Financial Services Bill

Public Bill Committee, 8 December 2009.

Roger Gale (Conservative, North Thanet)

Good morning. I have a few housekeeping announcements before we begin. First, members of the Committee may remove their jackets if they wish to do so while I am in the Chair. I am sure that my co-Chairman will agree likewise. Can we ensure that mobile telephones, pagers and any other electronic devices are switched off during the proceedings? They interfere with all sorts of things.

There is a money and a ways and means resolution attached to the Bill. Copies are available in the room. May I remind members of the Committee that adequate notice of amendments should be given. As a general rule, I and my co-Chairman will not be calling starred amendments, including any starred amendments that might be reached during an afternoon sitting of the Committee.

The Committee will be asked first to consider the programme motion on the amendment paper, for which debate is limited to half an hour. We will then proceed to the motion to report written evidence and then the motion to permit the Committee to deliberate in private in advance of the oral sessions. I hope we will be able to take the latter two formally. Assuming that the second motion is agreed to, the Committee will then move into private session to enable us to discuss the order of batting. Once that has been deliberated upon, witnesses and members of the public will be invited back into the room and our oral evidence session will begin. If the Committee agrees the programme motion, it will hear oral evidence this morning and this afternoon, and on Thursday morning and afternoon. Next week we will move to the Committee Corridor and revert to the traditional clause by clause scrutiny of the Bill.

I give early warning now, and will reiterate this during the last sitting prior to the House rising for Christmas, that amendments to be considered on the first day back after the Christmas recess—5 January—must be tabled by 4.30 pm on 30 December, because the day after is new year’s eve and the Table Office will not be available to take amendments. During the recess, amendments may be submitted signed by the hon. Member—not by anyone representing them—by post, or they may be submitted during normal working days and hours to the Clerks in the Table Office on the third floor.

I hope everyone has got that. If you are in any doubt, ask me or the Clerk on the Bill. We will in any event reiterate it. I call the Minister to move the programme motion.

Ian Pearson (Labour, Dudley South)

I beg to move,

That—

(1) the Committee shall (in addition to its first meeting at 10.30 am on Tuesday 8 December) meet—

(a) at 4.00 pm on Tuesday 8 December;

(b) at 9.00 am and 1.00 pm on Thursday 10 December;

(c) at 10.30 am and 4.00 pm on Tuesday 15 December;

(d) at 10.30 am and 4.00 pm on Tuesday 5 January;

(e) at 9.00 am and 1.00 pm on Thursday 7 January;

(f) at 10.30 am and 4.00 pm on Tuesday 12 January;

(g) at 9.00 am and 1.00 pm on Thursday 14 January;

(2) the Committee shall hear oral evidence in accordance with the following Table:

TABLE

Roger Gale (Conservative, North Thanet)

I should have welcomed Mr. Bain formally to what I understand is his first Committee sitting. That was remiss of me. It is good to have him with us. I appreciate the Minister’s courtesy in standing when he spoke during our proceedings. We are in a peculiar position at the moment because technically we are in Committee where traditionally hon. Members stand to speak. Once we move into the evidence session, it will not be necessary for them to do so. I say that for the benefit of everyone, including myself, because the matter has just been drawn to my attention. It is a courtesy and I appreciate it. Once we move into evidence session, only the Chairman will stand to speak, because I wish to demonstrate that, if necessary, I am seeking to exercise order. I hope that that is clear.

Mark Hoban (Conservative, Fareham)

I join the Minister in welcoming you to the chairmanship of the Committee, Mr. Gale, as I will welcome your co-Chair, Mr. Benton. It is probably the first time that an hon. Member for Glasgow, North-East has taken part in the scrutiny of a Bill for a while. The hon. Gentleman might not be able to seek much guidance from his predecessor about quite what to do, but I am sure that the hon. Member for Leeds, East will give him plenty of guidance, which, I suspect, will be to remain seated and keep quiet. There may be time in the future for the hon. Member for Glasgow, North-East to take part more fully in proceedings.

I do not want to spend too much time on the programme motion as we are all keen to scrutinise and question the Minister, but I shall make a couple of points. We voted against the programme motion at the conclusion of our debate on Second Reading and, while the Minister says that the Bill is short, the reality is that it covers a large number of issues ranging from giving the Financial Services Authority new statutory objectives through to credit card checks, consumer finance education and groundbreaking work in class actions and consumer redress. It is for those reasons we do not believe that sufficient time has been allocated by the Government to get the Bill through to the other place, which they clearly want to do as soon as possible.

We also note that the scrutiny sessions are starting at 4 pm rather than 4.30 pm. While that gives us more time, it means that members of the Committee who wish to participate in statements on the Floor of the House will feel excluded from that process. We are compromising parliamentary scrutiny by having such a start time. Not enough time has been allocated to the deliberation of the Bill. There are big issues to be dealt with, and we shall try to make as much progress as possible within the relatively tight allocation of time.

Colin Breed (Liberal Democrat, South East Cornwall)

It is a pleasure to be under your chairmanship, Mr. Gale, in our proceedings this morning. The Bill is short. Indeed, it could be shorter because certain aspects of it have quite a lot of duplication. However, it has some main principles and they will take us some time to debate. Having looked at the programme motion, I think that it has been reasonably portioned out. The time between now and our coming back in January gives us the opportunity to look at matters particularly after the evidence sessions, and I am personally happy with the programme motion.

Roger Gale (Conservative, North Thanet)

Copies of any memorandums that the Committee receives will be made available in the Committee Room.

Roger Gale (Conservative, North Thanet)

First, I welcome the witness from Her Majesty’s Treasury, the Economic Secretary to the Treasury, Mr. Ian Pearson. Thank you for joining us this morning. Before calling the first hon. Member to put a question, I remind the Committee that all questions must be within the scope of the Bill. It will be for the Chair to determine whether that is so.

Mark Hoban (Conservative, Fareham)

The Bill covers a large number of different areas but there are clearly some, where legislation is being passed, in which there is much more work to be done. For example, the Bank of England has not completed its work on a macro-prudential regime and further consultation is still going on about living wills. Are some of the measures in the Bill premature? Should we not wait until some of that work is concluded, so that we know exactly what powers the Bank and the Financial Services Authority need in connection with some of the those macro-prudential issues?

Mark Hoban (Conservative, Fareham)

Is it not the case that we have had to revisit elements of the Banking Act 2009? Another statutory instrument to be in front of us shortly is to correct an error in the Banking Act. The danger is that we are making legislation in haste and that we will have to come back to amend the Bill, to get it right.

Mark Hoban (Conservative, Fareham)

Is it not also clear that the Bill is being introduced at a time when, on the international framework for financial regulation—whether through the G20, or the EU through the recent de Larosière proposals—there is a lot of work going on at international level? How confident are you that the Bill creates a framework that slots into that developing international work, given that those international limits are yet to be fixed?

George Mudie (Labour, Leeds East)

On Second Reading, some pertinent questions were asked about the difference between the Council for Financial Stability and the present tripartite committee. Can you tell us what the Council for Financial Stability brings to the table that the tripartite committee could not?

George Mudie (Labour, Leeds East)

Apart from formal meetings, where are the additional qualities to help financial stability if it is simply the same people meeting more often and more formally? That does not sound as if, apart from meeting more often, they will bring any additional qualities to deal with, or spot the risks to financial stability.

James Duddridge (Conservative, Rochford and Southend East)

The Bill will probably not get Royal Assent until next March or April. We will then have a general election and it is possible that there could be a different Government. So when will the Council for Financial Stability be set up and will that work happen during the election period or will it be suspended?

James Duddridge (Conservative, Rochford and Southend East)

I am a little worried that it is going to be set up in January. Given the parliamentary majority, it is probable that the Bill will get Royal Assent. However, during the evidence sessions and Committee sittings some interesting points about the council’s composition and responsibilities might be teased out which will not be able to be implemented if the Minister presses ahead in January.

Colin Breed (Liberal Democrat, South East Cornwall)

Perhaps some of us actually want to see a revolution. We are creating a duty on the FSA to undertake a financial stability strategy. We will have a deputy governor responsible for financial stability and we are going to continue with the three that we have got. The Chancellor is going to chair it. Do you foresee the possibility that the chair could be outvoted?

Colin Breed (Liberal Democrat, South East Cornwall)

You would have to accept, Minister, that the previous tripartite arrangements were hardly the greatest success, so if we are building on something that was not much of a success, some significant changes are needed. We need to identify precisely where the real ultimate end responsibility is. If you have three different bodies or three different interests—three different views perhaps—someone, somewhere, has to be the final arbiter and has to decide what action will be taken to prevent any systemic risk and suchlike. Is that the Council for Financial Stability, and if it is, will that be done through a majority vote?

Colin Breed (Liberal Democrat, South East Cornwall)

That is part of the problem.

Colin Breed (Liberal Democrat, South East Cornwall)

Not decision?

Andrew Love (Labour, Edmonton)

May I press the Minister on that? The criticism that the Treasury Committee made was that under the old standing arrangement, no one had responsibility for stability, but under the new arrangements all three bodies have responsibility and it is still unclear who has ultimate responsibility. Does the Minister accept that criticism, and how do we overcome it in the case that Mr. Breed mentioned, where there might there be differences of opinion between those three bodies?

Andrew Love (Labour, Edmonton)

Let me continue to press you on experience. The Treasury Committee’s numerous reports on the banking crisis have shown that the standing committee and the memorandum of understanding did not operate effectively in the circumstances that we faced, and that is the reason why changes are being made. Minister, you say we need effective co-ordination. What gives you the confidence that the new Council for Financial Stability will deliver effective co-ordination between the three bodies? That was clearly missing under the standing committee arrangement, and the memorandum of understanding just did not operate. Although I agree that we ought not to move to a single regulator, or to some of the other proposals that have been put forward, we do need to be confident that the Council for Financial Stability will not meet the same difficulties that arose under the old arrangements and the memorandum of understanding.

Mark Hoban (Conservative, Fareham)

I am not entirely sure that it is clear who is responsible. We have gone from a situation where nobody seemed to have explicit responsibility for financial stability to having the Banking Act 2009, which gave that responsibility to the Bank of England. The then Exchequer Secretary seemed to think that the FSA already had responsibility for financial stability wrapped up in the market confidence objective. Now, in the Bill, the FSA is being given explicit responsibility for financial stability, but there is no sense of delineation between the Bank’s responsibility and that of the FSA. Before, people were able to say, “It is not our responsibility, because none of us has responsibility”; now they can say, “It is their responsibility to deal with this.” We have moved from one confused situation to another over the course of legislative changes—both those already made and those that are in the Bill. I am still not clear who, in a crisis, is accountable for financial stability.

Mark Hoban (Conservative, Fareham)

Using your analogy—it is not the most robust of analogies—ultimately, if a football team fails, the manager gets sacked. We have a team being managed by several different people, and it is not clear who will carry the can if the team fails to score and lets too many goals in. Your analogy demonstrated the weakness of the argument, because no one is clearly in charge.

Andrew Tyrie (Conservative, Chichester)

Do you think that the tripartite committee system worked well in the run-up to Northern Rock?

Andrew Tyrie (Conservative, Chichester)

One can always learn lessons, but I am asking whether you think the tripartite committee system worked well, had a mixed record, or worked badly.

Andrew Tyrie (Conservative, Chichester)

I am asking you about the tripartite committee, not Northern Rock. How did the tripartite committee do?

Andrew Tyrie (Conservative, Chichester)

What was the specific way in which the tripartite committee could have done better? Where specifically did it go wrong?

Andrew Tyrie (Conservative, Chichester)

In which respect?

Andrew Tyrie (Conservative, Chichester)

Do you think that there was a liquidity crisis, Minister, or a solvency crisis?

Andrew Tyrie (Conservative, Chichester)

Yes.

Andrew Tyrie (Conservative, Chichester)

As I am sure you know, no liquidity data at all were being collected by the tripartite committee, so it could not possibly have been aware of a liquidity crisis—a point made by the Treasury Committee. The informal arrangements in that respect, therefore, have to be said to have failed. Why do you think the formalisation of those arrangements will guarantee the collection of the necessary data?

Andrew Tyrie (Conservative, Chichester)

Who is responsible in that new body for making sure that the data are collected? Who specifically? Which individual is carrying the can?

Andrew Tyrie (Conservative, Chichester)

So it is pass the parcel again, is it not?

Andrew Tyrie (Conservative, Chichester)

Do you not think that it will strike people outside this place as quite extraordinary that when every experienced commentator has said that what went wrong above all was that no one was in charge, you are now putting in place an arrangement in which no one is in charge? There has been a chorus from every corner of the specialist community—the City, the Bank of England, which has made this point, and the FSA, which has briefed privately on it and, to some degree, publicly.

George Mudie (Labour, Leeds East)

I still think, following on from where Andrew left off, that someone has to make a decision and be the decision maker. You have ruled out voting. One of the faults with Northern Rock was that although the FSA saw the danger and got Lloyds to make a bid, it could not persuade the Bank of England and the Governor to enter into negotiations with Lloyds to have it take over Northern Rock—it could not persuade the other partner in the tripartite committee. How will the new committee get around that? The FSA sees something that needs to be done by one of the other two partners and says, “We are responsible for it; you do it”. I do not believe that the Chancellor will take instructions from the FSA, and from history, I cannot see how it will be different with the Bank of England. How will differences like that be resolved by that committee?

George Mudie (Labour, Leeds East)

I do not want to dwell on with that; I am sure that we will deal with it later in Committee. The situation we are discussing is one in which the FSA, having responsibility for financial stability, says to the Bank of England that it must do something that is within its remit of what is important, in the eyes of the FSA, to ensure financial stability. As we saw with Northern Rock, 24 hours is a long time in that situation, and people do not have time to get round to having a broad and sensible discussion. Someone says, “This must be done”, but the Bank of England says, “No”. How will this committee—clearly, it will work with the tripartite committee—bring decision making to that sort of situation, which is what we are talking about when we are looking at the dangers to financial stability?

John Howell (Conservative, Henley)

The Minister must recognise that what we are struggling to see where the additionality is. The only piece of additionality that I have spotted so far this morning is for outputs—we are going to have minutes from this, whereas we did not have them before. I am sure that minutes are very valuable and I welcome that transparency, but I do not see how that leads to better outcomes—indeed I am not quite sure what the expected outcomes are, except that there will be a broader definition of financial stability. We have two activities: keeping matters under review, which we see as largely a paper-based exercise, and co-ordination. So what you have actually given us today, Minister, is a general outcome of financial stability and a few bits of output that have gone into that, principally in producing better minutes. However, in the middle of this we still have this black box of not knowing what co-ordination will look like, how it will be made effective, and how the relationship is between the terms of reference and the financial stability.

John Howell (Conservative, Henley)

Are you saying that the council is not an important part of this Bill?

John Howell (Conservative, Henley)

You have accepted that this is an important part of the Bill, but do you not accept that it undermines the Bill if we are left with a huge amount of uncertainty about one of its major planks? There is this black box in the middle and we do not know what it is in it. I am not even sure that the Treasury knows what is in it. It would be interesting to see whether there has been any modelling of how it will work in a real-life case and whether that could be presented to us. That would allow us to trace through what the new council is doing and how it will contribute to financial stability.

Lindsay Roy (Labour, Glenrothes)

With permission, Mr. Gale, I should like to go back to the team analogy. If responsibility is not clear, there are issues about the effectiveness of intervention and action. My fear is that, by default, we have an own goal. How will this ensure more effective teamwork and more rigour in terms of impact? I think that an exemplar or a case study might help us to understand how this will operate.

William Bain (Labour, Glasgow North East)

Clauses 1 to 4 require the council to produce an annual report for Parliament. Are there any other means by which greater parliamentary accountability can be secured? What specific criteria will Parliament be able to use to assess the performance of the council to determine whether it is achieving its goal of greater financial stability?

Mark Hoban (Conservative, Fareham)

Is the problem for the Minister delineating the respective responsibilities of the three bodies involved, because there are a number of factors that contribute to financial stability? We can argue that the Treasury has responsibility for macro-economic policy. Clearly, the FSA has little impact on macro-economic policy, but it is the prudential supervisor of the Government’s arrangements for individual institutions—the Treasury is not. Is that not part of the problem with which the Minister has yet to grapple? Is it about trying to say that those are the powers that you, as an institution, have to tackle financial stability and that that is the area in which you can be held to account? The Bank of England was given the financial stability objective in the Banking Act 2009. I do not think that it was given any additional powers in the Act to enable it to fulfil that objective. It was certainly given responsibility for payment systems. The actions it can take to tackle financial stability relate to a limited range of options and to its own remit. The challenge for the new council is to say that this is what you, as the FSA, are responsible for on delivering financial stability; this is what the Treasury is responsible for on delivering financial stability and this is what the Bank is there to do. I do not think that the Government have got to the point where they are able to articulate the different areas of responsibility of the different tripartite authorities to deliver that objective.

Mark Hoban (Conservative, Fareham)

But if the threat to financial stability was a consequence of the Government’s macro-economic policy, there is not a great deal that the Bank of England or the FSA could do about it. If that was the cause of the instability, they would both object to sharing responsibility for it.

Mark Hoban (Conservative, Fareham)

But it would not feel that it had responsibility for financial stability where the cause of that instability was Treasury policy.

Colin Breed (Liberal Democrat, South East Cornwall)

I want to move on to the FSA. We have covered the CFS quite a lot, and I suspect that that will form a great deal of debate when we look at the Bill.

Colin Breed (Liberal Democrat, South East Cornwall)

Under the FSA, we are talking about an intensive and intrusive approach to supervision. Would that include on-site inspections both in the UK and abroad? If so, are the resources currently available to the FSA capable of undertaking such work?

Colin Breed (Liberal Democrat, South East Cornwall)

I am aware that those away with the Select Committee last week looked very much at the regulation of banks in Europe. There they were very keen on on-site regulation in both home and host branches, which is very intrusive. It is very demanding in resource terms both in the numbers of people, the costs and everything else. As for the United Kingdom FSA, bearing in mind the sheer number of bank branches both in the City and other parts of the country, it would be a quantum leap in the amount of work that it would have to do. Is that what the Minister expects as part of the new supervisory regime at the FSA?

Colin Breed (Liberal Democrat, South East Cornwall)

If the FSA has to exercise its own judgment, what body will decide whether that judgment is correct? Will it be the Treasury or the Council for Financial Stability?

Celia Barlow (Labour, Hove)

In terms of the introduction of recovery and resolution, do you agree that it is too important an issue to fail? What is being done to ensure that it will not fail? Do you think that it will trigger significant structural change?

Celia Barlow (Labour, Hove)

You say that it will be a tripartite responsibility, but will the FSA be able to instigate structural change in the banks and do you have a time scale for that? I refer to the banking sector rather than individual banks.

Andrew Love (Labour, Edmonton)

With your approval, Chairman, I would like to look again at the FSA and robust action as well as picking up on the issues that we have just talked about. The Bill will allow the FSA to adopt an intensive and intrusive approach to supervision, but there are some concerns about its track record. Some people highlight the fact that it is funded through a levy on City institutions and most of the staff are people who go back and forth in the City. There is, therefore, some concern that they are perhaps not as entirely independent as necessary to get the type of robust action that we see in the United States, for example. Has any of that been a concern for Ministers?

Andrew Love (Labour, Edmonton)

Let me press you on that. I strongly welcome the statement made by the chief executive of the FSA about it taking a much more robust view. I will raise two issues. First, the FSA was very late in agreeing that there might be an adverse impact to short selling, although it did eventually. Secondly, on insider trading, we are seeing robust action in the United States, while the FSA has a lamentable record on insider trading, which according to all the figures that we see continues to be a daily occurrence. I do not underestimate the challenge of bringing people to justice, but it seems that the United States is rising much more to the challenge than the FSA has done. I am interested to see if the FSA will make effective use of its new powers to ensure that we get the sort of robust regulation that there is in the United States.

Andrew Love (Labour, Edmonton)

Let me explain. Generally, most people in the industry consider short selling a positive feature of market activity. However, I think it is also accepted that when it is being done comprehensively by many institutions it can have a negative effect. That negative effect seemed to be very late in impressing itself on the FSA, which continued to argue for a long time that short selling was a positive feature of the market place. That is all I would say. The FSA seemed to reflect the City point of view rather than make a rather more independent judgment about the impact of short selling. As the FSA will be given new powers in the Bill to deal with short selling, I assume the Government accept that in certain circumstances negative effects can occur from short selling and would want the FSA to intervene. I want to be reassured that the FSA understands that argument and will robustly intervene when it feels it necessary.

Mark Hoban (Conservative, Fareham)

May I ask about the recovery and resolution regime? We have a regime in which the Government will not be in a position to put in money to keep a bank afloat if it gets into trouble. Once the measures come into effect, will things such as the deposit protection scheme, the special resolution regime and living wills be sufficient to deal with bank failure in future or will indemnities, guarantees or indeed direct investment still be required?

Mark Hoban (Conservative, Fareham)

So, you believe that this sends a clear signal to markets that, with this in place, there will be a proper process to wind down or restructure banks in the event of financial problems, so they should not necessarily expect banks to be bailed out by the Government in future.

Mark Hoban (Conservative, Fareham)

Indeed, but given the complexity of some of these institutions, the operating manual is not something that could be written on the back of a fag packet. Presumably, it will be quite a complex document. What sort of cost has been estimated? What is the cost to institutions of drawing up these living wills?

Charles Walker (Conservative, Broxbourne)

What will be the mechanism for reporting the risk? All this seems to revolve around risk—identifying and pricing it. It seems that the British Government and other Governments bailed out a lot of banks because banks could not handle or understand where their risk resided in their financial instruments. What would be a mechanism for people in regulatory authority to identify the level of exposure to risk that banks have?

Charles Walker (Conservative, Broxbourne)

I suppose my concerns rest on the fact—I think that my colleague, Mr. Love, highlighted this—that you have these increasingly complex financial instruments being invented by whizz kids, only they are not whizz kids because they do not really understand their own creations and inventions. That was part of the problem. Will it be the case that the FSA, or the regulatory regime, will say, “If we do not understand how these financial instruments work, you will simply not be allowed to trade them”? If we do not understand how they work, we cannot identify the level of future risk that the UK taxpayer will be exposed to if they all go incredibly wrong and this sort of leverage pyramid begins to crumble away again.

Andrew Love (Labour, Edmonton)

The research paper provided by the Library explains how these RRPs would ensure that banks have the protection of other financial institutions and that as part of their business planning they

“should produce plans that would show how, legally, administratively and financially they would plan for a severe financial crisis and ultimately, how they would arrange for the company to be wound up”.

That seems quite onerous. While I understand that these plans will be vetted and agreed with the FSA and so the associated costs are difficult to highlight at the present time, you must have some idea from the discussions that have taken place of the likely drawbacks of placing such onerous conditions on these institutions. Are you confident that those drawbacks will not be so severe that they have a negative effect?

Andrew Love (Labour, Edmonton)

Let me ask two questions relating to that. One of the big concerns—not at present, but looking into the future—is that there might come a time when the debate between the industry and the FSA will be on what the level of effective regulation ought to be, and that the industry will say, “This cost-benefit isn’t working for us; you need to reduce the cost to make it beneficial.” That, of course, leads to the road that we went down in the lead-up to 2007. Are there any concerns in relation to the regulator maintaining its line in ensuring that the benefit that comes from this is worth the costs that it is going to incur?

Andrew Love (Labour, Edmonton)

May I press you? One of the themes that always arises from any change to financial services is the concern that it will place us in some form of disadvantage internationally, because the City will no longer be able to compete with New York, Shanghai, Tokyo and so on. Are you confident that there is no disadvantage in the Bill to the RRPs and that they will not be faced by other, equivalent financial services centres? Are you also confident that such scrutiny internationally will not again lead to the argument that we need to reduce the cost, because not as much is being done internationally and the restrictions being placed are not as onerous as ours?

Mark Hoban (Conservative, Fareham)

May I change the subject somewhat? The Bill includes some ground-breaking measures on consumer protection. Conscious that we are finishing shortly, I would like to raise a few questions on those measures. On the proposals on collective proceedings, given that the financial services sector is quite heavily regulated, in the sense that you have a regulator, a compensation scheme if firms go bust and an ombudsman to deal with individual complaints, what is missing in the regulation that requires collective proceedings?

Mark Hoban (Conservative, Fareham)

There are two separate issues here, are there not? The first is litigious, which is the collective proceedings route, but consumer redress is a different issue. You said that collective proceedings is a back-stop. What has the regulator failed to do? What is missing from its powers that require consumers to go down the litigious route, either individually or, in this case, collectively?

Mark Hoban (Conservative, Fareham)

Should not the FSA be given greater powers, rather than require consumers to take the product provider to court? Should not the FSA get greater powers and be expected to tackle the issues, rather than rely on consumers to take legal action?

Mark Hoban (Conservative, Fareham)

Is the argument that the FSA failed to use its powers fully?

Mark Hoban (Conservative, Fareham)

Very infrequently or very frequently.

Mark Hoban (Conservative, Fareham)

You described this as novel. Would applying the measure across the consumer sector not have been more appropriate than restricting it simply to the FSA and financial services?

Mark Hoban (Conservative, Fareham)

Why is such a novel approach being adopted in this sector and not on a broad-brush basis?

Colin Breed (Liberal Democrat, South East Cornwall)

Do any of the proposals under consumer protection address the current confusing division of powers between the Office of Fair Trading in respect of consumer credit and the FSA in respect of other consumer affairs in relation to financial services?

Colin Breed (Liberal Democrat, South East Cornwall)

There is in the minds of consumers.

Colin Breed (Liberal Democrat, South East Cornwall)

The FSA is now responsible for educating the public and will undertake new powers. Why is it not now more appropriate to give consumer credit regulation and supervision to the FSA, taking it away from the OFT, to make it an entirely clear body to undertake issues on behalf of consumers?

Colin Breed (Liberal Democrat, South East Cornwall)

That new body will have to tell consumers to go to the OFT in certain respects.

Colin Breed (Liberal Democrat, South East Cornwall)

So you are content that the current architecture and the involvement of the OFT is appropriate on a regulatory, supervisory and consumer protection basis?

Roger Gale (Conservative, North Thanet)

Order. It will have to be a brief question if you want to speak, Mr. Howell.

John Howell (Conservative, Henley)

On collective redress, can you tell us to what extent the proposals take into account the emerging situation in the green paper that has been produced by the European Commission?

Roger Gale (Conservative, North Thanet)

Order. I am afraid that brings us to the end of the time allocated for questions for this morning. I thank the Minister on behalf of the Committee for giving his evidence this morning.

Joe Benton (Labour, Bootle)

Good afternoon. First of all, may I remind members of the Committee and witnesses that we are bound by the deadline agreed this morning? That means that the first evidence session must end at 5.30 pm and the second at 7 pm. I hope that I do not have to interrupt Members or witnesses in mid-sentence, but I will do so if need be.

We will now hear evidence from the Bank of England, the Financial Services Authority, the Financial Services Compensation Scheme Ltd and the Financial Ombudsman Service Ltd. I welcome the witnesses to the meeting, and I wonder if you gentlemen would like to introduce yourselves.

Joe Benton (Labour, Bootle)

Thank you, gentlemen. I call on Mr. Mark Hoban to open the questions.

Mark Hoban (Conservative, Fareham)

This morning we spent quite a lot of time talking about financial stability, and reflected on the fact that under the Banking Act 2009, the Bank of England was given the objective of financial stability. Under the Financial Services Bill, the FSA would be given the same objective. Will either John or Andrew say who they believe is responsible for financial stability? Who would take the lead role?

George Mudie (Labour, Leeds East)

It is the one who speaks first.

Mark Hoban (Conservative, Fareham)

But is there not a risk that we are no further forward with the new council than when we had the standing committee? In that committee, no one seemed to have formal responsibility for financial stability. Now, it appears that everyone has formal responsibility. How will the new arrangements make it better and more effective?

Mark Hoban (Conservative, Fareham)

Whose responsibility is it to lead the development of that strategy? If you are taking a secondary role, is it therefore the Bank or the Treasury?

Mark Hoban (Conservative, Fareham)

Most commentators would say that the tripartite committee did not work very effectively. What guarantee is there that the new council will work more effectively, given that you, John, seem to be saying that the Bank makes a contribution and that Andrew is saying that the FSA has a secondary role? I am not clear that we are moving to a better place as a consequence of that in terms of clarifying who actually takes the lead on these matters.

Mark Hoban (Conservative, Fareham)

I am not sure that I am yet persuaded of that.

Mark Hoban (Conservative, Fareham)

Do you think that there is someone who is first among equals in the three-way committee?

Colin Breed (Liberal Democrat, South East Cornwall)

There seems to be a surfeit of strategies and a deficit of responsibilities, but we remain to be convinced—we may well be in the fullness of time—about the practicality of the new tripartite. When the Treasury Committee was in Europe last week, we interviewed at least one financial stability committee, which had agreed that the governor of the Central Bank would chair the tripartite. Why do you think that the Chancellor should be the one to be the chair?

Colin Breed (Liberal Democrat, South East Cornwall)

I think that I accept that. What additional information or macro-prudential tools will be available to the new council that was not available to the old tripartite?

Colin Breed (Liberal Democrat, South East Cornwall)

So, it is not a lack of information, it is not a lack of risk assessment, it is a lack of action.

Colin Breed (Liberal Democrat, South East Cornwall)

Do you accept that the tripartite partners come from three very different spheres: one is a regulator, one a central bank and one a politician. What is the likelihood that they will always agree?

Colin Breed (Liberal Democrat, South East Cornwall)

How do you see the Council for Financial Stability working with the Monetary Policy Committee?

Colin Breed (Liberal Democrat, South East Cornwall)

So, those two organisations will work entirely independently of each other in a silo mentality.

Mark Todd (Labour, South Derbyshire)

The FSA currently has responsibility for financial education. The Bill sets up the consumer financial education body—although I am sure that will not be its title eventually. Will that mean that the FSA will cease to have a responsibility for financial education? The relationship that the FSA will have with the new body is not entirely clear, since the FSA has responsibility for setting it up.

Mark Todd (Labour, South Derbyshire)

You touched on governance, what governance model has been decided on for the new body?

Mark Todd (Labour, South Derbyshire)

Perhaps they can enlighten us. I am interested in the kind of people or bodies that would be represented on the body and what responsibility they may have within it.

Mark Todd (Labour, South Derbyshire)

So there is an accountability link.

Mark Todd (Labour, South Derbyshire)

That line of questioning has not left me a huge amount the wiser. Where does budget setting lie within the new body. We heard about one model there. Would it lie with the FSA? Where would it lie?

Mark Todd (Labour, South Derbyshire)

So it is approved by the FSA. On the appointment process, we have a model in which the appointment is through the FSA and a model in which it is through, presumably, public advertisement. Which model will be followed?

Mark Todd (Labour, South Derbyshire)

So the FSA still has a pretty active role in this. You distanced yourself somewhat on the first question, but you are firmly stuck into it by appointing the people and setting its budget.

Mark Todd (Labour, South Derbyshire)

So these are not public appointments through an open process?

Mark Todd (Labour, South Derbyshire)

So you would apply to the FSA for a nomination to this particular body?

Mark Todd (Labour, South Derbyshire)

With regard to the budget arrangements and the mechanism for raising sufficient money to pay for this body and its actions, the FSA is currently funded by levies of various kinds. Is that passed through to this body?

Mark Todd (Labour, South Derbyshire)

What sort of expertise would the FSA be seeking to draw into this body, bearing in mind that there are many—and I am one of them—who would criticise the FSA for how it has been carrying out this function on its own?

Mark Todd (Labour, South Derbyshire)

Yes, you did indeed do that. Thank you.

Mark Hoban (Conservative, Fareham)

Talking to the Financial Ombudsman Services and the FSCS, the FSA has power of appointment and you produce an annual report to it. How much involvement in practice does the FSA have in your day-to-day activities? Presumably, as a quasi-judicial body, the FOS has very little input from the FSA in its day-to-day activities. Does that also apply to the FSCS?

Mark Hoban (Conservative, Fareham)

Mr. Whittaker, do you envisage that the FSA will operate at a similar arm’s length basis from the consumer body?

John Howell (Conservative, Henley)

Before going on to some general consumer protection issues, I want to pick up a couple of points on the consumer financial education body. Do you not see a conflict between what the body might want to say about financial dealing and the duties it has in the Bill to maintain stability and confidence in UK financial markets? Does it go into this with its hands tied?

John Howell (Conservative, Henley)

There is a question that follows on from that. We have the details of the consumer financial education body, but the one thing we do not have is an idea of what success would look like for that body. Do you have a view of what that would be?

John Howell (Conservative, Henley)

So in the meantime we are on a wing and prayer as to whether it is worth doing?

John Howell (Conservative, Henley)

Can I ask a question about the consumer redress schemes? One of the comments that have been made by others who have submitted evidence is that there may be a difficulty in ensuring that decisions are made only on consumer protection grounds. Is this a concern and how will you deal with it to make sure they are so made?

John Howell (Conservative, Henley)

May I pick up on the consultation aspect of that in relation to collective proceedings, because there were a number of complaints, particularly in the evidence submitted for Second Reading about the lack of consultation over the collective proceedings approach? Do you share the concern that there has been less consultation than there ought to be? Are there things that ought to be taken out or things that you would like to see put in?

Mark Hoban (Conservative, Fareham)

May I pursue the issue of the consumer redress scheme? There are already plans in section 104 of FSMA for similar arrangements. Why are you seeking the removal of those powers and their replacement by the powers in this Bill?

Mark Hoban (Conservative, Fareham)

In section 404(1)(b), it appears that there does not have to be legal action or a court case as a prelude to setting up this consumer redress scheme. How are you going to ensure that any scheme you set up will be free from legal challenge, either by consumer groups or by the industry?

Mark Hoban (Conservative, Fareham)

The recent bank charges case, which involved the Office of Fair Trading rather than the FSA, went through several layers of judicial scrutiny. How can you be sure that the process you go through will be equivalent to, and as robust as, effectively appealing to the highest court in the land?

Mark Hoban (Conservative, Fareham)

Mr. Thomas, presumably this would actually reduce the workload of the Financial Ombudsman Service, which at the moment seems to be the point of contact for most consumers when there is a systemic issue such as mortgage endowments or mis-selling? Are you content for this responsibility to pass to the FSA?

Celia Barlow (Labour, Hove)

I am particularly interested in addressing my question to Mr. Alex Kuczynski. How do you think the banking sector will react to the proposal in the Bill that the Financial Services Compensation Scheme pay for the cost of activity up front under the special resolution regime, then gets it back from the banks?

Celia Barlow (Labour, Hove)

Do you think that this will affect your relationship with the banking sector? You felt that there would not be that much change, but in so far as there is change, how will it affect your relationship?

William Bain (Labour, Glasgow North East)

Andrew, in terms of the memorandum that the FSA has submitted, particularly on enforcement, are there specific examples of additional powers in the Bill that would allow you to continue the strategy that you referred to as “credible deterrence” by preventing further wrongdoing?

Mark Hoban (Conservative, Fareham)

There is a significant increase in your powers in the provisions on disciplinary powers. What has given rise to your demand for such powers? What circumstances have you identified, which you could not address in the recent financial crisis, that those powers will enable you to address?

Andrew Tyrie (Conservative, Chichester)

I would like to return to the issue of the Council for Financial Stability and address two questions that have already been raised. First, who is in charge of the council? May I summarise what I think I heard at the beginning, then perhaps Mr. Footman or Mr. Whittaker could tell me whether I have got it wrong? The FSA is to have a secondary role, the Bank of England is to have a full role, and the Chancellor is to have a lead role as the only elected politician. Have I got that right and, if not, could you correct me where I have not got it right?

Andrew Tyrie (Conservative, Chichester)

Which is what we are talking about here?

Andrew Tyrie (Conservative, Chichester)

So that is creating a hierarchy of responsibility in this committee, is it not?

Andrew Tyrie (Conservative, Chichester)

We understand that, it is just this question: there is this hierarchy, is there not? We have got somebody with a secondary role and we have got someone with a lead role. That sounds like a hierarchy to me. Are we happy to agree with that, or not?

Andrew Tyrie (Conservative, Chichester)

But he has a lead role—

Andrew Tyrie (Conservative, Chichester)

I think we would agree that it would be impossible to have somebody with a secondary role and somebody with a lead role, without arguing that some hierarchy has now been created between those characters.

Andrew Tyrie (Conservative, Chichester)

Thank you. Clearly, the word “hierarchy” is causing a lot of trouble. Why do I not replace it by saying that the relationship between these parties is not equal? Would you agree with that?

Andrew Tyrie (Conservative, Chichester)

Do you think it is possible for somebody in a secondary role and somebody in the same committee in a lead role to have equal roles?

Andrew Tyrie (Conservative, Chichester)

I am only quoting back what you quoted to us so, if you are confused, I am afraid it is only all of us who have been confused by your evidence.

Andrew Tyrie (Conservative, Chichester)

We know that, if I may say so. You have already said that, so we are aware of that. I am picking up two points that you have both given in evidence this afternoon. I am trying to relate the two of them and get a grip on how this body will work. I will give up on equality and hierarchy, since they both seem to be particular obstacles. Is the principle of a lead role for the Chancellor and a secondary role for the FSA set out anywhere in the draft statute?

Andrew Tyrie (Conservative, Chichester)

So how might we have been able to find out that important piece of information had it not been for a chance set of remarks in Committee this afternoon?

Andrew Tyrie (Conservative, Chichester)

Basically, what we now have is a committee with—although you do not like the word “hierarchy”—a clear line of different responsibilities between people, which puts someone in the lead and someone else in a secondary role, but that is not in the Bill. I will move on, but if I may say so, that sounds quite a mess.

Speaking of mess, I would like to come to the issue of powers and responsibilities in this feat. The Governor of the Bank set out, in front of this Committee, the current position on his statutory duties for financial stability. He said that he wanted to be absolutely crystal clear that we in Parliament understood that the Bank of England can do no more than publish reports or make speeches in fulfilment of its duty. He added that if we were content with that, that was fine by him, but what we cannot do would be to turn around afterwards and say, “But you had the statutory responsibility. Why did you not do something?” Is there any power given to the Bank of England in the Bill to try to deal with the Governor’s concern?

Andrew Tyrie (Conservative, Chichester)

Would the Governor tell me that those two new powers address his concern that powers and responsibilities are not aligned?

Andrew Tyrie (Conservative, Chichester)

Are powers and responsibilities now aligned to the satisfaction of the Bank of England under the Bill?

Andrew Tyrie (Conservative, Chichester)

No. My question is on the issue of fulfilment of your duty for delivering financial stability. In respect of your statutory duty to deliver financial stability, is the Bank now content that the powers and responsibilities, which were not aligned, are now aligned?

Andrew Tyrie (Conservative, Chichester)

So when the Governor comes before us on the next occasion in the Treasury Committee, on which I serve, we will ask him that question, and you are confident that he will say, “I am happy now; I am content.”

Andrew Tyrie (Conservative, Chichester)

He will say that he is not content?

Andrew Tyrie (Conservative, Chichester)

The Governor went on to agree that this whole area is “a mess” and, as a result, the Treasury Select Committee concluded:

“Where responsibility lies for strategic decisions and executive action was, and remains, a muddle...The biggest failures of the Tripartite’s handling of Northern Rock were that it was not clear who was in charge, and, because the Tripartite took a minimalist view of their respective responsibilities, necessary actions fell between three stools. We are not confident that this issue has yet been adequately resolved.”

Are you saying that these have now been adequately resolved, Mr. Footman?

Andrew Tyrie (Conservative, Chichester)

Thank you.

Lindsay Roy (Labour, Glenrothes)

I cannot agree with the hon. Gentleman that we are talking about a chance set of remarks. They were made quite deliberately to highlight the issues. Whatever the relationship—whether it is a hierarchy or whether there is parity—it needs to be teased out further; it is a complex set-up. Can you summarise for me the key benchmarks by which we could gauge more effective working and success through the Council for Financial Stability? What key things would summarise that for us? Mention was made of openness. What else?

Lindsay Roy (Labour, Glenrothes)

Are there other things that you would add to that portfolio, in terms of success criteria?

Lindsay Roy (Labour, Glenrothes)

This may be somewhat ethereal, but operational confidence would be one of the factors.

Lindsay Roy (Labour, Glenrothes)

Thanks very much.

George Mudie (Labour, Leeds East)

You have made me a bit happier than the Minister did this morning. I was unsure of where we were, in terms of who was responsible for financial stability and in terms of the role of the Chancellor. It is clear that the Chancellor is chairing the body and will take the decisions but, from what I have heard this afternoon, if you would only admit it, Mr. Footman, the FSA is the body that we shall look to in the future for financial stability. The Bank has a very minor role. It would be better for you to admit that, because if the FSA gets it wrong, you are clear of all the problems. If you continue to sit in a meeting and say, “We are equal partners”, you are an equal partner without responsibility. You can only take the rap, but cannot do anything about things. Am I wrong?

George Mudie (Labour, Leeds East)

I am not sure where that leaves you.

George Mudie (Labour, Leeds East)

As I am being unkind to you—some would say that—let me deal with the FSA and consumer protection. You reckon that the new body is independent of the FSA. If there was a country, and we from this country appointed its board, set up its budget, appointed its staff and appointed a reviewer to determine how well it spent its money, would you call that country independent?

George Mudie (Labour, Leeds East)

I understand that. Let us take the education body; are you saying that it is independent of the FSA?

George Mudie (Labour, Leeds East)

You appoint its board.

George Mudie (Labour, Leeds East)

I heard what was said earlier. You appoint the board, you do the budget, you collect the body’s money—you charge it for collecting its money—you appoint the staff and you appoint someone to go in and review it, in terms of value for money. Do you think that anyone objectively reviewing that body could say that it is independent of the FSA?

George Mudie (Labour, Leeds East)

Sorry.

George Mudie (Labour, Leeds East)

So, the board will appoint the staff—all the staff.

George Mudie (Labour, Leeds East)

But the rest is okay.

George Mudie (Labour, Leeds East)

I mean, the rest of the things that I have said are as written in the Bill.

George Mudie (Labour, Leeds East)

How many years has the FSA been carrying out this role?

George Mudie (Labour, Leeds East)

So that is eight years. You reckon it will be about 15 years before you can decide whether you are improving. What would you say after eight years?

George Mudie (Labour, Leeds East)

Thank you.

Charles Walker (Conservative, Broxbourne)

If it was your choice, you would not call the body the Council for Financial Stability, would you? You have just told us that you cannot ensure financial stability. So why is it called the Council for Financial Stability? I am still struggling to see what you actually do, or hope to do.

Charles Walker (Conservative, Broxbourne)

Yes.

Charles Walker (Conservative, Broxbourne)

But it is called the Council for Financial Stability, is it not? You have said in your evidence that you cannot ensure financial stability, so why are we wasting energy on calling it the Council for Financial Stability? It sounds almost Soviet: “The Council for Financial Stability and Building Tractors”. Why are we giving it this title when clearly that is not its purpose?

Charles Walker (Conservative, Broxbourne)

But in practical terms, what are you going to do to try to ensure financial stability? Clearly, you need to be able to understand and identify the risk inherent in the financial instruments with which banks are trading. That is what caused the current financial crisis. It is no good saying, “Well, when we have another Northern Rock we’ll do things differently”, because Northern Rock was the fever that presaged the plague. By the time Northern Rock had gone, it was too late—the chain reaction had started. What are you going to do differently to ensure that we do not have financial institutions taking on huge amounts of risk that you do not, or did not, understand, and that they clearly did not understand?

Charles Walker (Conservative, Broxbourne)

To be fair, many economists were saying that there was an enormous trade imbalance between China and America, and that there probably were no acts of misconduct. We must not allow ourselves to think that these bankers were doing anything illegal. They were creating hugely complex, highly leveraged financial instruments, and failed to price risk. They did not understand what was being traded, and neither did the FSA. Surely, in future we need to understand how risk is being priced within major financial institutions. It is not a question of misconduct. If there is misconduct, you lock people up, of course; that is a failure of a firm’s compliance department. But the issue is all about not understanding where risk lies within financial institutions and the economy. How are you going to ensure that banks explain to you exactly what they are doing?

Colin Breed (Liberal Democrat, South East Cornwall)

Going back to the new intrusive and inquisitive role, will that include on-site inspections by teams going into banks’ head offices and branches, both in this country and abroad?

Colin Breed (Liberal Democrat, South East Cornwall)

So you are not going to have individual supervisors within large branches, and you are not going to rely only on a tick-box, desk-top assessment, but you are going to include on-site inspections by teams as and when required. Will you have the resources to do that?

Colin Breed (Liberal Democrat, South East Cornwall)

Are we, by implication, going to allow regulators from home countries to come into the UK, as the host country of their banks, to undertake regulatory and supervisory visits?

Colin Breed (Liberal Democrat, South East Cornwall)

Mr. Thomas, do you think that in the Bill, it might have been a good idea to bring together the current credit control, or consumer credit, aspects of the OFT into something more co-ordinated? We could leave everything with the FSA and the financial ombudsman, so that we did not have this split of responsibilities between the FSA and the OFT when it came to consumer issues.

Colin Breed (Liberal Democrat, South East Cornwall)

Do you think that the average consumer understands why the OFT operates one part of the banking package and the FSA is responsible for another part of it?

Colin Breed (Liberal Democrat, South East Cornwall)

They sometimes have more confidence before they get the answer about the regulators—let us put it that way.

Mr. Kuczynski, on the compensation side, do you think that the amounts of compensation that banks and financial institutions may pay out should be a charge against the bonus pot?

Colin Breed (Liberal Democrat, South East Cornwall)

I just asked for your opinion.

Colin Breed (Liberal Democrat, South East Cornwall)

You do not have a view.

Mark Todd (Labour, South Derbyshire)

Some of us sat through the Banking Bill, which gave the Bank a financial stability responsibility and led to the establishment of the Bank’s own financial stability committee. Does this Bill have any operational implications on that body and how it works?

Mark Todd (Labour, South Derbyshire)

Turning back to the education responsibility, a pilot has been run on providing generic financial information to consumers. The publicity indicates that the new body will have the task of rolling out such a service. Has a proper analysis been made of what the pathfinder pilot has achieved?

Mark Todd (Labour, South Derbyshire)

Okay—I will be disappointed.

Mark Hoban (Conservative, Fareham)

May I ask Mr. Whittaker a couple of questions about some of the powers that the FSA is getting under the Bill, and the new regulations to prohibit or require disclosure of short selling? You had what some would argue was quite a restrictive regime in place early in the financial crisis. What was wrong with the legal basis of those powers that requires a different set of powers now?

Mark Hoban (Conservative, Fareham)

It was not clear from the wording of the clause whether it was seeking powers to prohibit short selling in specific instances or by specific institutions.

Mark Hoban (Conservative, Fareham)

The other area, which we have managed to avoid commenting on so far today, is remuneration. Will you explain the powers to do with seeking to take over employment contracts?

Mark Hoban (Conservative, Fareham)

To be clear about it, if someone had an existing employment contract that was in breach of your code, you would not seek powers to tear up that contract, or does it relate only to future contracts?

Mark Hoban (Conservative, Fareham)

I want to pick up Mr. Footman on the concerns that he touched on in response to Mr. Tyrie’s questioning. You referred to the concerns that a bank has about the resolution and recovery plans set out in the Bill. Would you elaborate on those a little?

Mark Hoban (Conservative, Fareham)

Why have you not been given this power?

Joe Benton (Labour, Bootle)

Thank you. That brings us to the close of this session. On behalf of the Committee, I would like to thank you for your attendance today and for the manner in which you have answered the questions. Thank you very much.

Joe Benton (Labour, Bootle)

We will now take evidence from Which?, Age Concern, Citizens Advice and the Financial Services Consumer Panel. May I welcome our four witnesses? Would you mind introducing yourselves briefly?

Joe Benton (Labour, Bootle)

Thank you very much. We will begin with Mark Hoban.

Mark Hoban (Conservative, Fareham)

May I ask you all about the new collective proceedings powers set out in the Bill? Is the fact that we are relying on consumers to act collectively to enforce rights—if they have them—in financial services, which is the one of the most heavily regulated sectors in the UK economy, a sign that regulation has failed? I just get a sense that someone is not doing their job properly, and is relying on the courts and on consumers to do the job on their behalf. Is it a sign of regulatory failure?

Mark Hoban (Conservative, Fareham)

Adam, you are chairman of the Financial Services Consumer Panel, and the Financial Services Bill seems to cover a wide range of topics. Is there something else that should be in the Bill to keep the FSA up to the mark so that we do not have to get consumers to take financial services providers to court?

Mark Hoban (Conservative, Fareham)

Peter, I understand that Citizens Advice is quite content to have either the opt-in or opt-out process, whereas Which? would rather have an opt-out process. Why are you agnostic on that?

Mark Todd (Labour, South Derbyshire)

May I turn to the financial education body that is being set up? Some—including me—have criticised the current activity of the FSA as being simply about shipping shedloads of material into various places, but without measuring in any way the effectiveness of the various actions that it is taking. Do you share that view?

Mark Todd (Labour, South Derbyshire)

When you say that the panel welcomes this new body, would not one of the critical determinants be the degree of independence it actually had? I do not know whether you were present for the discussion about the model of how the FSA related to this new body. Are you satisfied that it would be genuinely independent in its functions?

Mark Todd (Labour, South Derbyshire)

Which may indeed involve making quite robust statements about the quality of various services, which could in theory have some bearing on that broader financial stability. What about the Government’s model of the people who are on this new body being appointed by the FSA? It is not very clear who they might be or from what pool they might be drawn. I attempted to get the FSA to say a little bit more about whom they might be looking for to occupy these roles and got about as dead a bat as could be manufactured. Is there more that you could say about the kind of people that one ought to have on a body of this kind genuinely to guarantee its independence?

Mark Todd (Labour, South Derbyshire)

Yes, but there is another part of this, which is the word “education”. The material I have observed from the FSA delivered direct or through personal finance education on its behalf in the education field does not stand the test of mass pedagogic engagement. In other words, just getting people to use them as educational tools is way beyond them. They are materials best suited to reasonably well set up, well established and highly motivated people rather than for bulk activity. Would it not be useful to have people who have some genuine experience of delivering this as a service, perhaps to the unwilling, certainly the ignorant, rather than some idealised consumer?

Mark Todd (Labour, South Derbyshire)

May I give a concrete example? The FSA distributes a great tome on financial products to expectant mothers and seeks to educate them on that. I cannot believe that such a tome is of huge value to most people who receive it, other than as a way of propping open a door. From your positive remarks, you presumably hold such products in higher esteem than I do.

Mark Todd (Labour, South Derbyshire)

Finally, if you look at the FSA reporting of that particular area of activity, you will see that it shows huge numbers of various achievements, as in, “We have reached x number.” On Second Reading, I quoted an example in which there was a figure of the number of children who had been reached by FSA materials of some kind or another, which appeared simply to multiply the number of pupils by the number of schools on its list. Does there not have to be a sharper or more rigorous engagement with the qualitative impact of what these bits of paper and often expensive teaching materials are actually achieving?

Mark Todd (Labour, South Derbyshire)

Just to nail that down, the FSA representative was going to write to us about what the large pathfinder pilot on generic advice had been shown to have achieved, but you may be able to tell us that yourselves.

Colin Breed (Liberal Democrat, South East Cornwall)

May we turn to the provisions of clause 27, which is all about these credit card cheques and such? It seems quite sensible because there has been some problem. Is it or was it a serious problem? If so, is it now being properly addressed with the provisions that are contained in the clause?

Colin Breed (Liberal Democrat, South East Cornwall)

Was that including cheques?

Colin Breed (Liberal Democrat, South East Cornwall)

So it was a serious problem and you are happy that the provisions in clause 27 will go as far as you would wish?

Colin Breed (Liberal Democrat, South East Cornwall)

You would not suggest banning them altogether?

Colin Breed (Liberal Democrat, South East Cornwall)

Let me get this right. You would quite like a provision within the Bill which not only banned the unsolicited issue of credit card cheques, but unsolicited increases in credit card limits?

Colin Breed (Liberal Democrat, South East Cornwall)

I have failed singularly with all the other witnesses today, so you are my last hope. Do you think that there should be some provision within the Bill to do away with the anomaly of the Office of Fair Trading looking after some aspects of consumer credit, such as consumers’ concerns with their bank and so on, and the FSA looking after other bits? Would it not make some sense to take away from the OFT the bit that it looks after and give it all to the FSA, so that it is all with the FSA and everybody can be happy that that regulator looks after everything?

Colin Breed (Liberal Democrat, South East Cornwall)

Might I get half a vote here?

Colin Breed (Liberal Democrat, South East Cornwall)

But it would be sensible for it to be in one place.

Colin Breed (Liberal Democrat, South East Cornwall)

So is it a bit disappointing that that is not tackled in the Bill?

Colin Breed (Liberal Democrat, South East Cornwall)

But the FSA must treat customers fairly, so it is already into fairness.

Colin Breed (Liberal Democrat, South East Cornwall)

But it is not a completely impossible legislative hurdle.

Colin Breed (Liberal Democrat, South East Cornwall)

It just has to be pointed out that you have to ensure that you do not lose anything in bringing it together.

The rest of the debate is in Hansard.