Clause 49 - Evidence

Financial Services Bill – in a Public Bill Committee at 4:15 pm on 20th March 2012.

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Question proposed, That the clause stand part of the Bill.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

Clause 49 is an odd one. It is about the circumstances where the Treasury—not the regulator—would issue a certificate to define where a

“property vested in a person immediately before a transfer order takes effect has been transferred as a result of the order” and whether that is to be defined as conclusive evidence of the transfer. It would be helpful if the Minister could explain why on earth this clause is necessary. I hate to say it, but the explanatory notes are entirely unhelpful in shedding any light on this circumstance. Will he explain what certificate the Treasury would issue to a mutual on property vested in a person immediately before a transfer order?

We discussed the draft mutuals order in our debate on clause 48, which relates to the transfer of functions to mutual societies. The draft order mentions certificates only once. Under the amendment to section 90(8) of the Friendly Societies Act 1992, it states that the FCA

“must keep a copy of the direction; and…issue a registration certificate to the transferee…The registration certification must specify a date as the transfer date for the transfer.”

There is no mention of a certificate issued by the Treasury. Will the Minister explain why the draft mutuals order does not discuss the Treasury certification process? Will he clarify the circumstances in which those certificates would be issued?

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

The clause arises from clause 47, which we discussed last Thursday, and clause 48, which we just ordered to stand part of the Bill. The hon. Gentleman should look at clause 48(2), which discusses the powers for the Treasury to make a transfer order. One power, under subsection (2)(b), is for the

“provision for the transfer of any property, rights or liabilities held, enjoyed or incurred by any person in connection with transferred functions”.

The certificate just confirms that the property has been transferred.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

It is rather strange that the Treasury is involved. Would it not normally fall to one of the regulators to issue a certificate? Why is it specifically the Treasury maintaining this particular function and not another appropriate body? That is what I wanted clarification on from the Minister. It is difficult to gauge it from the Bill and it is certainly difficult to gauge what on earth its point is from the explanatory notes. There have been a number of occasions where the wording of the clause is simply cut and pasted from the Bill into the explanatory notes. I do not quite see why the Treasury is retaining this function. Will he as the Minister sign certificates relating to property transfers? That is presumably the consequence of the clause. What capability does the Treasury retain to properly test and fulfil those obligations under that particular certification process? He will get my point. I do not understand why the Treasury is involved and I would be grateful if he explained that.

Photo of James Gray James Gray Conservative, North Wiltshire

This is becoming something of a question and answer session for the Minister.

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

The Treasury issues the certificates because it is given the power to do so under clause 48. I find it rather odd that we are back on this point, having just had a stand-part debate on that clause, which did not seem to cover its contents. The Treasury is given powers under this clause to issue orders because there may be reasons why we have to amend the legislation relating to mutual societies. That is part of the architecture of the provision that is carried forward from FSMA 2000.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

I accept that this is not a question and answer session, but a stand part debate. However, when I see the Minister holding aloft a copy of the Bill and flicking through it, I sense that he might be busking a little in relation to why the provision has appeared in the Bill. It may have come as a consequence of FSMA, but why?

I thought the point of the architecture of the new regulators set up by the Minister was that they would be arm’s length bodies that would take on much of the detailed and, presumably, operational activity. I thought that he was telling the Committee that Her Majesty’s Treasury would be strategic and policy-focused, yet under the measure, it seems that he will get out his quill pen and sign a bunch of certificates. Perhaps in a dusty  corner of the Treasury there are some skilled civil servants whose job it is to make recommendations about property transfer certification. I did not think that the Treasury was quite so grand these days. I thought he was thinning down its operations and delegating matters to other bodies.

I am surprised that little light has been shed on the provision, and the lack of answers and elaboration leaves me in a dilemma. Do we go along with the measure, accept the Minister’s assurance and nod it through? Do we say, “It’s only another clause—let’s just let the thing roll,” or do we hope that inspiration will strike him at any moment and an answer will be forthcoming? I hope the latter. If that inspiration is of a strong calibre, he might want to intervene, but if he is not inspired, perhaps because the inspiration prompts more questions than it answers, he might not wish to do so. I should love to give him another opportunity if he can explain why the Treasury is retaining the function. I am grateful that he wants to intervene.

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

The powers in the clause are significant: we are talking about the power to transfer

“property, rights or liabilities held, enjoyed or incurred by any person in connection with transferred functions”.

When such important rights are transferred, it is entirely appropriate that the Treasury be engaged to certify them. The function goes way beyond a regulator’s usual powers. I am sorry that I am waving about a copy of the Bill, but I thought it would be helpful for the Minister to be familiar with it—I had assumed that the same went for the hon. Gentleman. The provision is all as stated in the Bill. There are more pressing and interesting matters to move on to.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

That intervention was useful, because it clarified that the Minister’s justification for the provision is: “It is self-evident.” Opposition Members want clarity on the legislation, but his answer is, “There it is in the Bill. This is an important function, which the Treasury must fulfil.” I counsel him to ask questions about the provision, because the spotlight has not been shone sufficiently on to particular corners of mutuality and building society legislation. The Treasury will retain functions that might be transferable. I am not saying that that is wrong, but it is a symptom of insufficient attention being given to that sector of the financial services industry.

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)

The Minister said that clause 49 ensures that the Treasury will clarify exactly what is transfer, but the clause heading is “Evidence.” The certificate can be issued at any time; it does not necessarily have to be issued at the time of the transfer order. Is it designed to deal with any issue of contention, with any controversy that may arise or with any legal dispute, by stating that the Treasury will answer any dispute simply by issuing a certificate?

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

Yes. Again, it looks as if the Treasury will fulfil almost a quasi-judicial function. I can envisage a circumstance where the Minister, standing bewigged in the court of property rights and opinions, has to arbitrate between various property transfers. That would be a bizarre state of affairs for the Treasury. The provision  might be necessary, but that should be self-evident. I apologise to the Committee if that is the case and I am simply blind to the reason why the provision is necessary.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury) 4:30 pm, 20th March 2012

I have been listening carefully, and it strikes me that once again we are talking about problems that arise from the cut-and-paste nature of various parts of the Bill. Surely it would have been better to have looked at some of the proposals in more detail, and I hope that the Minister might still commit to doing so.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

Indeed, and that is the theme I am warming to in this part of the Bill in respect of mutuals and building societies. Not enough rigour or attention has been paid to the sector, despite the protestations of the coalition agreement. The Government appear to be in cut-and-paste mode; there are no explanatory notes here, and there is no strong explanation about residual powers for the Treasury there. That is my general concern.

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)

In that vein, do we not return to the serious discrepancy in the Bill, namely that the FCA and the PRA will both deal with mutuals on different matters, but the PRA will not be able to issue guidance? It will have no statutory basis for guidance, but the FCA will. Will that not leave the mutual sector in a state of confusion, if it will be able to rely on advice or guidance from the FCA but will have no basis of guidance from the PRA?

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

Yes. That is another concern, which did not occur to me as much as it did to my hon. Friend. It is a downstream consequence of the structural changes that are being made. I do not wish to go over the ground I have covered, and I think I have made my point. I will not oppose clause 49 stand part because there probably is a justification for the provision continuing, although the Minister has not been very articulate in explaining what it is. Perhaps we will look at the matter another time, in another place.

Question put and agreed to.

Clause 49 accordingly ordered to stand part of the Bill.