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Clause 30 - Power to take disciplinary measures against recognised bodies

Financial Services Bill – in a Public Bill Committee at 3:45 pm on 8th March 2012.

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Photo of Mark Durkan Mark Durkan Shadow SDLP Spokesperson (International Development), Shadow SDLP Spokesperson (Work and Pensions), Shadow SDLP Spokesperson (Foreign and Commonwealth Affairs), Shadow SDLP Spokesperson (Home Affairs), Shadow SDLP Spokesperson (Justice), Shadow SDLP Spokesperson (Treasury) 3:45 pm, 8th March 2012

I beg to move amendment 131, in clause 30, page 117, line 37, at end insert—

‘(2) If a statement is published and further investigation does not result in a penalty the regulator must publish this outcome in a manner the regulator believes is most suitable to bring this to the attention of the public.’.

Photo of George Howarth George Howarth Labour, Knowsley

With this it will be convenient to discuss the following: amendment 159, in schedule 9, page 230, line 39, leave out from ‘(c)’ to ‘the’ in line 40.

Amendment 130, in schedule 9, page 233, line 15, at end insert

‘and the Regulatory Decisions Committee’.

Photo of Mark Durkan Mark Durkan Shadow SDLP Spokesperson (International Development), Shadow SDLP Spokesperson (Work and Pensions), Shadow SDLP Spokesperson (Foreign and Commonwealth Affairs), Shadow SDLP Spokesperson (Home Affairs), Shadow SDLP Spokesperson (Justice), Shadow SDLP Spokesperson (Treasury)

I assure the Whip that I am conscious of my own flight risk, so I will not dwell too long on the amendments, although that is not to minimise their importance. I have tabled amendments 131 and 130, the first of which relates to the publication of statements.

If a statement is published and a further investigation takes place, the various interpretations of the published statement—by the media, others in the market or people in this House and elsewhere—might be overtaken by the results of an investigation. That investigation might show that there is no case for a penalty or that the issue raised was not a matter for regulatory concern. The amendment would ensure that, in that instance, the fact of an investigation and inferences drawn from any particular previous statement would at least be mitigated by an effort at exoneration, with the regulator at least publishing a statement to the effect that the matter was not going anywhere and had no need to go anywhere, and that there was some commensurate exoneration. Otherwise, there is a danger that reputational damage will be incurred and unduly suffered. Such damage could be exaggerated by competitors—either direct competitors to a business or people in other sectors—because facts could be used not just to create reputational damage against a business, but against particular classes of business in that way. We have to be concerned about that.

There has been much concern in the past few years about the financial services sector. Many people have said, “Let’s be careful about tarring everyone with one brush. Let’s be careful about putting a cloud over an entire sector and everybody in it.” The amendment was tabled in an effort to make good a difficulty that people have seen. People, not least independent financial advisers, feel there is an environment in which, rightly, significant attention will be paid if anything goes to investigation, but little attention will be paid whenever a matter is clearly resolved.

In another context, hon. Members have been jumping up and down about the media over the past few years, saying, “There should be clear, commensurate statements of correction in relation to anything wrong that is said against anyone.” If we insist on that in relation to the media and other wide-ranging issues, when legislating to protect consumer and other competitive interests we do not want to cause free injury to the reputation of those practising in the sector, without any regard to remedy or redress. In this instance, there would not even be complete remedy or redress; the amendment would just mean the FCA, as it sees fit, seeking to publish the exonerating conclusions of its investigation in a manner best fitted to bringing it to the public interest. We are not detailing how it would do that, how many advertisements it would take our or where those would be placed, or anything else—that is a matter for the FCA’s judgment.

Photo of Mark Garnier Mark Garnier Conservative, Wyre Forest

The hon. Gentleman makes a good point. Does he not agree, however, concerning exoneration, that part of the problem may be that the FCA could publish a disciplinary notice on its website and a retraction later, but the national media would make great hay out of a scandal with no follow-up in the same manner? Therefore the national press, rather than the FCA, would be at fault.

Photo of Mark Durkan Mark Durkan Shadow SDLP Spokesperson (International Development), Shadow SDLP Spokesperson (Work and Pensions), Shadow SDLP Spokesperson (Foreign and Commonwealth Affairs), Shadow SDLP Spokesperson (Home Affairs), Shadow SDLP Spokesperson (Justice), Shadow SDLP Spokesperson (Treasury)

I accept the hon. Gentleman’s point. Once the matter gets out into the financial and other press, including even the popular press, as will happen  from time to time, the damage will be compounded. Obviously, we cannot legislate for the financial or other press, but we can in respect of the regulator. We cannot leave it so that the regulator just shrugs its shoulders and says, “But we’re not responsible for what anybody else prints.” The regulator should at least be tasked with taking such steps as it can to ensure that an exoneration is published, and in a way that brings it as strongly to the public’s attention as it judges it can. That is not too much of a requirement to put on the regulator.

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

I reassure the hon. Gentleman that section 289 of the Financial Services and Markets Act 2000 does just that. It allows for the publication of notice of discontinuance to deal with that matter.

Photo of Mark Durkan Mark Durkan Shadow SDLP Spokesperson (International Development), Shadow SDLP Spokesperson (Work and Pensions), Shadow SDLP Spokesperson (Foreign and Commonwealth Affairs), Shadow SDLP Spokesperson (Home Affairs), Shadow SDLP Spokesperson (Justice), Shadow SDLP Spokesperson (Treasury)

Many people do not believe that it is. I hope they take that clear assurance from the Minister and can rely on it, because they do not feel confident at the minute. We might need to return to this matter on Report to ensure that the assurances are there.

Amendment 130 refers to the Regulatory Decisions Committee, which was created by the FSA in light of a previous review. It was tasked with ensuring that there was due process and that investigations were not taken to be an act of enforcement or judgment. The due process involved ensuring that the people involved in an investigation were not the only ones making the judgment as to its outcome—whether that be its findings or any penalty imposed as a result. People in the sector say that they would like the Regulatory Decisions Committee to be at least given a statutory footing, and it is not enough to say that it will continue despite not being provided for in statute.

Before the Minister says that it is incomplete, the amendment is an inadequate provision. Just one reference to the Regulatory Decisions Committee would not be enough, because it does not properly source it, guarantee anything about its style or make-up, or state that it would include both practitioners and non-practitioners, which it does at present. The amendment is simply a pointer for the Government that highlights an omission in the Bill in that due process should be better reflected in the processes by which such decisions are made. A more extensive provision relating to the Regulatory Decisions Committee or some new entity of that type would perhaps be a way of doing that.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

I shall speak to amendment 159. I will try to be brief, but I want to press the amendment to a vote at the appropriate time. The issue here is around consultation before the disclosing of a warning notice. The PLS Joint Committee has recommended that the need to consult be removed from the Bill. Paragraph 258 of its report states:

“Requiring the FCA to consult could seriously undermine the effectiveness of this new power. The fact that the FCA will not be publishing the warning notice itself, but only the fact that it has issued one, and the fact that it will need to take into account a number of considerations in deciding what to publish should provide sufficient safeguards.”

Recognising the potential for reputational damage, the Joint Committee has recommended that the FCA publish guidance on how it will exercise its discretion in issuing early warning notices. My understanding is that the Government have chosen not to go down that route and not to take up that recommendation. The Minister therefore believes that the Government are striking the right balance between making the power usable and providing appropriate safeguards.

However, we still have concerns about the proposal, because, although many players in the financial services sector will be relieved that the recommendation was not followed, we have to ensure that we get the balance right between business and consumer interest. My main worry is that if someone is consulted about having a warning notice issued against them—perhaps the Minister can help us with this—they could simply take out an injunction to stop publication of the notice, which would effectively mean that no warning notice was issued. I hope that the Minister will explain how not publishing a warning notice will be in the best interests of consumers. If the appropriate safeguards are in place and the regulator believes that there is a valid case for warning, why do the Government not agree that the warning notice should be in the public domain?

A number of people are opposed to the warning notices. I will again quote the FSA figures obtained by MoneyMarketing, which reveal that nearly a third of enforcement cases in 2009-10 did not result in disciplinary action. I can understand partly where those people are coming from, but turning that figure round the other way shows that two thirds of enforcement cases did result in disciplinary action. Even on a Committee such as this, I would have thought that two thirds was a fairly decent majority. The FSA was right two thirds of the time, and if someone was going to purchase a financial product or, indeed, any kind of product, would it not be better that they received a warning about trusting the seller. That is important. Given the safeguards that would be in place that statistic could rise significantly.

Would the Government not find it reasonable to follow the recommendations of the Association of Independent Financial Advisers in its February memorandum to the FSA board committee that if for some reason a warning notice does not lead to disciplinary action, the FCA should introduce a fair process that would make it explicit that firms are exonerated when it is concluded that no wrongdoing has taken place? Again the Treasury Committee made recommendations on this issue. Could the Minister explain why, given that the FSA is right on some issues around recommendations in relation to publication, that he does not believe that the regulators in this instance should be held to the same account?

I will not go through all the information relating to Second Reading but the Financial Services Consumer Panel agrees with us and it felt that there would be strong industry pressure to bury bad news, as it described it, and delay publication, keeping consumers in the dark. It referred to thewidespread public belief that the current regulatory system has been weak and ineffective at protecting consumers. I ask the Minister for his response to that, particularly in relation to the comments from the PLS Committee and the Treasury Committee. I will want to press the amendment when the time comes.

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury 4:00 pm, 8th March 2012

I have dealt already in my intervention with the first amendment tabled by the hon. Member for Foyle. I do not think it is necessary. It is covered in section 389 of FSMA. The same safeguard would apply when a disciplinary action is not followed through. There will have to be a notification of discontinuation there as well.

The RDC is a non-statutory body. It is composed of FSA executives. There is an appeal mechanism to the tribunal for firms to follow. Where regulatory decisions are taken with the FCA or the PRA, there needs to be a robust decision-making process, with the people who have not been involved in gathering the evidence against also taking part, so that a range of executives at the senior level is involved. I am keen to ensure that people at a senior level on both the FCA and the PRA are engaged in these processes to add their judgment to it. I do not think the RDC needs to be put on a statutory basis but the hon. Gentleman is absolutely right that there should be a proper process within the regulators to ensure that a robust decision is taken on disciplinary action.

On consultation, this is not about seeking consent. There are two arguments here. One group of people in the industry say that we should not have this at all and that we should not publish warning notices. I think we should. It is vital that if disciplinary action is to be taken it should be made known and the warning notice point is the right stage to do it. My concern is that without telling somebody that this will happen, we risk seeing emergency injunctions. People will criticise and say that there is a lack of due process. We need to get the balance right here so that there is adequate protection in places where saying that that has been done is not appropriate.

The clear drive here is to ensure that these notices are published and that situations where they cannot be published and should not be published are narrowly prescribed. That gets the balance right. I have thought carefully about the PLS recommendation. We are in danger of getting in an even bigger mess around human rights and the question whether it is a breach of proper administrative process. Telling firms that this will happen risks the odd injunction but it also avoids the bigger problem of this power being used to get enmeshed in legal debate and argument. The consultation, which is not consent, gets the power in a place where it can be used effectively. I hope that hon. Members will not feel obliged to push their amendments.

Photo of Mark Durkan Mark Durkan Shadow SDLP Spokesperson (International Development), Shadow SDLP Spokesperson (Work and Pensions), Shadow SDLP Spokesperson (Foreign and Commonwealth Affairs), Shadow SDLP Spokesperson (Home Affairs), Shadow SDLP Spokesperson (Justice), Shadow SDLP Spokesperson (Treasury)

On the basis of the Minister’s earlier intervention, I said that I might want to come back and test the reliability on Report. On that basis, I do not seek to test the Committee on either of my amendments.

I want to make an additional point to the Minister. I do not disagree with his rationale for warning notices. We want to prevent unintended or disproportionate consequences not only for people in the sector, but for consumers who might end up scared about all sorts of matters. The proposal would ensure that the regulator made a clear statement of exoneration in a manner it thought fit. It would be obliged to publish the statement; it would not be a permissive measure. The proposal would also help to expedite consideration of cases. Many people in the sector are worried that warning notices will be issued and procedures might take a long  time. They believe that a duty on regulators not only to reach but to publish a conclusion would be an encouragement to speed up the process.

The amendment has more than one purpose. The Minister argued against the RDC being on a statutory footing, but in doing so, he essentially confirmed exactly what I said was the risk. He would say that because the committee exists anyway, it does not need to exist in statute. However, because it exists, people want to see it in statute when they see all this other change. It was created, through necessity, by the FSA after a previous non-legislative review. People believe that this is an opportunity for Parliament to give the RDC a statutory footing. Giving it such a footing in its procedures might be the best way of mitigating the risk of people opting to judicial review in response to warning notices.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

I do not wish to detain the Committee unnecessarily, but I shall make one more point in relation to the Minister’s comments. Part of the issue is what is understood by the word “consulting”, which implies to an ordinary member of the public that the regulator is  asking for a view rather than simply notifying people that something will happen. I draw his attention to what the Financial Services Consumer Panel said in contrasting the FSA with its namesake, as it describes it, the Food Standards Agency, which can publish such information as it thinks fit under the Food Standards Act 1999, subject to a narrow list of exceptions. The panel did not believe that the reputational damage caused by a warning notice would be any different from that experienced by anyone else who was subject to that form of prosecution and was subsequently acquitted. However, I do wish to press the amendment.

Amendment, by leave, withdrawn.

Clause 30 ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned.— (Greg Hands.)

Adjourned till Thursday 15March at half-past Nine o’clock.