Clause 74 - Conduct of investigation

Financial Services Bill – in a Public Bill Committee at 11:15 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)

This is a slightly more substantive clause, about the conduct of investigations. We have raised the question of independent bodies conducting investigations, but there is no mention of giving the regulator or the Treasury the power to appoint an independent body to conduct investigations under the clause. Will the Minister explain why not?

We accept that the regulator will often face a dilemma between conducting an investigation for public reporting and for enforcement purposes, and we recognise that that can be an issue where enforcement should take precedence over public recording. However, subsection (2) states:

“the regulator must have regard to the desirability of minimising any adverse effect that the carrying out of the investigation may have on the exercise of…its other functions.”

Subsection (3) says:

“The regulator may postpone…or suspend…an investigation if it considers it necessary to do so to avoid a material adverse effect on the exercise…of its...functions.”

Who decides whether it is desirable to have an investigation, and what criteria should they use? Why does subsection (3) refer to a “material adverse effect”, when subsections (2) and (7) refer only to an “adverse effect”?

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

These are quite detailed clauses. It is important that the regulator has the freedom to decide how the investigations should be carried out. Clearly, the regulator will need to think about whether the inquiry will get in the way of its carrying out its work. For example, if there is an ongoing crisis, it would be helpful for the regulator to focus on dealing with it, rather than carrying out the inquiry. Some balance may therefore be required.

It would also be helpful to ensure that the Treasury is aware of the postponement of the start of an inquiry. The power in subsection (3) is slightly different from that in subsection (2). If the FCA or the PRA decides to postpone the start of an investigation they are required to carry out by virtue of clauses 69 and 70, they should notify the Treasury to that effect.

The materiality test applies where the regulator postpones or suspends an investigation, and it is right that the test that applies to that is higher than simply how the regulator juggles investigations and its ongoing regulatory activities, as I discussed in relation to subsection (2).

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 speaking to this and previous clauses, the Minister has used the words “inquiry” and “investigation” interchangeably several times. He has referred several times to inquiries being conducted under  these clauses, but the regulators will, of course, conduct investigations. Under previous clauses, inquiries will be established under order of the Treasury.

Under clauses 74 and 73, the Treasury has the power to ask the regulator to conduct investigations. Under clause 74, it has fairly wide powers of editorial control over such investigations, including over the scope, the timing and the conduct—when to press stop and when to press go. The Minister told us that the earlier powers of inquiry of the Treasury have not been used before. Is it the intention or expectation of the Minister that the Treasury would be more likely to deal with matters when asked to call for an inquiry by way of requesting the regulator to conduct an investigation, if it is not already doing so, rather than ordering an inquiry itself?

The Minister seemed to imply that the likelihood of inquiries might not be that frequent an occurrence. Is the provision an attempt to allow the Treasury to respond to demands that might come from the media, Members of Parliament as well as practitioners in the field or consumers? Does he expect it to be the Treasury’s preference to rely on the powers of investigation via the regulator at the behest of the Treasury rather than on the powers that the Treasury itself has to institute its own inquiry?

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

I thought quite long and hard about the matter because, when I took up this position, it struck me that there had been no section 14 inquiries. To initiate one now would be a nuclear option. Part of the problem is that it has been left too late to use it.

However, it is important that the PRA and the FCA are accountable to Parliament for their activities. Conducting investigations is a good way of demonstrating that accountability and I expect that we would see more investigations than we have seen so far under section 14. That goes without saying in a way, given that we have had none under that section. I expect the powers to be used appropriately, and I do not expect them to lie dormant on the statute book. Their use will provide  reassurance that the regulators and the regulated can learn lessons from failures that have an impact on consumers and others.

Question put and agreed to.

Clause 74 accordingly ordered to stand part of the Bill.