee to resist the amendment if the hon. Member for Fareham decides to push it to a vote.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

We have had a helpful debate that has opened up clause 14, so that we can understand why the power is included in the Bill. There is a clear intellectual argument for the power, but I am yet to be persuaded that there is a practical argument for it. I pressed the Minister on three occasions for the evidential base for the need for the power, but he did not provide it. I do not recall the Treasury’s financial services White Paper in the summer providing an evidential base for the power either. Moreover, the Turner report was prayed in aid in the White Paper as a rationale for the power, but I could not see a reference to the need for such additional powers in the report. I may well have missed it, but it was not one of the recommendations at the end of the Turner report. It is therefore difficult to understand the power’s genesis. I know from talking to someone outside this place who was involved in the passage of FSMA that the power was discussed at the time, but it was not included because there were insufficient safeguards in place.

I wonder whether the Minister is undermining his own argument about the need for the sanction by referring to section 45 of FSMA. He said that once the powers come into existence and financial stability becomes a statutory objective of the FSA, they could be used to prevent a firm from selling high loan-to-value mortgages. That would be a proactive attempt to prevent a problem rather than imposing a sanction when a problem had already arisen and a firm had breached FSA rules. I am still unclear as to whether clause 14 provides any additionality to the sanctions. The Minister seems to suggest, in the context of other circumstances, that the FSA could use its powers under section 45 of FSMA to stop a firm selling particular products or engaging in particular activities. [Interruption.] The Minister says that it is not a disciplinary matter, but we seem to have a power that achieves the same ends, or is it elsewhere in the Bill?

We discussed in the Banking Bill Committee last year the threshold conditions that act as a trigger for the special resolution regime. It appears that the powers may well exist, and the FSA, with a bit of nimble thinking, could perhaps use the powers under section 45 to beef up its disciplinary powers, rather than insisting on the inclusion of clause 14 in the Bill.

However, as I said, my main focus in tabling amendment 2 was to tease out issues about financial stability, which we will come to in the new year. The Minister did not explain why the markets in financial instruments directive was singled out for such special treatment in the Bill, when so many other EU directives could have been listed—although he may want to return to that matter in a later debate.

I think that we have had a helpful debate, and we now understand better how the clause fits in with the FSA’s disciplinary armoury. However, I do not think we are much further forward in knowing why that power is needed, and the evidential base for its requirement.  However, further illumination may emerge at a later point, so I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

I beg to move amendment 4, in clause 14, page 19, line 20, leave out ‘12’ and insert ‘6’.

The amendment is straightforward; it is again of a probing nature. Proposed new section 206A states:

“The period for which a suspension or restriction is to have effect may not exceed 12 months.”

Therefore, for a period of up to 12 months, a business may be prevented from carrying out all or part of its trade as a disciplinary sanction. Clearly, that can have a big impact on a business. The measure is meant to be a deterrent, but like all deterrents, it increases its value if used in practice. Removing the right of a business to carry out its activities for 12 months could have a significant impact on its financial situation; it could in effect lead to that business being closed down, which is equivalent to simply withdrawing its permission to undertake its functions under the 2000 Act.

It would be helpful to have some understanding or iteration by the Minister as to why 12 months is the right period. The amendment suggests reducing the period from 12 to six months, but I could have instead suggested reducing the period to four months—the amendment is probing by nature. Given the potential impact of the sanction on a regulated firm, it is important to understand the thinking behind the 12-month period, and whether the Minister has thought through the potential impact on the viability of a firm if it loses its right to conduct its business for 12 months.

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

As the hon. Gentleman indicates, the amendment proposes that the maximum period for which a firm’s permission could be suspended should be six months, rather than the 12 months set out in the clause.

The Government consider it necessary for the FSA to have the ability to impose a suspension of up to 12 months to deter misconduct. Suspension for only up to six months will not represent enough of a disincentive. In all such matters, it is a question of achieving what we think is a right and appropriate balance, and our judgment is that a 12-month suspension will be a significant deterrent.

If hon. Members are concerned that a 12-month suspension may be excessive, I want to reassure them that the checks and balances that are built into the Financial Services and Markets Act 2000 would apply here. If the FSA wants to suspend a firm’s permission, it must go through the process of first issuing a warning notice and then a decision notice. Under normal circumstances, the FSA would probably have discussions before a warning notice is issued to a company. During this process the authorised person may make representations to the FSA. Furthermore, a person has a right to refer the matter to a tribunal. So there are a number of protections built in for the benefit of authorised persons. Again, as I mentioned earlier, the FSA has a duty to act reasonably and proportionately at all times.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

I am grateful to the Minister for outlining the safeguards that will enable an authorised person effectively to appeal against the FSA’s proposed penalty.  But during that period of appeal, will the authorised person be able to continue trading? The FSA has recognised that he is not doing his job properly and that products may be being mis-sold, but it would appear during this warning period that he could continue in the same way, breaching the same rules without hindrance. He could fight his way through the process and at the same repeat the same breaches. Is that what will happen during this appeal process?

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

I want to draw a distinction between the powers that the FSA already has to prevent activity or take remedial action and the disciplinary powers that are being added by clause 14 and subsequent clauses. There is a matter of judgment here about the period that we have sought to impose. We think that 12 months is—

Mr. Hobanrose—

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

I will try to answer the hon. Gentleman’s point in a moment. We both know that I am not answering it now, but I am answering a separate point. I will get back to him. I am trying to explain that there is a process in place that the FSA will have to go through that is specified within its rules. We will debate issues relating to disclosure later.

One of the hon. Gentleman’s amendments seeks to move forward the process from the final notice to the decision notice. During the process, if the FSA wishes to suspend a firm’s permission it must talk to the authorised person who can make representations to it and issue a warning and a decision notice.

There is the right to refer matters to a tribunal. We have to be careful here that we do not get into a situation where people are presumed guilty before final decisions have been taken. We want to give the FSA tools to deter misconduct. It needs to be able to impose credible sanctions. Accepting the amendment would imply that there can never be a single instance warranting a 12-month suspension and that in all circumstances a six-month suspension will be enough to deter firms from misconduct. I do not believe that that is the case. The 12-month period is more appropriate and would indeed be a significant sanction and therefore a credible deterrent. That is essentially what we are talking about here.

On the hon. Gentleman’s specific point, I cannot remember exactly what the situation is. I shall have to refer to my notes, but I shall come back to him on it.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

I am sure that we shall return to the higher point in the next group of amendments—amendment 5 is more tailored to that set of circumstances.

I was interested in the Minister’s argument about 12 versus six months and that there might be circumstances in which a 12-month suspension was preferred to six months, while six months would put a cap or ceiling on a previous suspension. Clearly, the same argument applies if the Government had tabled 24 months and I had tabled 12 months—a judgment is attached to how long the suspension should last, and that judgment has to be made. What the Minister is getting to is that the 12-month  suspension is much more of a deterrent than a six-month suspension: people might trade their way through six months, or be able to shut up shop, and still feel that there was light at the end of the tunnel and they could revive their business after six months. Twelve months is much more of a deterrent—there is an impact from being out of the market for 12 months and, particularly given how potentially broad the measure is, it is tantamount to withdrawing permission anyway. When the FSA produces guidelines on the use of the power, it needs to consult about the breadth of circumstances in which the power can be used and the potential impact on the ability of a business to trade, if all it wants is a punishment that stops short of simply withdrawing permission. So, with that comment on what the FSA should think about before its consultation, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

I beg to move amendment 3, in clause 14, page 19, line 35, at end add—

‘(9) The Authority must publish a statement that it has exercised powers under this section which includes—

(a) the name of the authorised person;

(b) details of the permission suspended; and

(c) the period of the suspension.’.

Photo of Joe Benton Joe Benton Labour, Bootle

With this it will be convenient to discuss the following: amendment 5, in clause 14, page 19, line 35, at end add—

‘(9) Where an unauthorised person refers this matter to the Tribunal in accordance with section 208, the Authority may suspend the permission until the Tribunal has reached its conclusion.

(10) Where the Authority has exercised its power under subsection (9), it must publish a statement that it has done so.’.

New clause 1—Disclosure of enforcement actions

‘In the Financial Services and Markets Act 2000, after section 349 insert—

“349A Disclosure of enforcement actions

(1) Section 348 does not prevent the disclosure by the Authority of information that—

(a) an authorised person is subject to actions taken under Part 14 of the Act; or

(b) an approved person is subject to actions taken under section 66 of the Act.

(2) Prior to a public statement that action is being taken under Part 14 or section 66 of the Act, the Authority must notify the person subject to the action seven days prior to any disclosure of its intended course of action.”.’.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

This group of two amendments and a new clause deals with a linked issue, but there is a tweak around the last point made by the Minister. The linked issue is how consumers know that a firm has been penalised. How do they know that the sanction—the power for a temporary suspension under clause 14, or proposed new section 206A—has been applied to a particular firm?

Amendment 3 requires a notice or statement to be published saying that the authority has used its powers under the section, with the name of the authorised person and the detail of the permission suspended and the period of suspension, so that people will know, for example, that independent financial adviser X is not  able to sell pensions for the next 12 months. That will help consumers know what they are dealing with that firm about, and ensure that some publicity is attached to the firm.

Amendment 5 covers the same issue, but a slightly broader issue as well, going back to the intervention that I made on the Minister to which he said that he would give me an answer a bit later. If an authorised person has been warned that they may be suspended, has been given the appropriate notices and decides to appeal to the tribunal, what happens during the appeal process? That is an important issue. One of my hon. Friends has raised with me the way in which a particular mortgage provider dealt with repossessions and arrears. They were subject to disciplinary action by the FSA. It was a private process and was not known widely. When the institution repossessed other houses, the courts were not in a position to know about its practices. In fact, there was concern about the practice of that particular institution.

Turning to amendment 5, I am concerned that an authorised person could appeal to the financial markets tribunal and, during the appeal process, break the same rules that they had already broken, and continue to do so until the appeals process had been exhausted. Let us look at a criminal case: if someone was arrested for murder, that they might appeal against their sentence or against being found guilty of a particular offence, but they would be locked up in the meantime, so they would not be able recommit the same offence. I am not sure how the Bill would prevent someone who has been found to have breached an FSA rule from recommitting the same offence.

It might be that the authorised person appeals the punishment and accepts the offence. That would be fine, because then the offence would have stopped. If the person continued to argue about whether they were in breach of the rules, and that was that point on which they wanted to appeal to the tribunal, what stops them from doing that?

Photo of Charles Walker Charles Walker Conservative, Broxbourne 11:30 am, 15th December 2009

The customer would be rightly annoyed. The appeal process would go on; if the chap was found to have done nothing wrong, that would be all right, but if a customer was one of a dozen or 100 or so people who, during the six-month appeal process, had bought a dodgy mortgage or financial instrument from a person, and was not aware of the fact that he was under review, that customer would feel furious and want to know why his rights were treated in such a cavalier fashion.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

Indeed. That is why amendment 5 includes new subsection (10), under which the authority must publish a statement that says that it has taken action, or that action is in process.

The Minister said earlier that we were talking about pre-emptive action, and that section 45 of FSMA could be used to the same effect and could stop someone from undertaking activity when they were not perhaps in breach of the rules, but in breach of the objectives of FSMA. The Minister might respond by saying, “I understand the point exactly, and the institution could be recommitting the same offence, but section 45 is your  answer; it can be used in the meantime to stop a firm from recommitting an offence.” I am not sure whether section 45 is subject to the same appeals mechanism as proposed new section 206A and the other sections in the disciplinary part of the Bill, so I am not sure what the interaction is between the point that I am trying to raise through amendment 5, and the issue of whether section 45 can prevent someone from undertaking certain activities in an interim period.

New clause 1 is a broader measure. It tackles an issue that the Treasury Committee highlighted in its 15th report of the 2008-09 session, namely mortgages. Consumer bodies have regularly raised concerns to do with naming and shaming and a more transparent enforcement process. How do people know who is going through the process? The Treasury Committee report on the handling of mortgage arrears pointed out that the FSA had not published the name of the four miscreant firms “subject to enforcement action” or the

“firms who had performed poorly in its August 2008 review of mortgage arrears policies”.

In response to that point, Jon Pain from the FSA said:

“until the full enforcement process is complete, it would be unjust to say they are guilty before they are proven guilty”.

That has support from the British Bankers Association, which followed up on that point, but Shelter questioned the applicability of the concept and said that

“firms referred for enforcement have been found categorically in breach of FSA regulations and we see no reason not to name them while they are undergoing enforcement action.”

That point was reiterated by Which?. It pointed out that until a firm saw that there was a real penalty in disclosure, it would not mend its ways. In a way, amendment 3 tackles that with its publication of notice.

Photo of Andrew Love Andrew Love Labour, Edmonton

Will the hon. Gentleman give way?

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

I will give way in a second. Amendment 5 tackles the issue by referring to firms that are entering the tribunal process, but new clause 1 goes further. I happily give way to the hon. Member for Edmonton, who is a distinguished member of the Treasury Committee.

Photo of Andrew Love Andrew Love Labour, Edmonton

Does the hon. Gentleman agree that the issue is not just about the importance of informing consumers in the market about any disciplinary action taken, but about the reputational issue for the individual and the firm? It is that more than anything else that will hopefully curb such activity in the marketplace.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

The hon. Gentleman makes a powerful point. I have talked to a number of financial institutions about the Financial Ombudsman Service’s publication of league tables and about who has had the most complaints. Obviously, size determines the number of complaints, but an institution’s approach to dealing with complaints has an impact on where it appears in the league table. Someone told me that their organisation was going to change its practices as a consequence of publication, because it was a powerful signal.

Interestingly, I spoke to someone who had just taken over the running of a major financial services business. He said that one of the first things that he looked at was the proportion of complaints found against it by the  FOS. He was gratified to see that his organisation was way below the average for the industry as a whole. The issue has a powerful impact, because many businesses market themselves on their reputation and brand. They can do a lot of brand advertising, marketing and everything else to demonstrate that they are fantastic, trustworthy, credible and on the consumer’s side, until they start to appear on a list of firms that have a disproportionately high number of complaints, given the size of the business.

Photo of Mark Todd Mark Todd Labour, South Derbyshire

Does the hon. Gentleman agree that that would be an important cultural message? One of the issues raised by the FSA in defending its position was that it relies on the trust of the institutions that it seeks to regulate and the relationships that it has built up with them. A somewhat more robust approach would demonstrate more clearly to the public the difference between a regulator and the businesses that it regulates.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

The hon. Gentleman raises a powerful point about public perception and the relationship between the regulator and the regulated. It is remarkable to consider and compare the different approaches to enforcement in different jurisdictions; a more public style of enforcement sends out a very different message to the more private style of enforcement that is used in this country.

In the States, people are arrested in high-profile cases, and there is the impression of activity and enforcement. I cannot comment on whether that is the right impression, but the impression of enforcement is given. The internalised process in the FSA[Interruption.] I hear someone say “cosy”, but I am not sure that that is a judgment I would reach. The process does not give the impression of activity to the outside world. We know that we should not base public policy decisions on perception, but for many consumers perception is reality, and that is the view that they may take of that relationship.

There are some benefits to a more public style of enforcement, but also some downsides. New clause 1 seeks to probe the tension between the two, and given consumer groups’ concerns about enforcement, it is important to have the discussion. However, it is not something that I would necessarily put to a vote today. I will give more detail in a minute.

Photo of Charles Walker Charles Walker Conservative, Broxbourne

I am enjoying my hon. Friend’s line of argument. Clause 6 is on enhancing public understanding of financial matters, and to do that we must allow the consumer to make an informed choice. Mortgage deals change and move quickly. If a consumer is considering a deal that superficially looks attractive, but the company offering it is under investigation or is facing disciplinary procedures, at some stage that consumer might get some compensation through the courts, but the deals that they were comparing that deal with will have been removed from the table. There could therefore be a long-term financial disadvantage to that consumer because at the time of making the choice they were not fully informed of the facts behind the mortgages on the table.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

My hon. Friend makes an important point, and I am pleased that he referred to the clause that removes from the FSA’s statutory objectives the objective about the protection of consumers and about  public awareness. There is an issue there, which we will come back to when we look at that clause. If we say now that the responsibility for public awareness rests solely with the new consumer financial education body and not with the FSA, how does the FSA ensure that the public know about the role that it plays in regulation and enforcement? The FSA has a public duty to justify or explain itself as a regulator, and that is different to the consumer financial education bit of its current activities. There is a helpful debate to be had there, and as my hon. Friend has picked up on that point, he may want to explore it further after the Christmas recess.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

Well, that is part of the challenge that we have in scrutinising the Bill at this time.

The Treasury Committee report concluded that the balance between disclosure to the public and the need to protect firms before they have been found guilty of wrongdoing had tilted too far towards the interests of the industry, but we need to remember what John Pain said, which was that you are innocent until you are proven guilty. There is therefore a tension there. There is also a difference between criminal and civil proceedings. In effect, the FSA has internalised a civil process, but we are much more used to the public glare of criminal prosecutions.

On new clause 1, I want to draw the Committee’s attention to the clarification of section 348 of FSMA on the duty of confidentiality. I understand that when Which? submitted a freedom of information request to find out who had performed badly in the FSA’s 2008 review of the handling of mortgage arrears, the FSA rebuffed the application and prayed in aid section 348 of FSMA, which restricts the FSA’s disclosure of confidential information.

Which? is not an organisation to take things lying down. It went back to the FSA and argued its view that section 348 contained

“important gateways which allow the FSA to disclose information in certain circumstances”.

The FSA argued that those circumstances did not apply, but Which? pointed out that the FSA could publish information

“in pursuance to its function of providing guidance, information or advice...to meet its regulatory objectives such as securing the appropriate degree of protection for consumers.”

That is the point my hon. Friend made. How can consumers be protected if they do not know who has been subject to that action and who has performed very badly? I thought one of the purposes behind thematic reviews and mystery shopping was to help inform the regulatory process, and perhaps give some guidance.

In new clause 1, I seek to provide that section 348 does not prevent the disclosure of information by the authority and that an authorised person is subject to action under part 14 of the Act—of course, I use its definition of approved person: the institution that is undertaking the work—or be an approved person subject to separate actions taken under section 66. I seek to provoke a debate, as I think I have succeeded in doing to an extent, on how much information about the enforcement  process should be in the public domain before the final conclusion has been reached.

The issue is important for consumer protection; consumers should know which firms are under investigation. It is also important to help change the culture of the financial services sector and to have much more public disclosure of information. I also acknowledge that it is not a straightforward issue. We need to think very carefully about the impact legislation might have on a business. We need to think about what is the right step in a process where it may be possible to publish more information than is currently the case, but a process that is entirely private until the conclusions of the financial markets tribunal could potentially be to the detriment of consumers, which is why I have tabled new clause 1.

Amendments 3 and 5 relate more narrowly to clause 14. Amendment 3 covers the publication of a statement that the powers have been exercised. Amendment 5 deals with the appeal process—the hiatus between identifying a problem and determining the sanction, and what people should be aware of during the process.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West 11:45 am, 15th December 2009

It is a pleasure to serve under your chairmanship again, Mr. Benton.

On amendment 5 and what the hon. Member for Fareham refers to as the hiatus, I have to say how thin the veneer is on the Opposition Benches. When we debate the 42 days for terrorists, we hear all the civil liberties arguments, which the Opposition then want to get around by using the Civil Contingencies Act 2004, by using intercept evidence during a trial and by having post-charge questioning. However, when we come to financial derring-do, we hear, “Oh we want a clampdown on the stage between charge and trial by suspending”—to use a criminal analogy—which is what amendment 5 is about. I have to say to the hon. Gentleman that I profoundly disagree with him.

If the hon. Gentleman were stopped and accused of Christmas-period drink-driving tomorrow—I am sure he will not be—he could carry on driving until his case came to court, when he would have a chance to show his innocence. I am sure he would be proved innocent, because he is an honourable and sensible man—I am just using a criminal analogy. However, someone driving around drunk could kill somebody. It is much more serious than some financial messing around, serious as that may be. Under our presumption of innocence until found guilty, that is what we do and should continue to do as a society, difficult as it is.

The hon. Gentleman is wrong to talk about people getting locked up pending an appeal. It depends on the nature of the criminal process, and very often people are not locked up pending an appeal. The overwhelming majority of people charged with a criminal offence that could carry a custodial sentence are not in custody pending the trial at which their guilt or innocence is determined. However, I have some sympathy with him on amendment 3 and new clause 1.

Photo of Mark Todd Mark Todd Labour, South Derbyshire

I am not sure that I have followed the analogy entirely. The individual involved is not granted anonymity in the process. I fully accept that there is no judgment on guilt or innocence until a judge and jury  decide the matter, but the individual is not normally anonymous through that process, except in very specific cases.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I entirely agree, which is why I was saying that I have some sympathy with amendment 3 and new clause 1. That to me is the way to balance the “innocent until proven guilty” aspect of our system—which I support, as I suspect do all hon. Members—with the need to protect consumers. The way to protect consumers is along the lines put forward by amendment 3 and new clause 1, because it is to do with consumers making an informed choice. However, amendment 3 is not currently worded in a way I could support, because it refers solely to suspension, whereas proposed new section 206A(1)(b), which would be inserted by clause 14—referred to by the amendment—refers to “limitations or other restrictions”. It is important for that to be included—not just suspensions—because I envisage a situation when a firm offering financial advice has a member of staff who is restricted in what he or she can do, but other members of staff are not.

Photo of Charles Walker Charles Walker Conservative, Broxbourne

I appreciate the hon. Gentleman’s argument. Someone could be prosecuted for committing a crime and not proved innocent or guilty, but still out in the community and subject to a restraining order, for example. Are we suggesting, which might be a good idea, that where there is a huge question mark over the business practice of an individual or firm, that a specific restraining order be placed on that firm in the area causing concern, so that it cannot sell that financial instrument until the appeal has been settled? During the course of the appeal it would be forbidden to sell that mortgage but, once the appeal has been heard and if the firm has been found not guilty of a misdemeanour or crime, it could go back to that business practice, perhaps with some alterations or amendments to its conduct.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I have some sympathy with what the hon. Gentleman says, but amendment 5 refers only to suspension not to restriction. I say to the hon. Member for Fareham, who has ably moved the amendments, that that is a weakness, as restriction should be encompassed. Amendment 3 does not say when the authority should publish the statement, which can be quite important in informing consumers; nor does it have the wording I think it should. After the word “powers” in line 1 of the amendment, there should be inserted something on the lines of “even when an appeal is pending”, to make sure that consumers are informed. Something similar should happen with new clause 1. Amendment 3 and new clause 1 refer, quite understandably, to what the authority shall do, or may do in terms of new clause 1, but neither refers, as far as I can see, to what the financial institution itself should do.

There should be provision that the financial institution itself has to tell customers who come through the door about the restrictions or suspensions in place, so that the customer can decide whether to proceed with a transaction or go straight out of the door. Perhaps there is such a provision elsewhere in the measure—forgive my ignorance, Mr. Benton.

The hon. Member for Fareham referred to the comments of Which? on new clause 1. What it was told is absolutely ridiculous. If one is up before the criminal courts, unless  one is a minor, it is a matter of public knowledge that a criminal trial is pending. In my analogy, if the hon. Gentleman were stopped for drink-driving and was being taken to court in a couple of months, it would, rightly, be a matter of public record that there was a question mark over his conduct, although I stress that I am sure he would never do such a thing. Similarly, in civil matters, excepting those involving minors—indeed, some that involve minors—and family matters, the existence of a legal process is a matter of public record. Why the FSA is hiding behind some kind of privacy or human rights stuff is beyond me. I am not a human rights lawyer, that is not my background.

Photo of Andrew Tyrie Andrew Tyrie Conservative, Chichester

I always appreciate the hon. Gentleman’s interventions and I agree with more of them than I disagree with. He knows that I do not always side with the FSA, and have not done so over many years on all sorts of issues that have come before the House, but there must be a prima facie case for saying that the FSA are right in this instance. If we tell customers about action as they come through the door, we are pretty much closing down the business. Customers will say, “Crikey, there’s some row going on here. I don’t understand it so I’ll go somewhere else immediately.” We are turning an already quite significant power into something draconian. That was exactly what we went to such pains to prevent when we drafted legislation years ago in this Committee Room and in Committee Room 10, to try to bring some balance to the process and enable firms that may be wrongly fingered for an offence to carry on trading and not have their reputations shredded even when they are subsequently found not guilty.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I welcome being on the Committee with the hon. Member for Chichester with whom I agree more often than I would wish in the Chamber, although not on this issue. I take his point about shredding the reputation of a firm but we have to look at protecting consumers. We have to look at their level of maturity and at the details of the information that I think the FSA should publish.

Consumers are sometimes more mature about such things than one might think at first glance. I shall give him an analogy from my professional practice as a solicitor. It goes back many years, as I have not practised in this area of law for more than 25 years. The Law Society rules then were that one had to disclose to the client the commissions that one sometimes got as a solicitor and give them the option of having the commission for themselves. When I first read that rule as an articled clerk, I thought that it was absolutely potty. I thought that the rule might as well be that we should just give the commission to the client. In practice, when one said, “There is a commission with this transaction, and you are entitled to all of it if you wish or you may allow me to keep part of it”, quite a proportion of clients said, “That’s okay, you keep the commission, I’d have done the deal anyway.” That was certainly counter-intuitive to me, as I think it would be to many people.

It is a question of consumers’ maturity in weighing up information and making choices. If a firm was being investigated, the consumer might say, “Well I’ve dealt  with this firm for years, I understand the two little paragraphs about what the FSA say they are investigating and why there is a restriction on somebody working here, but it’s all right with me, I’m going to carry on.”

Photo of Charles Walker Charles Walker Conservative, Broxbourne

Of course there will be an intermediate stage in the process. The FSA would have been working with that business or individual, we hope, for months and would have persuaded that business or individual to moderate their behaviour before reaching the enforcement level. If the FSA is so concerned about the business practice, there must be an opportunity, even during the appeal process, to advise potential customers about it and to let them know that the organisation or individual is in a disciplinary process.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West 12:00 pm, 15th December 2009

I agree with the hon. Gentleman; it is not just a question of the opportunity for the FSA.

I take issue with the fact that there is nothing in new clause 1 about encouraging the FSA to disclose its information; the proposal is merely permissive. I urge the hon. Member for Fareham not to press amendment 5 to a Division, because it goes against our system. I urge the Minister not to accept amendment 3 and new clause 1, but he should seriously consider the issue of disclosure and consumer information. Not only the FSA, but the financial institution itself, should be encouraged to disclose information to consumers.

Photo of Colin Breed Colin Breed Shadow Treasury Minister

I was not going to say much about this interesting topic, but I will offer an analogy. I have been a member of the General Medical Council for a considerable number of years, and I sit on fitness to practice panels. This is not a complete analogy, but there is a well-worn process when complaints are made against doctors that are then considered by the GMC. Complaints that are insignificant or vexatious are weeded out, and the remainder are considered in terms of their potential seriousness. If complaints are potentially serious, they are passed to an interim orders panel. I am a member of one such panel. That part of the process happens before the fitness to practice panel meets to decide upon any disciplinary action.

It is felt that the general public should be protected against a doctor who may have been involved in serious misdemeanours, so, while the doctor has not been found innocent or guilty during the period between the meeting of the interim orders panel and the meeting of the fitness to practice panel, it is decided that an order might be necessary to protect the public. That can mean a letter of warning, conditions on his or her registration, or even suspension.

If such a process takes place, the GMC requires the doctor to advise certain bodies and personnel, such as the local PCT and the director of public health, of those conditions. Indeed, if the doctor accepts an appointment or undertakes any other work, he needs to advise the people involved of the conditions under which he is working. Those conditions are published against the doctor’s registration on the GMC register. Although it is not required for him to put a notice up in his waiting room—“I am under suspension” or “I am under conditions”—if somebody interrogated the register, they would see that, and if they asked their PCT, they  would be told that the doctor was under conditions or suspension, pending the ultimate fitness to practice decision, which may be six, nine or 12 months away.

That offers something of an analogy to the issues under discussion. For example, while we may not want a mortgage broker to put a notice up in his waiting room stating, “I am under threat”, we may require the FSA to hold a register that somebody could interrogate to see whether there was an action against that broker. It could also be a requirement to advise the local trading standards department so that, should someone make an inquiry of it, they would be made aware that that authorised person was under conditions in respect of a pending action.

The process might work that way. It works tolerably well in the GMC, although not everyone agrees with it, particularly those doctors who are subjected to it. However, the analogy is not unreasonable in how the process might operate. It would provide some means to the general public to interrogate and find out whether a particular individual or firm was under investigation or conditions.

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

We have had an interesting debate and I will try to clarify matters for the Committee. As is nearly always the case, the hon. Member for Fareham has a point. However, as in many cases, a lot of my work has been done for me by my hon. Friend the Member for Wolverhampton, South-West. We have had analogies with criminal cases and most recently, from the hon. Member for South-East Cornwall, an analogy with the GMC and fitness to practice.

I do not think that there are any perfect analogies, but at the risk of extending the criminal analogy a little further, I would want to draw a distinction between the disciplinary measures here and the measures to protect consumers and prevent action from taking place. So, to pursue a criminal analogy, we are not talking about a person who has been arrested and charged and taken into preventive custody for a serious offence. We are talking about clauses that relate to disciplinary powers. The FSA’s current preventive powers can be used if there is a risk to the consumer and they can be used under section 45 of FSMA—the OIVOP provisions that I have already talked about.

A suspension could be imposed by the FSA under section 45 and could have immediate effect, thereby enabling preventive action to take place if the FSA considered that necessary because of the detriment to consumers. We are talking about a different set of circumstances—not about preventing action, but about the punishment that might be appropriate as opposed to a fine. There is the punishment and the deterrent effect of having a sanction that is all about suspending permission to carry on regulated activities.

Photo of Charles Walker Charles Walker Conservative, Broxbourne

Will the Minister confirm that the relationship between the FSA and financial advisers does not necessarily have to be built on confrontation? It would be perfectly possible for the FSA to work in partnership with a financial adviser or company and say, “Look, we have some concerns around this financial instrument. We would prefer it if you withdrew it for the next two or three months while we work with you to clear up those concerns.” Is that a possible outcome?

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

I agree that that is likely to happen in a lot of instances. Generally, the first recourse would be the FSA having a word with the individual or the companies about areas of concern. In many cases these issues are sorted out in that way. Then, as I indicated earlier, if the FSA remains concerned that there is potential misconduct and consumer detriment, or a threat to financial stability or any of the other objectives, it can act by issuing a warning notice.

It is important to recognise that the FSA has other powers to protect the consumer that we are not discussing here, but which are all relevant. They are used by the FSA and have been used in the recent past, but they are distinct from the additional power that we are seeking to take here today, which will enable the FSA to suspend permission to carry out regulated activities in the future.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

I am grateful to the Minister for the way he is explaining this. There is a challenge for the Committee here. I suspect that none of us took part in consideration in Committee of FSMA, for which we should perhaps be grateful, with the exception of my hon. Friend the Member for Chichester, who consequently understands the Act inside out. One problem is that while we are dealing with disciplinary powers in isolation as we amend FSMA, we are not looking at preventive power.

I put this challenge to the Minister: one assumes that a temporary suspension of activity would be on the activity where the alleged breach took place. For example, if the problem was with the sale of mortgages, the firm would be prevented from selling them. This is not a penalty that exists in isolation; there is a clear connection between the breach and the penalty. On the other hand, there is no equally clear link where, for example, there is a breach and then a fine.

That is where the issue of prevention comes in. If it is said that that there is a breach so heinous that a suspension should be the sanction, people will want to know what is going to happen in the middle period to ensure that the breach does not reoccur before the sanction is imposed.

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

I think I understand what the hon. Gentleman is trying to get at. Again, I want to return to the fact that the FSA, as a public authority, has to act appropriately and proportionately. For example, if a problem was identified in the mortgage market, the remedy would not be to refuse the organisation permission to operate in the shares or credit default swaps markets. The remedy would, in common-sense terms, have to relate to the area in which the FSA had concerns and was talking to the individual or company.

The hon. Gentleman is right, and I am not sure that any other member of the Committee served on the Committee considering FSMA, but I would like to make a few comments in reference to it, as that will help to explain the amendments.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

The Minister is right. This is about trying to work out the proportionality. If the breach is in a particular type of business—with the FSA believing that the authorised person has broken a set of rules—and the penalty is that they stop transacting that type of business, what will happen between the breach and the final penalty so as to protect consumers? That is outside  the scope of the part of the Bill that we are discussing, as it is about the disciplinary sanction, but I want to see where the linkage is, which will protect consumers in the interim before the final sanction is imposed.

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

The point that I was trying to make on preventive custody will, I hope, address the hon. Gentleman’s point. If the consumer needs to be protected and the FSA has concerns, the FSA can use section 45 of FSMA to suspend an individual company from taking a particular course of action, and the customer will be protected immediately. The FSA might then want, using the powers we are discussing, to suspend the company from taking action for a period of up to 12 months, which it can determine.

The two powers are different: one is to do with discipline and punishment, the other with prevention. The section 45 powers prevent actions from being taken, while the powers under the clause are for punishment and deterrence.

Photo of Mark Todd Mark Todd Labour, South Derbyshire

The amendment is about punishment. Is the Minister arguing that there is sufficient punishment in the clause and that the additional sanction of some public information about that punishment would be unnecessarily draconian? One of my concerns is the slight haziness over where the threshold will lie when the clause is implemented. Many informal contacts will take place between the FSA and a regulated body in which it might ask questions or raise worries about a particular activity well short of the sanction in the Bill. It is perfectly reasonable that that should be conducted in private, but there is an argument for saying that, when we reach the much more formal process of the use of the law, there should be a wider currency to that decision.

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury 12:15 pm, 15th December 2009

My hon. Friend asks about the important point at which disclosure to the public takes place. I shall explain the Government’s position on that in a few moments.

For the record, let me explain why in the Government’s view the changes under the amendments and new clause 1 are not necessary. Paragraphs 18 and 19 of schedule 2 amend sections 207 and 208 of FSMA, which require the FSA to issue warning notices and decision notices when taking disciplinary measures. The specific changes will require the FSA to issue warning and decision notices in relation to suspensions or restrictions of permission under the proposed new section 206A, which is inserted into FSMA under the clause.

The amendments under schedule 2 will then lead to section 391 of FSMA being engaged. Section 391(4) requires the FSA to publish such information as it considers appropriate about the matter covered by a final notice. For the information of the Committee, a final notice is the notice given after the decision notice has been issued and any reference to the tribunal has been dealt with or the period in which to make a referral to the tribunal has passed. Therefore, on the assumption that the consequential amendments schedule is, in due course, accepted as part of the Bill, the FSA will be  under an obligation to publish appropriate information about the persons whose permissions are suspended or restricted under the clause.

While I agree with the intention of amendment 3, in practice it is not necessary. However, my hon. Friend the Member for South Derbyshire is right if he is saying that the time in which the information is made public will be at or after the decision notice, and that addresses the point of innocent until proven guilty.

Photo of Mark Todd Mark Todd Labour, South Derbyshire

Will my hon. Friend clarify one point? He suggests that there would be an obligation on the FSA to publish such information, but the wording that he quoted showed a substantial degree of discretion on the FSA about how it makes such a judgment. Perhaps I misheard him, but he said broadly that the FSA would judge such information as appropriate. I am worried about the degree of obligation.

My other concern was developed by my hon. Friend the Member for Wolverhampton, South-West, which was that there is no obligation of anonymity to someone who is under suspicion and charged in the matter. I cannot quite understand why anonymity needs to be granted after the serious threshold that has been exercised of establishing a suspension, pending a possible future sanction.

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

On my hon. Friend’s first point, he is right to refer to my words when I said that the FSA is required to publish such information as it considers appropriate. I would have thought that the type of information mentioned under amendment 3 would generally be appropriate to be published. If, for some reason, the FSA considers that it would be wrong to publish certain details, it would not be required to do so. The FSA has a general duty to act in an appropriate and proportionate manner. The important point to note is that the publication requirements for all of the FSA’s enforcement measures, including the new suspension power, will be the same. I understand that the hon. Member for Fareham has some concerns, but in practice they are not likely to eventuate.

Photo of Andrew Love Andrew Love Labour, Edmonton

May I add to the concerns? The evidence that the Treasury Committee took showed clearly the unwillingness of the FSA to carry out its obligations to disclose such matters. Therefore, I put it to the Minister that if we are not to go down the route of giving the FSA an explicit power to disclose the information, how can the Committee be reassured that the FSA will do what is necessary—if I may put it in the crudest terms—to name and shame those guilty of such misdemeanours?

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

The key point we are discussing is when the information comes into the public domain. I recognise that there is some concern and different views about whether that should be done after the potential for referral to a tribunal and a final decision has been taken, or before, when the FSA issues its decision notice. A legitimate debate can be had in that area. I would like to explain the Government’s views and why we have come to that position. I am happy to give way before doing so.

Photo of Andrew Love Andrew Love Labour, Edmonton

I thank the Minister again for giving way so liberally on the issue, which is critically important. I am not a lawyer, therefore I defer to the greater knowledge  of my colleagues on the Committee, but I would accept that amendment 5 is not perhaps one that we should wish to pursue. The wording in amendment 3 and in new clause 1 may well not be entirely appropriate to achieve what is being attempted, but I think that there is a broad measure of agreement that something needs to be done about disclosure and the FSA. I hope that the Minister is willing to take the issue away and perhaps come back at a later stage in the Bill with something that will reassure the Committee and the House that action will be taken to ensure that the FSA lives up to its responsibilities in such matters.

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

Let me explain the Government’s position and how it has developed. I can do that helpfully by specifically referring to the new clause, which seeks to remove the relevant section of FSMA, preventing the FSA from disclosing whether it has taken action against a firm or an individual. The Committee should be aware that the legal restriction contained in section 348, which the new clause switches off, is a restriction on disclosing information received from the authorised firm or from the approved person. However, a statement such as, “The FSA has issued a warning notice to firm X” or “The FSA has begun disciplinary proceedings against person X” does not constitute information received from the firm. That means that section 348 is not engaged, therefore disapplying it is unnecessary, so the new clause does not work.

In fact, section 391 of FSMA would be the relevant provision. It provides that “Neither the” FSA

“nor a person to whom a warning notice or decision notice is given...may publish the notice or any details concerning it.”

It also provides that the FSA

“must publish such information about...a final notice...as it considers appropriate”— as I mentioned earlier to my hon. Friend the Member for Wolverhampton, South-West.

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

In a moment—let me make a little progress, which might help my hon. Friend.

I recognise that section 391 does not require the FSA to disclose the fact that someone is subject to investigation, it simply gives the option of doing so. However, as can be seen from the section—the hon. Member for Chichester will no doubt remember this—Parliament was clear at the time that publication should happen only at the end of the process, after the firm has had a chance to make representations and the option of referring the matter to the tribunal. The Government’s position is that that is reasonable, given—again—that UK law is based on the principle that people are assumed to be innocent until found guilty.

Photo of Andrew Tyrie Andrew Tyrie Conservative, Chichester

I hesitate to come to the defence of the Treasury Bench—indeed, I think this must be a precedent—but there is another reason why the position that the Government took, after a lot of persuasion all those years ago, is probably correct. What the FSA really wants and needs is informal contact from the firm asking about a product that might have a potential problem. If it thinks that merely by supplying that piece of information it may find itself suddenly put at high reputational risk, it will take a more strictly legal position  and disclose only the minimum. It is the informal relationships that are created through ARROW visits, through the period in between those investigations, that is the best way to secure the public and protect the customer. That is quite independent of the separate issue, which is about what the public has the right to know. Has ex post taken place? The public must be informed in reasonable time about an investigation where a referral has been made to a tribunal. As I understand it, those provisions already exist in the Bill to enable that to take place.

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

The hon. Gentleman makes some relevant and pertinent points. The Treasury Committee was concerned about the issue, as my hon. Friend the Member for Edmonton rightly pointed out. That Committee felt that the balance between disclosure to the public and the need to protect firms before they had been found guilty of wrongdoing was tilted too far towards the needs of industry. In its response to the Treasury Committee report, the FSA made the point about fairness to those accused of wrongdoing but who had not yet had the chance to defend themselves, as I mentioned. In addition, the FSA helpfully responded that it can and sometimes does publicise whether it is investigating a particular case. It tends to do that only in exceptional cases—for example, where it is desirable to do so to maintain confidence in the financial system or to protect consumers or investors. On the important issue of consumer protection, I think hon. Members would expect the FSA to have the ability to publicise whether it is investigating a particular case. Given the fact that that can happen, the FSA stated, and I agree, that the current framework allows a balance to be struck between achieving its objectives—in particular, consumer protection—and fairness to firms and individuals. It is a question of striking the appropriate balance and we believe that that balance has been struck in this case, which is why we will not support the new clause.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I talked about the issue, which is pretty core to our judicial system overall, of innocent until proven guilty, and that is why I resist amendment 5, as I think my hon. Friend the Minister knows. But in terms of striking that balance, it seems that the quid pro quo, or the trade-off, is that the customer and prospective customer ought to have access to information—perhaps on a register, to which the hon. Member for South-East Cornwall referred by medical analogy—about whether a firm with which he or she proposes to do business is under investigation, under suspension or whatever. That is the balancing, so the firm can carry on until the end part of the process, but the trade-off is that the consumer gets to know that that process is under way.

Photo of Ian Pearson Ian Pearson Economic Secretary, HM Treasury

I can understand the point that my hon. Friend makes. As I said, that was discussed at great length during the passage of the Financial Services and Markets Act 2000. It was not something that it was decided would be appropriate to do. I pointed out the flexibility in the system at the moment, and I am happy to reflect further on the points that he and other hon. Members have made, but at the moment my firm view is that the balance in giving protection to consumers is appropriate, while at the same time respecting the fact that firms should not be prejudged until the outcome of investigations has been fully settled.

I shall deal briefly with amendment 5. My hon. Friend the Member for Wolverhampton, South-West rightly made some valid points about why it would not work. It would actually be punishment before being found guilty rather than information being disclosed. It is possible to argue that, in the case of, say, a monetary fine, sometimes it does not matter if it is imposed before an appeal because, if an appeal is successful, a fine can be returned to the defendant, perhaps with interest. However, if we are talking about suspending the permission of an individual or a firm to act, that is serious. Customers will not have waited and would have gone to a competitor. The reputation of the individual or firm might have been damaged even though they might be eventually be found innocent. That point not only plays to amendment 5, but to disclosure. There is a real danger of unfairness.

The whole tenor of the Financial Services and Markets Act is that sanctions do not take effect until after a final notice has been issued, not a decision notice. In accordance with section 390, a final notice cannot be issued until after the period for reference to the tribunal has passed. We believe that that is the appropriate balance that should be struck, so we will not support amendment 5. I think that I have covered the key points with regard to the group of proposals.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury) 12:30 pm, 15th December 2009

We have had a helpful debate on the two amendments and new clause 1. It reminds me of the error message that we occasionally pick up when looking at a document in Word, when part of a sentence is underlined and we are told that “fragments need revising”. The three proposals broaden the scope of the debate beyond the narrow sanction that is imposed. Two themes run through our argument, the first of which is how much consumers should know. The second theme is about the right protection to put in place for a consumer when there has been a breach of the rules.

On the first theme, various analogies have floated around about a person being innocent until proven guilty. That is a fundamental principle of United Kingdom law and is one that it is right to abide by, but there is a degree of publicity around a criminal case and, in some circumstances, people’s rights are protected in such cases. There is publicity; it does not prejudge the outcome, but people are aware of cases and know what is going on. Should there be greater transparency about the enforcement process in the FSA than is currently the case? That the Treasury Committee errs on the side of greater openness and greater transparency is reflected in the amendments and the new clause, while the position of the Government and the FSA is that the balance is about right now.

While the debate has been helpful in teasing out some issues, some more thought needs to go into the right circumstances in which consumers should have more information than they currently do, and what that means in compromising the interests of firms. We talked about the relationship of trust and openness between the FSA and regulated firms, and I can understand the importance of that. When I talk to businesses in the City, they say that they want to be able to share information with the FSA. However, equally, I do not think we want consumers to feel that there is a cosy relationship—I think the hon. Member for Edmonton used that phrase earlier— between firms and the regulator, as if they are in the same pocket.

Photo of Andrew Love Andrew Love Labour, Edmonton

Earlier the hon. Gentleman touched upon a wider discussion about the changes that are occurring in the FSA, which, as it is currently constituted, is funded by the industry. I think everyone recognises that that will continue in the future—it is the only practical way to fund the organisation. Almost all of its personnel come from City institutions. Again, considering the level of expertise, that is unlikely to change. It is therefore imperative, to correct its natural bias towards the industry and protect consumers, for us to write in some prescription to suggest to the FSA that it must take consumer interests into consideration. I hope that when the Minister reflects on that matter he will decide that there is a need to strengthen this part of the Bill.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

Indeed, and the hon. Gentleman raised some wider issues in the context of how the FSA is accountable to consumers. We have the consumer panel, and we said in our White Paper in July that we would appoint two consumer representatives to the board of the new Consumer Protection Agency, which has led a successful campaign to get two consumer representatives on to the FSA’s board. We need to ensure that a balance is struck.

There is an issue about information that leads to how we protect consumers, which is the second theme that has emerged from the debate. The Minister is right to draw us back to the fact that we are talking about sanctions where a disciplinary process has been completed. However—I intervened on him on this point—there should be a relationship between the breach and the penalty. If one breached the rules on sales of insurance policies, the penalty should be related to the sale of those policies. That is right and proportionate.

The matter becomes difficult when we ask what happens in the interim where there has been some sort of consumer detriment through a breach of the rules, which the sanction is then going to tackle. How do we protect consumers in the interim before we reach the point when the final notice is published? One argument is that we must have greater transparency: the consumer should know that a business or firm that they are about to engage with is going through a disciplinary process. Information will provide adequate protection for the consumer, and a better informed consumer can make their choice. Another argument is that we should go down the route that the hon. Member for South-East Cornwall talked about in the context of his being a lay member of the GMC panel, which is that we should take some preventive action between the identification of the misconduct and the agreement of the final sanction. That is part of the thinking behind amendment 5, which would give the FSA a power to suspend that particular activity until a conclusion is reached.

The Minister assures us that the powers to take preventive action are already there for the FSA under section 45. The problem that we have in debating such Bills is that we make incremental changes—something that the Minister and the hon. Member for Wolverhampton, South-West are familiar with from debating the Finance Bill, where each year there are incremental changes on previous incremental changes. It would be helpful for the FSA, when it produces its consultation paper on how it is going to implement the powers, to reflect on how those things interlock. Should there be more information available to act as a form of protection for  consumers? Should the powers under section 45 be used as a way of bridging that gap between the breach and the final section? How does the jigsaw of consumer protection fit together?

Photo of Andrew Tyrie Andrew Tyrie Conservative, Chichester

My hon. Friend has tabled a very helpful set of amendments for the Opposition, not least because it has smoked out exactly this issue. Is not the key to make sure that the FSA is not asleep on the job during that interim period? The FSA could say, “Well, we have someone looking at it,” so we can carry on as if nothing has happened, but what we need is vigilance from the FSA, to ensure that it is constantly assessing whether it needs to exercise its powers under section 45. We and the public need confidence that the ability to provide that is built into the systems of the FSA. The suggestion of my hon. Friend the Member for Fareham, that the FSA produce a consultation document to give us that confidence, would be welcome.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

I am grateful to my hon. Friend for his intervention and his comments. He is right; we all agree in the aftermath of the financial crisis that we expect the FSA to use a more proactive approach to supervision. It is referred to as being more intensive and intrusive, and I suspect that the logical outcome of that approach would be a greater use of the powers under section 45. I am looking for reassurance as to how the FSA would use the combination of section 45 and the new powers that we are giving it under proposed new section 206A to protect consumers, to ensure that in the interim, where it has identified that there is a significant breach—a breach so significant that the FSA believes that suspending a firm from undertaking that activity is warranted—consumers are protected. That is either done through use of section 45 powers or, if the belief is that those powers go too far and impinge potentially on the issue raised by the hon. Member for Wolverhampton, South-West—about innocent until proven guilty—the alternative, which is greater transparency about the enforcement process. Is that the alternative form of protection to section 45? We need to resolve that tension as the FSA moves to a different form of intervention. Regardless of whether it is the FSA or other regulatory bodies that succeed it, one of the lessons of the crisis has been a much more intrusive approach to regulation.

I regret that, as another member of the Committee who is not legally qualified, like the hon. Member for Edmonton, my amendments 3 and 5 are defective in the view of the hon. Member for Wolverhampton, South-West. If I come back to the issue again, I shall beef up my amendments and make them more inclusive in their wording perhaps. However, we have had a helpful debate, clarifying the situation for a number of us and raising some new issues that we may want to return to at a later stage. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question put forthwith (Standing Orders Nos. 68 and 89), That the clause stand part of the Bill.

Question agreed to.

Clause 14 accordingly ordered to stand part of the Bill.

Photo of Andrew Tyrie Andrew Tyrie Conservative, Chichester

On a point of order, Mr. Benton. I am very sorry to disturb proceedings, but I wanted to point out that in the back row here the air conditioning seems to  be on as if it were mid-summer. I have noticed that it is 1° outside and, though more in here, it is certainly not very warm. I wonder if you could look into this, Mr. Benton.

Photo of Joe Benton Joe Benton Labour, Bootle

That is hardly a point of order, but the point is taken, whether a point of order or not. Protestations have been made to the proper sources already, I can assure you of that. It is cold, but I do not know what the problem is. We have tried to resolve the problem this morning.