‘(c) provide for a requirement that an employee representative should be a member of the remuneration committee of a relevant body corporate; and
(d) provide for a requirement that the remuneration consultants advising on remuneration policy shall be appointed by the shareholders of a relevant body corporate.’.
It seems such a long time since we were last serving under your chairmanship late on Tuesday evening, Mr Howarth. Spring has sprung and daffodils are beginning to come into bloom. That not only means that the sap is rising and there is a change in the air, but it is also relevant to the amendments.
I will explain why, Mr Howarth. Spring, as a general concept, is quite relevant to the joint consultation document that the Government said that they were intending to publish after they had received the recommendations of the Financial Services Authority arising from its inquiry into the circumstances surrounding the failures at the Royal Bank of Scotland. I know that, in Government terms, spring is one of those seasons that can last pretty much any time between January and June or July, but I hope that now that spring is upon us, the Minister will be able to tell us when this much-promised and much-awaited joint consultation document to explore those FSA recommendations will be brought forward. It would have been desirable for it to have been available to the Committee today, given the amendments that we are discussing. I am sure that the Minister will tell us that spring is perhaps another few weeks away, but I would be grateful for a more precise indication about when the joint consultation report is likely to be available.
Under our amendment, as we were discussing before the break, we have implicitly suggested twin provisions. One is that action must be taken on the excessively risky remuneration practices that had incentivised an over-exposure to risk that ultimately fell on the shoulders of the taxpayer. The second area for action is on stricter liability for directors and executives in the banking sector. There is an array of possible sanctions that we want to see in the Bill, but the pre-legislative scrutiny Committee also made some important recommendations that are relevant to this point. In paragraph 225, it said:
“The Government should consider the FSA’s recommendations on changing the remuneration arrangements for executives and non-executive directors, or introducing a concept of ‘strict liability’ of executives and Board members for the adverse consequences of poor decisions, in order to ensure that bank executives and Boards strike a different balance between risk and return. Amendments could be brought forward to this Bill.”
This is not something that I am dreaming up, but something that the members of the Joint Committee suggested for consideration. It is important to send a signal now—at this stage and in this Bill—about beginning that much-needed process to change the culture and behaviour in the banking sector. I do not understand why there should be further delays and further excessive risk-taking practices, if they are happening, in the limbo period during which there is uncertainty about whether the Government will take these things forward.
I know that the hon. Member for West Suffolk feels strongly about this issue. When I was rereading his book—probably for the third or fourth time—I spotted that he had written:
“rewards for failure must be unravelled and managers given something to fear”.
I could not agree more, so I occasionally agree with the hon. Gentleman.
Perhaps, as my hon. Friend suggests, I could get a signed copy of that treatise one day. I do not know where the commission goes, although I am sure that the hon. Member for West Suffolk will be sharing the proceeds from that publication with a number of good causes, but I digress. I know that there are some members of the Committee who, in their heart of hearts, agree with the amendments. I urge them to search their conscience, to consider taking off the shackles and breaking out of the prison of government in which they are operating, and to take part fully in the legislative process, because these would be important changes.
I recognise that the Government have proposed within clause 22 new section 137F of the Financial Services and Markets Act 2000. That new section says that general rules about remuneration “may” be made, so there is the potential for the regulator to take steps on these matters at some point. However, it would send a strong and purposeful signal if Parliament took this opportunity to say today that, in principle, we think that the concept of strict liability should be taken forward and that there should be action on remuneration practices to ensure that there are ways in which poor behaviour can be addressed. I know that many hon. Members have opinions about taking action to claw back bonuses or remuneration at a later date, and that is the purpose behind amendment 149.
On amendment 150, I agree that considering how we can strengthen remuneration committees is well worth our while. The hon. Gentleman’s proposal is to have employee representatives. I am very open-minded about that as an idea, but the Government are appointing a committee to investigate and consult on executive pay. Does he agree that we should allow that report to be produced before we make prescriptions on that issue in the Bill?
I am grateful to the hon. Lady for that intervention, although I have not actually dealt with amendment 150 yet. She helpfully sets out for the Committee the purpose of that amendment, which is indeed to follow up some of the policy suggestions made by my right hon. Friend the Leader of the Opposition and others. They have said that a key reform that we should be taking forward is the consideration of improving remuneration practices by giving a voice to the members of staff in an organisation—the employees—through a more formal role on remuneration committees, which is the purpose of amendment 150.
The hon. Lady said that the Government had appointed a commission to review executive pay. There are certainly good reasons to see what the review says, but my understanding is that the Prime Minister has specifically ruled out taking action on advocating that an employee should be on the remuneration committees of large financial services companies, or other corporations more broadly. I may be wrong, but as that the Government seem to have ruled out that option—at least that was the impression given by the Prime Minister during a recent Question Time—it would not be necessary to wait for that review. That is one reason why we wanted to amend clause 22 to
“provide for a requirement that an employee representative should be a member of remuneration committee of the relevant body corporate; and…provide for a requirement that the remuneration consultants advising on remuneration policy shall be appointed by the shareholders of a relevant body corporate.”.
On the point raised by the hon. Member for Solihull, the German model is quite successful—Germany is probably the most successful economy in the European Union. Could we not learn from what the Germans have done with regard to employee representation on remuneration committees and boards of directors? Does my hon. Friend believe that both sides of the House should unite on that issue and send a signal to the public that Parliament is tackling something that angers so many of our constituents?
My hon. Friend makes a good point. On some occasions we can learn from other economies, although I would not want to give the impression that we should be copying and pasting from a German scenario. After all, in the debate about whether British summer time should be extended, the Daily Mail characterised that as “Berlin time” as a way of arguing against the suggestion. This is not a Germanic amendment; it is a British amendment that has been drafted in the spirit of traditional British fair play and good practice, and we should incorporate it into our British law in as firmly a British way as possible.
The hon. Member for Solihull cautioned against prescription at this stage in anticipation of what might emerge from the Government’s review. However, surely amendment 150 would not prescribe, because proposed new section 137F states that the “rules may”, so the provision would be permissive, not prescriptive. If the hon. Lady believes that the Government review might yield something, she should support the amendment as a way of accommodating anything substantive that comes out of that review. If she opposes the amendment, she will be frustrating anything that might come out of the review.
I am afraid to say that that is the case. I know that things are difficult for Members representing the minority party in a coalition in which the dominant party is getting its way on so many—indeed, the vast majority—of policy issues. The Liberal Democrats rarely steer Government policy at all these days—[ Interruption. ] I did not want to touch a nerve. However, this permissive amendment would simply allow the general rules about remuneration to include the structures of remuneration committees, which I am not convinced would be allowed under the Bill. The Government’s usual argument that an amendment is not necessary does not apply in this case. If clause 22 is to allow sufficient scope for such changes to made by the regulator, it is necessary to clarify that in the Bill. I do not want to dwell on this subject for any longer than necessary, because we have a number of other clauses to consider this afternoon, but we have not yet touched on the requirement under amendment 150 for remuneration consultants advising on pay policy to be appointed by shareholders.
Sad to say, many practitioners and advisers will, from time to time, say things that please the person commissioning them. Where a company’s senior executives and managers commission independent external advice, the consultants providing that advice tend to have an eye to the future commissioning of advice and to want to make recommendations that are pleasing to the people—the managers or senior executives—commissioning them. We have talked before about the age-old principle of agency dynamic, and it has to be addressed.
It would be preferable if the rights of shareholders—the owners of companies—were asserted in a way that ensured that remuneration consultants knew they were being commissioned by stakeholders with an interest in ensuring a proportionate approach to remuneration policy. I know that already happens informally, as good practice, in many companies, but it would be better if we could shift the commissioning of remuneration consultants to favour the interests of the shareholder more formally. That would be a more proportionate check and balance.
Amendment 150 would give employees and workers in a company at least a say in what happens on pay policy more broadly. The time has come for that change. Amendment 149 is very much inspired by the FSA and others bodies that have come forward with important recommendations.
I shall speak very briefly, because I have set out my thoughts on this issue elsewhere, as has been mentioned.
As I indicated in my intervention, the need for sanctions is important, and they are there to deter. However, it is incumbent on us to get this right, and the problem with amendment 149 is that it does not deal with any of the unintended consequences that might arise from a legal sanction, and it is extremely widely drafted, giving no details of what the strict liability for executives and board members would be.
Likewise, in amendment 150, the idea of an employee representative does not help those of us who want to ensure that companies are better run for their shareholders and to deal with the problem of rewards for failure. It cannot answer the question of who will set the pay of the employee who sets the pay of the senior management. There is a strong principle in British corporate governance that people do not set their own pay or have their pay set by those whose pay they themselves are setting. The amendment would break with that principle and would therefore bring in exactly the sort of conflict of interest that we need to get rid of more broadly.
There is, however, a broader point about the need for sanctions. I have raised elsewhere the need for criminal sanctions in the case of those in charge of systemically important financial institutions, and I hope the Minister will address that concern, which has been raised by me and others. However, neither of the amendments goes anywhere near making the Bill better; in fact, they would make it worse.
Both amendments, but particularly amendment 150, touch on issues that have become important in recent discussions. People have begun to shine a light on matters such as how remuneration is arrived at, which have perhaps been taken somewhat for granted or wrapped in mystery. There is real concern about whether people in all fields of endeavour are remunerated properly and commensurate with their effort and the effect they have, and how that relates to how others are remunerated. It is important to try to improve how things happen. There has been a lot of attention on the remuneration of people in the public sector, and there have been suggestions that that should be looked at more closely. I do not have a problem with that, but it is wrong to suggest that we should not look at more regulation of remuneration in the private sector.
The argument, which I have heard previously, that employees should not be members of a remuneration committee because their remuneration will be set by that committee is true in one sense, but in another it is a bit of a red herring and a diversion. Everyone who is employed by a company has their earnings decided. For an employee that may be decided by negotiation, perhaps with their trade union. That is different from the specific decisions that are made about remuneration for executives, non-executive directors and so on, and sometimes in the non-for-profit sector. A board, perhaps of a housing association, may decide the remuneration of its chief executive or senior executives, depending on how many people they have a specific and direct say. Strictly speaking, that executive will not be part of that decision-making process and may leave the room when it takes place. That is reasonable. There is such a close ongoing working relationship between such a board and, presumably, other boards and their chief executive and senior executive officers that it may be difficult to stand back, even when someone technically leaves the room. To say that an employee could not be part of the process is wrong.
It has been suggested that these things are widely drawn, but amendment 149 would not immediately introduce strict liability. As the hon. Member for Foyle said in his intervention, if the amendment were accepted, it would be covered by the words, “The rules may”. That allows a lot of time for the organisation, in due course when it is formulating rules, to come up with the sort of details that I am sure are necessary—the hon. Member for West Suffolk is right about that. We certainly need to work these things out carefully so as not to have unintended consequences, but employees would bring a different attitude to such matters, and it would be a good step forward if the financial services industry worked in that way.
It is a pleasure, Mr Howarth, to serve under your chairmanship again. In support of the amendments, I reinforce the point I made during my intervention that they are permissive rather than prescriptive, just as the Bill in its provision for the rules in subsection (2)(a) and (b) is permissive in what the rules may provide. But if the Bill is specific on those points to show parliamentary consideration and concern, it should reflect other points to show parliamentary consideration and concern. That is what amendments 149 and 150 would do.
I had occasion to be at another event in this place this morning, and heard from the chief executive of the FSA that, in the event of anything requiring consideration, regulators will always refer to their mandate—and the mandate is that which they receive from Parliament under legislation. That is a reminder that, if we leave gaps in provisions, we should bear in mind that unintended consequences can be created not by our unduly putting provisions into legislation, but by our inappropriately and naively leaving measures out of legislation.
The hon. Gentleman said that the amendment was permissive. Will he explain what is permissive about
“provide for a requirement that an employee representative should be a member”?
The relevant provision is permissive. It states that the rules may
“(a) provide that any provision of an agreement that contravenes such a prohibition is void”,
“(b) provide for the recovery of any payment made”.
The amendment would insert
“(c) provide for a legal sanction based approach”,
thus making it just as permissive as the provisions under the Bill. It would add an additional permissive reference and consideration for regulators.
By refusing to accept the amendment, we are arguing that regulators should not consider such matters. Under Lord Denning’s logic, Parliament would be saying, “No, it would be wrong for regulators to consider such things.” That would be the will of Parliament. Based on all we know about public scandal and remuneration levels and decisions, and such processes, it would be remiss of Parliament to stay silent. The hon. Lady was right to warn against Parliament being over-prescriptive about the issue.
Under the Bill as drafted, rules could prohibit persons
“or persons of a specified description, from being remunerated in a specified way”.
The provision to which the amendments relate
“provide that any provision of an agreement that contravenes such a prohibition is void” and cancels the right to those with excessive remuneration. Proposed new subsection (2)(b) would provide for recovery. Yes, the agreement can be made void and recovery can be sought, so the executive loses the executive remuneration. That is the only person who loses out in such matters.
There is no sanction on directors, people who were part of the decision and other executives who helped to engineer it. Nothing warns them to be careful if they were trying to do their friend a favour, be clubbable and go along with the group think because it will be okay. If someone blew the whistle and stopped such action, the money would be called back, but no one else would have to take responsibility for being party to the decision in the first place.
As my hon. Friend the Member for Edinburgh East said, issues of excessive remuneration do not relate only to financial services, but to many other organisations. In Ireland, such problems are arising in relation to several charities that receive a lot of state funding. There is a lot of scrutiny of who made certain decision and what level they were at. Were such people appropriate? In such instances, it is right that directors should be able to cite that they themselves are potentially liable for being party to the decision rather than just saying, “No, it will be enough if others step in, say that it was too much money and that they were taking it back.” Directors in such a situation would have the protection of saying, “Sorry, it is not a matter of whether I like you enough or whether I think that the money given to someone in another institution provides a going rate for you. In taking this decision, it is not about you or what we can afford; it is about what stands over me in terms of the rates offered.”
We should be serious about applying shareholder responsibility. In the Chamber, we have heard a lot about shareholders having to take more responsibility on remuneration decisions and being able to exercise more influence. It is very hard to see how they can do that if we are derelict about ensuring that directors face a potential liability, if the regulators feel that such an approach is the best way to put manners on those decisions. The public want manners put on financial institutions and, indeed, other bodies, including some in the social sector, about how such decisions are made.
Amendment 149 would allow the regulators to move towards such an aim if, on the basis of experience, they decide that that is needed. It might be that, on that basis, they decide that a new mood is abroad in the financial services sector meaning that there is greater self-restraint and self-consciousness, so that their powers do not need to be exercised, or they might find that they have to exercise those powers. They could also listen to the outcome of the review referred to by the hon. Lady, which might inform them on whether to use such permissive powers in relation to the rules about remuneration.
Amendment 150, which concerns employee representatives and the appointment of remuneration consultants by shareholders, again seems sensible. The regulators should be allowed to stipulate such matters, if they think that those are the best ways to handle issues of concern. If good examples of best practice show that those are feasible, achievable and reasonable standards to hold people to, let the regulators use them.
If we reject the amendments, we are basically saying that no one has responsibility for such decisions; the money simply goes back, and no one has to answer questions about how those decisions are taken. That is the question that people often ask. They ask, “How could someone think that they are worth, or how could someone agree to take, that amount of money?” However, people also ask, “Who thought that that was the right decision? Who thought that someone was worth that amount of money in these circumstances?” That goes back to directors, and I cannot see why we would prevent the regulators from influencing such decisions.
Many decisions will be entrusted to the regulators. On other clauses, we are told that this or that amendment is not needed, because the regulators will take decisions in the round. I cannot see why we would restrict the regulators in using their powers reasonably; we should trust them to use the powers only when they thought that it was relevant and right to do so. That deals with the points made by the hon. Member for West Suffolk, in relation to leaving room for all sorts of unintended consequences. He seemed to say that the problem with the amendment was that it is not sufficiently prescriptive, in that it does not go far enough in what it specifies. Yet, on our other amendments in Committee, we have been told that such things can be left to the broad judgment of the regulators—they will exercise a good balance—and that the assumption is that a good rule of thumb or the rules of the road will be provided by what the FSA is doing, so that that is the way to go and nothing else will need to be done.
I am at a loss to understand how we can trust the judgment, reasonableness, experience and soundness of the regulators, and of the very good people who will be appointed to those bodies, while Parliament is told that we cannot ask the regulators to consider other matters. I end on the point made by the chief executive of the FSA, and which I heard this morning, that in an area of doubt, public controversy and sectoral concern and debate, a good regulator will look to their mandate. We will be derelict if, in that regard, we do not colour in something in that mandate.
I shall be brief. I want to speak about the proposal to require an employee representative to be on the remuneration committee because of my experience of working in a bank many years ago. It gets up my nose when people talk about bankers’ bonuses, because they think of greedy executives. I can tell the Committee that everyone in a bank is on a bonus—everyone from the cashier, the personal account manager, the regulated seller to the branch manager. They are all working towards a bonus, but, whether people’s target is to open new accounts or to sell products, it is extremely difficult to earn a bonus in a bank.
A good bank or business needs motivated staff. People are saying to their staff members, “If you don’t reach your target, not only will you not get a bonus, but you will be on a personal recovery plan to iron out your problems in selling products. You are not getting enough people through the door to open bank accounts.” The same people who set personal recovery plan policies and threaten people by saying, “If you don’t perform in this quarter, you will be on a written warning, disciplinary action will be taken against you, and you will lose your job because you have failed to hit your sales targets,” are clearly failing. They are running their banks into the ground and everyone is saying, “If I worked in a bank, I’d be saying this: ‘You are being very tough on me for not hitting your targets, yet you have failed by running this company into the ground. You have put sales policies in place that have caused our bank to crash, yet you can walk away with millions in bonuses.’”
What mystical policy brought the massive bonuses? I do not know. What makes the person at the top, who has failed, walk away with a bonus? If staff fail, they are sacked. The only way to get round the problem is to put someone on the committee to find out how remuneration for executives is set. The proposal is eminently sensible, so I hope the Government will see sense on the matter.
May I respond to a point made by the hon. Member for Foyle by saying a little about the background to the Bill? Through the Bill, Parliament will confer such broad powers on the FCA that if it wanted to impose an employee representative on a board it could do so without amendment 150. The FCA’s rule-making powers are broad and not limited to the fine detail in the clause. We give the regulators wide powers, which Parliament constrains, and our not accepting amendment 150 would not prevent an employee representative being included on the committee.
The remuneration committee.
At the start of the clause, proposed new section 137A states:
“The FCA may make such rules applying to authorised persons…with respect to the carrying on by them of regulated activities, or with respect to the carrying on by them of activities which are not regulated activities, as appear to the FCA to be necessary or expedient for the purpose of advancing one or more of its operational objectives.”
The proposed new section is helpfully titled, “The FCA’s general rules.” Thereafter is a series of more specific rules that can be applied.
Mark Durkan rose—
I want to make progress. We have had a lengthy debate in which some useful points have been raised; I want to respond to those to help the Committee make progress this afternoon. The framework is very permissive. Other proposed new subsections are amplifications of the responsibilities, which I am sure we will discuss later.
Amendment 149 would insert a reference to strict liability into the proposed new section on general rules about remuneration. I appreciate that this is probably a probing amendment, and it is worth reflecting on what strict liability might mean, because the hon. Member for Nottingham East uses it in the context of clawing back all the bonuses that someone may have earned. In a legal sense, strict liability could mean someone having to pay damages that go beyond the bonuses that they have been paid. The FSA has used it in the context of saying that a bank director who has failed should no longer be allowed to work in the sector.
Strict liability is a broad term and it is important that we get it right and think about it. That is why we have committed with the FSA to doing a joint consultation on some of the issues raised in the RBS report, including the point about strict liability. We will publish that consultation in the spring. [Interruption.] The spring starts on 21 March and ends some time in the middle of June. Just because it is spring-like outside does not necessarily mean that the season is spring. We are committed to publishing it. The RBS report raised some interesting and challenging issues and we need to proceed carefully. There are potential implications under human rights law and there may well be risk attaching to the recruitment of suitable people to work in financial services. There does, however, need to be proper understanding of strict liability. It needs proper public consultation and, where necessary, legislation. Alternatively, we may be able to use the FSA’s rule-making power.
On the clawback of pay, hon. Members will be aware of the situation with Lloyds, where pay was clawed back in respect of PPI. The FSA’s remuneration code means that banks must put in place provisions for the clawback of bonuses from all material risk takers. That was introduced on 1 January last year. It cannot apply legally to contracts that were entered into prior to 1 January 2011, but it is now a feature of the pay regime.
That is not the only change to the pay regime that the Committee needs to recognise. Hon. Members were right about the bonus culture; there are some big issues there. Not only is there clawback in the event of a material change to the business, but bonuses are now deferred for material risk takers. Some 40% are paid now, with 60% deferred. Bonuses are now paid in a combination of cash and shares. There was a point where at least one household name was simply paying bonuses out in cash on the day, which clearly does not work. The FSA’s existing code covers deferral, clawback and the split between cash and shares, which is a significant improvement. It means that the interests of senior employees and shareholders are more closely aligned than they were before. We are seeing the fruits of that now.
Amendment 150 relates to important issues. As I said before, when I made the general point to the hon. Member for Foyle, the FCA could introduce the amendment’s provisions. The Department for Business, Innovation and Skills published a consultation paper last year asking for ways in which we can tackle executive pay. Trying to enhance shareholder accountability was one measure considered. It consulted on both the issues in the amendment: the employment of an employee representative and the role that remuneration consultants play in setting board pay. It is important that those issues are discussed and debated.
Members will have seen, when BIS published its response to the consultation on 23 January, that there was relatively little support for these two measures. That is not to say that the mood will not change. New evidence may come to light that suggests that the measures may be appropriate, but there was no significant support for either measure in it. As I have said, however, even if we do not accept the amendment today, it does not preclude the FCA introducing the powers into its rule book at a later date. With that reassurance, I hope that the hon. Member for Nottingham East will seek the Committee’s leave to withdraw his amendment so that we can make some more progress.
It is always helpful to hear the Government’s rationale for resisting particular amendments. The hon. Member for West Suffolk, as my hon. Friend the Member for Foyle pointed out, used the cunning ploy of saying, “Oh, this set of amendments are drawn too widely; they are not specific enough.” We are caught between the devil and the deep blue sea: when we try to be precise, we are told that it is not appropriate and that it is too detailed; when we try to be permissive and simply pass the power to the regulator to decide the finer points, we are told that we are being too broad. I do not agree that that is a strong reason not to set out, on the face of the Bill, Parliament’s intentions in a public policy context.
It was intriguing that the Minister thought that proposed new section 137A on the FCA’s general rule-making powers allowed for remuneration committee changes. I have a sneaky feeling that if I had specifically asked the Minister, perhaps in a stand part debate, whether that particular provision would allow remuneration committees to be set up, I might not have got the same answer. Proposed new section 137A allows the FCA some latitude, but only in respect of the FCA’s “operational objectives”. We had that debate some time ago. The strategic objective of the FCA to allow markets to function well, which might, at the extreme, potentially be allowed to stretch across issues such as remuneration committee arrangements, would not be part of proposed new section 137A. Therefore, the FCA would be able to act only on the operational objectives, which are integrity, competition and consumer protection. I could make a tenuous argument that one of those three should cover remuneration committees, but it would be moot indeed. Therefore, in a legal context, it would be far safer and sounder for the Bill to be explicit that the FCA has the ability to make provisions in respect of remuneration committees.
Proposed new section 137A refers to the FCA. Does my hon. Friend note that proposed new section 137F, to which his amendments refer, deals with both regulators, not just the FCA? If 137A is so good, do we need 137F at all?
In drafting the Bill, the Government probably felt under some pressure to put in something about remuneration, so the generality was inserted in that way. I welcome that; it is an important provision, but it does not go far enough. The public do not understand the Government’s reticence on this particular topic. It is important that we take action, particularly in relation to 137F, on these two matters. I disagree with the Minister’s anxiety over amendment 149 about the definition of strict liability. I would have been happy to withdraw my amendment if he had said that he wants to act on this, that he is moving forward on it and that he wants to provide a better and tighter statutory definition. Again, the clause is permissive, so it would be open to the sensible and rational interpretation of the FCA. I am afraid that I will have to test the Committee’s views on these amendments.
Amendment proposed: 150, in clause 22, page 82, line 10, at end insert—
‘(c) provide for a requirement that an employee representative should be a member of the remuneration committee of a relevant body corporate; and
(d) provide for a requirement that the remuneration consultants advising on remuneration policy shall be appointed by the shareholders of a relevant body corporate.’.—(Chris Leslie.)
I wish to move the amendment formally—no, I beg your pardon, Mr Howarth. My views in this instance are more than purely formal, and with your indulgence I will briefly speak to the amendment.
I beg to move amendment 151, in clause 22, page 89, line 34, at end insert—
137QA Advisory fees in respect of mergers and acquisitions
(1) Either regulator may make rules (“fee structures in respect of mergers and acquisitions”) about the advisory or consultancy fee arrangements where an authorised person contracts a third party to give advice on the possibility of a merger or acquisition of control of any other body corporate.’.
It is sometimes difficult to keep track of the amendments that have been discussed in previous groups, and I imagine—I have mentioned this to my hon. Friends—that there could be any number of Government or Opposition amendments discussed previously, such as on clause 5, on which the question might be put during consideration of clause 22, to which they will relate.
Amendment 151 relates to an issue that was raised in the FSA report on the collapse of Royal Bank of Scotland, particularly in relation to its merger with ABN AMRO. The FSA shone a light in its report on the unfortunate circumstances in which a bank seeking to acquire or merge with another banking entity takes on board consultant specialists, to give advice on how the merger would work, and how institutions would integrate.
The FSA spotted that rather than making an entirely dispassionate analysis of the pros and cons of potential acquisitions or mergers, consultants, in those circumstances, would be very much rewarded if a merger or acquisition proceeded and would not be rewarded as amply if the merger or acquisition did not go ahead.
I find the situation that I have described quite strange. If a company is commissioning a consultant to give advice on a potential merger, it should ensure that that advice is not skewed by the advisory fees, but such is the hunger and has been the hunger in times past of banks wanting to make acquisitions and to ensure that deals go ahead—companies get larger and larger, taking on greater shares of the market—that even the fee structures as they relate to those advisers are skewed in favour, implicitly, of a green light to go ahead with those arrangements.
The FSA said in its report:
“The investment banking advice commissioned by the RBS Board was provided by brokers whose fees would for the most part be payable only on completion of the acquisition…as the adviser had a substantial financial interest in the successful completion of the transaction, it is difficult to regard the adviser as independent”.
It was reported that 83% of fees were payable by RBS to the brokers only on completion of the deal. The FSA review team therefore recommended that
“the FSA formalise its more intensive approach to major corporate transactions involving high impact regulated firms”.
It was said that there was a need to incorporate more explicitly a system of advice that is definitely independent and that is able to advise dispassionately on the merits or otherwise of the transaction.
My simple question to the Minister is: what is the Government’s policy on that? Is the Minister content with the nature of advisory fees? Is he minded to reform those arrangements? If not now, when is he minded to make these necessary reforms? Does he agree with the FSA recommendations on the issue? If so, can he be more specific about when action will be taken?
The hon. Gentleman makes some very important points. It was helpful for the FSA, in its report on the failure of RBS, to highlight this issue. We are very conscious of the way in which the wrong type of remuneration arrangements can incentivise the wrong types of behaviour. We have touched on that in connection with bankers’ pay. There are other regulatory reforms in train that reflect it. Because of the importance of the issue and our desire to make progress on it, we are working with the FSA on it. I hope that it will form part of the consultation paper that we are to publish with the FSA in the spring. I will counsel caution on one point, but before I do, I point out that of course the FSA already has powers to intervene in acquisitions. It will be able to use those powers as it thinks appropriate. If the hon. Gentleman asked me which operational objective it would be seeking to advance, I suspect the answer would be integrity—that is the answer I would have given in response to the previous debate—which is a key objective in terms of how markets function.
The fees and remuneration for M and A work is a complex area. It is not just an FCA matter. For example, the takeover panel, which is responsible for this area, has a view; and of course there was a review of fees in relation to underwriting, which had been launched by the Office of Fair Trading or the Competition Commission, so the competition authorities have a role in this as well.
UK domestic authorities have an interest in the issue of fees, and that is also covered by European law in the acquisitions directive currently under review. There is much scrutiny of this area, and the points raised in the RBS report, which the hon. Member for Nottingham East reinforced today, repay careful consideration. Nothing in the Bill will prevent action from being taken if that is deemed to be the appropriate response.
I am getting used to reading between the lines of the Minister’s comments, and when he says that the Government will give something careful consideration, I recognise that as a positive remark. I would have preferred a bit more enthusiasm for this arrangement, but I am sure that he is not hedging his bets. As the Minister says, spring is nearly upon us, and the consultation paper will be published. It would be most helpful if that paper could be published before the Bill reaches Report. I do not know when that is likely to be, but it would be useful to have some movement on this issue to put on the record before then.
Indeed, but that does not necessarily preclude the publication of a consultation paper during spring rather than at the end, but let us not go down that avenue.
I hear the Minister’s points; he is not against this idea and understands that we have tabled the amendment to push the matter as hard as we can. However, he does accept this reform. It is a sensible measure and the sort of thing that I wish we could put in the Bill. I will withdraw the amendment, but I place firmly on the record my strong belief that this provision should be included in the Bill. If we get a prompt from the Government before Report, perhaps we could bring it back for consideration at another time. For now, however, I feel that I have made my point, and I beg to ask leave to withdraw the amendment.
Page 93 lists a number of papers and items that should accompany draft consultations by the FSA. We have tabled amendments to that arrangement because the Bill appears to reduce the safeguards on the new regulators’ rule-making powers, compared with the current situation for the Financial Services Authority. In future, as I understand, neither the PRA nor the FCA will be required to explain how their rules have had regard to the regulatory principles. Those are important considerations that concern proportionality, and consumer and senior management responsibility, and the loss of such accountability would be corrected by our amendment.
I commend the hon. Gentleman on spotting a gap, but I am afraid to say that although amendment 152 works, it will need to be redrafted by the parliamentary counsel, and amendment 153 is defective. Nevertheless, we accept the spirit behind the amendments and will come back on Report with appropriate changes. I make that intervention now rather than wait to make a long speech later.
Tears of delight are welling up in my eyes, although not in a Putinesque way. These are important achievements for the plucky Opposition Benches, if I may be so bold as to self-describe in that modest way. It is healthy that the Minister said that he accepted the spirit of the amendment even before I had elaborated on what that spirit was. Essentially, we need to ensure that there are references in the FCA rule-making arrangements with regard to those regulatory principles. I am grateful to the Minister for accepting the importance of those particular arrangements. He does not need to explain the anomaly. I simply thank him and look forward to seeing what emerges on Report. The Government Whip is also helpful in ensuring that we have this consensual approach. I beg to ask leave to withdraw the amendment.
‘(1) The FCA and the Office of Fair Trading (OFT) must co-ordinate in the exercise of their functions to promote competition in financial services. The FCA and the OFT must prepare and maintain a memorandum of understanding which describes the role of each regulator in relation to promoting competition in financial services markets. The memorandum of understanding should make clear the OFT will only conduct a market study into a financial services market within the regulatory remit of the FCA in exceptional circumstances.’.
‘(1A) Before the end of 2013, a regulator may, in consultation with the Treasury, ask the Competition Commission to provide a report giving section 140B advice with reference to the Independent Commission on Banking recommendations on competition.’.
Clearly, my hon. Friend the Member for Makerfield and others will be well aware of the fact that there is a transition set of arrangements between the OFT’s powers in respect of consumer credit and the Financial Conduct Authority. Therefore, we also need to ensure that any remaining powers of the OFT are properly co-ordinated with those of the FCA, particularly in respect of the new remit that the FCA has taken on to promote competition in the financial services markets.
The OFT will retain the right to conduct market studies in relation to financial services markets and, therefore, there is potentially a risk of duplication or a lack of co-ordination between those bodies. That is something that the Association of British Insurers pointed out in its briefing to members of the Committee. It said:
“Given the OFT will retain general competition law powers and the right to conduct market studies” such duplication could arise. It said that there could be uncertainty over the expected roles of the two organisations, which might lead to poorer quality regulation, either for the industry or for consumers. Therefore, in its view, there needs to be some statutory duty to co-operate or to produce a memorandum of understanding. Currently, the FSA and the OFT have voluntarily published a MOU, but such practice will be essential when the FCA is established with a competition remit.
Will the Minister explain why the FCA and the OFT are not under a particular duty to co-operate or to produce an MOU? I know that we have a more tangled set of institutional players involved under the Bill—a proliferation of new institutions and new bodies. Ensuring that we have clarity and good standards of co-operation is something that we have been concerned about throughout the proceedings.
If the Minister does not think that this amendment is necessary, I would be grateful if he could set out why he thinks that it is appropriate for the OFT to continue to conduct studies into financial services markets as a matter of course rather than in exceptional circumstances.
As I said this morning, the FCA will take on greater competition powers and a greater competition role in financial services, incorporating some of the OFT’s present roles. I expect it to be dynamic in its competition role and I regard competition as a key driver for raising consumer outcomes.
The OFT will still have an important role. There is a debate about what engagement it should have in market structure reviews. We have discussed that matter with the OFT and the FSA. Given the nature of its relationship with the Competition Commission, the OFT must be able to make market investigation references in financial services. A mechanism exists that strengthens the link between the FCA’s indentifying the need for such a review and the OFT’s putting it into practice. The hon. Member for Nottingham East is absolutely right about the need for the OFT and the FCA to co-operate. I expect those bodies to have an MOU in place to govern their relationship. I am not sure how the hon. Gentleman might read between the lines in my use of the word “expect”, but I am clear about what I expect them to do.
As I said in the debate on the FRC, we do not need to include in the Bill every MOU requirement. Even if we felt that it was important to include one in this provision given the elements of MOUs in the Bill, the division between the OFT and the FCA is very new, so it will take time to work out and balance how they should work together. I am clear that they should do so and take forward the work on competition, but I foresee the FCA being very much in the driving seat in a way that the FSA has not been. Martin Wheatley, the chief executive officer designate of the FCA, recognises that.
I should apologise to the Minister. In my confusion, I did not speak to amendment 155. He may wish to take advantage of that and get his dibs in first. With the Committee’s leave, I shall make a few comments about amendment 155 in my response, and I hope I can persuade hon. Members, albeit ex post, of its virtues.
I had better get my dibs in first. I shall give the hon. Gentleman three reasons why he should not pursue amendment 155. First, the Independent Commission on Banking itself recommended that the market be reviewed in 2015, not 2013. The hon. Gentleman has prayed in aid the ICB before, so let me pray it in aid now. It wants to give the competition measures in its report time to bed down and work their way through, after which it will see whether those measures have been sufficient to improve competition in the system. If not, let us carry out the review in 2015.
Secondly, I want to be more ambitious than the hon. Gentleman. The review should not be limited in scope simply to the ICB recommendations. New problems might be identified that would need to be looked at. The amendment’s narrow scope would preclude that from happening.
Thirdly, in its ongoing work, the OFT plans to review the personal current account market this year and it is likely to consider some of the issues covered by the ICB. The work is already going on. I hope that the power of my argument and those three reasons have persuaded the hon. Gentleman, and the Committee, that we do not need to hear his views.
I am afraid that I want to try to change the Minister’s mind. He has given his reasons. My hon. Friend the Member for Foyle has prompted me to say that the Minister has a Goldilocks strategy. An amendment is sometimes too broad or sometimes too narrow. When will it be just right? We will see. I think that amendment 155 is just right and important.
There has been a broad degree of consensus around the Independent Commission on Banking’s recommendations, but more attention needs to be paid to the pace of the reforms, which might come with how quickly this competition review and report are triggered. A test at the end of 2013, rather than 2015, would be more appropriate. After all, the Government have already given generous provisions to the banking sector on many of the reform processes, some of which will stretch as far as 2019. The logic is already a little clouded on whether that is the right time.
Certainly as far as the consumer is concerned, those tests—on whether we are seeing sufficient diversity in the sector and whether we are seeing powers and changes that allow customers to switch between accounts, to ensure that they feel as though they are getting value for money and that there is a genuine feeling that there is choice and diversity in the market—need to done sooner than 2015. That is a considerable time away and it would be better if, before the end of 2013, the regulator had the option, in consultation with the Treasury, to ask the Competition Commission to provide that report under section 140, in accordance specifically with the reference to the Independent Commission on Banking. I know that the Minister says that that is too specific, but, at the very least, given that this amendment is permissive and would allow them to do it, it would not preclude the regulator from looking more broadly.
That is an important principle. The amendment would ensure that we hold to the fire the feet of both those charged with reforming the banking system and the banks themselves. We need to ensure that they are making the necessary changes to become more competitive and more diverse. I am not persuaded by the Minister on amendment 155, and I want to test the Committee’s views on it. I will withdraw amendment 154. He said that he “expects” that its provisions will happen anyway, and I take him at his word. It is useful to have that on the record. I beg to ask leave to withdraw the amendment.
Amendment proposed: 155, in clause 22, page 102, line 10, at end insert—
‘(1A) Before the end of 2013, a regulator may, in consultation with the Treasury, ask the Competition Commission to provide a report giving section 140B advice with reference to the Independent Commission on Banking recommendations on competition.’.—(Chris Leslie.)
The vast bulk of the clause is essentially old wine, but in new bottles. The FSMA provisions are mainly being transposed under the aegis of the Financial Conduct Authority and the Prudential Regulation Authority. The divvying up of the existing powers has allowed the Government to make several amendments reflecting the different objectives of the two bodies. The two big changes under the clause that we have not debated so far are proposed new sections 137C and 137Q.
Proposed new section 137C will give the FCA new product intervention powers, which, in a nutshell, mean that, although the product breaks no rules at the present time, the authority might think that it would be bad for customers so it wants the power to stop it being sold. That is the general thrust of the measure. It is a good pre-emptive and useful power for the FCA. My specific question relates to some of the difficulties that the Financial Services Authority has had in recent years with other cases.
For example, the Minister will be familiar with the land banking scams when purchasers of land would package things together and sell them at a later date for profit, often after planning permission had been obtained. The FCA does not regulate the sale of land, but land banking can, in certain circumstances, clearly amount to a collective investment and therefore potentially something over which the FCA might want to have authorisation. I know that the FCA, with the support of the City of London police and others, has investigated particular practices, but has not had the fortune that it might have had in securing outcomes necessary for the public good. I do not want to refer to specific cases, but the hon. Gentleman will understand that the FSA has had frustrations in that sphere. Will he clarify that proposed new section 137C will expand the power to cover such circumstances? If he has other ideas about how the provision is likely to be used, it would be useful if he could make them known to the Committee.
The new power under proposed new section 137Q might not be new technically, but it is a new directional ability for the authority in financial promotions, a matter that we have talked about previously. In advertisements or marketing arrangements, we can sometimes get the sense that vast promises are being made by being told of guarantees or issues that promise a pot of gold at the end of the rainbow when, in fact, the reality in the small print is quite different.
Only the other day I saw an advert featuring a bank that stated, “For a small fee, your current account can yield this interest upon it.” Such little emphasis was placed on the fee that people had to pay, while more emphasis was placed on the interest that it would supposedly yield that it was not proportionate to the fact that the fee often would counterbalance the interest that was made. I have doubts about some of those practices. Can the Minister confirm that the powers are steps forward in cracking down on such promotional arrangements?
Can the hon. Gentleman also confirm that, under the provision, some of the cold calling and texting practices that we all presumably experience can be attacked by the regulator? I picked up the phone at home last night, and the first words I heard were, “The average return on a claim for PPI mis-selling is”—at which point I hung up, as one is wont to do with pre-recorded messages. That practice is an annoyance for many people, and I am deeply worried that even if only one half of 1% of the people who receive such calls are drawn in, as seems likely to happen, they may give away great chunks of their compensation to companies that they need not use. Will the Minister confirm that proposed new section 137Q could be used to crack down on such practices?
The practices of debt management companies are particularly relevant to that subject which, as we all know, relates to people making a distress purchase—they are at the end of their tether when they are in debt—and looking for where to go. People who receive an unsolicited text saying, “New regulations mean that all your debts can be written off”, find that very tempting. As a result, they may not go to the free advice agencies, which are much more appropriate.
Proposed new section 139A raises issues about the power of the FCA to give guidance, as does proposed new section 139B about the notification of that guidance to the Treasury. Several concerns have been brought to my attention, including some that have been expressed by the Institute of Chartered Accountants in England and Wales, but I will not ignore those concerns just because that organisation relates to England and Wales and to chartered accountants. I hope that the Minister will reflect on the need for more refinement about guidance.
The term “guidance” is used throughout, although in practice it might mean different things. I will not follow the detail in the way suggested by the ICAEW, because its precise remedies are not necessarily adequate or required. However, it has made the point that there should be a differential between formal advice and informal advice—between “Guidance” and “guidance”. I remind the Minister that proposed new section 139A(1) provides for the FCA to give guidance consisting of information
“with respect to the operation of specified parts of this Act and of any rules made by the FCA;…with respect to any other matter relating to functions of the FCA;…with respect to any other matters about which it appears to the FCA to be desirable to give information or advice.”
Even that differential suggests that there should be a grading system for the formality or informality of the guidance.
If that distinction is not made, there is a danger that someone might receive information that anyone else would understand as informal guidance, and would rely on it as though it had the full legal authority of formal guidance, as apparently provided for in the Bill. To protect the FCA in its working practices for communicating with others, and for the reassurance of those looking to the reliability of its guidance, some refinement of the language may be needed, which the Minister should be prepared to consider.
Those two proposed new sections, which are about guidance, relate only to the FCA, and no provision about guidance is made in relation to the PRA, which seems to be a gap in the Bill. The Minister may think that I am saying that for every provision for the FCA there must be an equal and opposite, or even an equal and comparable, provision for the PRA. However, given that the Bill is littered with references to either regulator or both regulators, and we zoom in and out—it is a bit like the coalition; sometimes we are hearing from the duality, and sometimes from the specific parts, and we have to take our own guidance as to where we are—the Bill should make complementary and commensurate provision in respect of the PRA where specific provision is made for the FCA. It seems odd for provision to be made about guidance being produced and offered by the FCA, but for no such provision to be made for the PRA.
Interests as disparate as Barclays and local credit unions in Northern Ireland have expressed concerns to me about that apparent gap. Some people are concerned that the PRA will be denied a legal basis on which to assist affected parties in understanding its requirements. Particularly in the first years of its work, guidance will be necessary. I hope that the Minister will address that point in his response.
I have mentioned the concerns of Barclays about the apparent lack of a statutory framework in the Bill for the PRA in relation to whether to make its views public on particular issues. Local credit unions in Northern Ireland will now be regulated on an individual basis by the PRA. They want to know that they will not have to trouble the PRA, which has a limited number of staff, on every single detail, and that some sound and reliable guidance will be provided.
Those credit unions are puzzled about why guidance will be provided by the FCA but not the PRA; they will be taking on some new functions and will be able to provide some new services, and they will no longer have their current familiar regulatory relationship with the Departments and officials in Belfast. They want to know that regulation will not be done on a remote basis. They respect the people they have already met who will be dealing with those functions in the PRA, but they understand they will be limited to 10 people, so they do not want to trouble those people over every single detail. Authoritative and reliable guidance will be needed, and providing for such guidance in statute would give it some standing.
Not only the individual credit unions but the trade bodies—the Irish League of Credit Unions and the Ulster Federation of Credit Unions—have raised questions about the absence of provision of guidance on the part of the PRA. The trade bodies will engage with the PRA and make their own inquiries, and they will try to issue the resulting information to their members. The trade bodies worry that credit unions will rely on their interpretation of that information as PRA guidance, but that the PRA will say, “Well, no, that was not our guidance; that was somebody else’s interpretation of what we told them informally. We have absolutely no power of guidance.”
It seems to me that there is something of a gap here. I did not table a variety of amendments in this area, partly because I have decided to give amendments up for Lent—I was not getting anywhere with them anyway, and I made that decision before we saw the pig fly past behind the Minister when he made his concession earlier to my hon. Friend the Member for Nottingham East—and partly because the problem could be corrected by a number of adjustments in language in respect of the PRA, such as an insertion in this clause or a provision in another.
I will entrust the matter to the Minister’s good consideration so that he can make good that apparent gap, about which legitimate concerns have been expressed by those who will be materially affected by it and those who will be trying to make the legislation work, whether they be credit unions or large banks.
I want to raise an issue and explore the Minister’s response to it, and to ascertain his view on how this field might be better regulated.
Proposed new section 138K relates to consultation in respect of mutual societies. It deals with a situation where a rule is made that would apply both to financial organisations that are not mutual societies and those that are. The provision, as I understand it, says that in that situation the regulator has to prepare a statement which sets out its opinion on whether the impact of the proposed rule will be significantly different on other non-mutual legal personae.
Some concern has been raised by those in the mutual field that that is too subjective. They ask for a judgment on the part of the regulator as to whether the impact is different and whether that difference is significant. Only after having come to that opinion would a statement be issued. Some people working in the field are concerned that that could be over-subjective and, as a result, some situations where there could be a differential impact on the mutual sector might not be noted or fully understood. That might not become evident until much later.
I think people accept that to some extent that will depend on the degree to which the regulator is able to seek good advice and information from people within the sector. It is one of the reasons why the sector was particularly interested in issues such as the composition of the practitioner panel and who would be represented there, so that that point of view could be properly aired.
Some people have suggested that in all cases of the situation that section 138K(1) envisages, rather than having first to form an opinion and then to issue a statement, the regulator should actively satisfy itself as to the implications and go out to check that there are no such implications. That would be better than the slightly more subjective wording here. I welcome the Minister’s views on that issue.
This is an important clause. I am not tempted to give a subsection-by-subsection analysis of its importance, but the four areas that Opposition Members have picked up are four that I would want to touch on anyway.
Let me deal first with the comments made by the hon. Member for Edinburgh East. I am very conscious that regulation can have a differential impact on the mutual sector. As I have said before, there should be a level playing field for consumers who deal with any financial services organisations. But there are situations, such as those around capital, for example, where what might be appropriate for a bank might not be appropriate for a building society or a credit union because of their mutuality.
That is an important part of clause 22. It requires the FCA and the PRA to give more explicit consideration to the impact on mutuals than the FSA does at the moment. There is a widespread concern among the mutual movement that the FSA does not spend enough time thinking about the impact of its regulations or rules on mutuals. The provision helps to redress the balance.
To make the statement about the impact and its significance requires a degree of engagement by the FCA and the PRA with mutuals. They cannot do it in isolation. That engagement might come from their existing knowledge of the mutuals they regulate or they may reach out to the mutual sector and ask for its views. That is an important part of the process. I want to ensure that both the PRA and the FCA take greater recognition of the importance of financial mutuals to the overall landscape. It is a coalition commitment to promote diversity in ownership of financial services firms, including mutuals.
My hon. Friend the Member for Hereford and South Herefordshire is a keen proponent. He is a leading light in the Conservative co-operative movement. [ Interruption. ] It is not a contradiction in terms, because co-operatives are a sign of people coming together spontaneously in a voluntary collective effort. There is no contradiction at all.
No, because I am in danger of being led away from the path of righteousness, Mr Howarth.
The hon. Member for Foyle raised a point about guidance. We need to step back and think about the two populations that the PRA and the FCA are to regulate. The FCA will be regulating about 24,000 or 25,000 firms. The guidance set out is important to help communicate rules and regulations and their interpretation to that large population. Where it issues formal guidance, it must consult on that draft guidance, as the powers require. We believe the ability to give formal guidance would be a useful tool for a conduct of business regulator in securing better outcomes for consumers. That is particularly important given that the FCA will manage a large population of very small firms.
The PRA, on the other hand, will regulate a much smaller group of firms and will have much closer contact with them. There is less requirement for formal guidance. However, I would expect it to continue to communicate and to be mindful of the people with whom it is communicating. The hon. Member for Foyle and, I think, every other elected politician in Northern Ireland has written to me recently about Northern Ireland’s credit unions, for which I am very grateful. The PRA will need to think how it communicates to that sector, where it perhaps has less day-to-day involvement than with a bank.
The PRA will be able to continue to issue press releases, policy statements and use other mechanisms to communicate its broader expectations of regulated functions. It is regulating a smaller population, so it does not have the same requirement as the FCA to issue formal guidance. I hope that clarifies why we have not taken a simple “copy out” approach. We have thought very carefully about the different populations to be regulated. I assure the hon. Gentleman that there will be methods of giving guidance to smaller firms such as credit unions.
First, the Minister has constantly referred to formal guidance in relation to the issues raised by the Institute of Chartered Accountants in England and Wales. It says that it might help if the presumption was not always that guidance was deemed to be formal and that there should be a differentiation. Secondly, the fact that it is dealing with a smaller base should not mean that the PRA should be precluded from issuing guidance.
No, and what I am saying is a difference. The guidance required by the Bill is for the FCA to give. It is formal guidance where there has to be a proper consultation process. The FCA can give other sets of guidance, but it is not bound by the rules in the Bill in all forms of guidance that it issues. It can go beyond that. It will issue some guidance on a statutory basis; that is guidance covered by the Bill. It can publish other guidance that is not on a statutory basis. Firms will be able to understand and see the distinction between the two.
Let me pick up the point about cold calling and financial promotions. The related power is very important. The key improvement is that, not only can the FCA stop misleading advertising, it can highlight the fact that it has done so. At the moment, if it stops it, no one knows that it has, other than the advert being withdrawn. It is important that people are aware of what advertising has been stopped. One case that crops up every so often is Arch Cru. Arch Cru was first identified because the FSA looked at its marketing material. Perhaps if the FSA had been able to publish the fact that it had looked at Arch Cru’s marketing material and had that market material changed, a message might have been sent to others. The power is, therefore, important. The FCA will have powers to make rules on cold calling. By bringing consumer credit within the FCA’s remit, the debt management company issue will be tackled.
The hon. Member for Nottingham East referred to land banking. Such schemes are often structured so as not to be collective investment schemes, and I suspect that may be deliberate. If they are structured to be collective investment schemes, they would fall within the framework of the Bill and the powers may be used. One of the challenges we face is on what falls inside and what falls outside the perimeter of regulation. If something is outside the perimeter, the powers cannot apply and we would need to find other ways.
We should always encourage our constituents to find out what protection they have when making investments. Some investments, such as land banking, are not necessarily regulated. We should always encourage constituents to look at the Money Advice Service websites to understand what happens if something goes wrong and to whom they can complain. Can they complain to the ombudsman? Can they complain to the Financial Services Compensation Scheme? The more we can do to put our constituents on guard, the fewer chances there will be of things being mis-sold.