Clause 64 - Cases in which Treasury may arrange independent inquiries

Financial Services Bill – in a Public Bill Committee at 10:45 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)

Part 5 deals with inquiries and investigations, which will be of concern to hon. Members who have been party to debates about failings regarding regulatory matters that have not been dealt adequately with by regulators. I can think of a number of cases—such as Arch Cru, which has been debated in the House recently—and other arrangements where consumers have felt that there was significant failure among the firms involved, and that inquiries should be held into what went wrong in certain corporate arrangements. That is particularly relevant to those of us who have concerns about the impact of the failure of financial firms on consumers, including our own constituents.

Clause 64 details a number of cases in which the Treasury may arrange independent inquiries. We welcome the strengthening of regulatory bodies’ ability to commission inquiries when the interests of consumers and the wider economy have been endangered, so we support the intentions behind clause 64. We would like to place on record some concerns about the clause, however. For a start, it states that the Treasury “may” commission an inquiry if it considers

“that it is in the public interest”.

The wording is interesting. Does the Minister envisage the Treasury applying some form of public interest test? If so, what form does he think that test might take? The question is about what triggers an inquiry or investigation. Will the Treasury set out some sort of decision logic to establish when a public interest test would be applied? The clause appears to suggest there will be a set of circumstances—or will the need for an inquiry simply be left to ministerial discretion on a case-by-case basis?

It would be helpful to have a little more clarity on when public interest might kick in in such circumstances. Does the Minister agree that the use of the word “may” in line 30 of page 140 might lead to an unhappy situation in which the Treasury believes an inquiry to be in the public interest yet fails to commission one? We need to ensure there is clarity on that point.

I would also be grateful if the Minister were to place on record how he imagines the Treasury’s decision-making process for setting up an inquiry will work. What role will the Chancellor play? I am sure the Minister will agree that an inquiry should be a shield against future instability rather than a political weapon, but we need to know what constraints will be on the Chancellor of the Exchequer’s shoulders or, indeed, the Minister’s shoulders, because this is one of the few issues that the Chancellor might delegate to him. Therefore, how will that be framed?

Section 167 of the Financial Services and Markets Act 2000 empowers both the relevant authority and the Secretary of State to commission inquiries. Will the Minister explain why that principle was not followed when drafting clause 64? The clause adopts a slightly different model in which the relevant authority and the Secretary of State do not commission inquiries.

Although we support the clause, I ask the Minister to consider returning with some clarity on those particular points, especially on the public interest test.

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

It might help to accelerate the Committee’s progress if I say a little about part 5.

Clauses 64 to 67 are based on the existing powers set out in section 16 of FSMA. In reality, those powers have never been used by either this Government or the previous Government. In these few clauses, we seek to tidy up some of those powers. I am concerned that the fact those powers have never been exercised suggests a problem and that we need to introduce a more automatic process for investigating areas where there might have been a failure to secure appropriate protection—in the context of either the FSA and its objectives or the PRA and similar issues in clause 70, for example. That is why there is a division between clause 64, which allows the Government to do that, and clauses 69 and onwards, which allow the regulator to do it.

In a sense, the powers set out in clauses 64 to 67 are back-stop powers. If the regulator has not investigated, the Government may act where we believe that, rather than having an internal review, which is envisaged in clauses 69 and 70, we need an independent external review—that is the power we are taking in clause 65.

The clauses that address inquiries largely replicate the existing powers. The clauses on investigations introduce new powers to ensure that, as a matter of course, we have more investigations when the regulatory objectives of the PRA and FCA are not met. I hope that that gives some clarity on the purpose of these two sets of clauses in part 5. I hope that that will help accelerate progress.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

It is telling that the provisions in the Financial Services and Markets Act 2000 have not been triggered in that way. I know that that came up in respect of Arch Cru and we debated that in Westminster Hall. Others have been concerned about why that particular group of powers has not been set up. Presumably there has been reluctance in the Treasury to intervene unless exceptional circumstances occurred. These changes make it more likely that we will be within the realms of inquiries and investigations. By and large, that is why we welcome the changes.

I was trying to test the Minister’s view on what that public interest test would be, because, if he is saying that the thresholds were too high and that we never had the inquiries into those arrangements, presumably the public interest tests will be a little more pragmatic and be more likely to occur. I was trying to get a sense from him of where that trigger or threshold would be set. I do not want to raise the hopes of consumer bodies and others who might want to see, in some future market failure scenario, that they can get a Treasury inquiry in this or that circumstance. I can understand why he would not want to set that out so explicitly. It would have been helpful if he had elaborated on whether he would have wanted some level of inquiry to take place in past situations, such as that with Arch Cru. I accept, however, that the Minister has made his points on clause 64. We generally support it and we will not object to clause 64 standing part of the Bill.

Question put and agreed to.

Clause 64 accordingly ordered to stand part of the Bill.