The amendments have been tabled because we are concerned that the powers of financial regulators to oversee parent companies of regulated financial subsidiaries leave a loophole, in that those powers will not apparently be extended to commercial, non-financial parent companies with financial subsidiaries. The amendments are important because they would close that loophole. They are based on the simple premise that if a conglomerate wants to run a bank, it should be regulated like any other banking business. They would create a level competitive playing field that will benefit consumers and reduce the risks to the taxpayer of banking failure. Opportunities to regulate such matters are infrequent, but getting the Bill wrong could be damaging both commercially and to consumers so, as has already been said several times, we should not miss this opportunity to put things right.
If I may continue, the hon. Gentleman will hear my concerns. The proposals do not relate only to that matter.
The Bill enables the new regulators to oversee parent companies that own financial subsidiaries. In other words, if a parent company owns a retail bank and an insurance company, the regulators will have powers to oversee them on a separate, solo basis, and to oversee the conglomerate as a whole, which is known as consolidated supervision. That is a welcome move; we do not have a principled objection to it. However, I am keen to hear the Minister’s views on the Bill’s seeming inconsistency, because some parent companies will be exempted. We were somewhat surprised that the Bill grants the power of consolidated supervision only to parent companies that are classified as financial institutions by the Treasury.
Proposed new section 192B(6) gives the Treasury the option to extend the jurisdiction of the regulators to non-financial firms by order, but refrains from directly giving that power to the regulators. Given the emergence of new-entrant, non-traditional banking firms, which are often the subsidiaries of non-financial parent companies, that loophole risks creating an inequitable situation, and it could be dangerous. I hope that the Minister can explain why the Government think that companies with regulated financial subsidiaries should not be treated equally. We are concerned about not empowering up front the regulators that have oversight of non-financial parent companies with financial subsidiaries. Leaving the matter to a possible decision by the Treasury creates a risk that the power might not be enacted unless there is already a problem, by which time it might be too late to fix it. We want to try to anticipate where problems might emerge and plug existing or potential loopholes. In short, if a company is or wants to become a bank holding company, why should it not be regulated as such? Giving the regulator jurisdiction over parent companies of any financial services provider would close the loophole and solve the problem.
It is important to note that the specified powers are limited and direct, and do not extend to non-financial activities of a parent company. The Bill provides that the regulators may exercise their powers only if they consider that a parent company’s actions or omissions have or may have a “material or adverse effect” on the regulation of the regulated subsidiary or on consolidated supervision. Regulators may require the parent company to take or refrain from taking a specific action with reference to its group or other members of its group, and may compel a parent company to provide information. Those powers give the financial regulators jurisdiction over only those aspects of the parent company’s business that are relevant to the safety and soundness of the regulated subsidiaries and the financial system. The Bill does not give the regulators any powers over the non-financial aspects of a parent company’s commercial business. For example, the PRA or FCA will not be empowered to tell supermarkets how to stock their shelves or airlines how to plan their routes.
The loophole was brought to our attention by organisations such as the United Food and Commercial Workers International Union, which I thank for taking such an active interest in the Bill. It wants lessons from across the Atlantic to be learned; it does not want what it regards as mistakes that took place there to be repeated in the UK. People will no doubt be aware that in 2005 there was an outcry in the United States about Wal-Mart, the owners of Asda, being granted a licence to own a bank. The Federal Deposit Insurance Corporation, which is a US supervisory body, imposed an unprecedented moratorium on such applications. Even the then Federal Reserve chairman, Alan Greenspan, had reservations. He called on Congress to examine the loophole in the US that prevented the Federal Reserve overseeing both the parent company and the banking subsidiary. I am sure that the Minister is aware of the concerns that arose in the US. Does he believe that Alan Greenspan was wrong to have such concerns? Indeed, does it not represent a cautionary tale for us here in the UK?
I have a short series of questions, to which I hope the Minister will respond. It may be that other hon. Members also have questions on this group of amendments. Why has the exemption to this regulation been made? Who was involved in the discussions on that? Was there any involvement of some of the larger supermarkets? Was it simply an oversight or was it by design that this exemption has been made? Are the Government hoping to attract new entrants to financial services by somehow offering special light-touch regulation? If that is the case, should that not be made explicit and be properly scrutinised? If it is necessary to regulate financial holding companies, why is it not necessary for new non-financial entrants? Are the risks any different?
The Minister will no doubt argue that the option is there to extend regulation to non-financial holding companies, but will he clarify under what circumstances and what criteria that power will be exercised? If it is his intention to extend the regulation before any problems arise, why not extend it automatically now? If an order extending regulations was not made until after a problem arose, surely the risk is that that would be too late. We would be repeating the mistakes that led to the banking crisis in the first place.
If one holding company with a banking subsidiary has less onerous regulation than another, that is both unfair competition and a greater risk to consumers and, ultimately, to the taxpayer. We are also concerned—this has been reflected in many of the discussions during the course of the debate—about some of the new entrants in the financial services sector possessing a large amount of data on their customers’ non-banking activities. What guarantees can the Minister give that such data will not be misused or people’s privacy infringed? Consumers feel strongly about that, so how will that be looked at in the future? Will there be any regulatory oversight on the use of such data for the benefit of the banking subsidiaries of non-banking conglomerates? I know that some of that has been covered, but it would be useful to hear the Minister’s comments on those points.
This section of the Bill is a major advance, because it extends the regulatory perimeter to non-financial services companies. That is a significant change, which strengthens the system of regulation. There needs, however, to be a boundary set on its intrusion, because it intrudes into non-financial activities. That is not to say that a bank or insurance company or asset manager that is owned by a non-financial business is somehow exempt from regulation. The Co-op is a good example. Co-operative Financial Services is owned by a non-financial holding company. It is part of the Co-op group, but it is as closely regulated as Barclays, HSBC or Nationwide. There is no light-touch regime there, but we need to think about how, in extending these powers, they can be used proportionately and provide safeguards and reassurance about their use.
Mark Durkan rose—
I want to try to make some progress.
We have sought to extend that responsibility, but be clear about where it can be used. If there was a holding company in a group that owned shares in a financial subsidiary, it would be classified as being a qualifying parent undertaking, if its main business was holding those shares. We are trying to ring-fence within a larger group the financial services activities, as well as giving powers of direction to the FSA and a requirement to produce information. It needs, however, to be in relation to its financial activities. I was not sure where the hon. Member for Kilmarnock and Loudoun was heading on the use of other information, but, if information acquired by a regulator through a parent company was abused, there are clear penalties in place for that.
This is a proportionate expansion. We want to avoid the sense that the FCA or the PRA could intervene in the price of bread at Tesco or Sainsbury’s. That is not the right exercise. We are trying to have a proportionate power of intervention that relates to financial holding companies. It is a sensible way forward. We are seeing a change in the financial markets landscape. That non-banks and non-insurance companies are coming in to take over some of the activities is not a bad thing from a customer perspective, but we need to make sure that, when we take additional powers, they are proportionate.
Does the Minister think that problems could arise if there were a shifting of risk between the non-financial parent company and the financial subsidiary, for example, given the protection that is given from the public purpose to banks? I do not mean that the bank would not be regulated, but perhaps it might not be fully aware of what is going on the wider group, and that could have an impact on the bank and, ultimately, the consumer and, indeed, the public purse.
I accept that point, especially if we consider whether a parent could make available more capital to help a financial subsidiary and inject equity if it were suffering losses. The regulator will need to think through the access to capital by a financial subsidiary in a non-financial group. There is a requirement to supply information to help answer such questions. In extending the regulator perimeter, we will have a proportionate use of powers that gives the regulator an insight into what is going on elsewhere in the group to ensure that the regulator does not become a regulator of groceries or petrol stations. Let us have a proportionate power.
I should perhaps declare my interest. I am a Labour and Co-operative Member of Parliament. I have a long association with the Co-operative movement, so I am well aware of the position of the Co-operative group and the operation of the Co-operative bank, having served on various committees.
We believe that there is a loophole in the clause. I hear what the Minister is saying, but we are certainly not suggesting that the regulator would somehow be setting the price of bread in supermarkets. We are worried about a potential difficulty, and wanted to test the hon. Gentleman’s thoughts about it. It is something to which we might return.
Did my hon. Friend detect in the Minister’s reply why condition C under proposed new section 192B(4) is necessary? It states that
“the parent undertaking is a financial institution of a kind prescribed by the Treasury”.
The points that he made may all be relevant, but none of them were arguments why condition C should be in the Bill.
I said that we are extending the powers to cover holding companies. In terms of limiting the intrusiveness of the powers, we recognise that they should relate only to a company that holds shares in another financial institution.
I thank the Minister for that clarification. As I was saying before my hon. Friend the Member for Foyle intervened, we wanted to probe matters to see whether the Minister accepted that there was a problem. I am disappointed that he does not see the provision in the same way as we do, but I am not sure that pressing the amendment to a Division at this stage would take us much further forward. As I said, we might return to the issue in the future, but we should now move on. I beg to ask leave to withdraw the amendment.