Financial Services Bill

Public Bill Committee, 6 March 2012.

Clause 5 - The new Regulators

Mark Durkan (Social Democratic and Labour Party, Foyle)

I beg to move amendment 136, in clause 5, page 21, line 17, at end insert—

‘(c) persons who issue financial instruments,

(d) sponsors, as defined in section 88(2),

(e) primary information providers, as defined in section 89P(2).’.

Edward Leigh (Conservative, Gainsborough)

With this it will be convenient to discuss the following:

Amendment 47, in clause 5, page 21, line 20, at end insert—

‘(6) In making the appointments, the FCA must have regard to the desirability of ensuring the representation of practitioners carrying on a range of regulated activities.’.

Amendment 137, in clause 5, page 21, line 20, at end insert—

‘(6) In making the appointments, the FCA must have regard to the desirability of ensuring the representation of practitioners carrying on a range of regulated activities.

(7) The Panel must in particular include representatives of—

(a) smaller businesses, and

(b) practitioners who are likely to be affected by the exercise by the FCA of its functions relating to markets, including its functions under sections 6, 8A and 18.’.

Amendment 138, in clause 5, page 21, line 21, leave out from beginning to end of line 26 on page 22.

Amendment 132, in clause 5, page 22, line 17, after ‘persons’, insert ‘across the United Kingdom’.

Amendment 133, in clause 5, page 22, line 18, after ‘appropriate’, insert

‘, with consideration for diversity in the composition of the panel’.

Amendment 134, in clause 5, page 22, line 36, after ‘consumers’, insert

‘in all parts of the United Kingdom’.

Amendment 135, in clause 5, page 22, line 37, after ‘appropriate’, insert

‘, with due consideration for diversity in the composition of the panel’.

Amendment 46, in clause 5, page 22, line 37, at end insert

‘in making the appointments, the FCA must have regard to the desirability of ensuring the representation of consumers of a range of financial products from across all parts of the United Kingdom and from a range of income levels.’.

Amendment 45, in clause 5, page 23, line 4, leave out from ‘must’ to ‘responses’ in line 5 and insert ‘publish’.

Amendment 59, in clause 5, page 27, line 6, at end insert ‘and consumers’.

Amendment 60, in clause 5, page 27, line 9, after ‘consulting’, insert ‘consumers and’.

Amendment 74, in clause 5, page 27, line 10, after ‘persons’, insert ‘or the public’.

Amendment 61, in clause 5, page 27, line 12, after ‘2G’, insert—

‘(1A) When undertaking a consultation, the PRA must have regard to the desirability of ensuring a broad representation of practitioners and consumers in the UK financial services sector.’.

Amendment 62, in clause 5, page 27, line 13, leave out from ‘arrangements’ to end of line 14 and insert

‘must include the maintenance and consultation of those panels established under sections 1N, 1O, 1P and 1Q’.

Amendment 63, in clause 5, page 27, line 16, after ‘section’, insert

‘and must report annually on its consultation activities.’.

Amendment 83, in clause 5, page 27, line 19, at end insert

‘and by the Consumer Panel’.

Amendment 129, in clause 5, page 27, line 19, at end insert—

‘(1A) Unless the PRA has established a panel as provided for in section 2K(2) to reflect consumer interests, it must consider representations from the Consumer Panel established under section 1Q where such representations relate to the PRA’s general policies and practices, the co-ordination of the exercise of PRA and FCA functions as provided for in section 3D(1), or the exercise of the PRA power in section 3I.’.

Mark Durkan (Social Democratic and Labour Party, Foyle)

It is a pleasure to serve under your chairmanship this morning, Mr Leigh.

Effectively, amendments 136 to 138 form a suite of probing amendments, and we will see whether we receive clarification in Committee. They give us the possibility of achieving something that the Minister says he wants, which is to restrain the size and complexity of the Bill in relation to all the different bodies and the confusing arrangements. The amendments create the possibility of having a single practitioner panel, just as there will be a single consumer panel, but would ensure that that panel can take account of all the market issues and of the needs of small business practitioners.

That suite of amendments aims to replace the three different practitioner panels. During its pre-legislative scrutiny, the Joint Committee was told that such panels are a hangover from previous arrangements. Many people believe that they give rise to the risk of regulator capture, and to lots of confusion between different areas of the market and in regulatory relationships with different practitioner interests. The consumer interest is represented by a singular panel, the consumer panel, but the Minister told us in previous sittings that all sorts of people can be consumers—they can come in many shapes and forms—and that those who some of us regard as practitioners could, for certain purposes, be regarded as consumers.

There is potential clutter and confusion in the Bill, but the amendments provide the possibility of having a single business and practitioner panel to match the single consumer panel. They would ensure that the diverse interests that the different panels are meant to cover are dealt with by one strong singular panel. Other amendments would make sure that that panel’s composition takes full account of diversity, including geographic spread and the geographic differential of markets.

Some amendments that I have tabled, including amendments 132 to 135, relate to the Bill as it stands, with its provision for the different panels—the practitioner panel, the smaller business practitioner panel and the markets practitioner panel. Those amendments aim to ensure that certain issues, such as diversity and the geographic differential of market experiences and access, are at least considered during the formation of such panels. If we are to have those three different panels, which some people believe are an over-provision, at least there should be room for making sure that issues of diversity and market differential are taken into account. That could be one justification for having such different panels.

Amendments 59 and 60 would ensure that consumer interests are duly and specifically reflected, because, as I said in a previous sitting, if the provision in the Bill is the new regulatory bucket, it has several consumer holes, which the amendments are aimed at plugging. The intention is to give confidence to consumers that the regulators will not always be driven by the interests of practitioners, but will pay due regard to consumers. By front-loading that in the Bill, we would assure people that Parliament has active and due regard for the interests and needs of consumers, and that we did not just take it for granted that someone out there will always be inspired to take such matters into account.

Chris Leslie (Labour, Nottingham East)

May I say what a pleasure it is to continue to serve under your chairmanship, Mr Leigh. I thank my hon. Friend the Member for Foyle for tabling his amendments, which have been grouped with others that relate to the strength of the Government’s proposition in designing the practitioner panels properly to catch the right range of practitioners and to ensure that we have the right degree of consultation at the right time, with the right set of persons and corporate bodies.

The amendments are crucial because we want a regulatory system that is not aloof or remote from the real economy and from the concerns of consumers, never mind the firms being supervised. We must ensure that we have regulators who are in tune with the needs and the experiences of those working on the front line. That is why we have supplemented the important amendments tabled by my hon. Friend with a series of other amendments to make that point in more detail.

Amendment 47, for example, relates to the practitioner panel set up as part of the FCA’s consultative arrangements. Although we welcome the fact that there is to be a practitioner panel, we are not satisfied that practitioners carrying on a range of regulated activities will necessarily be properly represented in the appointments made to it. As my hon. Friend said, we need to ensure that the banking sector does not overly dominate the arrangements and that there is a voice for the insurance sector and the broad range of practitioners in professional and legal services who might be affected by the regulatory changes. Will the Minister explain how we can ensure that the practitioner panel will involve a range of such interests?

Amendment 46 has been drafted in a similar vein. Currently, under the Bill, the FCA can appoint to the consumer panel

“such consumers, or persons representing the interests of consumers, as it considers appropriate”,

It is for the FCA to decide which consumers it appoints. I have two anxieties about the provision. First, historically, public appointments such as these tend to be dominated by people in the south-east and London areas. Practitioner panels frequently meet in the capital, so those responsible are less disposed to appoint people who come from other parts of the United Kingdom. Consumers in Yorkshire, Scotland, Northern Ireland, Wales or elsewhere might have very different experiences. It is important to have an eye to diversity when considering which consumers might be relevant to panels, but we should also try to get a mix of people that is as broadly representative as possible of the whole United Kingdom.

Another crucial ingredient is missing from the provision: people with a range of income levels should be represented on the panels. Consumer bodies and representative organisations can do a good job of advocating the interests of lower-income consumers, but it is sometimes important to hear the actual voices of those who have faced difficulties in getting credit or have faced bureaucracy with organisations that do not always treat people in such circumstances as prized customers—

Edward Leigh (Conservative, Gainsborough)

Order. Mr Leslie, I like your speeches very much, so would you speak to me, otherwise I might miss a pearl of wisdom?

Chris Leslie (Labour, Nottingham East)

I will endeavour to face the Chair, Mr Leigh. The purpose of amendment 46 is to ensure that all consumer groups are properly represented, particularly those from income levels that might be affected significantly by regulatory change.

Amendment 45 relates to the FCA’s duty to publish responses to representations made to the various panels. In an interesting drafting anomaly, the Bill states that the FCA must

“from time to time publish in such manner as it thinks fit responses to the representations.”

The subsection is fairly redundant, because although it requires the FCA to publish representations, it caveats that requirement with the phrases “from time to time” and “as it thinks fit”, which negates the provision’s purpose. To make such publishing a requirement, we want to delete those caveats. Doing so would not be onerous and would be an important part of the transparency process. The Government are under considerable pressure from their own Members on the Treasury Committee regarding publishing the FCA’s minutes. I hope that, in his torment about how to resolve such matters, the Minister is thinking about relenting on that point. Amendment 45 proposes another important aspect of transparency.

Amendments 59 and 60, 74, 61 to 63, 83 and 129 relate to the Prudential Regulation Authority’s engagement with industry and consumers, and having an annual disclosure of such consultations. This is another crucial part of the Bill. We have discussed the panels that the FCA must establish and maintain, but the PRA is far less engaged with practitioners, consumers and those working in the real economy, because no similar consultation duties are required of it.

The pre-legislative scrutiny Committee spent many days and hours considering the Bill and thoughtfully came to a set of recommendations. It was worried about how the PRA would undertake its own consultation arrangements and that it did not have the same obligations as the FCA. Many outside bodies, such as the Association of British Insurers and other representative organisations, have voiced such concerns. The Bill does not include such responsibilities on the PRA to consider representations, even though the PRA has, in some ways, direct responsibility for product regulation, particularly in relation to with-profits policies and so on. At the very least, we need to know more about how the PRA will approach its consultative exercises. The Bill does not include such arrangements, and we think that the PRA’s duty to consult needs to be strengthened to provide proper safeguards for regulated persons and practitioners. Those are the arguments in favour of this considerable group of amendments. I hope that is helpful to the Minister.

Mark Hoban (Conservative, Fareham)

It is a pleasure, Mr Leigh, to serve again under your chairmanship.

These amendments all relate to how regulators engage and consult with others. The consultation arrangements in the Bill have been the product of careful thought and engagement over three rounds of public consultation, as well as having the input of the Treasury Committee and the pre-legislative scrutiny Committee. It is in the FCA’s best interests to ensure that panels are able to provide the best possible advice. As part of that, it will need to ensure that panel members have a diverse mix of experience and skills and can represent a range of perspectives. We should also ensure that the panels are not so large as to become unwieldy and ineffectual.

Amendments 46 and 47 and 132 to 135 are aimed at ensuring diversity in the composition of panels and ensuring that they represent a broad range of constituents. I have no problem at all with the intention of the amendments; it is important that the panels are diverse and are able to represent a wide range of views. I am not, however, sure that the amendments are necessary. They could undermine the effectiveness of the panels’ advisory role.

I am confident that the FCA will ensure that panels have the right mix of skills, experience and perspectives to ensure that they can properly perform their advisory role. If one looks currently at the panels on the practitioner side, yes, they include representatives from insurance and retail banking, but they also include representatives from building societies, asset management, exchanges, clearing houses, financial advisers, professional services and accountancy. The current composition of the panels provides us with the confidence needed that the Financial Services Authority now, and the FCA in the future, will be able to put together panels that reflect the wide range of services on offer.

Sheila Gilmore (Labour, Edinburgh East)

The Minister is suggesting that these things will be attended to, but what form of accountability is there if it turns out that the new organisation does not have such a wide range of people? Would it not be better for this to be outlined from the beginning?

Mark Hoban (Conservative, Fareham)

We could put all sorts of things in the Bill, but one should look at what is happening currently and how the FSA responds to the need to ensure that there is diversity and a range of experiences. For the regulators to retain the consent and support of the regulated firms, it is important that they ensure that the consultation arrangements in place are appropriate and gather a wide range of views. It is in the self-interest of the regulators to ensure that these practitioner panels are broad-based, because failing to do so would suggest that the regulator is not interested in consultation. There is public accountability for that through the annual report to both the FCA and the PRA.

On the risk of making the panels so large as to be unwieldy, if we were to follow the line of the amendments that every part of the United Kingdom, all income levels and consumers of a range of financial products should be represented, there would be a risk that the consumer panel would become so large and unwieldy that it could not operate effectively. We need to ensure that it operates effectively, which will require it to have people who represent a broad range of views, rather than simply a narrow sectional interest, and the FCA must bear that in mind in identifying people to serve on the panels.

It is slightly peculiar that the hon. Member for Foyle has tabled amendments not only to expand the number of people on panels but to reduce the number of panels—to one on the practitioner side—which would be the effect of amendments 136 to 138. That would be a backward step that would undermine effective consultation. The FSA created a non-statutory smaller business practitioner panel, because it found that the needs of smaller businesses, such as independent financial advisers, could not be represented effectively in the practitioner panel. The smaller business practitioner panel has long sought to be established on a statutory footing, which the Government have agreed to. That decision has been widely welcomed, as has the proposal for a new markets practitioner panel, which also flowed from the consultation. If we removed the provision for those panels, we would lose the advice of focused forums. If only the practitioner panel represents the interests of smaller businesses and market practitioners, the risk is that the practitioner panel would become excessively large and unwieldy.

On amendment 45, proposed new section 1L of the Financial Services and Markets Act 2000 will require the FCA to publish responses to representations made under new section 1M, including representations from the panels and any of the consumers and firms, or their representatives, consulted under that new section. That duty is already significantly broader than the equivalent duty under FSMA, which required the FSA to respond only if it did not agree with the proposals or views of the panels, and which did not require it to publish such responses. The FCA should not be required to publish responses to each and every representation as and when it is received; it should be able, for example, to wait until a period of consultation is over and to opt to provide a collective response. In its response to our White Paper, the consumer panel stated that

“the wording of section 1L is a sound foundation for such input to the FCA”.

I therefore encourage hon. Members not to persist with amendments relating to the FCA that are unnecessary.

Some of amendments 59 to 63, 74, 83 and 129 would require the PRA to put in place specific new arrangements for consulting consumers and the public, while others would require it to maintain a practitioner panel or consult the FCA’s panel. It is not appropriate to require the PRA to put in place additional arrangements for seeking detailed advice from consumers and their representatives. It is already required to carry out a public consultation when making rules, and to run an annual consultation, which is open to the public, about the effectiveness of its strategy over each year.

The PRA’s policies will focus principally on firm resilience, covering issues such as capital, liquidity and leverage. Its supervisory interventions will be informed by forward-looking assessments of prudential risk, on which consumers and their representatives are not best placed to provide detailed advice. The PRA will consult the FCA when its prudential decisions may impact on consumers, potentially affecting the FCA’s ability to achieve its objective, and that consultation is required by the general duty to co-ordinate.

The Joint Committee agreed with the Government that it would not be appropriate to require the PRA to have a practitioner panel. We should bear in mind that the FSA’s panel structure was devised to support the regulator in looking at many firms across the whole sector, whereas the PRA will look in detail at a limited number of firms and will focus solely on prudential risk. The PRA will look to expert practitioners to offer technical and detailed feedback on different ways to achieve its aims. Arrangements must be flexible, and it is not therefore appropriate to have a requirement for “broad representation”. For example, the PRA might want to establish a narrow sectoral working group to consider a particular issue. It would not be helpful for consultative arrangements to be shared between the PRA and FCA. The FCA panels will be constituted to provide advice on FCA issues, and will not have the right balance, background or expertise to give advice on PRA issues. Amendment 63 would require the PRA to report annually on its consultation, but I reassure members of the Committee that the PRA is already required to include that as part of its annual report.

To conclude, I recognise the importance of consultation and engagement. It is right that we have arrangements that are fit for purpose, reflecting the priorities and range of the regulatory bodies. The arrangements in place for the FCA, with its three industry panels, the consumer panel and the more flexible set of arrangements for the PRA strike the right balance and ensure that regulators can consult and engage when appropriate and that voices can be heard when decisions do count and have an impact on businesses or consumers.

Sheila Gilmore (Labour, Edinburgh East)

In relation to the PRA, although the Bill provides for widespread or general consultation, without specifying exactly how that should be carried out, such consultation could in many circumstances be either not very widespread or not in the detail that is required. It is easy for organisations of all sorts, including Departments, to invite people to respond to a consultation through a website. Given the issues involved, however, the public, consumers or even consumer organisations might be better able to comment and engage through a consumer panel or practitioner panel that met often and developed its own understanding and expertise, than through an ad hoc response that merely satisfied the requirement for consultation. Consumer interests must be allowed to develop the ability to comment intelligently, to understand fully the implications of what is proposed and how the PRA is operating, and to stand up for consumers’ interests in a way that is important and that enables them to be a force in such matters. Simply to say that there will be a duty to consult could result in consultation that is superficial, that is not particularly meaningful and that will not give the consumer the voice in the process for which we had hoped.

The same applies to certain aspects of the work of practitioners, who could give the PRA the challenge and the necessary support at times, as well as information from their experience that would enable better regulation. After all, the Bill should be about better regulation based on the experience of those who work in the field and of consumers, who will be directly affected.

It would be beneficial for the PRA to set up such bodies or, if not, to make use of those that exist. I can understand the Minister’s argument that it might not be entirely satisfactory to share the panels, because they will be monitoring different matters, but the answer to that is not to say that there should be no panels, but for the PRA to set up its own panels.

Mark Durkan (Social Democratic and Labour Party, Foyle)

I am somewhat disappointed, albeit not entirely surprised by some of the Minister’s arguments. As for what he said about amendments 136 to 138, he might not have heard me say when introducing them that they were tabled as probing amendments precisely to flush out the Government’s justification for three different practitioner panels and only one consumer panel. He argued that three practitioner panels must be established because experience has shown that the different practitioner interests cannot be properly represented in one large panel. We are being told, however, that the very different and wide-ranging consumer interests can be represented in such a panel. The imbalance seems odd. Diversity at the practitioner end can be specifically accommodated by bespoke panels, but diversity, range of perspective and interests at the consumer end cannot be accommodated even by the FCA’s having regard to diversity when forming the consumer panel.

The amendments are modest in requiring that the FCA have due regard to a range of consumer interest and diversity of experience and expectation, but perhaps that is too much to ask. Any little difficulties, frustrations or fears on the practitioner side will be covered by the bespoke panels, which themselves, as the Minister said, will ensure a range of diversity in the due spread of professional, vocational and other market interests. His argument therefore reinforces the glaring disparity between the treatment of and concern for consumers’ range of interests and needs, and those of practitioners.

Amendments 83 and 129 aim to deal with the neglect of consumer regard in the PRA’s functions. In rejecting the amendments, the Minister told us that the PRA does not need to have direct engagement with consumers. He also told us that the consumer panel will not be able to deal with PRA issues—he did not say that the membership might not be equipped, but that it will not be equipped or have the experience to deal with the PRA’s responsibilities. I have more confidence in the qualities of people appointed by the FCA to the consumer panel to be able to deal with PRA issues too. That is why amendment 83 would require the PRA to take account of representations made to it by the consumer panel in addition to those made by any other panel that it appoints under proposed new section 2K(2). The Bill provides that the PRA will have the power to appoint panels, but the Minister seems to be telling us that it will not need to appoint a consumer panel of its own. The amendment would therefore provide for the PRA to take representations from the consumer panel.

The Minister also rejects amendment 129, which is even more particular. I should have thought that the drafting takes account of some of his concerns. Unless the PRA had established its own panel under proposed new section 2K(2) with a brief to take account of consumer interests, the consumer panel appointed by the FCA could make representations to the PRA. That would be qualified, however—the panel could not make random fishing or all sorts of recommendations. Representations would be related only to the PRA’s general policies and practices and the co-ordination of the exercise of PRA and FCA functions as provided for in proposed new section 3D(1).

The Minister alluded to the co-ordination function between the FCA and the PRA in his response. It could well be that that co-ordination function relates quite heavily to some of the FCA’s work on consumer interests. It would be odd if consumers were told that they could only relate to the FCA on one side of that co-ordination duty and function, and not to the PRA, when under the rules on the co-ordination function it could be that the PRA is agreed to be the lead handler. If the PRA was in the lead in some regard of the co-ordination function, it would be odd if the PRA was not able to receive representations in that instance from the consumer panel appointed by the FCA.

The third specific qualification in amendment 129, for the consumer panel to be able to make representations to the PRA, is in relation to the exercise of the PRA power under proposed new section 3I, which gives power to the PRA to require the FCA to refrain from specified action. The new section gives the PRA override powers over the FCA. We are told that the FCA is the consumer-facing arm of regulation. If the FCA has undertaken action in response to consumer concerns and to uphold consumer rights, the PRA, under proposed new section 3I, has the right to tell the FCA to refrain from that or activity that might have implications for some of the FCA’s consumer supporting work. It seems strange that we would deliberately exclude from the Bill the possibility that the consumer panel would not have the right to make representations to the PRA about the implications of measures that the PRA is taking and restrictions that it is placing on the FCA. That is why, as I have said, some of the other amendments on going to one practitioner panel were probing amendments. I have already indicated that I will not be pressing those to a vote.

We have made the point on the need for wider diversity in other panels, reflected in amendments 132 to 135, on other clauses. I do not intend to press those to a vote either. There are other amendments in this group that we could usefully divide on, including amendment 62. Amendment 129, however, meets some of the Minister’s concerns about going too wide in providing for consumer representation or engagement with the PRA with well qualified justification that references specific provisions elsewhere in the Bill, so I intend to press it to a vote, if needs be.

Chris Leslie (Labour, Nottingham East)

It is difficult, when debating the number of amendments that have been put in the group, to properly capture the array of issues that need to be tested. If we divided the Committee on every amendment in the group, we would be here for a considerable period of time. I am conscious that we have to make some progress.

Mark Hoban (Conservative, Fareham)

Take as long as you want.

Chris Leslie (Labour, Nottingham East)

In that case, perhaps we should divide the Committee on more of the amendments. The Minister is taking a rather bizarre approach. We should consider reviewing the programme motion at some point, to see whether we can find some more time to debate the Bill.

Mark Hoban (Conservative, Fareham)

I would be happy, with the agreement of the Opposition, to start sitting at 8.55 on a Thursday morning. That would give the Committee an extra half hour, which would enable us to make more progress.

Chris Leslie (Labour, Nottingham East)

That is a useful offer, which is worth considering. Is the Minister prepared to meet next Tuesday, for example?

Mark Hoban (Conservative, Fareham)

The hon. Gentleman knows why we are not meeting next Tuesday: I am attending ECOFIN in the place of the Chancellor of the Exchequer. We have therefore agreed an extra sitting in the programme motion to ensure that we get this right. We are happy to sit later tonight, as the hon. Gentleman knows. I suggest that we sit a half hour earlier on Thursday mornings, to give an hour and a half for that sitting.

Chris Leslie (Labour, Nottingham East)

I am grateful to the Minister for his clarification. If he does not wish to attend on Tuesday, the Whip and plenty of other Government Members could advocate the Bill, or it would be perfectly possible, if he so wished, to send one of his ministerial colleagues to a meeting elsewhere. We feel that the Bill is very important and needs consideration—[ Interruption. ] Perhaps we should talk about that matter at another time. However, I digress, because we should address the amendments. I was making the point that, for the efficient transaction of the Committee’s business today, we will not want to test every single amendment, some of which are probing amendments, while others involve important points of principle.

The representations from the Financial Services Practitioner Panel—the current practitioner panel for the FSA—are extremely serious and should be properly considered. It has stated that it is

“concerned that some of the people who know best how to analyse whether new regulatory policies will be effective, are potentially being sidelined in key aspects of the new system.”

Its three particular concerns about the Bill are that

“The duty to consult the Practitioner Panel and indeed other Panels for the FCA is being weakened;…There is no statutory duty for the PRA to set up a Practitioner Panel or other Panels;…The new Markets Panel for the FCA needs to have a responsibility to engage on markets regulation aspects in the Bank, as well as the FCA.”

The key concern—amendment 62 is an exemplar of the issues that are most at stake—relates to the need for some sort of obligation on the PRA to have more formal consultation mechanisms.

The Financial Services Practitioner Panel states that it would be possible to have consultation with the panel that will be set up under the auspices of the FCA. My hon. Friend the Member for Foyle said that he might press amendment 129 to a Division, and I am happy to support that as an efficient means to ensure that we do not have duplicative panels. The Minister has been careful to point out that if they had to encompass every aspect of consultation, the panels would become top-heavy, which we would not want. However, amendment 62 would ensure that the panel to be set up under the FCA could also be used as a consultative device for the PRA, which seems a perfectly possible arrangement.

By not persisting with the amendments, other than amendments 62 and 129, we do not want in any way to send a signal that they are not important. I certainly want to test the Committee on amendment 62, and I think that my hon. Friend the Member for Foyle said that he would do so on amendment 129. Such tests will be useful proxies on very important principles.

Edward Leigh (Conservative, Gainsborough)

Mr Leslie and Mr Durkan have intimated that they wish to have votes on amendments 62 and 129, but we will take those Divisions later—do not worry—when we come to the right place in the Bill.

Mark Durkan (Social Democratic and Labour Party, Foyle)

I beg to ask leave to withdraw the amendment.

Chris Leslie (Labour, Nottingham East)

I beg to move amendment 57, in clause 5, page 24, line 27, at end insert—

‘(a) The PRA must, so far as is compatible with its general and insurance objectives, discharge its general functions in a way which promotes competition’.

Edward Leigh (Conservative, Gainsborough)

With this it will be convenient to discuss amendment 58, in clause 5, page 24, line 34, at end insert—

‘(c) seeking to minimise, as far as possible, the costs to the FSCS or the use of public funds to support or rescue parts of the UK financial services industry’.

Chris Leslie (Labour, Nottingham East)

Amendment 57 relates to a change suggested by the pre-legislative scrutiny Committee. Its report stated:

“Competition within the financial sector is an important part of developing a stronger, more diverse system. The actions of the PRA have the potential to affect the costs of individual firms or of particular types of institution, and affect the barriers to entry and expansion in the market.”

That is important. The Committee said,

“we believe it is a factor that ought to be considered in the course of PRA decision making.”

There was dialogue with the Treasury on that point.

As the Minister may tell us, the Government responded by pointing to other competition scrutiny powers elsewhere in the Bill, but I am not entirely clear that they will have sufficient strength to ensure that the PRA has regard to the competition consequences of some of its decisions. Therefore, inserting the proposed requirement would be an important principle.

Which?—the consumer association—made a similar set of points, suggesting that the PRA

“should have a specific duty to promote competition. This would help support its focus on not preserving the status quo or existing institutions.”

Which?also makes the important point that it wants to create a market in which there is a realistic prospect of a firm being able to fail safely, rather than have moral hazard built permanently into the system. Which?believes that is

“vital to allow market discipline to drive firms to make informed and balanced commercial decisions that affect their solvency. It would also ensure that the PRA does not impose excessive barriers on new entrants.”

That is a fairly straightforward set of recommendations on the need to promote competition that external bodies submitted to the pre-legislative scrutiny Committee.

Amendment 58 is slightly different. It refers to the need for the PRA to have the objective of reducing the potential costs of failure. Earlier, we debated the extent to which the Financial Policy Committee should have regard to public funds, but the amendment would make it specifically a duty for the PRA. The point came up in the deliberations of the pre-legislative scrutiny Committee, which noted:

“In order to align its objectives with its own activities and with international best practice, the Bill should explicitly give the PRA a microprudential objective alongside its concern with avoiding risks to the whole system.”

The Committee said there should be a secondary objective: to reduce the potential costs of failure to the Financial Services Compensation Scheme, the taxpayer and customers. Neither objective, the Committee said, would require the PRA to be a “zero failure regulator”. The second objective would mean

“ensuring firms comply with rules on for example, capital adequacy, solvency and liquidity that will reduce but not eliminate the likelihood of failure.”

The Government responded to that PLS suggestion by saying that they understood it, but that on balance they believed it was more appropriate to frame the PRA’s objectives more broadly.

It is important to recognise that the FSCS insurance arrangements are not moneys that can be drawn from thin air; they are levies that hit practitioners in various affected sectors. We need to ensure that we take care of risks of failure not only on the taxpayer fund, but also on funds that might eventually need to be paid from the FSCS. It is not unreasonable to have minimal recourse to FSCS funds as far as possible, so our proposal would be a proportionate way of inserting those considerations in the Bill.

The amendments cover slightly different aspects. One relates to the need to promote competition and the other to reducing the potential costs of failure where they fall. I hope they are fairly self-explanatory.

Mark Hoban (Conservative, Fareham)

Let me set out why the Government have framed the general objectives of the PRA in such a way, and why I believe that it will be an important step in improving the stability of the UK’s financial system, as a way of providing a backdrop to the two amendments. The FSA was required to balance multiple competing objectives, which led to a lack of institutional focus on prudential matters.

To avoid that previous mistake, we have decided that the PRA should have a single general objective, against which it can be held to account by Parliament and the public. That will be supplemented by tailored, focused objectives that are specific to particular regulated activities, such as the insurance objective under proposed new section 2C. The Government have built in flexibility for adding more objectives, but only if the PRA’s scope were extended. The objective gives the PRA a clear mandate to intervene to ensure that firms address possible prudential and systemic risks for the benefit of all, while ensuring that firms are also prepared for their own orderly failure if they run into difficulty.

Respondents to the consultation on the reforms broadly supported the move to more focused regulators and the proposed PRA objective. The amendments relate to proposed new section 2B to establish the PRA’s general objective, which is the promotion of the safety and soundness of PRA-authorised funds. The primary means by which the PRA is to advance that objective is by seeking to ensure that the way in which the business of PRA-authorised persons is carried on avoids an adverse impact on the UK financial system and, by seeking to ensure that, if a PRA-authorised person fails, that failure occurs in as orderly a manner as possible.

As for amendment 57, the Government are committed to ensuring that consideration of competition is a key feature in the new system of financial services regulation. Therefore, we have given the FCA a competition objective and the power to initiate enhanced referrals to the Office of Fair Trading. The proposed amendment would give the PRA an additional duty to promote competition, but all PRA-authorised firms will also be regulated by the FCA and will fall under the FCA’s objective to promote effective competition in the interests of consumers. Thus, giving the PRA a role in competition as proposed would risk diluting its focus on key prudential matters and cause confusing overlap with the responsibilities of the FCA.

Let me remind the Committee that, in his evidence to the pre-legislative scrutiny Committee, Sir John Vickers, the head of the Independent Commission on Banking, which was responsible for considering the place of competition in banking, argued that there was no place for a PRA competition objective under the new system of regulation. That is not to say that the PRA will actively work against competition in the UK financial services industry. The general duty to co-ordinate requires the FCA and the PRA to consult each other to avoid taking steps that will harm each other’s objectives, and that includes the FCA’s competition objective.

We have retained arrangements for the OFT’s competition scrutiny of both the PRA and the FCA. That will include oversight of the PRA’s rules. The OFT will have its own information-gathering powers; it will have the power to give advice to the PRA, make recommendations that require a response from the regulators and, if the OFT deems it necessary, it can call on the Treasury’s backstop power of direction if it were not satisfied with the regulator’s response to an OFT recommendation. The arrangements will ensure that competition will be considered to an appropriate extent by the PRA.

The Government’s view is that, in the new framework, the FCA and the OFT are the best-placed regulators to recognise and safeguard the importance of competition, leaving the PRA as the prudential regulator focused on the safety and soundness of firms with the potential to impact the stability of the UK financial system. I hope that the hon. Gentleman will appreciate why I do not consider it appropriate for the PRA to be given a competition objective.

Amendment 58 is old ground, which we went over when we debated the FPC. Let me reiterate the fact that we recognise the importance of the need to protect taxpayer money when there are problems in the financial system. Indeed, it is one of the reasons why the Government set up the Independent Commission on Banking in 2010 and tasked it with identifying effective options to reduce risks to the public purse arising from the position as a global financial centre. By implementing the ICB’s recommendations, we will ensure that British banks are better able to withstand losses and, if a bank gets into trouble, it can fail in a way that protects vital banking services without the use of public funds.

I emphasise that the primary reason why the Government would use public funds to support or rescue financial services firms is to avoid the risk of disorderly failure. The PRA is tasked with avoiding such risk, so in advancing its objective, it will automatically have a clear aim that overlaps with reducing the potential for public funds to be called on. Under the new regulatory system, if there is a material risk of circumstances in which public funds might be needed, the Bank is under a statutory duty to notify the Treasury. Effectively, from that point, ultimate responsibility for the situation—including any use of public funds—passes to the Chancellor. However, as I said in relation to the FPC, giving the PRA an explicit duty to minimise the use of public funds would risk diluting and undermining the principle that it is ultimately the Government’s responsibility to protect those funds, and the Government are accountable to Parliament for that.

The arguments against giving the PRA such a duty are even stronger than those relating to the FPC. The PRA is a micro-prudential regulator of particular financial firms. Although that is a key function, we cannot argue—as hon. Members tried to do in relation to the Bank and the FPC—that the PRA is a key part of the macro-economic policy apparatus of the UK economy. The argument for giving the PRA the objective in the amendment is therefore even less compelling than it was in relation to the FPC.

To summarise, introducing an explicit public funds element into the PRA’s responsibilities would risk diluting its focus, blurring lines of responsibility and creating muddled accountability. Although I agree about the importance of minimising the use of public funds to rescue parts of the UK financial services industry, I hope I have explained clearly why I cannot accept the blurring of responsibilities that amendment 58 would cause. I hope that the hon. Gentleman will withdraw the amendment.

Chris Leslie (Labour, Nottingham East)

I do not wish to detain the Committee any longer than is necessary. I disagree with the Minister about the protections that could be introduced in the Bill for taxpayers’ funds. I was going to intervene on him specifically about protections that might be necessary for the Financial Services Compensation Scheme element, because those are slightly different from protections for the taxpayer fund, but I think he got the gist of our point. The matters relating to the amendments are important, but I have had the opportunity to air them. Even though we feel strongly about the amendments, for brevity, I shall be happy not to press them. Perhaps we will return to them at another time. I beg to ask leave to withdraw the amendment.

Chris Leslie (Labour, Nottingham East)

I beg to move amendment 75, in clause 5, page 27, line 26, at end insert

‘and shall inform the Treasury Select Committee of the House of Commons of the nature of and arrangements for the review.’.

I shall be brief. This is a small amendment to proposed new section 2M(1), where there is a provision to allow the Treasury to appoint a

“person to conduct a review of the economy, efficiency and effectiveness with which the PRA has used its resources in discharging its functions.”

The amendment would mean that when that happens, the Treasury would inform the Treasury Committee of the nature of and arrangements for that review. If the Treasury has concerns about the PRA’s operation, it needs to find a way to flag that up more publicly. As a responsible organisation, the PRA has a heavy responsibility on its shoulders. If the Treasury has doubts about whether it is fulfilling some of those functions in the right way, those concerns need to be flagged up to the Treasury Committee. We felt that an amendment was necessary to facilitate that.

Mark Hoban (Conservative, Fareham)

These are new powers. Proposed new section 2M(5) already requires the Treasury to lay a copy of the report before Parliament. That means that the Treasury Committee will get to see a copy of the report and if it is not happy with the terms, or if a review has not been commissioned at all, Ministers are held to account by the Treasury Committee. Requiring the Treasury to inform the Treasury Committee of the nature of and arrangements for the review would simply add another bureaucratic complication, with little benefit in added transparency, given that it is already required to place a report before Parliament. I hope that that reassurance will be enough for the hon. Gentleman.

Chris Leslie (Labour, Nottingham East)

It is not quite enough, because the review’s report will be published after a period of investigation has taken place. The amendment seeks to say to the Treasury Committee at an early stage, “We have our concerns. This is our intuition and this is going on.” It can be a while before a review is concluded and a report is laid before Parliament. It is a moot point, I suppose. I am just concerned as to why the Treasury would want the power to undertake the review, but keep it quiet for so long. However, the point has been made, so I beg to ask leave to withdraw the amendment.

Chris Leslie (Labour, Nottingham East)

I beg to move amendment 65, in clause 5, page 29, line 23, at end insert

‘, including but not limited to, the UK Corporate Governance Code’.

I hope that there is general agreement across the House that better corporate governance standards are needed, particularly in the financial services sector. It is therefore welcome that the Bill includes a duty to follow principles of good governance. That important change has been at the centre of debate; some hon. Members have written books about the topic, so they may have something to say about it. The amendment, which is supported by the London stock exchange, for example, would ensure that reference is made to the UK corporate governance code.

The code was established in 1992 and has been supported by successive Governments. It was updated in 2010 to address issues raised by the financial crisis, with a renewed focus on ensuring that the spirit as well as the letter of the code is adhered to, a development which should be of interest to Committee members. With the establishment of a clear mechanism for corporate reporting and risk management, the principles of the code provide important guidance for the financial services industry, and it should therefore be referenced in legislation.

The Secretary of State for Energy and Climate Change, who was then an Under-Secretary of State for Business, Innovation and Skills, made a useful statement in support of the UK corporate governance code in October. He said:

“The Financial Reporting Council’s…Code sets out principles and best practice for good corporate governance”.

Citing the Financial Reporting Council, he also said that

“One of the key conclusions is that a company’s ability to understand and articulate its business model leads naturally to a better understanding of risk and how it should be prioritised.”—[Official Report, 18 October 2011; Vol. 533, c. 944W.]

The purpose of the amendment is to enshrine the code more formally.

We have already expressed our concern, in relation to the Bill, about the different ways in which the FRC does not get a look in. There has been high-level and voluminous debate on particular concerns relating to responsible capitalism and crony capitalism and, as I have made clear, the amendment provides an important opportunity to enshrine a code that should have cross-party support in the Bill.

Mark Hoban (Conservative, Fareham)

It is important for the regulators to have a duty to follow the principles of good governance, which are currently enshrined in the UK corporate governance code. They should follow the relevant principles and I expect them to do so. Proposed new section 3C of FSMA is phrased to make it future-proof. Only two years ago, the UK corporate governance code was known as the combined code; in two years’ time the name might be changed to something completely different. There is therefore no merit in having in the Bill a name that could easily be changed. It is important to follow the principles, and the articulation of the objective in the Bill will ensure that the legislation is future-proof. The hon. Gentleman’s comments about adhering to the code are well made, but we do not need to name the code in the Bill.

Chris Leslie (Labour, Nottingham East)

The Minister has given a drafting rationale for not including a reference to the code. I do not think that it would be impossible to refer to the code in the Bill and to ensure that the FRC can still update the code without necessarily changing its title. After all, we will always have concerns about UK corporate governance, so there is likely always to be a need for some sort of code. To say that the name of the code might be changed is not a particularly strong argument, because that could be addressed. It is important to have a thread leading back from the rather ambiguous commitment to good governance in the proposed new section to the more specific set of practices and ideas that are set out in the code.

The Committee may well feel that they can support the principles of the code, which includes concepts about good leadership and the effectiveness of good corporate governance and accountability. The code has an interesting section on remuneration and how proportionate that should be, and an important section about relations with shareholders and the necessity for having mutual dialogue. Those crucial components should be on the shoulders of those being regulated and, therefore, factors in the minds of the regulators. We have other amendments elsewhere in the Bill relating to the stewardship code, which the Minister did not accept. In welcoming the particular change in proposed new section 3C, it is important to evolve it in a way that gives it more teeth. The public outside and the wider media have been poring over some of these considerations in great detail. We have talked about remuneration in the financial services sector for many months and yet when it comes to wanting to enshrine something in the Bill that might give the regulator a strong and firmer locus on this issue, the Minister steps back, and falls back into the vagaries of the language before us. It is a great pity that the Minister does want to do this, but it is something that should be tested, so I will be pushing my amendment to a Division.

Chris Leslie (Labour, Nottingham East)

I beg to move amendment 77, in clause 5, page 29, line 42, at end insert—

‘(d) that the regulators coordinate in such a manner as to minimise unnecessary additional expenses that might be incurred by virtue of the separate administration of the FCA and the PRA, and to maximise any common administrative savings achievable through close coordination.’.

Edward Leigh (Conservative, Gainsborough)

With this it will be convenient to discuss the following: amendment 86, in clause 5, page 29, line 42, at end insert—

‘(d) that each regulator engages with the other where they identify any gaps in or between their regulatory remits, or the exercise of these, that may become apparent in relation to any product, provider, institution, market practice, responsible shareholder interest or consumer concern;

(e) that as appropriate both regulators can identify areas where they can share services and information, acting to minimise burdens on firms supervised by both regulators and/or to maximise the understanding of consumers and facilitate the exercise of their responsible interests.’.

Amendment 116, in clause 5, page 30, line 4, at end insert—

‘(c) the FCA and PRA shall publish guidance explaining those circumstances covered by paragraphs (a) and (b) where the duty to co-ordinate shall not apply.’.

Amendment 78, in clause 5, page 31, line 24, at end insert—

‘(8A) The memorandum shall contain an estimate of the additional annual costs involved in the administration of the FCA and PRA when compared with the estimated costs of the administration of the Financial Services Authority.’.

Amendment 140, in clause 9, page 42, line 28, at end insert—

‘(6) The regulators must co-ordinate their procedures for, and provide clear and detailed guidance on, the processes for applying for, varying and cancelling permission that are applicable to authorised persons regulated by both the PRA and the FCA.’.

Chris Leslie (Labour, Nottingham East)

We move on to a different set of topics, albeit related to the new regulators that the Bill is creating—the FCA and the PRA. These amendments, which are also in the name of my hon. Friend the Member for Kilmarnock and Loudoun, concern the need to ensure transparency around the costs incurred in running a dual regulator in this way. Whether it is twin peaks or the quartet system, we are seeing new quangos or regulators on the block and those things do not come for free; they have significant costs. Even if the costs are falling on the shoulders of the industry rather than on the taxpayer, we can be sure that the money will hit the consumer or the taxpayer at some point. In this case, the consumer will be hit for those extra costs. It is important, therefore, that stronger efforts are made to bear down on the costs and expense of creating these new superstructures.

In proposed new section 3D there are a series of duties on the FCA and the PRA to ensure that they co-ordinate the exercise of their functions. We think it is important to add a fourth duty in that respect, so that the regulators co-ordinate in such a manner as to minimise unnecessary additional expenses that might be incurred by virtue of the separate administration of the FCA and the PRA, and to maximise any common administrative savings achievable through close co-ordination.

Taking that argument forward, amendment 78 would ensure that the memorandum between the two bodies contained

“an estimate of the additional annual costs involved in the administration of the FCA and the PRA when compared with the estimated costs of the administration of the Financial Services Authority.”

No doubt the Minister will say that it is like apples and pears and we cannot compare the two, but it is important for the industry that somebody has a crack at it, so that we can see each year what the projected extra costs are likely to be. In essence, that is the purpose of the amendment.

Despite the rather laughable suggestion in the White Paper that

“running costs should not be materially different (in real terms) in aggregate from the current FSA”,

most people recognise that the costs are likely to increase substantially, partly due to the plans of the PRA to move to the City of London, away from Canary Wharf, so that it can be nearer the Bank of England, while the FCA stays at Canary Wharf. The Minister needs to answer some questions about the PRA’s plans to move. We have heard that offices at Moorgate have been identified, with many extra thousands of square feet taken under the auspices of the PRA. Is it a necessity to move to those new and expensive offices?

Sheila Gilmore (Labour, Edinburgh East)

Given that we live in a society where methods of communication are so good that people on different sides of the world can communicate in a matter of seconds, why does my hon. Friend think it is necessary for the PRA to be so close physically to the Bank of England?

Chris Leslie (Labour, Nottingham East)

I hope it is not empire building by the Bank of England. I hope it is not simply a matter of pride that the Bank wants to bring the new adjuncts under its wing, next door to Threadneedle street, as its empire extends. It would be rather egotistical and churlish if that were the motive for uplifting the PRA and moving it to those expensive Moorgate offices, where it would incur not just extra rental costs but extra fit-out costs. We need a check on the growth of those extra elements.

Government members of the Committee may scoff at the suggestion that we should care about the costs, but these things matter. According to some newspaper reports, estate agents estimate that the cost per square foot in the City near Threadneedle street is between £50 and £55.

Fabian Hamilton (Labour, Leeds North East)

My hon. Friend makes a very good point about the cost. Does he agree that many of our great cities, such as Leeds, could offer first-class accommodation for those organisations at a fraction of the cost?

Chris Leslie (Labour, Nottingham East)

It is funny that my hon. Friend says that; I was just thinking that Nottingham might be a useful base. The fact is that the PRA is being moved to one of the most expensive parts of the country’s real estate, so I should like the Minister to spill the beans and at the very least tell us what the extra cost of the move to Moorgate is likely to be. He must have an estimate, given that he knew the amendments were coming up. Will the rent bill be roughly £6.5 million a year? That is one figure that has been reported, but I do not know whether it is accurate. When we add the amount for business rates and so forth, what is the cost likely to be? The Evening Standard is very interested in the matter and has been reporting on it.

David Rutley (Conservative, Macclesfield)

I understand the hon. Gentleman’s concerns about cost, but returning to the Bill, can he explain why the amendment will be useful when there are other routes for determining what the costs might be? The Bill will last for a period of time; his concerns are probably short term and there are other forms of parliamentary scrutiny that will highlight the costs.

Chris Leslie (Labour, Nottingham East)

I doubt very much that there will be other opportunities for parliamentary scrutiny of the cost of setting up an FCA and a PRA. Ultimately, the clause sets up those regulators from the Financial Services Authority. If we do not ask now about the cost of establishing the bodies, with the associated offices, fitting costs and so on, I do not know when we could do so, so it is highly relevant to the Bill.

Similarly, in our amendments, we are not saying, “Do not incur those costs,” although we should be more careful with the money; we are simply saying, “What are those costs?” The Bill should not only ensure that the regulators explain the relative costs in contrast to the FSA, but should impose a duty on those regulators to try to co-ordinate their functions. The bodies should not be so duplicative, particularly in back-office, administrative arrangements, which Government Members so often discuss in relation to local authorities or the public sector. With the FCA and the PRA, they have a blind spot when it comes to trying to ensure that administrative costs are kept as low as possible.

Fabian Hamilton (Labour, Leeds North East)

Surely, on top of those concerns is another that my hon. Friend has alluded to. Ultimately, costs will be passed on to the consumer. Will he seek the Minister’s assurance that that will not be so?

Chris Leslie (Labour, Nottingham East)

I do not know how the Minister could assure us, because costs will be passed on to the consumer, but he must address the question. These are not small points; we are talking about millions of pounds. My understanding—perhaps he can confirm this—is that the lease on the Financial Services Authority’s premises in Canary Wharf does not expire until 2018, so ample space is available to house both the FCA and the PRA at those offices. What is the rationale for the move? Does he support it, is he concerned about it or is he entirely washing his hands of it? We need to get a sense of how that is going.

At the beginning of February, in its annual funding review for 2012-13, the FSA announced that it will increase its budget by 15.6%. A third of that increase results from regulatory reform, but another third is for changes to IT infrastructure before the organisation splits into the two regulators. I have no objection whatever to expending the monies necessary to get a grip on the regulatory tasks at hand, but I have a problem with aggrandising expenditure on plush offices that might not be wholly necessary. It might be viable to keep those offices in their current location.

I am sure that hon. Members share my views. Otto Thoresen, director general of the Association of British Insurers, has voiced his concern, saying,

“We knew that there would be a cost involved in moving to twin peaks regulation but, in this difficult financial environment, all organisations need to be focussed on controlling their costs.”

I could not agree more. Many other practitioners have done more than raise their eyebrows at the plan for vast expenditure. I would like to hear the Minister’s justification for it.

Mark Durkan (Social Democratic and Labour Party, Foyle)

I tabled amendment 86, which I shall discuss shortly. Amendments 77 and 78 would be useful in further colouring in the FCA’s and PRA’s duty to co-ordinate the exercise of their functions, as required under proposed new section 3D. Perhaps that is not provided for completely, so amendments 77 and 78 add to that. Amendment 116 would further clarify proposed new section 3D(2). Amendment 140 offers useful lighting to reduce the twilight zone difficulties that might leave too much room for confusion and capricious interpretation or behaviour relating to proposed new section 55A(5).

Amendment 86, which is in my name, would take up what seems to be a limited provision in proposed new section 3D (1) in respect of the duty of the FCA and the PRA to ensure a co-ordinated exercise of their functions. As it stands, proposed new subsection (1) will provide for co-ordination under three paragraphs, (a), (b) and (c), all relating to the views and interests of the regulators. The limitation of amendments 77 and 78 is that they relate only to the regulators and their costs. They do not address the consequential costs or problems that might be created for others, whose interests the regulators should be taking into account, whether practitioners in the market or consumers.

Also, as proposed new section 3D (1) stands, it relates to the question of possible overlaps in the regulators’ functions and does not address the possibility of gaps in their functions or remits, or of gaps in their, the wider market’s, or the consumer’s understanding of their functions. That seems, in likely practice, to be as serious an issue as the question of confusion with overlapping functions or interests. Therefore, amendment 86 would add paragraphs (d) and (e).

Paragraph (d) would deal with the question of any gaps

“in or between their regulatory remits, or the exercise of these, that may become apparent in relation to any product, provider, institution, market practice, responsible shareholder interest or consumer concern”.

We must make that provision, because if a provision has specifically been made for the duty to co-ordinate, and we are talking about particular instances or concerns that might cause regulators to activate that duty, we should anticipate considerations other than those arising in just the regulators themselves and for their convenience and mutual relationship.

In my experience as a Northern Ireland representative, I dealt with the issue regarding the Presbyterian Mutual Society, where the regulatory gap became the problem. That is why no one moved or acted, because everyone said that they were behind a pillar, and they had no particular mandate to ask or look. People had no mandate even to consider that there might be a gap. Who was acting on the matter? Who was doing anything about it? Those who were carrying out the registration function did not believe that they had any more active regulatory function. Those who should have had a regulatory function over products that were being sold by the PMS and investments that were being made by the PMS, namely the people in the FSA, said that they were not aware that the PMS was doing that; they assumed that the PMS was doing only the business that they were regulated for as an industrial and provident society.

That was an experience of the regulatory gap and the different excuses that everyone could credibly make regarding why they did not act. As far as the consumers who were deeply affected—savers, in this instance—were concerned, it was the overall regulatory system and everyone responsible for that regulatory system who were responsible for the faults. For those affected, that applied to legislators as well, because they say, “If you are going to legislate for a regulatory system and tell us to have confidence in it, at least make sure that it is complete, joins up where it needs to, and does not leave serious gaps. Then blame the consumer, or the saver in this instance, for those gaps.” The insertion of paragraph (d) in amendment 86 would help to meet the gaps. I have deliberately framed the paragraph so that it can relate to a range of issues, whether it is the product, provider or institution, because the scope needs to be broad.

The second part of amendment 86—in terms of trying to make the duty of the FCA and the PRA more rounded and more complete to ensure the co-ordination of their functions—relates to the question of the burdens that regulators will impose on others by virtue of the possible duplication of their functions or the confusion that might arise from the differential exercise of their functions. Paragraph (e) states:

“that as appropriate both regulators can identify areas where they can share services and information, acting to minimise burdens on firms supervised by both regulators and/or to maximise the understanding of consumers and facilitate the exercise of their responsible interests.’.”

It seems right and proper that when it comes to talking about why the regulators should be minded to co-ordinate their functions, we should be thinking about not just minimising their own costs, as amendments 77 and 78 rightly emphasise, but minimising the costs to the businesses that are actually coping with their different and sometimes dual regulation. It is right that that should be put in the Bill, given that the other considerations are there. Why should the regulators be mandated to have only their own operational considerations in mind and not those of other people who are out there working in the field, or who are active as consumers or as providers and/or professionals acting in different roles at different stages of the market?

That duty to co-ordinate would not simply be about minimising the burden on practitioners, but maximising the information and the understanding of consumers. As we know from discussion of the Bill, there are broad ranges of consumers. There is a wide opportunity for presumption and confusion. Many products that are quite different have similar names. Again, that was a factor in my own experience in Northern Ireland in relation to the Presbyterian Mutual Society. People got confused between industrial and provident societies, credit unions and suchlike. The two regulators can share services and information to minimise costs and to maximise understanding and awareness. Under the Bill, consumers are being told that they have to bear responsibility for their choices, so we should make sure that consumers are as clear as possible about their choices, and we should make sure that regulators, where they can, add to the understanding of consumers. It would be an absolute dereliction of this Parliament’s duty to continue to leave such considerations out of the Bill. When we specify other grounds for co-ordination, it would be preposterous for us not to allow such considerations to be factored into the Bill as well.

Sheila Gilmore (Labour, Edinburgh East)

On the importance of the transparency of fees, let me say that there are already concerns, even in advance of the reorganisation, as my hon. Friend the Member for Nottingham East mentioned earlier. Some of the fees that have been charged already appear to be being increased for reasons that are not altogether transparent to those who are paying them in advance of the reorganisation. It is not clear that those increases are all to do with transitional costs.

For example, the Association of Financial Mutuals has stated that its members are anticipating an increase of 40%, on average, in fees for the coming year. Apparently, that is in part about the transitional costs, as well as increases in what it would describe as the business-as-usual fees for insurers. At this stage, it is not clear exactly why that is or what justification there is for the increases. In some senses, fees have been raised in anticipation of the reorganisation. It might appear that fees have been raised now rather than in future. Given those questions about transparency and the reasons for the fees being charged, it is important that such matters are properly looked at. The amendments would result in such issues being covered more clearly in the Bill and produce transparency because, although fees are a huge matter for organisations such as financial mutuals, they will ultimately feed through to what consumers pay for financial services.

Mark Hoban (Conservative, Fareham)

The amendments would place various additional requirements on the PRA and the FCA to ensure that they are co-ordinating effectively. In relation to amendment 77, the Government agree that, where possible, costs arising from the duplication of effort should be avoided. However, the provisions are not necessary, and I shall explain why. The regulators are under a duty to co-ordinate. Subsection (1)(c) of proposed new section 3D specifies that one of the three purposes of co-ordination is how the regulators use their resources in the most efficient and economic way, and that is a reference back to proposed new section 3B(1)(a) and

“the need to use the resources of each regulator in the most efficient and economic way”.

The provision is not just about the cost of the regulators, but contains a reference to the cost imposed on regulated firms: the proportionality principle set out under proposed new section 3B(1)(b). On the duty of the PRA and the FCA to co-ordinate, there is a link back to the regulatory principles that deal with cost and proportionality.

The PRA and the FCA must also prepare a co-ordination memorandum of understanding, setting out how the duty to co-ordinate will be delivered. That will be reviewed annually. The regulators will also be under an obligation to include in their annual reports an account of how they have co-ordinated during the year. Parliament and others will have ample opportunity to scrutinise the effectiveness of arrangements put in place by the regulators.

If the Bill were amended in the way suggested, it would be a distraction. The PRA and the FCA will be separate regulators, focusing on delivering their own goals. There might be administrative costs above and beyond what would be incurred by a single monolithic regulator such as the FSA, but they are the necessary costs of delivering a better system of regulation. I will come back to rents and transitional costs towards the end of my remarks.

Matthew Hancock (Conservative, West Suffolk)

Of course, administrative costs are an important factor and should be minimised, but good regulation is vital. Will my hon. Friend the Minister ensure that, if he puts any figures into the public domain, he puts them not only in pounds sterling, but as a percentage of the cost to the economy of the crisis that was brought on in part by the previous regulatory system?

Mark Hoban (Conservative, Fareham)

My hon. Friend makes an absolutely vital point. There is a genuine issue, which is that effective regulation can reduce the cost to society of regulatory failure, which could be on the scale of a banking crisis, or it could be a mis-selling issue that affects our constituents dearly. I caution Opposition Members to recognise that effective regulation can reduce the costs to society of financial failure, so a balance needs to be struck. The Bill is about moving to a regulatory system that is better focused on attacking some of the problems that have occurred in regulation over the past 10 years. That will help to deliver better outcomes for consumers through the work of the FCA, in financial stability through the work of the FPC, and in the safety and soundness of individual firms through the remit of the PRA.

Amendment 78 would require that the co-ordination memorandum of understanding includes an estimate of the costs of the new system of regulation compared with the old. I am not sure what would be gained by that, as the annual requirement can go on for years. It is essential to bear in mind that what is new and important in the Bill is that the National Audit Office has the power to consider the effective use of money by the regulators. That external check on the cost of regulation is vital, and in the long term it will address some of the concerns of regulated firms about the use to which their money is being put. That goes way beyond the Financial Services and Markets Act 2000, and gives better accountability for firms on where their money is spent.

Amendment 116 would require the FCA and the PRA to publish guidance explaining the circumstances in which a general duty to co-ordinate does not apply. However, the MOU sets out how regulators will comply with the duty as a whole, including the limitations on the duty established in subsection (2). I do not think that it is necessary to publish additional guidance on top of that.

Amendment 86 would place a requirement on the regulator to identify areas of regulatory underlap. It is important to monitor those issues, but the Bill already has mechanisms in place. The FCA will have a general role of monitoring the regulatory perimeter for breaches. That is the issue that the hon. Member for Foyle raised in the context of the Presbyterian Mutual Society, which acted outside the regulatory perimeter in how it was established. The FPC will be responsible for monitoring the regulatory perimeter and looking at whether activities that have been carried out outside the scope should be brought within the scope of regulation.

The MOU between the PRA and FCA sets out the regulators’ roles in relation to various regulatory processes. The Treasury has a power to determine whether one regulator should lead on a particular area of regulation.

Enhancing consumer understanding, which is included in amendment 86, is a useful goal. It does not belong to the general duty to co-ordinate and the FCA already has a clear consumer protection objective. Amendment 140 is unnecessary, because there are explicit and detailed provisions on the authorisation and variation of permission in proposed new section 9A of FSMA, recognising the fundamental importance of these processes. Those provisions already require the regulators to consult each other and obtain the others’ consent where appropriate. The duty to co-ordinate already applies to the granting and bearing of permissions.

On the costs issue, I have said that the Bill strengthens the protection for regulated firms through the engagement of the NAO in looking at value for money. That is important. There will, however, be transitional costs, which the impact assessment published alongside the Bill made clear. Paragraph 8 of the impact assessment states:

“The Bank’s view is that to deliver the objectives of judgment-based regulation, integrated with the Bank’s analytical capacity”—

let us not forget that one of the reasons for bringing prudential regulation within the ambit of the Bank is to have synergistic benefits—

“the PRA will need to be physically located in or very close to the Bank, and given the likely staff numbers involved, a new building will be required.”

Let us also recognise that paragraph 11 states:

“The Bank and the FSA are committed to ensuring that the transitional costs are minimised and controlled, and to achieving long-run cost savings to offset the transition costs.”

The Bank is clear on what it expects on the long-run trajectory of the PRA’s costs, assuming that there is a regulatory steady state and that no additional responsibilities are imposed on it. Paragraph 7 of the impact assessment states:

“The Bank’s approach to creating the PRA is founded on an expectation that costs of prudential regulation will fall in the medium term. This will flow from improved quality of system support”—

benefiting from the Bank’s existing IT structure—

“from eliminating duplication between the PRA and the Bank, and also from tight control of costs.”

Yes, there are transitional costs arising from the move from the existing regulatory structure to the new regulatory structure, but there is a clear commitment from both the FSA and the Bank to minimise those. In the long run, the costs of regulation for the PRA will be lower than they would otherwise be.

Chris Leslie (Labour, Nottingham East)

I am grateful to the Minister for setting out those commitments, but I want to specifically ask him about the cost of the new Moorgate office for the PRA. If he does not have that to hand, I would be happy for him to write to the Committee.

Mark Hoban (Conservative, Fareham)

As I understand it, the arrangements are yet to be finalised, for any new offices. We are being given a reminder of the good old days of micro-management, so beloved of the previous Government, when every detail was scrutinised by an over-mighty Treasury, whether it was the cost of a building or the price per ream of the paper used.

It is vital that there should be clear accountability for costs. That is exactly why we, unlike the previous Government, introduced the duty to enable the NAO to scrutinise value for money. The previous Government did not think it necessary, but this Government think it is, with the vital aim of ensuring value for money and effectiveness in the new regulators’ use of resources.

Jesse Norman (Conservative, Hereford and South Herefordshire)

Is my hon. Friend aware of Parkinson’s law, which reminds us that groups may often ignore the high costs on their doorstep, while attending to others that are much smaller? It might be appropriate to mention the contrast between the micro-management in this instance and the previous Government’s decision to sell gold at the price they did. At current rates, that has cost us about £7 billion.

Mark Hoban (Conservative, Fareham)

I suspect, Mr Leigh, that you would not want me to pursue the gold analogy.

Edward Leigh (Conservative, Gainsborough)

I think gold is a bit distant from this amendment.

Mark Hoban (Conservative, Fareham)

Indeed, but it is vital that the Bank and the Financial Conduct Authority should be accountable for costs. That is why I have introduced the new power for the National Audit Office. It is a significant ratcheting up of accountability on cost, and I think it is the right thing to do.

Chris Leslie (Labour, Nottingham East)

I do not want to detain the Committee. I hear what the Minister says about the final figures for the PRA’s move to Moorgate offices not yet being settled. Is he saying that the Treasury, or his officials, have no estimated figure, and have been given no information by the PRA on that? If that is not what he is saying, will he at least share with the Committee the information that the Treasury has?

Mark Hoban (Conservative, Fareham)

The Treasury is working closely with the FSA and the Bank on implementation, but it should be recognised that there are a number of decisions that it is the responsibility of the Bank and the FSA to make. There is a host of transitional issues, including the cost of premises, who fills which job, and where people are moved to in the operational hierarchy. It is important that the Bank and the FSA should be transparent about those costs, but there are many micro-decisions to be taken as part of the transition. The key safeguard for the levy payers who are financing the PRA and the FSA is the NAO power.

Matthew Hancock (Conservative, West Suffolk)

As a member of the Public Accounts Committee, I warmly welcome the Government’s decision to give the NAO access to the Bank of England. Will not that non-partisan and detailed accountability be much more significant than any debate about an amendment here?

Mark Hoban (Conservative, Fareham)

I suspect it will generate more light than heat, as the debate on the issue so far this morning has done. The negotiations in question are commercial ones, and the hon. Member for Nottingham East wants, I think, to ensure that we get best value for money out of the arrangements.

Chris Leslie (Labour, Nottingham East)

We?

Mark Hoban (Conservative, Fareham)

I say “we” as we are talking about safeguarding the general interests of people here. It is not appropriate at this point to share information, because it could be prejudicial to negotiations.

Chris Leslie (Labour, Nottingham East)

Inspiration finally came to the Minister. Government Members need occasionally to stand up for what I thought some of them believed in—the need to ensure that the levy payers who fund the regulators have a degree of protection against extravagant or aggrandising expenditure.

I am not convinced that the Minister’s explanation for the PRA’s move to Moorgate offices is particularly strong. The PRA needs to be in close proximity to the Bank of England, although Canary Wharf is not exactly in close proximity, as things stand. Then the Minister resorted to the usual accusations of micro-managing—apparently these are micro-decisions, as they concern only many millions of pounds—and drew parallels, I think, with the cost of reams of paper. What a signal that sends out to those firms who pay the levy for this regulation.

This is a crucial part of the Bill. In establishing new regulators, the Minister wants to set up new organisations, with all the structures, personnel and buildings that come with them. Nobody disputes the amount of money required to get the right regulation, and misrepresenting the debate in such a way does the Minister no credit whatever. We are simply talking about a responsibility for such organisations properly to co-ordinate and share administrative back-office costs, and transparency about the costs. The NAO issue, which is always ex post, does not cut it. I want a provision in the Bill about the regulators’ control of such costs.

Mark Hoban (Conservative, Fareham)

Does the hon. Gentleman not recognise that, compared with the current regime, the NAO role provides a vital enhancement of the scrutiny of the costs of such organisations?

Chris Leslie (Labour, Nottingham East)

I have said previously that I welcome that change. I am very familiar with the work of the National Audit Office and the Public Accounts Committee, as I was a member of the PAC for several years—before pretty much every Member on this Committee came into Parliament, except for my hon. Friend the Member for Leeds North East, perhaps—but, with respect, the NAO role is not sufficient. A legal responsibility to co-ordinate should fall on the shoulders of the regulators. They should not be regulated by moral conscience—by the possibility that they might be caught out by an auditor at some distant time in the future—but by a legal duty in the Bill.

Mark Hoban (Conservative, Fareham)

I counsel the hon. Gentleman to read the Bill, which, in proposed new section 3B(1)(a), links back with the duty of co-ordination. Provision is in the Bill already.

Chris Leslie (Labour, Nottingham East)

In that case, why does the Minister object to amendment 77? New section 3B(1)(a) does not capture the co-ordination point sufficiently, and does not add that extra duty. We have rehearsed the arguments, and there is no point going over them. The Government are sticking their heels in the mud yet again. Not an iota of criticism is allowed of all the new edifices and expense involved—we almost feel we should apologise for daring to table amendments. I will not press amendments 78, 116 and 140 to a Division, although we might return to them at a later stage, but I will divide the Committee on amendment 77.

Mark Durkan (Social Democratic and Labour Party, Foyle)

The Minister sought to dismiss the need for amendment 86, but he did not clarify why the provisions in proposed new section 3D(1)(a), (b) and (c) need to be in the Bill—and why we cannot assume that the relevant considerations will be taken care of anyway in the normal course of events—but the provisions in (d) and (e) proposed by amendment 86 do not need to be in the Bill. Under the provisions on the co-ordination of the exercise of such functions, the PRA and FCA have to have eyes only for themselves and each other, and for nobody else whose interests or work is affected by how they do their business, either separately or together. That is a serious omission from the Bill. Those who may have to cope with being regulated by both the PRA and the FCA have the right to expect us to put into the Bill that the PRA and the FCA, with their duty to co-ordinate, should at least consider the potentially burdensome interface and the confusion that might arise. What is wrong with our meeting the needs of many people in the market by clarifying the consideration that is owed to them?

On the consumer interest, the Minister, in rejecting amendment 86, again relied on the FCA’s consumer-facing role. However, the amendment does not relate only to the FCA’s role; it touches on issues that will be in the PRA’s remit, and those on which the regulators need to co-ordinate. Surely the consumer interest might apply to both regulators. The Minister’s fixed mindset—his view that anything about consumers will come up only on the FCA’s side of any discussion, and can be adequately dealt with by the FCA—is simply delusional. Based on our experiences and all natural expectations, the financial services market will not stay static: things will change and mutate, and new market players will emerge. There will be hybrid products, so, from time to time, line calls will have to be made about which regulator is concerned, and they will need to co-ordinate. The Bill rightly makes provision for a duty to co-ordinate, but it is inadequate when it comes to anticipating the need for that duty to co-ordinate. Reducing the consideration of practitioners and consumers—amendment 86 would provide for that consideration—would be a serious omission.

I referred earlier to the Presbyterian mutual society; I do not propose—pardon the pun, Mr Leigh—to give chapter and verse on the whole experience. The Minister said that the situation arose because the Presbyterian mutual society was outside the regulatory perimeter, but that was not the perception of consumers, of Northern Ireland Ministers—whether direct-rule or devolved Ministers—or of the Assembly, so even legislators were unclear. The lesson for us all is that we should not presume that someone will take care of such matters; we must ensure that the legislation states that someone must have regard to them, otherwise we are not learning that lesson. The regulatory gap in that case was between the scope of the FSA and that of the devolved regulatory and registration function, but a similar or comparable situation might arise between the FCA and the PRA.

There is another issue pertinent to my background and experience as a Northern Ireland MP. Over the past few years, we have all worked to change the regulatory footing for credit unions in Northern Ireland, so that they can provide their large membership with far more services that compare with those available to members of credit unions in England. I pay tribute to the Minister, who has been engaged and constructive on that issue. In the context of the discussions about those regulatory changes, for some time there has been confusion about which body will succeed the FSA as the regulator of credit unions in Northern Ireland.

Many references have been made to the role of the FCA. We received direction and advice that the coming FCA would do the regulatory job for credit unions but, in fact, the PRA will do that job. Credit unions are a substantial feature in Northern Ireland, with a strong membership and savings base, and they want to offer new products, so it is important that they have positive and clear relationships with the new regulator. It is also important that consumers know that everybody understands the new regulatory environment.

Of course, some of the products that the credit unions will provide will come under the FCA’s area of interest as well. Credit unions in Northern Ireland will come under FSA, or FSA successor, regulation for the first time. The regulators will have different windows of interest on the conduct of credit union business, or at least some of the products and services that they might be getting into. It is right and proper that we should know that the two regulators can, under statute, co-ordinate their functions with a view to easing the burden for practitioners, in this case the credit unions, and maximising information, understanding and confidence for the consumers—those who would be savers and members of credit unions in Northern Ireland.

Those practical experiences, and the confusion that already seems to exist among people whom we might presume would be relatively well informed, motivated me to table amendment 86. I know that the Minister will not accept the amendment, but I hope that he will accept that there is a need—if not in this part of the Bill, then somewhere else—to take better account of the range of interests and information needs that would need to be considered in relation to the co-ordination of the functions of the FCA and the PRA. The Bill is clearly deficient as it stands.

Chris Leslie (Labour, Nottingham East)

I beg to move amendment 66, in clause 5, page 32, line 5, at end insert

‘(by reason of its consumer protection or competition objectives)’.

Edward Leigh (Conservative, Gainsborough)

With this it will be convenient to discuss amendment 67, in clause 5, page 32, line 11, at end insert—

‘(9) In exercising its functions under this section, the PRA must make and maintain effective arrangements for consulting the panel established under section 1Q, consumers, or where appropriate, persons appearing to represent the interests of consumers’.

Chris Leslie (Labour, Nottingham East)

The amendments relate to provisions on page 32 of the Bill that ensure that the with-profits insurance policy arrangements fall under the auspices of the PRA and its insurance objective. We have not touched much on this so far, but the Bill has this slightly messy demarcation of responsibilities when it comes to with-profits insurance policies. The PRA has been given responsibility for the regulation of that particular market. It is obviously very significant, amounting to hundreds of billions of pounds. Apparently, around 25 million with-profits policies are held by UK consumers, so there is an extremely important consumer interest in these particular issues.

We think that the amendments would strengthen the FCA’s influence over an area that falls well within its wider remit, and would also benefit the PRA in working from the specialist knowledge that the FCA might have. Amendment 66 seeks to establish recognition of the FCA’s expertise on some of the consumer aspects. Amendment 67 would place a requirement on the PRA to consult the FCA and the panels established under it on some of the policy decisions relating to with-profits policy regulation.

We have talked about the oddities of the PRA not having some links across to the panels that form under the FCA’s ambit. However, this is a specific area where the PRA will not necessarily be acting in a wholly prudential way if it adheres strictly to its core responsibilities, but will instead roll up its sleeves and get involved in some of the conduct aspects of with-profits policy regulation. It would be odd if the Government’s new consumer watchdog—or champion, as others have called it—did not have some role in the set of regulatory decisions on these important areas of policy.

We know that historically there have been serious questions about with-profits policies regulation. The FSA has looked into some of those questions on a number of occasions. The amendments seek at least an acknowledgment that the PRA could benefit from consultation arrangements with consumer groups, and also with the FCA. This is a fairly straightforward set of amendments; I do not want to labour the point.

Mark Hoban (Conservative, Fareham)

The issue of with-profits and the appropriate regulator has been difficult to resolve. After several rounds of consultation, and the support of respondents including the ABI, the Government decided that one authority should take full responsibility for regulatory decisions that relate to ensuring that with-profits policyholders are appropriately protected in relation to making discretionary payments. We decided that the PRA should have that role, as provided for in new section 3F. However, in explicit recognition of the value that the FCA can bring to the process, we have included subsection (5), which requires the PRA and the FCA to work together on appropriate matters when it comes to regulating with-profits policies. It is in the Bill. My concern about amendment 66 is that it narrows rather than widens the FCA’s engagement. It refers to two of the FCA’s objectives, not all three, and limits them to consumer protection and competition. One of the FCA’s other objectives is integrity. The FCA may have other sources of information or guidance that could help the PRA but, if the amendment were accepted, unless they fell within consumer protection and competition, it could not offer them to the PRA, which seems a slightly odd position. The Bill provides for the FCA to engage with the PRA on with-profits insurance and I do not think the elaboration in amendment 66 is helpful. In fact, I think it is unhelpful, given the formulation.

Amendment 67 goes over familiar ground, on which we touched to some extent in the debate on amendment 60. I do not believe that the consumer panel that the FCA is setting up—given that it is there to advise the FCA on its activities around promoting its objectives, about user duty and competition to promote its regulatory goals—will be set up in a way that will give information and guidance on with-profits policies. To get round that, we expect the FCA to play a strong role in providing expertise on consumer protection issues and consumer interests. Given that the FCA is engaged in this way, as it was under subsection (5), we do not necessarily need to add an additional duty to consult the consumer panel, which will not be set up in a way that necessarily meets the PRA’s needs. It is much better for the PRA and the FCA to engage in these things and for the FCA to represent consumer interests in the way set out in subsection (5).

Chris Leslie (Labour, Nottingham East)

I appreciate the Minister’s explanation of the Government’s view on amendment 66. It is a moot point whether it is covered by subsection (5). The point has been made that it is important that we have a read-across between the two organisations.

On amendment 67, I am not sure I totally agree with the Minister. It is important that representations and consultation processes are put in place in the Bill. Given the size and scale of the with-profits insurance market, and its importance to consumers, there should be a thread that feeds back to the FCA consumer panel or some similar arrangement. However, I do not want to press the point. The Minister has heard the arguments. We have tested the point in previous votes and amendments, and the Government refused to budge, so I doubt whether we would win a Division on this.

The Minister should, however, bear it in mind that these are important issues, and consumers need not only to be represented in regulatory decisions, but to have a dialogue and to have their voice heard. If he can at least urge the PRA to put in place more detailed arrangements on the consultative system, that would be useful. For the time being, however, I beg to ask leave to withdraw the amendment.

Chris Leslie (Labour, Nottingham East)

I beg to move amendment 79, in clause 5, page 34, line 20, after ‘PRA’, insert ‘and the Treasury’.

The clause includes a set of further provisions about directions that the PRA can give. It says the Treasury must lay before Parliament any document received by the PRA and publish it. However, that does not apply

“in a case where the PRA considers that compliance with those subsections would be against the public interest.”

That is a minor point, but I do not quite see why the test for public interest disclosure should sit in the hands of the PRA, not Her Majesty’s Treasury. After all, the disclosure requirements are, naturally, important, and decisions to withhold disclosure should be taken by persons who can be held accountable in Parliament. Theoretically, a Minister needs to be able to account for such decisions.

The amendment would slightly finesse the arrangement in the Bill to ensure that the PRA and the Treasury should agree if information is to be withheld from Parliament in the public interest. It is difficult to envisage the circumstances where this might apply, because we are talking about hypothetical situations, but the amendment would frame the Bill in such a way that the Treasury did not feel constrained by a body beyond its remit.

Subsection (8) merely requires the PRA

“from time to time to review”

any decision and to notify the Treasury if it feels that the Treasury should lay a document before Parliament under subsection (5).

Although this is a small point, it is, in some respects, quite an important constitutional one, and the Committee has come back to it on a number of occasions. We need to establish the principles of transparency, parliamentary scrutiny and democratic accountability in the Bill, and I want to make sure that the Treasury is in a place where it can make decisions on public disclosure.

Mark Hoban (Conservative, Fareham)

This is an important point. One consequence of the way in which we have set up the new regulatory arrangements is that things that are currently wrapped up in the FSA are laid bare by having a separate conduct and prudential regulator. I suspect that these decisions are made at the moment within the FSA but they are not necessarily brought to light because they are resolved internally, whereas under the new regime they will be resolved externally between the PRA and the FCA, which are two separate bodies.

My default position on that is that where the PRA overrules the FCA, that information should be in the public domain. It is important that people know that that has happened. There may be circumstances where putting that information in the public domain immediately could breach confidential information or create public disquiet, and so it may not be appropriate to do so. There may be a whole set of circumstances that we have yet to envisage in which it would not be appropriate to place the fact that that veto has been exercised in the public domain.

Equally, however, I am not sure that giving the PRA and the Treasury the joint power to decide what is in the public domain is appropriate either. That could lead to conflict and if the PRA and the Treasury disagree, what is the process for resolution of that disagreement? It is not clear from the amendment.

I take on board the point that we need to be very careful that we do not err on the side of non-publication of these details and that we do not create a culture whereby it is assumed that publication should not happen as a matter of course, when the thrust of our reforms are for there to be transparency and disclosure.

Therefore, although I do not accept the amendment, it may be appropriate for us to consider whether there is some other mechanism whereby there can be a check on the PRA’s exercising of its veto and the decision not to publish the fact that it has exercised its veto. It may be that the PRA has to notify the Treasury before it decides not to publish the information or that there is a form of consultation, rather than saying there should be a joint agreement.

I take on board the hon. Gentleman’s point and I will look at this issue and perhaps return to it on Report.

Chris Leslie (Labour, Nottingham East)

I feel like smiling. It feels like a major achievement to have the Minister in such a reflective and reasonable mood. I am very happy that he is willing to reflect on this particular issue. I accept his point about the difficulty of drafting the measure in a particular way and about how disagreements would be resolved if we put responsibility on both the PRA and the Treasury simultaneously.

Therefore, in the spirit of co-operation that is breaking out at quarter to 1 this afternoon, I am more than happy to withdraw the amendment in the hope that the Minister might find either a legislative or non-legislative way of resolving this particular issue. I am very grateful to him and I beg to ask leave to withdraw the amendment.

Edward Leigh (Conservative, Gainsborough)

It is gratifying that peace and light are descending on our deliberations.

Chris Leslie (Labour, Nottingham East)

I beg to move amendment 80, in clause 5, page 37, line 34, after ‘supply’, insert ‘and consumption’.

Edward Leigh (Conservative, Gainsborough)

With this, it will be convenient to discuss amendment 81, in clause 5, page 37, line 42, at end insert—

‘particularly to those member of the public on lower incomes.’.

Chris Leslie (Labour, Nottingham East)

Apart from the Government amendments, these are the last amendments to clause 5, and we are considering them before we get to 1 pm. I am grateful to the Minister for his help so far in the debate.

Amendments 80 and 81 are possibly totally different in size and importance. Amendment 80 is a drafting point as much as anything else and it relate to the way I was reading the Bill; perhaps the Minister could explain the drafting point to me. If Members look at page 37, they will see a section relating to the consumer financial education body, which is now called the Money Advice Service, and several functions for it are set out from line 31 onwards. Those functions shall include, as set out in paragraph (a) of proposed new section 3R(4) of FSMA 2000,

“promoting awareness of the benefits of financial planning”,

and so forth. However, paragraph (b) says that the functions include,

“promoting awareness of the financial advantages and disadvantages in relation to the supply of particular kinds of goods or services”.

I am focusing on “supply”, but with financial products, most consumers do not supply but consume a good or service. Therefore, promoting the awareness of the advantages or disadvantages of those who are supplying such services seems to frame the provision inaccurately and possibly misleadingly. It would be far better if the Bill read, “promoting awareness of the financial advantages and disadvantages in relation to the consumption of particular kinds of goods or services”, because ultimately it is about the consequences for consumers at large—for those individuals who consume or use a particular service. I am happy to change the word, but the drafting seemed anomalous, and I would be grateful if the Minister explained why we use “supply” in the provision. The point is a small one but, given that we are trying to do things properly, I wanted to flag it up.

Amendment 81, which is perhaps more substantive, relates to the constitution or driving philosophy of the Money Advice Service, the consumer financial education body, and how it should not only have regard to

“the provision of information and advice to members of the public”,

but in particular to those members of the public on lower incomes. That is an incredibly important part of what the Money Advice Service needs to focus on. Although there have been some important steps forward in how the Money Advice Service has been working, there has also been some criticism of its move to focusing almost exclusively on web-based advice. Some are concerned that those in greatest need and the financially excluded are not being prioritised in its work.

There have been wide reports of job cuts affecting many services of the Money Advice Service. The desire obviously is to put resources heavily into marketing and web-based provision, but I am concerned that some of the face-to-face services or those services more accessible to vulnerable consumers might be deprioritised or jeopardised if a requirement on the Money Advice Service to focus on such issues is not included in the Bill. That is important.

Sheila Gilmore (Labour, Edinburgh East)

The issue of face-to-face as against web-based is not simply to do with access, which I accept is increasing, but with the often multifaceted nature of people’s problems. Those who provide debt advice know that someone’s presenting issue is not necessarily the most important, so without that kind of face-to-face guidance and wider advice, many people will simply not get as good a service as they might otherwise have, even if they can access whatever is on a website.

Chris Leslie (Labour, Nottingham East)

My hon. Friend is spot on. That is a good analysis of some of the difficulties that can occur. If we vest so much importance in the work of the Money Advice Service, we need to ensure that it captures everything that Parliament intends, not only in a wider educational context but in the support and assistance that is necessary to those in the greatest difficulty and the most specific jeopardy.

Several clouds have already passed over the Money Advice Service, such as the disparities in some of its investment choices versus some of the significant costs and remuneration arrangements of its senior executives. I do not wish to open that box any further; suffice it to say that we must ensure that the Money Advice Service has the trust and confidence of all consumers and, in particular, those in greatest need. Therefore, it would be a virtuous step forward if the Minister acknowledged that the Money Advice Service ought to be focused very much on the most vulnerable in society. That is incredibly important. I am sure he understands my point.

Mark Hoban (Conservative, Fareham)

Let me turn to amendment 80. I am not particularly theological about what words should be included in the Bill unless I think they are absolutely vital. My concern about “consumption” is the potential ambiguity. Do we think that the Money Advice Service is falling down in the way it provides its service to users at the moment? My sense is that it provides the sort of information and advice that we would expect it to cover across a wide range of financial service products on different aspects of needs. I am not sure what “consumption” adds.

Paragraph (e), which refers to

“the provision of information and advice to members of the public”,

is very broad. I do not think it would cover all aspects of a consumer’s decision-making process about what type of products to buy—the supply—or what type of products they had bought; perhaps the consumption. I am not clear that “consumption” adds much. We need to be clear that the Money Advice Service is there to provide information and guidance to people looking to purchase financial services products and to enable them to shop around and look for the best interest rates. There was an announcement yesterday about the enhanced role that the Money Advice Service would play in helping people to buy annuities in future. The language already covers what we expect the Money Advice Service to do.

Chris Leslie (Labour, Nottingham East)

I do not think the Minister is quite getting the point that I was making about the small first amendment. How does it help to promote awareness of the supply of a particular type of good or service to a customer? Surely that customer needs to know about the use or the consumption or some other more demand-side element as it affects that consumer. It is the choice of the word “supply” really.

Mark Hoban (Conservative, Fareham)

As I say, I am not particularly theological about this. The Money Advice Service provides information about the types of products that are out there, what the consumer benefits from and the disadvantages of these products. I am not sure whether it is “supply” or “consumption”. If a tweak is required to the wording, let us think about tweaking it. At the moment I do not see a huge difference between “supply” and “consumption” that is worth spending many hours debating.

Lorely Burt (Liberal Democrat, Solihull)

Adjacent to that and on the functions of the Money Advice Service, paragraph (f) refers to

“assisting members of the public with the management of debt”.

That sounds as though there is some connection with a debt management function. Does the Minister agree that co-ordination and provision of debt advice might be a more helpful description of what it is intended to do? They are not debt managers, but they provide that debt advice.

Mark Hoban (Conservative, Fareham)

My hon. Friend makes an important point. The problem is that the management of debt covers a multitude of things, including advice and the budgeting tools that are provided on the Money Advice Service website. The management of debt can encompass quite a few things. I do not believe it encompasses debt management plans. I hope that that is the reassurance that she seeks.

On amendment 81, one of the key features of the Money Advice Service is the breadth of consumer it is there to serve. It is not meant to lead to a narrow segmenting of the market, but to cover consumers across a wide range of income, from the lowest upwards. There is a clear commitment from the Money Advice Service to this. That is why it continues, for example, to provide face-to-face debt advice. It contracts for the provision of face-to-face debt advice through the CAB, for example. There is a clear, ongoing commitment to meet the needs of people on the lowest income to find a variety of distribution channels that will enable them to do that. No one should be under the misapprehension that the Money Advice Service is not there to do it.

Edward Leigh (Conservative, Gainsborough)

I congratulate the Committee on the calm way in which it deliberated this morning. I spent 14 hours invigilating the Russian presidential elections on Sunday and I can say that the conduct of this Committee is almost as good as that of the Russian political class.

George Howarth (Labour, Knowsley)

I remind the Committee that with this we are discussing amendment 81, in clause 5, page 37, line 42, at end insert

‘particularly to those member of the public on lower incomes.’.

Mark Hoban (Conservative, Fareham)

It is a pleasure to serve under your chairmanship this afternoon, Mr Howarth. I have three brief points, the first of which seeks to be helpful to the Committee. The Government said in their response to the Joint Committee on the draft Bill that they have asked the Bank of England and the Financial Services Authority to provide a note about the proposed consultation arrangements for the Prudential Regulation Authority. That was published on the Bank’s website last Monday, but I have been informed by House authorities that the Treasury may not lay the note in the House of Commons Library until there has been an explicit ministerial commitment to do so. I therefore make such a commitment.

My second point takes us back to the issue of consumption. We are not entirely convinced that consumption has been defined in statute anywhere, so if we were to insert it, we would need to define it. The rationale behind the phrase,

“the supply of particular kinds of good and services”,

is that we are following in the best footsteps of the previous Government. They used similar language in the Financial Services Act 2010, with which both I and the previous Government were content. I agree, however, with the hon. Member for Nottingham East that neither “supply” nor “consumption” are ideal words, and we will therefore look at the issue. There we go—the magnanimity of government.

However, I will not give way on the second amendment, because the Money Advice Service has been clear about its remit of providing services to all income groups, and an explicit focus on one group would be to the detriment of that broader remit. I have been keen to ensure that debt advice forms part of the Money Advice Service’s remit, because that sends the clear signal that its role is not limited to providing advice on savings and investments, but should include helping people who are in debt. Although debt is not the prerogative of one particular income group or another, it shows that we have a holistic approach towards all types of incomes and financial issues.

Yvonne Fovargue (Labour, Makerfield)

Although I agree that the Money Advice Service should have a role in the co-ordination of debt advice, I fail to see the need for yet another agency to look at the delivery of such advice when there is already an extremely good agency that delivers debt advice on the ground and has a proven delivery model. I do not see the point of setting up a new agency to duplicate that.

Mark Hoban (Conservative, Fareham)

The hon. Lady was a former citizens advice bureau manager and has particular expertise in this area. She must, however, bear in mind that the Money Advice Service is taking over the function already carried out by the Department for Business, Innovation and Skills of allocating funding for face-to-face debt advice services and others. Under the new arrangements, rather than such services being funded by the taxpayer, as they were under the previous regime, financial services businesses will fund the debt advice, which I think is a measure of fairness. Those who benefit or profit from the provision of financial services should also pay towards educating people and helping them to tackle their debt. That is a well-rounded solution. The Money Advice Service will work with agencies that already provide debt advice, provide funding, and ensure that we get the best bang for our buck.

Chris Leslie (Labour, Nottingham East)

It is a positive move for the Minister to say that he will look at the point about drafting, and at whether the consumer financial education function should include

“promoting awareness of the financial advantages and disadvantages in relation to the supply of particular kinds of goods or services.”

Our amendment proposes the words “supply and consumption of”, but the Minister is unsure about the definition of “consumption”, and I take his point. It might suffice to delete “the supply of” and mention only the advantages of a particular kind of good or service. I feel, however, that we are almost on the verge of some degree of momentous cross-party concession from the Minister. By the way, I think it is a sign of the integrity and professionalism of any Minister on a Bill Committee occasionally to show some flexibility and latitude about the 300-odd pages of a Bill. [Interruption.] Well, when I was a Minister I thought it important to show that the Minister in Committee has the authority, if he or she desires, to make a concession in response to a debate. I am sure that the Minister has the authority to make concessions, should he wish to. He has been dangling a carrot before us, and in that spirit I am happy to withdraw amendment 80.

However, I cannot help him so much with amendment 81. It is regrettable that he says that the mention of one group or another would somehow cause detriment. We are talking about members of the public on lower incomes—that is not one group or another; it is the people in greatest need, and the most vulnerable in society. If they have debts or credit arrangements, have been subject to fraud, or are affected by any issue that might come up in a regulatory context, the loss of a few hundred pounds, which might be bearable to us, could be catastrophic for them, and it is more than necessary to give that a special emphasis.

It is therefore doubly important to put emphasis on the Money Advice Service. I do not say that lightly, because although we wish the service well, it has not yet shown sufficient attention to the most vulnerable people in society. A website-based advisory service does not quite cut it; it should be more focused and detailed. I know that members of the service will be listening to the debate, and taking on board some of the concerns, and I look forward to their doing so.

To underline the importance of the matter, I intend to press amendment 81 to a Division. As to amendment 80, I beg to ask leave to withdraw the amendment.

Mark Hoban (Conservative, Fareham)

I beg to move amendment 124, in clause 5, page 38, line 12, leave out ‘Part 1 of’.

George Howarth (Labour, Knowsley)

With this it will be convenient to discuss Government amendments 125 and 119.

Mark Hoban (Conservative, Fareham)

The amendments are minor and technical. In the draft Bill published for pre-legislative scrutiny, schedule 3 was split into two parts. That is no longer the case, so amendments 124 and 125 are needed to reflect that.

Paragraph 16 of proposed new schedule 1ZB of the Financial Services and Markets Act 2000 currently includes, in the list of the PRA’s legislative functions, a reference to section 328 of FSMA, which concerns directions relating to the general prohibition against members of professions, such as lawyers and accountants, carrying on regulated activities without permission under part 20 of FSMA.

By virtue of the amendments being made to part 20 by schedule 16 to the Bill, members of the professions will be able to carry on only those regulated activities that are regulated only by the Financial Conduct Authority under part 20. A lawyer or accountant who wants to carry on PRA-regulated activity will have to become regulated by the PRA. In the light of that, only the FCA will have an interest in giving a direction under section 328. Amendment 119 therefore removes section 328 from the list of the PRA’s legislative functions.

Chris Leslie (Labour, Nottingham East)

These are pretty uncontroversial changes. I would, however, just like to repeat how much we regret the fact that the Bill has not been written from first principles, but has essentially cut and pasted large chunks from the Financial Services and Markets Act 2000. I suspect that a lot of the drafting changes come from things not having been spotted in that cutting-and-pasting process.

This is a very difficult Bill to navigate; it does not make for a scintillating Committee experience, and it does not flow particularly well from time to time. However, it is important that we accept the Government’s admission that they have made mistakes, and we are happy to support the amendment.

Chris Leslie (Labour, Nottingham East)

This is a significant clause; indeed, clauses 5 and 3 are probably the two most significant clauses in the Bill. Clearly, there has been a lot of debate about clause 5, including on a significant number of amendments. That reminds me that one can look at a Bill on Second Reading and perhaps take it at face value, but that it is quite possible to change one’s opinion about its strengths or weaknesses having reflected on it and scrutinised it in Committee. However, I have always had misgivings about the Government’s preferred route of twin peaks regulation, as they call it, or a quartet of regulators, which I think is the more accurate way to describe it.

It was incumbent on the Committee to try to improve the drafting and substance of clause 5. We spent time looking at four areas, and at whether the provisions would be passable. First, there is significant concern in wider society about the levels of consumer protection; indeed, the Chancellor of the Exchequer answered questions on that subject at Treasury questions earlier today. Naturally, therefore, we wanted to test the Government’s view on these issues in Committee. We sought to introduce amendments dealing with whether firms would have an obligation to act honestly, fairly and professionally in the best interests of consumers. In particular, we talked about some of the professional competencies and characteristics that we wanted changed in the new regulatory arrangements.

We tabled other amendments to ensure that the regulatory perimeter was drawn in such a way as to catch many of the concerns of consumers in our constituencies about issues such as claims management companies. Another issue, which my hon. Friend the Member for Makerfield knows about, is debt management companies and debt adjustment service companies. In particular, amendment 87 dealt with the transfer of high-cost credit regulation to the FCA. We needed to make improvements regarding the costs of high-cost credit, the duration of its availability and the roll-over arrangements—issues that even the Government now recognise have to be tightened up. However, there was not really enough acceptance in the debate of the need for action to be taken as soon as possible, particularly by the FCA.

Although the Minister could not quite make himself say that the FCA would be a consumer champion, the hon. Member for West Suffolk did, and lo, the Chancellor of the Exchequer today also said that the FCA would be a consumer champion. So I hope that the Minister will now adopt the party line and also accept that, if the FCA is to be a consumer champion, its powers and role need to be improved.

One of the most crucial things that is missing from clause 5 is a more explicit extension of the fiduciary duty of care. I assumed that in some aspects of financial services provision, discretionary asset management in particular, the common law arrangement was that the fiduciary duty applied. The Minister could not quite bring himself to confirm that in debates on the amendments. We tried to push that point, hoping that it was not massively controversial, but it was rebutted. We proposed other changes as well.

The improvements that we need to corporate governance and the stewardship of corporate Britain were also raised during the debates on amendments to clause 5. My view is that there is a hole in the clause 5 provisions especially in relation to the Financial Reporting Council stewardship code and the UK corporate governance code. Both could have been brought much more to the fore in a clause that refers to prudential regulation as well as consumer protection, yet the Minister, despite the Prime Minister’s assertions that we had to do something about all these things, and the various books that have been written by hon. Members, has included nothing in the Bill.

The third big omission—we are talking about things that are conspicuous by their absence—related to big society issues. We wanted to be helpful to the Minister. We take with a pinch of salt some of his claims that the Government care for this big society—civil society—and want to see it flourish, but when we tried to get him to take action to make the agencies have regard to social finance and social investment, all our attempts were rebuffed. The Minister said that that would be special pleading and it would be detrimental if we focused on one area at the expense of another. It was a big mistake. Many organisations outside looking at clause 5 are simply saying, “Why haven’t the Government taken the opportunity to make those changes to that arrangement.”

Our fourth area of significant concern is the sheer cost, potential duplication and administrative burden and complexity that the creation of separate agencies might produce. I could go along with the Minister’s architectural logic if he had put in place certain safeguards about avoiding duplication and ensuring co-ordination in the agencies’ work. I am at a loss to understand why the Minister would resist such changes.

So for those four reasons—mostly to do with omissions in clause 5—I am in a dilemma. Do we let this clause go through? I am certainly not inclined to vote for it. Or should we take the opportunity in Committee to put down a marker in the hope that on Report the Minister will make a few improvements in it? Well, we might get the occasional drafting change; I think that we have melted some of his icier moments around the edges, but whether we will get any substantive changes to clause 5, I am not sure.

So I am starting to think that Opposition Members might need to vote against clause 5 just to send the message that it is a substandard clause and it is not drafted correctly. We will wait to see what comes back on Report, but for the time being it has too many problems to leave it as it stands.

Lorely Burt (Liberal Democrat, Solihull)

I want to make a few comments about this important clause. In general, I am extremely supportive and think that it makes great strides forward. I hope, therefore, that the Minister will take my comments as counsels of perfection rather than criticisms of the strides forward achieved by the coalition.

Some of the Opposition amendments relate to payday lending and debt management, and Opposition Members pushed the Minister to accept amendments on subjects that are currently under review by the Office of Fair Trading. I welcome that review, and I am keen for the Committee to see its findings when they are produced. It may be presumptuous to try to second guess what the OFT will suggest in its recommendations, but will the Minister assure the Committee that, where appropriate and after consultation, provision can be made in the Bill to implement any changes that the OFT may recommend?

Secondly, I want to address one small issue of ambiguity that was raised by the Consumer Credit Counselling Service—a valued organisation that provides free debt management services. The issue relates to an intervention that I made this morning and to the function of the Consumer Financial Education Body, now the Money Advice Service. On page 37 of the Bill, proposed new section 3R(4)(f) describes the function of the Money Advice Service as that of

“assisting members of the public with the management of debt;”.

The concern is that that could be interpreted as the MAS offering a debt management service, which it does not. Will the Minister clarify that point for the record and agree that the function of the Money Advice Service is intended to be that of

“promoting awareness of the benefits and risks”

associated with different kinds of debt services?

Thirdly, I wish to mention an issue raised by the Association of British Insurers concerning the PRA’s insurance objective as set out on page 25, lines 14 and 15 in proposed new section 2C. It is right for the focus of the insurance objective to be policy holder protection, but the implications of extending the objectives to cover those who “may become policyholders” are unclear. Although both the firm and the regulators have a clear responsibility to ensure the adequate protection of policy holders, it is not clear that any such duty will extend to the as yet undefined category of those who “may” become policy holders, or what the regulatory implications of ensuring adequate provisions for that class of person would entail. Will the Minister address that issue in his remarks? If the Government consider that to be a valid concern, perhaps a Government amendment could be tabled to leave out the words

“for those who are or may become policyholders.”

My fourth question for the Minister concerns proposed new section 2L and the duty to consider representations. The FSA is required to explain to the panels where it disagrees with any representations made, but I am unclear why the same does not apply to the PRA and why we are not treating the PRA in the same way as the FSA.

Part 2 on page 15 includes amendments to the Financial Services and Markets Act 2000. Does the Minister agree that the legislation should encourage explicitly the FCA to seek to maintain and extend consumer access to financial services that meet their needs? When making regulatory decisions, we want the FCA to assess the impact of them on markets and consumers. It should place value on policy proposals and regulations that increase access to savings, protections and other financial products and also on financial advice. In the absence of such a requirement, there will be a risk that the FCA will always be steered towards a risk-averse regulation. We might see markets possibly being restricted to large groups of consumers to avoid any consumer getting sub-optimal products.

The coalition seeks to encourage the development of simple financial products. If we are to succeed, we must have a regulator working with the grain of the policy rather than acting as an obstacle to it, as appeared at times to be the case in the previous Government’s stakeholder products initiative.

Under part 2, new section 3B “Regulatory principles to be applied by both regulators”, could the Minister consider building into the Bill a requirement that within the regulatory principles, account should also be taken of the competitiveness of the UK financial services industry in setting its rules? We have had several discussions today and previously about competitiveness, but I hope that the Minister will agree that in this context it would enhance the service that the consumer should get by virtue of the passing of this Bill.

Fabian Hamilton (Labour, Leeds North East)

I want to make a brief contribution to this debate on clause 5 stand part. My concern relates back to the FCA as a consumer champion. My worry has been touched on by, among others, the hon. Member for Solihull and, of course, by my hon. Friend the Member for Nottingham East in amendments that were tabled by Opposition Members. I am very concerned about some of the outrageous interest rates that are offered by payday lenders and even by some of the other companies that go from door to door offering loans to some of the poorest and most vulnerable households. The loans can often be at rates of 1,000% or 2,000% APR. The FCA should be the regulator of such loans with their outrageous interest rates. This Bill is a good opportunity to have a cap on that kind of appallingly punitive interest rate, whether it is from the payday loan that goes from one week to the next or from the door-to-door sales people who work for the companies that we all know about because we hear about them in our constituency surgeries. Some are charging up to 10,000% APR interest rates, which surely should be made illegal. Surely the FCA could have a role in stemming that and in ensuring that the consumer is protected from this kind of outrageous exploitation. For that reason alone, I stand with my hon. Friend the Member for Nottingham East in suggesting that we should vote against this clause. I say that not because everything in this clause is bad, but because it is not quite good enough for what we want to try to achieve.

Sheila Gilmore (Labour, Edinburgh East)

We have heard, both on this Committee and, as my hon. Friend the Member for Nottingham East said, at Treasury questions today, about the importance of the FCA as a consumer champion and how that should be an extremely important focus of its work. On that basis, it seems regrettable that some suggestions during this debate for strengthening that consumer role, be that defining more clearly how a consumer panel should be constructed and what different groups should be involved in that, or strengthening some of the other aspects of the work in terms of that end of the market where vulnerable consumers are particularly affected, have not been adopted. That is not to say that the provisions for that body are not good, but that they could be better.

Yvonne Fovargue (Labour, Makerfield)

Does my hon. Friend share my concern that during the transfer period, which could take two years or more, consumers will be left in limbo with nobody to champion them?

Sheila Gilmore (Labour, Edinburgh East)

It would be a pity, because a lot can happen even in a relatively short period.

Mark Hoban (Conservative, Fareham)

Before the hon. Lady gets carried away with her theme, can I repeat what I said when we debated this last week? The Office of Fair Trading will continue to take action in this area, right up until the point that responsibility for consumer credit transfers to the FCA. It will continue to take action on payday lenders and will continue to look at enforcement of the code. There will be no limbo where consumers are left unprotected.

Sheila Gilmore (Labour, Edinburgh East)

I am pleased that the Minister is confident that that will be the case. As for the other matters that the clause does not include, because the Minister has resisted them, it is a matter of some regret that the proposal from Social Enterprise to strengthen the representation of that sector of financial services by, for example, having a social enterprise practitioners panel was rejected. This is a field of financial services that we all want to expand. There are a lot of warm words about how it should be expanded, but it may require regulation of a particular kind, and the opportunity was not taken to create a specific provision around a practitioners panel, which would enable the FCA to develop a regulatory regime for that particular aspect of financial services to ensure that it was neither held back by disproportionate or wrongly constructed regulation and could therefore encourage it to expand and play a larger part.

The Minister gave his reasons for not wanting to have the sort of panels that the FCA is going to have for the PRA. It is unfortunate that he has taken that view. Consumers have a strong interest in what happens with the PRA. Many of the practitioners want a practitioner panel in terms of the PRA, and the current panel that exists in terms of the FSA has also proposed that it should form part of the workings of the PRA. The advantage is that they would provide a forum, if we have a consumer panel as well, within which some of the proposals for roles could be pre-consulted on in a more thorough way than can be done simply by a widespread consultation. It is a pity that the Minister has not seen fit to adopt the advice and include it.

I hope that the Minister will not take up the suggestion made by the hon. Member for Solihull to consider making an amendment to the provisions in relation to the PRA’s insurance objective. The suggestion was made that the Minister might want to look at proposals from some parts of the insurance industry to remove the provision that says:

“The PRA’s insurance objective is: contributing to the securing of an appropriate degree of protection for those who are or may become policyholders.”

The sector has debated the words “or may become policyholders.” The reason that has been given—by the FSA, I believe—for including the provision is to prevent insurers who have a problem with a product that they are offering taking on similar business in future. I hope that the Minister will not accept the proposal to remove the provision, because it is not true that all insurers and those involved in the business agree that those words should be removed.

The Association of Financial Mutuals, which provides insurance business, supports the provision. It would oppose deleting it from the Bill, because it protects consumers from the continued selling of products that are already known to cause problems. The interests of future policyholders are extremely important. A considerable number of problems in the industry have arisen from the continuation of what amounts to various forms of mis-selling of policies, even after problems have come to light. I therefore urge the Minister not to listen to the amendment proposal. I am pleased that he has not yet been persuaded by the Association of British Insurers and others, otherwise he might have amended the Bill before.

Chris Evans (Labour, Islwyn)

I am not one of those people who bash the work of the FSA. I regard this as a continuation of the good work that it has done to clamp down on the scandal of mis-selling that took place throughout the ’90s and in the early 21st century. We are giving the FCA more powers than the FSA had. I hope that the FSA’s good work will be continued, but that does not stop me having concerns about the FSA.

I want the Minister to consider some omissions from the clause that we have not discussed, which relate to a number of financial products. First, are we answering the question: are consumers savvy when they are making decisions about buying products? My hon. Friend the Member for Leeds North East discussed doorstep lenders. When those people come to the door looking to make a sale, are they giving consumers the professional advice that they need? The answer is no.

The flipside is the situation in banks. I am always concerned about commenting on banks, because when I served on the Pensions Bill Committee and said something nasty about them, a number of financial magazines condemned me for doing so and said that I had made a lazy comment. However, I will say this: banks follow a sales model—there is nothing wrong with that. They have to make a profit because they are private businesses. I am worried, however, that people walk into banks and staff are desperate to make a sale because their wages are based on bonuses. Are staff forgoing a duty of care to consumers? Are they more interested in making the sale than in finding the right product for those customers? I do not believe that the clause clears up that matter or answers those questions. Is there a duty of care on the professional to provide the right amount of advice? The provision fails to recognise that need. I hope that the Minister will answer my query.

Secondly, the hon. Member for Solihull mentioned the OFT investigation. The clause is not strong or clear enough about the roles of the FCA and the OFT. If, as my hon. Friend the Member for Leeds North East said, doorstep lenders and other unscrupulous companies— I say that in fear of journalists watching us and saying something nasty about me—will continue to be under the auspices of the OFT, there will be overlap. Will the Minister explain how we can clear the tension between the work of the OFT and the work of the FCA? It will happen, because they both will be dealing with consumer credit. I hope that, when he replies, he will refer to such issues.

Mark Hoban (Conservative, Fareham)

Let me clarify matters. There will be a cutover from the OFT to the FCA and, until that happens, the OFT will clearly be in charge of the regulation of consumer credit. The Bill will facilitate that transfer.

Chris Evans (Labour, Islwyn)

I thank the Minister for that response. I will end my speech now.

Mark Durkan (Social Democratic and Labour Party, Foyle)

In a previous stand part debate, I cast a no vote because I recognised the need to make new provisions and to learn the lessons of what has happened in the past few years and the lessons of what did not happen in response to emerging problems. However, if my hon. Friend the Member for Nottingham East tests the Committee and presses clause 5, as amended, to a Division, I will vote against it standing part because it is such an inadequate clause—for all the reasons we highlighted when describing the various amendments we tabled to it. Even if the Minister wanted to reject the amendments, he could have acknowledged that adjustment was needed either in respect of the clause or elsewhere in the Bill. If he had picked up several of the points that were made, we could have supported the clause proceeding untested, without it being pressed to a Division.

Clause 5 under the Bill spans 24 pages. It also incorporates many other references not only under schedules, but other legislative provisions. Its content is very wide. Yet it omits significant detail and fails to clarify itself from the point of view of practitioners who will be affected by the activities of the different regulators and in respect of the duties of consideration that would be owed to consumers. Duties should be owed by both regulators, but we have heard from the Minister that they will apply to only one regulator.

If such a brand new vision is about offering us articulated regulation to take account of different market factors and different services and products, I am still at a loss to understand how, within the regime of articulated regulation, the consumer interest counts only in relation to the work of one regulator, when clearly the work of the other regulator will have a significant impact on consumer needs and should work to the benefit of consumer interests. The idea of leaving one regulator to be responsible for what the other regulator does seems to be a recipe for confusion and, indeed, failure. That is why I and others tabled amendments aimed at clarifying matters and anticipating the problems that are likely to arise.

We find under clause 5 and other provisions to which it alludes many other problems, such as requirements for the PRA to have power to override the FCA on various issues, but we do not find a countervailing measure to allow consumer interests to make their way and voice themselves to the PRA, and for it to hear them. That is a fundamental failure, not least given that the PRA will be dealing not just at the high level with matters that are remote and to do only with issues that people will discuss around rarefied dinner tables in the City of London, but with matters that will be close and intimate to people in my constituency, such as credit unions. The idea that it would behave in a way that was completely detached, and that it would have to be protected from any approach by a consumer voice, seems somewhat bizarre.

Someone like you, Mr Howarth, who has served in ministerial office in Northern Ireland, will be familiar with the comforting counsel that, “If you aren’t confused, you do not understand”. However, in relation to the Bill, we should look at that the other way round: people are confused—as am I, as a legislator, not only by the clause but by the Minister’s arguments—but that does not mean that we do or will, in practice, understand. Some arguments made for rejecting amendments to the provisions are almost like a Homer Simpson nightmare: just when we think we have reached the conclusion, we find ourselves back in something completely different and all the old problems and issues open up again. The clause is bad because it offers a model that could be made good, but it needs more work and more specifics to be built into it.

Earlier, the Minister told the Committee that just because regulation is expensive does not mean that such regulation would not be worth it, in relation to what it saves the consumer and the taxpayer and, by avoiding systemic risk, in relation to the public interest. Equally, I say that, just because some of the amendments that the Minister has rejected might have made the provisions slightly longer does not necessarily make them worthless. They would have provided clarification, and they would have offered a basis for confidence for practitioners in the financial services sector, clearer guidance to various professional interests and bodies and a measure of assurance and confidence to consumers. They would have been worth while.

I hope that the Minister agrees that the clause, like other provisions in the Bill, needs more work. More adjustment is needed to take account of existing concerns and the circumstances that are likely to arise. The Minister’s best argument for rejecting amendments has been to say that what the FSA is doing is good enough, but the Bill is meant to be about the replacement of the FSA and ensuring that we do not have to rely on any of its inadequacies or iniquities and all that went with that regulatory regime. It is not enough to tell us to carry on with what we have and what we know. If the Bill is to provide a brave new world of regulation in which everyone will know where they stand and who they should talk to if problems are identified—in which regulators will know when to talk to each other, and everyone will know which regulator to talk to and that they will have a voice on the various panels—more needs to be done to make the working model better. When a problem arises, calls will be made in the House and elsewhere for the Treasury to clarify which regulator is looking at the problem and for it to consider making changes to the provisions.

Clause 8 makes provision for the Treasury to introduce all sorts of new regulatory legislation, including powers to change primary legislation. In all likelihood, some of the provisions about the PRA that will be changed are those in clause 5. On clause 8, the Government’s best defence is that they will need reserved powers for the Treasury to clear up the mess, inadequacies, inconsistencies and incompatibilities built into clause 5. The answer is not to have sweeping powers that can be used capriciously, and will probably create a lot of market uncertainty. The answer is not to give capricious powers to the Treasury, but for the Committee, and the House more generally, to do the job of discharging the Bill as our best legislative effort now, given all that we have experienced and all that people are likely to experience.

Mark Hoban (Conservative, Fareham)

I was just looking at clause 8 to find out which new sweeping powers we had given ourselves. I am not sure that they were quite as sweeping or as wide as the hon. Gentleman thinks. If we ever get round to a stand part debate on clause 8, we shall probably return to those provisions.

I know that Opposition Members are frustrated at not getting more amendments through. Perhaps I am not as collaborative as they would like, but I remind them that the Bill has been through three rounds of public consultation. We started the process in July 2010. Many of the big issues have been resolved, and many pieces of low-hanging fruit were picked up in debate. The pre-legislative scrutiny Committee did a good job, and we have reflected many of its proposals. The Treasury Committee conducted three inquiries, so there has been a rigorous process. Indeed, the fact that the most excitement this Committee could generate on clause 5 was about who should be on which panel may demonstrate that some of the bigger issues that underpin the clause passed by without much comment.

There are some radical changes in the measure. There are much tougher objectives for the FCA and a very clear focus for the PRA. There are some interesting powers that Opposition Members have not really touched on—to my surprise—but that may reflect a degree of consent for the broad outline of the Bill.

I shall deal with some of the comments. In debates such as this, I always think of the American baseball player, Yogi Berra, who said, “It’s déjà vu all over again.” We have discussed a number of points—

Chris Leslie (Labour, Nottingham East)

You were not listening.

Mark Hoban (Conservative, Fareham)

I was listening the first time, and the second time—and the third time. I even listened the fourth time.

Let me deal with some of the points that are new, or where I feel that some clarification is required. My hon. Friend the Member for Solihull referred to debt management as one of the objectives of the Money Advice Service. Let me be absolutely clear: the provision caters for the Money Advice Service’s new responsibility for debt advice. I do not want to see the Money Advice Service offering debt management plans; there are plenty of people who can do that. The role of the MAS is to commission free debt advice, not necessarily to provide debt management plans. That is beyond its scope. I hope that gives some clarification.

My hon. Friend raised a point about the PRA that I am surprised did not have more legs at an earlier stage. She said that the PRA should have regard to representations, and of course proposed new section 2L explicitly provides that the PRA consider the representations made under new section 2K. Those are advisory arrangements and it is right that the PRA should be able to establish its own arrangements for getting the best advice, as the Joint Committee agreed. The PRA will obviously consider the advice it commissions and the representations it receives.

My hon. Friend raised an interesting point about the PRA’s with-profits objective, which the hon. Member for Edinburgh East picked up on too. One of the things we are trying to do across financial regulation is to be forward-looking. We are seeking to replicate some of the forward-looking aspects of the consumer definition that appears in section 425A of the Financial Services and Markets Act 2000. Going back to with-profits policyholders, the reference to potential policyholders reflects the fact that a forward-looking prudential regulator should not just be considering the interests of current policyholders without thinking about how the firm’s treatment of existing policyholders would impact on policyholders in the future. For example, a prudential regulator should not allow an insurer to treat its current policyholders in such a way that in five years’ time, the firm goes bust to the detriment of those who become policyholders in that period.

In the regulation for with-profits policies, future policyholders need to be taken into account when distributions to current policyholders will have a direct impact on the interests of future policyholders. A point that the parliamentary ombudsman raised in her report on Equitable Life was that the FSA did not adequately protect new policyholders, once Equitable Life was in serious difficulty, so it is important that the PRA looks at both existing and future policyholders. I hope that, with that forward-looking approach, the PRA is less likely to make the kind of regulatory mistakes that occurred with Equitable Life, to the detriment of many thousands of people.

Fabian Hamilton (Labour, Leeds North East)

Will the Minister give way?

Mark Hoban (Conservative, Fareham)

Indeed. I had forgotten that the hon. Gentleman was a co-chairman of the all-party group on Equitable Life policyholders.

Fabian Hamilton (Labour, Leeds North East)

Indeed, and the Minister and I battled each other across the House during the passage of the Equitable Life (Payments) Act 2010. Does he think that if this regulatory arrangement had been in place at the time—this is a very theoretical point—it could have prevented the scandal of the with-profits annuitants who have suffered so much at Equitable Life?

Mark Hoban (Conservative, Fareham)

It was not only the with-profits annuitants who suffered; anyone who took out a with-profits policy with Equitable Life post-1992 did, according to the ombudsman’s findings. I strongly reject the comment by the hon. Member for Foyle that it is just business as usual, because the Bill gives the regulator powers and objectives for consumer protection that are significantly stronger than those of the FSA. The regulator will have tools to help tackle some of the problems that it would have faced with Equitable Life. For example, if it had identified a flaw in the design of a policy, the product intervention powers—which we may debate later—could have been used to stop policies being mis-sold, in the same way that they could potentially have been used to stop PPI policies being mis-sold.

We have sought to learn and respond to the lessons of the past, while at the same time ensuring that the regime is sufficiently forward-looking to try to deal with the new challenges that we will see in financial services. However, I think that some powers and objectives in the Bill would have helped with Equitable Life.

Mark Durkan (Social Democratic and Labour Party, Foyle)

To clarify, in case the Minister misrepresents me, I have not dismissed the Bill as simply being about continuity, FSA, or anything else. What I have said is that the Minister’s argument against all the amendments is that they are not needed, because the FSA has been doing things in a particular way, and that will continue into the future. The contradiction is in the Minister’s arguments and not on the part of those who have been tabling amendments.

Mark Hoban (Conservative, Fareham)

I hope that my reasons for rejecting amendments tabled by Opposition Members have not been quite as narrow as saying, “The FSA is doing it already and it is okay”. Some amendments have been not been accepted because of a broad set of issues.

Lorely Burt (Liberal Democrat, Solihull)

I understand more fully the reasoning behind this idea about policyholders in the future, but I have a twinge of concern about the area relating to undefined categories of policyholders. We cannot forecast with a crystal ball exactly what is coming down the road. The concern of the Association of British Insurers was that they are being given responsibility for future events that they cannot necessarily predict.

Mark Hoban (Conservative, Fareham)

We are not crystal ball gazers, and no one has a perfect view of the future, but it is important that in thinking about regulating the with-profits business, we pay some regard to the interests of future policy holders, so that business is not run solely for the benefit of current policy holders. With-profits funds build up over a period of time. They are, obviously, of interest to policy holders, but the businesses are long-term businesses. Anyone running a long-term business needs to look ahead to future policy holders, not just those currently on the books.

On access, to which my hon. Friend also referred, it is important that we see access as a social policy issue and not simply one for the regulator. She made a point about the FCA’s approach to stakeholder products. We need to ensure that proper protection is in place for consumers, but I can advise her that a representative of the FCA is sitting in as an observer of the simplified products group that Carol Sergeant is chairing on our behalf. It is helpful to have the FCA’s engagement in that process.

My hon. Friend also touched on competitiveness, which we have debated. It is important to avoid the mistakes of the past. There is a sense that regulation has been watered down under pressure to deal with issues such as international competitiveness. It is much better to ensure—this is a point that I make frequently in other circumstances—that regulation is proportionate and that where a problem is identified, the regulatory response gets the balance right between costs and benefits. That should be a key part of regulation and should apply not just to the FCA but elsewhere.

The hon. Member for Nottingham East said that there was nothing in the Bill about co-ordination, but there is quite a lot. Effective co-ordination between regulators will be essential to ensure that they can deliver their statutory objectives in an effective and timely manner. The Government have proposed a number of mechanisms to ensure effective co-ordination between the new regulatory bodies, including cross-membership of boards between the PRA and the FCA, a statutory duty on the PRA and FCA to co-ordinate the exercise of their functions and an obligation to prepare a memorandum of understanding setting out how the statutory duty will be delivered. For key regulatory processes such as rule making and enforcement, the Bill includes hard requirements on legislators to consult with each other.

Mechanisms are in place to ensure that the PRA and FCA will be held accountable for how effectively they have co-ordinated, including a requirement for the MOU to be reviewed annually and for that review to be laid before Parliament, a requirement for the FCA and PRA to include in their annual reports an account of how they have complied with their duty to co-ordinate their actions over the year and, of course, the engagement of the NAO, a significant advance in the regime on financial accountability compared with the regime that we inherited.

Of course, statutory requirements are not enough in themselves. A collaborative working culture has developed between the regulators, as we have seen in the current period of shadow running. The FCA will begin the process of dividing its prudential and conduct-focused responsibilities.

The hon. Member for Islwyn discussed the duty of care. The Bill establishes a new framework in which the regulators—not just the FCA but the PRA—will impose requirements on banks and other firms reflecting consumers’ interests in being provided with safe, stable and appropriate financial services. The concept of a duty of care is the foundation of the regulatory system, and it is recognised at every level in the Bill, from the regulators’ top-line objectives to the specific tools that I hope we will discuss before we conclude our consideration of the Bill in Committee, such as the FCA’s power to ban products. As we debate the Bill in more detail, we will see how that duty ripples through.

Chris Evans (Labour, Islwyn)

The FCA has a large amount of power, but does the Minister worry that the FCA, and people who look for redress from the FCA, might be confused as to whether the OFT or the FCA is policing the market? I am worried about the level of confusion.

Mark Hoban (Conservative, Fareham)

The Bill gives the power for the transfer of regulation from the OFT to the FCA, and it will be clear who is in charge up to the point at which the cutover takes place. We will have to go through a consultation process on the transfer to ensure that the regulatory perimeter and type of regulation are right, but from a consumer’s perspective, until that cutover takes place, the OFT is very much in charge of regulating consumer credit.

There have been calls for the FCA to have all sorts of additional powers on consumer credit. The FCA’s current suite of powers will be sufficient to address consumer credit issues, but we should not prejudge the consultation process by introducing powers that are perhaps not appropriate or right.

The hon. Member for Leeds North East referred to capping the cost of consumer credit. Let us be clear, as the Chancellor was earlier, that the previous Government looked at consumer credit on several occasions and each time they rejected a cap on interest rates, because they recognised, as did many consumer bodies, that it could force people into the arms of illegal money lenders, and I do not think any of us want to see our constituents being forced into the arms of illegal money lenders.

BIS has commissioned the university of Nottingham to look at the total cost of credit, but let us not pretend that there is some sudden dividing line between the parties, because the previous Government adopted a similar position. I remember, on Report of the previous Financial Services Bill, a member of the previous Government argued very persuasively against a cap on interest rates.

Chris Evans (Labour, Islwyn)

Will the Minister clarify his statement on the costs of lending? Will he be looking at early repayment fees, rather than a cap? Companies such as Provident Personal Credit and Shopacheck often have hidden charges as well as high interest rates.

Mark Hoban (Conservative, Fareham)

A number of hon. Members on both sides of the Committee have raised that point. The review commissioned by BIS is looking at the total cost of credit, rather than looking simply at interest rates.

Clause 5 is an important part of the Bill, and we have addressed a range of issues in this clause stand part debate and in our consideration of the amendments. I remind Opposition Members that the clause has been through a thorough process of public scrutiny, and it has been a thorough process of legislative scrutiny in the past few sittings of this Committee.

My mind is never closed to amendments when a good argument is made. We have suggested that we will consider some of the wording of the clause, but some of the big issues have been resolved in earlier rounds of consultation. Those issues have not really been touched on in the past few sittings, which is a sign of consensus, and I am surprised that the hon. Member for Nottingham East seeks to divide the Committee when no big issues of principle are at stake; he is seeking to divide the Committee on relatively small matters.

Schedule 3 - Financial Conduct Authority and Prudential Regulation Authority: Schedules to be substituted as Schedules 1ZA and 1ZB to FSMA 2000

Chris Leslie (Labour, Nottingham East)

I beg to move amendment 43, page 174, line 44, leave out from ‘expenses’ to end of line 46 and insert ‘to the Bank of England in respect of the services of the Bank’s Deputy Governor for prudential regulation as a member.’.

George Howarth (Labour, Knowsley)

With this it will be convenient to discuss the following:

Amendment 42, page 175, leave out lines 16 to 21.

Amendment 89, page 182, leave out lines 33 to 37.

Chris Leslie (Labour, Nottingham East)

This group of amendments relates to some technical aspects of the wiring and administrative arrangements regarding establishing the Financial Conduct Authority.

Amendment 43 merits a little attention. Committee members will see, at the foot of page 174 of the Bill, paragraph 3(7) of proposed schedule 1ZA to the Financial Services and Markets Act 2000, which states:

“The FCA may pay expenses to the Bank’s Deputy Governor for prudential regulation in respect of that person’s service as a member”

of the board of the FCA. The deputy governor will have a financial recompense, according to that provision. The amendment would, I hope, clarify the clause usefully, making it read instead: “The FCA may pay expenses to the Bank of England in respect of the services of the Bank’s Deputy Governor for prudential regulation as a member.” That is important because we want to clarify that expenses are not to supplement the salary of the deputy governor of the Bank because of time he has spent on the board of the FCA, which is part and parcel of the job description of the deputy governor of the Bank. Instead, if there is a recharge mechanism to be returned because of time spent in service of those duties, the moneys will be paid to the Bank of England, not to the individual.

I should be grateful if the Minister said that that is how the process should work, otherwise we get into strange circumstances, with other officials in the Bank who spend time on parts of the FCA’s activities or in various meetings not getting personal expenses for that time. It would be far better and cleaner if moneys paid to deputy governors came through the Bank of England and there was a recharge mechanism, if one were needed.

It would be useful if the Minister provided an estimate of what he thinks the expenses are likely to be. What scale are we talking about? The deputy governor for prudential regulation might spend a significant, inordinate or tiny amount of time—I do not know—so the Minister should say what the scale is, because that would give us a sense of whether these are petty cash issues to be returned. Obviously, the deputy governor will be catching the bus to FCA meetings. Are the moneys simply for his bus fare or are we talking about serious multiples of tens of thousands of pounds? What is the scale?

Amendments 42 and 89 reflect two points. In the debate on the previous clause, the Minister spoke at considerable length on various points in respect of clause 5 stand part and claimed that there are lots of ways that the Bill provides for co-ordination between the FCA and the PRA, for example, across membership of boards. We look now at schedule 3, and we discover that on page 175 there is provision for the Bank’s deputy governor for prudential regulation to be on that board, but paragraph 6 states:

“The Bank’s Deputy Governor must not take part in any discussion by or decision of the FCA which relates to—

(a) the exercise of the FCA’s functions in relation to a particular person, or

(b) a decision not to exercise those functions.”

Similarly,

“The chief executive of the FCA must not take part in any discussion by or decision of the PRA which relates to—

(a) the exercise of the PRA’s functions in relation to a particular person, or

(b) a decision not to exercise those functions.”

So there you have two deputy governors, supposedly sitting on those two boards to aid, as the Minister said, the co-ordination of those two bodies and to have cross membership, yet there is a provision that gags those two individuals and prevents them from getting involved in discussions on certain areas. There may be a rational reason why the Minister wants those two individuals simply to stick to strategic issues but never to discuss operational questions. He will know, because Conservative Governments over the years have struggled with this issue, that the line between strategic and operational is sometimes very difficult to define clearly.

Paragraph 5 on page 175 states that the validity of any act of the FCA is not affected if there is a vacancy in the office of the deputy governor or if there is a defect in the appointment of a particular person to those boards. But if that deputy governor for prudential regulation happens to stray in discussions into areas which relate to a particular person or to a decision on exercising a function, might there not be a serious risk that, on judicial review, a third party could indeed challenge the validity of any act of the FCA, should it be discovered that that deputy governor had uttered a phrase or misspoken in a particular way about a particular person or a particular issue?

I am concerned that there is a danger in fettering the abilities of, or limiting the topics on which, the deputy governors and the chief executive of the FCA can speak. This is not a party political point. It is a standing order point as much as anything else. If we are to enshrine such restrictions on the things that these board members can and cannot utter so that they cannot take part in a decision, would being in a room be so classified? Would every single decision of the FCA and the PRA have to be separated into generic and operational questions? I counsel the Minister that he is writing dangerous rules into this. We do not want a whole series of litigious circumstances coming along to unpick decisions of the FCA or the PRA.

Those are my concerns. It would not be right to fetter internal discussions or try artificially to define some wall in this way between these two players on those boards. It is a reasonable idea to put them on the boards of both organisations, but this half-gagging clause has a number of dangers within it. The Minister should reconsider and I should be grateful if he accepted our amendments.

Mark Hoban (Conservative, Fareham)

The purpose of cross-membership is to help to ensure that there is effective strategic co-ordination between the two regulators. The CEOs will not advance the interests of their own organisations when sitting on each other’s board except in so far as both regulators have an interest in effective co-ordination. Accordingly, the draft MOU makes it clear that the cross-board role of the CEOs will focus on areas of overlap. The CEOs will participate in discussions around the legislative functions which are reserved to the boards, such as setting policy and making rules. As the draft MOU makes clear, the regulators will consult each other at an early stage when developing policy. Cross-board membership of the CEOs will be useful in supporting this and ensuring that it takes place in an appropriate way. That provides the backdrop to the amendments.

We are thinking about why the CEOs should be on the board: it is to participate in policy making, where there is an overlap of interest, and to assist in areas such as making rules. For those reasons, it is not appropriate for the chief executives to take part in firm-specific decisions by each other’s boards. Such decisions might include petitioning for the insolvency of a particular firm, so at the level of firm-specific operational decisions, the PRA and the FCA must have clearly defined and separate roles, which could be undermined if the CEOs were involved in firm-specific decisions taken by the other body; their remit should be limited to strategic decisions, which is why I reject amendments 42 and 89.

On amendment 43, when the hon. Member for Nottingham East is prepared to listen to what I am saying—

George Howarth (Labour, Knowsley)

Order.

Mark Hoban (Conservative, Fareham)

Amendment 43 would provide for any fee paid to the CEO of the PRA for work on the board of the FCA to be paid to the Bank of England, rather than to the CEO directly. However, when CEOs of the PRA sit as a directors on the FCA board, they owe their duty as directors, with particular focus on helping to ensure effective strategic co-ordination, to the FCA. The CEO of the PRA is not on the FCA board in the capacity of a secondee of the Bank or of the PRA, as the amendment suggests.

Teresa Pearce (Labour, Erith and Thamesmead)

My understanding is that part of the responsibility of the deputy governor is to be on that body. Is the Minister saying that it is completely separate and not part of the job description of the deputy governor?

Mark Hoban (Conservative, Fareham)

I am saying something slightly different. As a director of the FCA, he owes his duty to the FCA. That is why he is there. He is not a secondee from the Bank to the FCA, but a director of the FCA. Yes, the role of an FCA director goes hand in hand with being a deputy governor with responsibility for financial regulation, but he is not on secondment to the FCA. He is on the FCA board, taking part in decision making alongside other directors of the FCA, whereas a secondee would have a wholly different set of arrangements in place.

Let me reassure the hon. Member for Nottingham East that the expenses to which paragraph 7 refers are things such as a bus fare, for getting from the Bank to Canary Wharf or wherever, rather than a form of salary. The provision is to cover out-of-pocket costs, which is why it would be paid directly.

Chris Leslie (Labour, Nottingham East)

I am not sure whether the same principle applies, for example, to the Treasury representative who sits on the Financial Policy Committee. Does the Treasury representative get expenses in an individual capacity or get no expenses at all? It is difficult to know, when we are talking about situations that have not yet happened, although they are in shadow form and so must be established at some level. I do not want to labour the expenses point, but it is important to keep an eye on those arrangements.

I am not convinced by the Minister’s justification on fettering discussions between the deputy governors. I understand and expected the point about keeping them to strategic discussions alone, but he must surely appreciate my concerns about how things will be drawn. If paragraph 5 had also excluded the validity of an act being challenged by virtue of something under paragraph 6, it would have been a fair point. Perhaps I can gently suggest that he goes away and looks at that point, because it is a particular worry.

I do not want to press amendment 43 to a vote. There is a point of principle on the two issues, but for the sake of brevity, I shall test only one. If I can press amendment 42 to a vote, I will be happy not to press amendment 89, in the hope that the Minister might look at the point later. I beg to ask leave to withdraw the amendment.

Mark Hoban (Conservative, Fareham)

I beg to move amendment 102, in schedule 3, page 175, line 39, leave out ‘312J or 345D, or’ and insert

‘or 312J

( ) section 345D (whether as a result of section 345(2) or section 249(1)), or’.

George Howarth (Labour, Knowsley)

With this it will be convenient to discuss Government amendments 94, 110, 101 and 112.

Mark Hoban (Conservative, Fareham)

Part XVII of the Financial Services and Markets Act 2000 makes provision for collective investment schemes such as unit trusts. It includes provision for the FSA—and in future, the FCA—to make “trust scheme rules” about the operation of unit trust schemes. Those rules can impose duties on the auditors of such schemes. Section 249 of FSMA allows the FSA to disqualify an auditor from acting as an auditor for collective investment schemes for failing to comply with those duties. There is a parallel power in section 345 of FSMA for the FSA to disqualify an auditor or actuary who fails to comply with similar duties from acting for authorised persons.

Schedule 13 to the Bill will give the FCA and the PRA a wider range of disciplinary powers over auditors and actuaries of authorised persons. It will give them powers to fine and to censure an auditor or actuary who has failed to comply with a duty, in addition to the power to disqualify the auditor or actuary from acting for an authorised person or class of authorised persons. Government amendment 112 brings the disciplinary powers over auditors of authorised unit trust schemes into line with the new, wider range of disciplinary powers over auditors of authorised unit trusts being conferred on the FCA and the PRA by schedule 13. The remaining amendments in this group are consequential on amendment 112.

Chris Leslie (Labour, Nottingham East)

Again, there are a number of Government amendments. As the Minister said, they relate to auditors of unit trusts and open-ended investment companies. The amendments seem broadly reasonable in their framing, so I have no particular objections to the points that they raise. I think that the Minister is correct in saying that amendment 112 is probably the more important of these changes in respect of failed auditors and how the regulator needs to have certain powers framed to ensure that it can control the activities of auditors for certain other investment activities. Perhaps that is not set out in the Bill as it is currently framed. I think that those are all reasonable points and I am happy to accept the amendments.

Chris Leslie (Labour, Nottingham East)

I beg to move amendment 70, in schedule 3, page 183, line 10, at end insert ‘merit, fairness, openness and’.

This amendment is to proposed new schedule 1ZB in schedule 3. On page 183, there are a number of provisions on the appointment of members to the governing body of the Prudential Regulation Authority. Paragraph 10 on page 183 states:

“The Bank must have regard to generally accepted principle of good practice relating to the making of public appointments.”

That is a broad-brush phrase. The amendment would add merit, fairness and openness to the principles that the Bank must have regard to in those public appointments. I make no apology for trying to tighten up the framing of the Bill on those public appointments. We are already in a situation where these are public appointments at arm’s length from Government Ministers, although they are still within the public domain. As such, it is important that they comply not only with generally accepted principles, but specifically with the code of practice of the Office of the Commissioner for Public Appointments, which sets out what those generally accepted principles should be.

The difficulty is that this falls into the grey area of what is and what is not a public appointment. In this instance, these are appointments to a company. The PRA will be a limited company, so we are talking about directors of a body corporate. For the avoidance of doubt, rather than the PRA using the orthodox process of nods and winks in some of these appointments, which we have seen too often, we must have open competitions, appointments on merit according to the principles of equal opportunities and of transparency and openness in the arrangements. If we put such arrangements in the Bill, it is important to be more stringent in the terms in which we frame them. We have debated issues such as the sort of person who might be appropriate for membership of the board of the PRA, and the Minister will know that we have concerns about whether they will come from a sufficiently broad cross-section of industry and consumer voices and from all corners of the country. At the very least, I hope that the Minister will accept those basic principles.

We must ensure that those who are chosen to serve have the right abilities, experience and qualities to match the job description, and that any appointment process can stand independent scrutiny. Will the Minister explain whether appointments to the PRA will be subject to the code of the Office of the Commissioner for Public Appointments? That is an important first principle. I should also be grateful if he would reiterate who will make the appointments, what the process will be, where the vacancies will be advertised, and so on. Those are the issues that we want to test in this amendment.

Mark Hoban (Conservative, Fareham)

Paragraph 10 to schedule 1ZB already requires that appointments to the PRA board should take place in line with generally accepted principles of good practice relating to public appointments. The articulation of those principles is the code of practice for ministerial appointments to public bodies, which is published by the Commissioner for Public Appointments. Its aim is to ensure that public appointment processes are fair, open and transparent, command public confidence and result in appointments that are made on merit. The Bill already requires the Bank to run the appointments process according to the principles of merit, fairness and openness, so the amendment is unnecessary.

Chris Leslie (Labour, Nottingham East)

I am grateful to the Minister for confirming that the appointments will be subject to the code set out by the Office of the Commissioner for Public Appointments. That was the assurance that I sought, but it would have done no harm to have had a slightly tighter definition of the provision. He says that there is not enough specificity in our amendments, and that they are too imprecise and vague in their definition, but he refers to generally accepted principles of good practice. It is worth parking that, and remembering that that is acceptable in this context, but not in others. However, I accept the Minister’s commitment, which is very welcome, and I beg to ask leave to withdraw the amendment.

Chris Leslie (Labour, Nottingham East)

This is a relatively short but important schedule. We have pointed out a number of concerns about specific elements, but we will now debate the principle of some of the working arrangements of the FCA in particular. I am sorry that the Committee declined to support our amendment 69 on the publication of the minutes of the FCA. I know that the Chancellor has been challenged on that and that the Treasury Committee has raised concerns about it. I hope that, on reflection, the Minister and his colleagues will return to the matter at a later date, because it is vital that we do not just set up functional standing orders for transacting the business of the FCA and the PRA; the arrangements need to be transparent and open. The two new regulatory bodies are powerful and their arrangements need to be as open to scrutiny as possible. The Minister will know my hope that we should be establishing, for example, a super-affirmative process—an enhanced affirmative arrangement—for resolutions on macro-prudential policy that come from the Bank of England that will affect the work of the PRA and the FCA. It is important, because of the significance of some of the powers that the two new bodies will have over the economy and the public at large, that we have the ability to test, to challenge and to see inside their decision-making processes.

It is a pity that the members of the Treasury Committee who are on this Committee did not—to put it kindly—take the opportunity to press or cajole the Minister, at least in the public domain, about the elements of the workings of the FCA or the PRA that could have been improved. We should have had a greater sense that the FCA was going to be a consumer champion and that it would be subject to far broader consultative processes, so it is a pity that hon. Members did not go down that particular route. We will undoubtedly want to return to such issues on Report. I will not object at this stage to the workings of schedule 3, but I am not particularly motivated to support them either, so I will see what changes the Minister may come back with on Report. The glass is half full on schedule 3 for the time being.

Clause 6 - Extension of scope of regulation

Chris Leslie (Labour, Nottingham East)

Clause 6 contains a set of measures relating to the scope of regulation and the extent of regulated activities. The Bill aims to make a number of changes to the regulatory perimeter, some of which, including the regulation of consumer credit issues and the transfer of responsibilities from the Office of Fair Trading to the FCA, have already been debated by all hon. Members, and those shifts are welcome. However, the Minister will know that serious reservations have already been expressed about the timing of the transfer of responsibilities to the FCA, the resources that the OFT currently has for overseeing some consumer regulation issues, and the extent to which those resources will be transferred or made available to the FCA.

Consumer credit regulation will create a significant volume of extra work, albeit at perhaps a smaller level because of the volumes concerned. Can the Minister set out what that estimated volume change is likely to be? What are the numbers of regulated persons who currently fall under the ambit of the OFT who will now fall under the auspices of the FCA? It would be good to get a sense of the scale of the number of regulated persons and firms that are likely to come under the FCA’s remit. I would also be interested to hear what the situation will be in terms of the regulatory resources. Perhaps the FCA has said how it will expend its resources on such issues. I appreciate that transfer issues are still in train and under discussion, but he must have an estimate of what that is going to be. Although we want coherent regulation, we also want to ensure that the new regulator has enough ability to capture properly some of the concerns that people have.

The Minister knows—we debated this earlier—that the transfer of credit reference agencies regulation is also a positive step. I think there are only three credit reference agencies in the UK: Callcredit, Equifax and Nottingham’s finest, Experian. They are important bodies, currently all subject to licences from the Office of Fair Trading. Certain essential information about those firms needs to be provided to the OFT as part of the licence application process. The agencies are required to provide consumers with credit files at a cost of £2 each, and they need to abide by certain regulatory standards. There are also careful rules regarding the data protection requirements on such bodies. It would be useful if the Minister could say how he thinks credit reference agency processes are likely to be affected by the transfer.

I am particularly concerned about what is known as the credit repair industry. It involves companies that advertise to an individual who has perhaps had a county court judgment or may have had to default on a particular credit agreement, for example by missing the occasional payment. The companies would say, “For a fee or a certain arrangement, we will repair your credit rating.” Will credit repair companies and activities come within the regulatory perimeter? I think they are quasi financial services activities that probably merit attention in the Bill.

I would be grateful if the Minister specifically addressed those points on clause 6.

Lorely Burt (Liberal Democrat, Solihull)

I have just a small question. I hope the Minister will forgive me if, during our long deliberations, it has already been covered.

I want to check on the status of claims management companies. As I understand it, they currently come under the Ministry of Justice. Due to the large number of financial services complaints that such companies are subject to, would it not be more appropriate to add their activities to the list of regulated activities in the clause?

Mark Durkan (Social Democratic and Labour Party, Foyle)

On the Danny Blanchflower principle of equalising before the other team scores, I want to put a couple of questions to the Minister on clause 6 and wider provisions regarding consumer credit, which I would otherwise have done by way of intervention.

Will the Minister clarify whether the provisions and the intended changes from the OFT to the FCA have taken account of the different situation in Northern Ireland? Significant parts of consumer regulation in Northern Ireland are listed as devolved matters, but the OFT has been active on several matters that have straddled devolved and non-devolved areas. We have a situation in which we could still end up with a corner of confusion. After this change in regulatory structures in which many areas of confusion and untoward gaps will be sorted out, we could still end up in a difficult twilight zone in and around aspects of consumer credit. While we know that steps are being taken to sort out some of the outstanding regulatory issues that have affected credit unions in Northern Ireland and prevented them from providing a wider range of services, we can also see that credit unions here are benefiting from some of the new opportunities that have been provided by the passing of the recent legislative reform order. As some of the areas covered by the legislative reform order are deemed to come under the heading of consumer credit, we are being told that that will be for the Assembly. There seems to be some confusion on the part of the Assembly or the Assembly Committees about how far that is truly or strictly remitted to them as a devolved matter. Certainly, those things may not be remitted to them solely as exclusively devolved matters.

Under clause 6, there are some specific references to dealing with issues that are raised in the context of Scotland. If clause 6 covers the future transfer of responsibility for regulating consumer credit from the OFT to the FCA, we need to know whether the Minister has discussed the implications with relevant Ministers in Northern Ireland. It would be odd to leave a difficult area in relation to consumer credit, with so many products and players operating online and in many different ways and advertising on television. Is there a more sensible and straightforward way of dealing with some of the questions that will arise in the context of Northern Ireland or with some of the activities that may or may not relate to Northern Ireland? Will the Minister indicate where in the OFT’s discussions, in the planning on the part of the FCA, and those who will be undertaking that, and in meetings between the Treasury and the Northern Ireland Executive, particularly in the Department for Enterprise, Trade and Investment, these considerations have been factored in and are the subject of any ongoing planning?

Mark Hoban (Conservative, Fareham)

The clause facilitates the transfer of consumer credit activities currently regulated by the OFT to the FCA. Let me respond to a couple of points. Over the coming months, the Government will work with the FCA, the OFT and industry and consumer representatives to design a model of FCA regulation that reflects particular characteristics of the consumer credit market and remains proportionate to the different segments of the market. Once that model has been designed, the detailed provisions for the transfer will be subject to impact assessment and approval through the affirmative procedure by both Houses of Parliament. In the meantime, the OFT remains responsible for regulating consumer credit and will continue, as I said earlier, to tackle the current practices that have caused concern to drive up standards in the market.

The exact timetable for the transfer will be subject to the passage of the Bill and the wider changes to the consumer and competition landscape. The amount of resources that the FCA devotes to consumer credit will depend on the nature of the regime. I expect the FCA to be able to raise the fees necessary to cover the additional cost that it will incur.

Of the regulatory firms that could come within the remit of the FCA—a point that the hon. Member for Nottingham East made—80,000 are licence holders at the moment. The precise number to be transferred will depend on the nature of the model chosen. For example, if the appointed representative model is chosen, that will make a big difference to the number of authorised persons. The hon. Gentleman raised the issue of credit repair companies. Clause 6 enables a full transfer of customer credit activities to the FCA, and we plan to bring credit repair companies within the scope of the Bill.

My hon. Friend the Member for Solihull mentioned claims management companies. We need to remember that claims management companies are not financial services businesses. Some of the claims that they deal with relate to financial services, but not entirely. Given that the Ministry of Justice has undertaken a review of claims management companies and their regulation, and is introducing measures to deal with that, it is appropriate to let those measures run their course rather than create more disruption in the industry and move across to the FCA.

The hon. Member for Foyle raised the point about how the measure would apply in Northern Ireland. I will come back to him on that. The correct principle is to ensure that people living in Northern Ireland have the same protections as those living in the rest of the United Kingdom. That is exactly why, for example, Northern Ireland credit unions are being brought within the scope of FSMA. Depositors with the credit unions did not have those protections. Indeed, they did not have some of the opportunities. That is the general principle, but we will come back to him on the detail.

With those comments, I hope that the Committee will approve clause 6.

Clause 7 - Orders under section 22 of FSMA 2000

Chris Leslie (Labour, Nottingham East)

Schedule 2 to FSMA 2000 relates to regulated activities. The two changes involve order-making powers and parliamentary control. There are two parts to the clause. One part changes the language in the FSMA provision to relate to the new regulators being put in place. The other relates to parliamentary control. There are new arrangements, particularly relating to the affirmative order-making process. Although the affirmative process makes sense, the Minister will know that we would prefer the Government to table draft orders. We would prefer an enhanced affirmative order process, which would give the House and its Committees a proper opportunity to scrutinise the serious issues involved.

We are talking about provisions that will transfer areas of business and activity that are outside regulatory parameters to the auspices of the FCA or the PRA. As such, it is quite a serious matter that probably merits more than the typical hour and a half rubber-stamping discussion and vote that we tend to get in an affirmative process. It is the sort of thing that, naturally, the Treasury Committee might want to talk about. I think we should establish a financial policy scrutiny committee in the House for proper and rigorous scrutiny.

To get a sense of what we are talking about here, it would be helpful if the Minster could tell us what areas of financial activity will remain outside the scope of the FCA and the PRA. We need to get a sense of what that is to understand what might have to be suddenly transferred to the regulatory ambit, especially under the reasons of urgency elements in the clause. It is understandable that, from time to time, if there are urgent crisis scenarios, the Treasury can take powers to make an extension and go into new terrain. However, at the very least, we should have a proper overview, a proper map, of what might be outside currently, and what could come within that.

There is a separate issue of co-ordination. How can the Minister be assured that the two regulators will co-ordinate adequately to prevent any confusion in such circumstances? What exact additional powers will be associated with that extra regulatory activity? I want to have a sense of what those issues are. For example, the lead story on the front page of today’s Financial Times is about the LIBOR process; a very interesting story about billions and billions of pounds of trades that are subject to the LIBOR rating. The Financial Times,when considering the regulatory perimeter of particular organisations, raised a question mark about whether the LIBOR process might need to be subject to regulatory activity. I appreciate that there is a process—the British Bankers Association currently oversees the LIBOR arrangements—but it is interesting that that subject has been raised. The Treasury made a prosaic comment on the story. It is a classic example of an area that currently does not fall within the regulatory perimeter, but might need to do so.

I would be grateful if the Minister gave us a sense of what is happening with that particular example, which in many ways typifies where we are on some of these clause 6, 7 and 8 issues about regulated activities—they are very important. Many people who currently do not have to deal with the regulators might suddenly find that they need to deal with them. That might be a perfectly good and reasonable thing, but I would like to have a sense of how frequently the Minister envisages this sort of thing happening, and whether we might be in the midst of a similar issue in relation to LIBOR.

Mark Hoban (Conservative, Fareham)

Clause 7 is relatively straightforward. It amends paragraph 26 of schedule 2 to FSMA, which relates to the parliamentary control orders made under section 22 of FSMA. Such orders set out the scope of activity of a regulator under FSMA and are known as the regulated activities order. Clause 7 provides that where an order extends the scope of regulation, it must be subject to approval by both Houses before being made. In urgent cases, such an order may be subject to affirmative resolution by the 28-day procedure.

The hon. Member for Nottingham East said that we probably need more than the hour and a half allowed for a normal statutory instrument Committee to discuss amendments to the regulated activity order. I have been doing my job in government and in opposition since December 2005. I cannot recollect a time when we even tested that limit.

It is important to show that, where there is a change to the regulatory perimeter, there is consultation. I remember when the shadow Chancellor was the City Minister. At that time, he talked about light-touch regulation. He did not believe that light-touch regulation applied to travel insurance, and brought that within the regulatory perimeter. Of course, that was subject to quite a full consultation prior to the regulatory activities order being amended in this House. There is a process; it is not done overnight. It is not something that is usually done without public consultation. A range of financial activities are outside the regulatory perimeter. Until relatively recently, the Northern Ireland credit unions were outside the regulatory perimeter; the Presbyterian Mutual Society was definitely outside it. Business lending, when done by a company such as GE Capital, is outside the regulatory perimeter. Quite a few financial services businesses are also outside that perimeter. We have set in place the Financial Policy Committee to help police that perimeter and decide where it should be moved, and to give an opinion whether firms within that perimeter should be regulated by the PRA or the FCA for prudential reasons. It is an important power: it is important that Parliament has its say but also that the powers are exercised where there has been consultation. I am not aware of any exceptions to that .

Chris Leslie (Labour, Nottingham East)

I might have missed the Minister’s point, but I asked him about the LIBOR situation mentioned in today’s Financial Times. Does the Treasury have a view on that story? I would be happy to give way to him if he has a view on it.

Mark Hoban (Conservative, Fareham)

No.

Chris Leslie (Labour, Nottingham East)

The Minister does not have a view on that. That makes me worry slightly about what is happening. I hope that some inspiration could strike in time for the clause 8 stand part debate. That also talks specifically about the regulatory perimeter of the Prudential Regulation Authority, which is probably quite appropriate in relation to the LIBOR arrangement. I will ask the Minister again when we get to clause 8.

I understand the need for these provisions. We tested the issue about the super affirmative process previously, and the Minister was pretty implacable on that. Let us hope that in another place or on Report we get a chance to push that point again. I shall not labour the point; I have made the arguments that I want to make; I will not oppose clause 7 standing part of the Bill.

Clause 8 - Designation of activities requiring prudential regulation by PRA

Chris Leslie (Labour, Nottingham East)

Several issues need to be raised in relation to clause 8, in particular, those that came up in the pre-legislative scrutiny Committee report. We are, of course, the servants of the House in that we have a duty to raise with the Minister that set of issues that the pre-legislative scrutiny Committee touched on. One such important recommendation related to whether the regulatory perimeter of the PRA, as set out in the Bill, would properly capture the sort of issues that have been very much in the public domain during the past six months.

The Minister will be familiar with the PLS Committee recommendation in respect of the significant failure of the American brokerage firm, MF Global, which was a large, complex and in many ways controversial organisation involved in repurchase agreements, called repos. It used to fund and leverage various arrangements for profitability, often in circumstances of off-balance sheet arrangements. Some of those complex repos have been described as a wrong-way trade, where the firm was too frequently making its own bets on the bond markets of some of Europe’s most indebted countries.

There were liquidity problems at the firm. The sudden disappearance of so much liquidity in those circumstances caused a major headache and the failure of that company. The PLS Committee had concerns—if that arrangement had happened in the UK, with a parallel company undertaking similar arrangements to MF Global—about whether such repo market agreements would be subject to the PRA’s regulatory perimeter. The Government responded at the time by saying that they would consider whether they need to include issues around the rehypothecation of client assets, but did not see the need to make changes in the Bill. I would be grateful if the Minister said whether the regulatory activity orders should include repurchase agreements markets, and whether that ought to be captured by the PRA’s regulatory powers. If not, why not? It is a pertinent point and I would be grateful if the Minister addressed it. I also hope that he will have reflected on the LIBOR situation and whether it should fall within the regulatory perimeter of the PRA. It is a simple question—yes or no?

Mark Durkan (Social Democratic and Labour Party, Foyle)

I referred to the clause earlier during the stand part debate on clause 6, and as the hon. Gentleman said, some of the issues surrounding it are not entirely removed from some of the considerations that also apply to clause 7.

I hope that the Minister will colour in the provisions in the clause a little more. I do not doubt the need for legislation that provides for changing business models, new or rotating products, or different practices or patterns that might emerge and need to be addressed. However, given some of the issues with other clauses, and given that we have said that the Bill is not complete and may give rise to gaps, tensions or difficulties in future, we clearly need to provide for supplementary regulation to amplify or clarify provisions in a given situation.

Some in the industry are concerned that clause 8 gives fairly wide powers to the Treasury—the powers that it can confer in the future either on itself or on the regulators. As it stands, the clause does not even intimate the sorts of situations or reasons that might give rise to the exercise of such powers.

In a sense, the Minister is trying to ensure that he has some sort of bat belt available to deal with unforeseen or peculiar circumstances that perhaps cannot be specified or anticipated at this stage of the legislation. He is therefore right to give himself or the Treasury powers to deal with any issues that may arise, either for the Treasury or for the regulators. However, the current drafting of the clause seems to contain no limit or qualification on the activation or introduction of those powers, and that gives rise to questions about the possible impulsive, arbitrary or capricious use of such powers. Indeed, could there be the threat that such powers might be used? Such a threat could come either from the Treasury or others who may try to badger the regulators, perhaps by lobbying the Treasury for the activation of the powers as a way of exposing or promoting some complaint or issue that they have with either regulator or any business or market sector.

There are questions about the full import of clause 8. I tabled an amendment—albeit a starred amendment—and although it would not have specifically constrained the Treasury, it would at least have indicated some of the considerations or situations that might give rise to the use of the powers, showing that the clause is about dealing with issues that could not be anticipated at this legislative stage and would tackle matters to do with changing products, practices or business patterns that could give rise to various risks, be they competitive, systemic or directly to consumers.

It would be useful if the Minister coloured in some of the possible circumstances that might give rise to the use of the powers. I should particularly like him to say whether clause 8 powers would be used in dealing with prudential regulation by the PRA, but as we know, the powers are not confined to those that might be exercised by the PRA. Does the Minister have it in mind that powers under the clause might need to be used if issues relating to the possible conglomeration of retail financial services and other retail services arise in future?

Many practitioners and others are concerned and saying, “We know that the Vickers report is saying that there needs to be clear separation of retail banking and investment banking and there always needs to be such ring-fencing”, but many are saying, “What’s going to happen in relation to retail banking by, say, a company such as Tesco”, which has plans to expand heavily at the retail banking end and is going all-out with a bank on its own, unlike some other high street names that we know, which, although they issue cards and offer financial services, essentially do so on behalf of other institutions that would be duly regulated.

The issues to do with conglomeration would arise in terms of those who would be in a position, with their dominance on the high street retail market, to move more aggressively and actively into the retail banking market. There would be questions about conglomeration in that regard and about whether there needed to be a differential and ring-fencing. Many hon. Members seem to have tabled early-day motions and whatnot and got exercised about how Google’s use of information in one part of its business supports another part. A company such as Tesco is in a position to know exactly what its customers are buying. It knows what bank and credit cards its customers use, and has a lot of information. How far can it use information and intelligence from its supermarket business to advance its profile and market share in relation to its interest in retail banking?

There will be issues of scale and tipping points can be reached. We want competition and more players coming in, but as with the grocery market, the House is seized with questions about proportionality and sustainability. The same could apply when some major retail providers flex their muscles and exercise themselves in financial services.

We should like to know whether the Minister anticipates any future issues arising in this regard or in respect of another provision. We do not know what those will be, but we cannot say that they will not arise and will not be coming at us, or that consumers and many other people in the sector, including practitioners and other providers, will not be concerned. What I term the bat-belt powers in the clause are designed to give the Treasury some recourse to pick up on such matters, particularly if regulators and others bring them to their attention—or are the clause 8 powers intended for other purposes, which are unqualified and relatively unspecified?

Mark Hoban (Conservative, Fareham)

Clause 8 relates to the scope of regulation by the PRA. It creates a new order-making power for the Treasury to specify which of the regulated activities are subject to prudential regulation by the PRA. Such regulated activities are referred to as “PRA-regulated activities” for the purposes of FSMA. The Treasury has published a draft order under proposed new section 22A confirming its intention that the PRA will be responsible for the prudential regulation of deposit takers—if Tesco is a deposit taker, it will be regulated by the PRA on prudential grounds—insurers and some investment banks as designated by the PRA with reference to the criteria set out in the order.

Proposed new section 22B states that the first order made under proposed new section 22A should be subject to the affirmative procedure, as should subsequent orders, which include a statement by the Treasury that the effect of the order is to vary the scope of PRA regulation by either expanding or reducing the range of regulated activities that are subject to prudential regulation. Proposed new section 22B also provides for the use of the 28-day affirmative procedure where the Treasury notifies that there is an urgent need to make the order without prior parliamentary approval.

Let me try to deal with the issue that the hon. Member for Foyle raised. Financial services markets have changed and will continue to change regularly. The nature of the regulated businesses changes. One of the weaknesses of the previous regime was its lack of a mechanism for identifying those changes and the right response to them, so one of the roles we have given the FPC is to horizon scan. It will look not only at the threats to financial stability but at the horizon, to see whether any businesses currently outside the scope of regulation should be regulated and what we need to do to bring them inside the scope of regulation.

That really relates to clause 7, which was more about the perimeter of regulation through the amendment to the regulated activities order. Clause 8 comes into play when a business that is prudentially regulated by the FCA changes its nature so that it clearly puts its balance sheet at risk in pursuit of its business, in the way a bank or insurance company would; perhaps it should then fall within the PRA for prudential regulation. Rather than assuming that the division between what is regulated and not regulated—or the division between the PRA and the FCA—is set in stone, clauses 7 and 8 provide a mechanism for changing the perimeters and the boundaries.

That brings me neatly to MF Global, which the Joint Committee raised. We have touched on the debate about shadow banking before, and we need to understand the issues that arise from the failure of MF Global. The Government, the Bank and the FSA will continue to work in that area. There is a role for the interim FPC, which has a mandate to advise the Government on perimeter issues. As hon. Members will know, no changes are being made to the Bill as consequence of MF Global, because the legal framework already provides for sufficient flexibility for changes to be made through secondary legislation, whether that is through the regulated activities order or the orders to be made under proposed new section 22A. We have the powers that we need if we decide that there are perimeter issues that affect MF Global.

The hon. Member for Nottingham East raised the issue of LIBOR and whether it was a regulated activity. The FSA and other national authorities are investigating LIBOR, which is also being examined by EU anti-trust regulators. The setting of LIBOR is not a regulated activity under FSMA, but the methods used to calculate it are publicly available, as are the data made available to it by various contributors, and the process is regularly reviewed by market participants.

The hon. Member for Nottingham East needs to think about the division between the FCA and the PRA, which will look at the safety and standards of mutual institutions, particularly banks, insurers and certain investment firms. LIBOR is more akin to a product, and is potentially more about a conduct than a prudential issue. As he will recollect from our debates on clause 5, one objective of the FCA that we barely touched on, although it is a key one, is market integrity, which includes the smooth functioning of wholesale markets. I do not want to pre-empt any review, but we should bear in mind—

Chris Leslie (Labour, Nottingham East)

Will the Minister give way?

Mark Hoban (Conservative, Fareham)

I will, as I know the hon. Gentleman is desperate to crack on and make progress, but we should bear in mind the distinction between the roles of the regulators, and market function comes under the role of the FCA.

Chris Leslie (Labour, Nottingham East)

I am grateful to the Minister for his open thought process on LIBOR, which is a timely one. We are creating two separate regulators, but the assumption that things fit neatly into either a prudential or a conduct box will be tested by the report about LIBOR. It might very well be considered as a conduct issue but, given the multiple trillions of pounds and dollars that are under its auspices, it could also be seen as a systemic question. I can see the Minister’s anxieties about where the subject falls but, if there is a review, will he write to members of the Committee as soon as the Treasury has reached any conclusion, because that matter is relevant to the Bill?

Mark Hoban (Conservative, Fareham)

A whole host of issues arise almost every day in the Financial Times that provide such a challenge—every day, market issues emerge that require compartmentalisation or pigeonholing—but if any advances are made about which I should advise the Committee, I will happily do so. The clause is about defining the regulatory perimeter of the PRA, and it will strengthen parliamentary approval of that process. If such parliamentary approval flows from our new regulatory structure, I hope the Committee will support it.

Mark Durkan (Social Democratic and Labour Party, Foyle)

The Minister has repeated the point that the clause is about the regulatory perimeter of the PRA, but it will also confer powers on the Treasury or either regulator, and the impact of those powers is not confined to the PRA and its activities.

Mark Hoban (Conservative, Fareham)

If I give a wrong answer, I am sure that I will be corrected. Effectively, if something is brought within the PRA boundary, powers will be conferred on the Treasury in consequence of some companies being regulated by the PRA.

Mark Durkan (Social Democratic and Labour Party, Foyle)

And on either regulator.

Mark Hoban (Conservative, Fareham)

No, I am only saying that, by virtue of coming within the PRA’s boundary, the Treasury may have powers conferred on it that arise from a company being regulated by the PRA. No new powers are being envisaged, but existing powers would be extended to new prudentially regulated activities.

Mark Durkan (Social Democratic and Labour Party, Foyle)

Will the Minister tell us how the clause is confined only to the definition of perimeters and not to the creation of new powers? It refers to orders that can

“confer powers on the Treasury or on either regulator”,

and it makes it clear that provision

“may amend any primary or subordinate legislation, including any provision of, or made under, this Act.”

Those are sweeping powers. The clause also refers to orders to “provide for exceptions”, which, as I understand from the Minister, would need to be made in changing situations. But the powers do seem to be wider than the Minister says.

George Howarth (Labour, Knowsley)

Order. I am assuming that the hon. Gentleman is making an intervention; it is beginning to turn into a speech. Minister.

Mark Hoban (Conservative, Fareham)

I will allay the hon. Gentleman’s concerns, perhaps with a short note. Inevitably, when something is brought within the regulatory perimeter of the PRA, there may be situations where consequential amendments are required. I do not see this as a Henry VIII clause, and it if was I think that people would have picked up on it rather sooner. It is all about consequential amendments. I will perhaps just pause for a second—I think that what I have said is correct.

Clause 9 - Permission to carry on regulated activities

George Howarth (Labour, Knowsley)

I call Cathy Jamieson to move amendment 141. [Hon. Members: “Hear, hear.”]

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I beg to move amendment 141, in clause 9, page 43, line 10, at end insert—

‘(1A) An order under subsection (1) is not to be made unless a draft of the order has been laid before and approved by resolution of both Houses of Parliament.’.

Government Members may want to hear what I have to say and see how long I speak before I get that sort of accolade. I hope that I will start off with something that is relatively brief in moving amendment 141. As people will be aware if they have read it in detail—as, of course, they will have—

Mark Hoban (Conservative, Fareham)

I am afraid that the hon. Lady has been given a hospital pass by her hon. Friends, because this provision is already in proposed new section 55C of FSMA 2000, so she does not need to move the amendment.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I thank the Minister for the clarification; it was very helpful of him to do that right at the beginning. I am sure that he is as keen to make progress as I am. However, I just want to make a couple of points about the reasons why we tabled the amendment and then I am sure that he will give us the assurances about where the measure is located in the Bill and why it has been put there, because this is about parliamentary accountability.

Of course, the power for the Treasury to amend, repeal or vary the threshold conditions under schedule 6 to FSMA 2000 already exists without an affirmative resolution. We felt that it was important that we had the opportunity to revisit that in the context of the Bill. In particular, that was to ensure that, in the interests of transparency and accountability, at every stage, the Treasury or Government were indeed able to put as much information as possible before Parliament.

Having heard what the Minister has had to say, I must say that our reasons for tabling the amendment concerned the frequency and circumstances that were envisaged about potentially significant changes that, at present, Ministers would perhaps want to reserve for themselves. What can the Minister say about that in terms of the amendment or of the issue that he says is covered in the Bill? Also, in general terms—we have discussed this issue several times during our consideration of the Bill—does he agree that Parliament should have the power of scrutiny and accountability over such important aspects of legislation? When it comes to anything concerned with financial services, the public want to see at this point in time that everything that we are doing has the maximum possible scrutiny, even to the extent of perhaps going through the Bill not only line by line but sometimes word by word to ensure that we absolutely have everything correct.

I see that the Minister is looking up his pages. If he is now ready to make a response to those points, I will happily stop to allow him to do so.

Mark Hoban (Conservative, Fareham)

It is on page 129 in clause 46(2)(a)(i), and it says:

“after “section” insert 1J, 3B(4), 55C”.

So it is tucked away in the Bill and the hon. Lady will see that, in the desire of this Government to enhance parliamentary accountability, there are a number of new measures that are subject to the affirmative procedure, so we will spend more time in Committee, which is surely to the benefit of democracy as a whole.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I thank the Minister for that clarification and for his commitment to parliamentary democracy and accountability. Without wishing to criticise him, during our proceedings I have thought that hon. Members were simply going through a process of moving amendments, opposing them and taking votes that would always end up with the same result, rather than actually considering how we could improve the Bill. The process has been somewhat frustrating. He has assured us that the provision is tucked away in clause 46(2). I accept his assurance with good grace and I beg to ask leave to withdraw the amendment.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I beg to move amendment 142, in clause 9, page 43, leave out lines 32 to 35 and insert—

‘(3) In considering how much weight (if any) to attach to the opinion the UK regulator must have regard to—

(a) the nature and scope of the supervision exercised in relation to the non-EEA firm by the overseas regulator; and

(b) decisions previously made by EU regulatory authorities regarding the overseas regulator.’.

I note that the accolade was rather more muted that time. Perhaps hon. Members are aware that I have slightly more to say on this amendment than on the previous one. The amendment would omit proposed new section 55D(3) and replace it with a provision that contains an additional requirement for the UK regulator to have regard to decisions made before by EU regulatory authorities regarding the overseas regulator. We are concerned that the regulatory environment varies widely across jurisdictions and I have been given examples of such variations.

Angola has a single regulator, the national bank of Angola. Its regulatory environment standards and procedures will probably be very different from those of Australia, for example, where regulation is enforced primarily by the Australian Securities and Investments Commission and the Australian Prudential Regulation Authority. Angola’s standards and procedures will also be very different from those in the Chinese system, which is regulated by four main bodies: the China Securities Regulatory Commission; the China Banking Regulatory Commission; the China Insurance Regulatory Commission; and the People’s Bank of China.

I want the Minister to tell us how all that will be taken into account when regulators consider information received from overseas regulators. How will they decide what is an equivalent standard? What tests will they introduce? What consultation will they undertake and with whom? How will they come to their decisions? Will there be guidance on which bodies qualify as overseas regulators? For example, must such regulators be bodies that deal with the equivalent of both business conduct and prudential matters? Are there any plans to change the FSA handbook’s definition of an overseas regulator? I will not succumb to the temptation to read out in detail everything that is in the FSA handbook, but if I wanted to be awkward or to prolong the debate, I might be tempted to discuss some of those issues and the differences between the various bodies. However, I will restrict my remarks and ask the Minister to respond to my questions. This is important. We have to understand whether there will be equivalence and, if so, how will it be decided? Who will make that decision? How will it be communicated to the public and, in particular, the consumers of the various services that will be on offer? I shall give the Minister the opportunity to respond.

Mark Hoban (Conservative, Fareham)

Our shout of acclamation when the hon. Lady spoke about the previous amendment was to welcome her finding her voice after almost five days of silence in Committee. We are delighted that the baton has been passed to her from the hon. Member for Nottingham East.

Proposed new section 55D provides that the FCA and the PRA will attach an appropriate level of weight to the opinion of an overseas regulator of a non-EEA firm when assessing an application from such a firm. Clearly, it is important for the PRA and FCA to consider the nature of that regulator and its effectiveness and reach their own conclusions. The PRA and FCA, in assessing a non-EEA firm, will consider the firm and how the regulator has assessed it, but will also consider how the overseas regulator has supervised the firm and the regulator’s opinion of the firm in that context. It is important that the FCA and PRA reach their own decisions about the firm; that is what the Bill provides for.

The PRA and FCA will be familiar with the strengths and weaknesses of different overseas regulators, which will help them gauge the degree of reliance to place on the views of that regulator about the applicant firm. Clearly, the reaction of other EU regulators to the overseas regulator might be helpful in that regard. There is nothing to prevent the FCA or PRA from considering what other EU regulators have said about the overseas regulator. However, it is for the FCA and PRA to reach their conclusions about how much weight to place on the opinion of the overseas regulator, rather than being guided or required to follow the judgment of other EU regulators, which would be the consequence of paragraph (b) of the amendment.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

Particularly in relation to how much weight, if any, to attach to the opinion of the UK regulator, people might be concerned if matters were simply dismissed and no weight at all were given. I am seeking some assurance that a process is in place to consider it and that it will be properly decided on, rather than considered cursorily before a decision to take no account whatever.

Mark Hoban (Conservative, Fareham)

Such decisions are carefully thought through. The FCA and PRA will consider not just the applicant firm but the overseas regulator. My concern with the amendment is that it would require the PRA and FCA to have regard to decisions made by other EU regulatory authorities. The FCA and PRA may not agree with those regulatory decisions, which might have been made in different circumstances. There is a danger in binding or requiring the FCA and PRA to place unmerited weight on the opinion of an overseas regulator simply because a different EU regulator has done so. It could lead to significant adverse effects on UK consumers and depositors.

It is important that a proper process is in place. The PRA and FCA should make up their own minds about what they think of the overseas regulator’s views and should have the freedom to do so. Although they can take into account the views of other EU regulators, they should not feel bound in any sense to place undue weight on those opinions.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

The reason why I press the Minister is that I have concerns. He said that people will take account and that consideration will be given, but I am still unclear what level of scrutiny there will be and how that process will be put in place. I also have concerns about the notion that decisions made previously by other EU regulatory authorities would somehow not be taken account of.

The Minister mentioned that decisions might have been made in different circumstances, or that the regulatory authorities here might not agree with what went previously, but I would have thought that it was none the less important to make a conscious effort to consider those decisions, decide either to agree or not agree with them and have reasons for that. That is all that we are seeking in the amendment. We were being somewhat but not entirely facetious. I asked about the different regulatory environments and how we decide which ones are equivalent. That is important in the context of how the process is put in place.

I am disappointed that the Minister has given no indication of anything else, such as guidance that might be issued or anything that can be done in support; I am simply to leave any oversight to the authorities themselves. That appears to be what he is saying. If that is the view, I will press the amendment to a vote. At times when discussing the amendments, the Minister and Government Members might at least have looked as though they were taking some account of the real issues being raised and given some assurances that they would look again, perhaps coming back at a later date with further information or changes to the Bill. Surely that is what we are here to do––improve the Bill, not simply have the Government get absolutely everything through unchanged. Having been a Minister in another Parliament, I understand that that often seems to be the task when setting out, but it is important to listen to the Committee. Given that, I will press the amendment to a vote.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I want to make a few points about the clause, which covers a wide range of issues. Once again, some of the concerns about the Bill generally are highlighted, such as on co-ordination between the PRA and the FCA and how that will work in practice. One concern is whether we have enough clarity on the application process for firms, and whether it is easy enough. If the Minister can say, hand on heart, that we are not making it a more difficult place to set up new businesses in financial services through additional regulation that is not required, I will be happy to hear that.

A number of the procedures in the clause are obviously mechanical and technical, but there are some concerns about the draft memorandum of understanding between the PRA and the FCA, which have been rehearsed in earlier debates. There are three brief paragraphs on how applications will work, but the memorandum of understanding provides little clarity for dual-regulated firms on how the process will work in practice. As for practical matters, it might seem to us, who will not have to go through the process, that it is easy enough to write the procedures or to have something in the memorandum of understanding and say that the rest will be clarified in due course. However, for firms that have to go through the process, questions about the applications, how they will be co-ordinated between the regulators, how they will significantly influence functions, how interviews will be carried out and so on are unaddressed so far under the MOU.

There are also concerns about the PRA and the FCA having separate rule books. Where will firms look to receive the clarity that they will require to understand how the process works? Worries have also been expressed about whether the memorandum of understanding is indeed the right place to put the co-ordination of matters between the PRA and the FCA, especially as people have described them as being vague. Perhaps more detailed provisions under a statutory order with oversight from the Treasury would have been more appropriate to make sure that the process works in practice.

I want to express a brief worry about the statutory deadlines to determine applications because they remain unchanged at six months for a complete application and 12 months for an incomplete application. There is concern about a more cumbersome process and whether the regulators will be able to achieve that timescale. I look forward to hearing the Minister’s response to my comments.

Mark Hoban (Conservative, Fareham)

The hon. Lady asked some detailed questions about clause 9. As she knows, it provides for the regulator’s powers and responsibilities relating to the giving of permission to carry on regulated activities. The Government recognise that, while the legislative framework is crucial, much will depend on the operational delivery of regulation by the PRA and the FCA. Respondents to early consultations highlighted the importance of an efficient authorisation process for maintaining an innovative, competitive and efficient financial sector, and overwhelmingly expressed a preference for an approach in which one of the regulators has responsibility for processing applications and for seeking consent from the other when appropriate.

The alternative of a twin-track process for applications under which an application has to be submitted to each regulator was considered potentially unclear and burdensome. The clause therefore provides for an efficient authorisation process, while delivering a clear role for each regulator, and transparency and certainty for applicants. The clause will replace part 4 of FSMA with proposed new part 4A. Proposed new section 55A specifies that the regulator responsible for prudential regulation of the applicant will manage the application process and ultimately decide whether to grant permission. For a new bank, which will be regulated by the PRA on a prudential basis and by the FCA for all other conduct issues, the PRA will be in the lead and the FCA will be responsible for all other firms. For dual-regulator firms, the PRA will be required to gain the consent of the FCA before giving permission.

The hon. Lady asked whether there should be changes in the statutory deadline process. We are keen to ensure that the process of application is not unduly delayed, particularly given the emphasis that we are placing on competition under the Bill. One of the ways of improving competition is by new people coming into the market, so extending the deadline for the application process might delay the entry of new entrants. A dual-regulator firm requires the PRA and the FCA to work closely together on the operational procedures to achieve that result.

The hon. Lady talked about the interviews for individuals and their influence function. Clearly, there are detailed provisions in that respect and who will take responsibility again depends on the nature of the function and who is the regulator. Clarity is important. We talked earlier about the need to ensure that the process, when there are two regulators, works efficiently and effectively not only in the interests of the regulator, but of consumers. I hope that I have dealt with the issues raised by the hon. Lady. If I have missed one, I shall come back to her.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I thank the Minister for that. Our concerns relate to the practical application of the procedures. I am happy to hear him talk more about some of that. There are still concerns around the statutory deadlines and whether problems will emerge with them, but I hear what he is saying about the need to move on with those. I retain some concerns about the use of the memorandum of understanding. These things, as I indicated earlier, always look as if they are sensible and helpful when they are on bits of paper, but the real test will be on how they work in practice. The dual-regulated firms are still concerned about how that will take place practically. In light of the Minister’s comment at this stage, it would not be helpful to oppose the clause standing part of the Bill, so I will not press it to a vote.

Clause 10 - Passporting: exercise of EEA rights and Treaty rights

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I beg to move amendment 143, in clause 10, page 59, line 18, at end insert—

‘(1B) In seeking to ensure an appropriate degree of protection for consumers, the PRA and FCA shall—

(a) require banks to provide clear and prominent warnings to consumers where deposits are not covered by the Financial Services Compensation Scheme; and

(b) make and maintain effective arrangements to consult consumers on the prominence and method of such warnings.’.

George Howarth (Labour, Knowsley)

With this it will be convenient to discuss the following: amendment 160, in schedule 10, page 239, line 36 at end insert—

‘(14) The regulators shall bring forward recommendations within six months of Royal Assent of this Act applying the Financial Services Compensation Scheme by brand.’.

New clause 2—Depositor preference in insolvency—

‘The Treasury shall bring forward regulations to ensure FSCS insured deposits are moved above other unsecured creditors and above floating charge holders in the creditor hierarchy in the event of insolvency or any imposition of losses in resolution.’.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

Given that there are a number of issues in this group of amendments, I might not be able to make quite such speedy progress as we did on the past couple of clauses.

I will begin with amendment 143. Paragraph 180 of the pre-legislative scrutiny Committee’s report stated:

“The PRA and the FCA should seek to ensure that the public understand when a banking group is not subject to UK prudential regulation. Where deposits are not covered by the Financial Services Compensation Scheme the regulators should require banks to make this clear with prominent warnings in branches and on websites. The regulators should work with consumer groups to plan how best to get this message heard and understood.”

In earlier debates, we heard about the issues around consumers and information being made available in a way and in a format such that they not only have access to it but are aware of its existence in the first place. They will then be able to understand the information in plain language—I was going to say plain English, but I will say plain language. Part of the problem, as always, with the language of legislation and of Bills is that it is not easily accessible for people and it therefore has to be translated.

In asking the Minister for his response, can he confirm—he referenced this earlier, but I ask him again—whether this will be a priority for the new regulators? In particular, raising awareness of the FSCS is on the front page of the consumer section of the SFA website. That is perhaps unsurprising, given the prominence of this issue in the recent financial turmoil, when thousands of savers found that their savings in, for example, the Icelandic banks were not covered. People are obviously looking for information.

In the annual FSA survey on the consumer awareness of the FSA and financial regulation, which was published in February, there was not a single mention of the FSCS. That indicates that it is not a real priority for the FSA to find whether consumers understand whether their money falls under a protection scheme. Will the FCA or the PRA fare any better on that?

Sheila Gilmore (Labour, Edinburgh East)

On amendment 143, will my hon. Friend expand on what she considers to be sufficiently prominent warnings?

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I thank my hon. Friend for that question. It is perhaps a point that the Minister will come to. According to the FSA website, there are new proposals that every authorised bank, building society and credit union in the UK would have to display prominent stickers and posters in branches stating the deposit compensation scheme to which it belongs, the country in which the scheme operates and the compensation limit that customers may receive. A similar statement will also have to appear on the websites of those banks, building societies and credit unions. The question— I am sure this is what my hon. Friend is getting at—is whether that will be enough.

If the regulators do not start to track awareness and do not have a baseline—again, I would be interested to hear from the Minister what that baseline will be—it will be difficult to know whether the campaign is working. By their very nature, we find out that such things are not working when they are not working, if that does not sound like a silly thing to say. It is when problems arise that people come along and say, “Well, actually, I didn’t know about it. I didn’t see that. I didn’t know where to look. Nobody told me.” So I realise the difficulties.

In reality, however, the PRA’s main power will be to make public its limited role in regulating such firms and to work with the FCA to ensure that consumers understand that deposits in passported banks are not covered by the FSCS. The PRA has said that, where it does not have much information

“it will make that understood publicly so that there is no misunderstanding about what it can do and so that it is clear to depositors that they are not protected by the home state regime”.

Again, it is difficult to know whether people will understand that.

There is some public awareness. There was an article in The Daily Telegraph in December 2011 that stated:

“A number of overseas banks now offer market-leading savings accounts to UK consumers. Surprisingly…it’s not the ones from far flung destinations, like India, Pakistan and Nigeria you need to worry about, it’s the ones from European.

If a bank is outside European Economic Area have to be fully registered with the FSA to offer savings here, which includes full protection under the FSCS. However, some European banks can operate a ‘passport’ scheme, which means they are regulated, but in the unlikely event of them collapsing, customers would have to claim from the compensation scheme running in the bank’s home country. All European protection schemes now offer the same level of compensation (euros 100,000) but customers may be less confident about speedy redress if they are dealing with an overseas quango, application forms in a foreign language and of course, a country that may itself have serious debt problems. When the Icelandic banking system collapsed it’s own citizens were not surprisingly first in the queue for payouts.”

I hope the Minister will be able to address those points.

Amendment 160 addresses depositor guarantees on savings brands. We believe it is important that the FSCS is applied on a per brand basis, rather than on a per institution basis. Consumer organisations, including Which?, support that move. The FSCS’s payout limit should apply to each company within the groups that own them. There are commercial benefits to marketing brand by brand. By branding in a certain way, people will expect the guarantee to follow the brand rather than the institution.

Currently, the way in which the protection applies depends on how a bank is licensed, which is a bureaucratic distinction. With some affiliated banks such as Halifax and the Bank of Scotland, both of which are owned by Lloyds Banking Group, the limit is divided between the companies; and with others, such as the Royal Bank of Scotland and NatWest, the limit applies to each company separately.

A scheme that provides assurances per brand would be simpler for consumers to understand and lead to better appreciation of the protections afforded to the scheme. Simplifying the scheme so that the protection applies to brands rather than institutions would also help raise awareness of the scheme.

The issue is being debated in the European Parliament, which has approved per brand protection. I understand that that is now going to the European Council. Negotiations between the European Parliament, the European Commission and the European Council on the deposit guarantee scheme directive have stalled. We believe that that also needs to be kick-started.

This really only affects the UK so it has not necessarily been picked up or pushed by other nations. It is up to us now to decide whether to push the issue further in Europe. To be clear, unless the UK positively pushes for this change, there will not be any. Can the Minister clarify whether the Treasury is adopting a neutral approach to this or is it actively pursuing it? If the Government are pursuing the agenda, what efforts are being made? Our amendment would create what we have described as a domestic back-stop. It would give the regulator the opportunity to bring forward its own recommendations on the FSCS rather than waiting for Europe to act.

I am sure, Mr Howarth, that you will put me right if I stray from the correct procedure here. Very briefly, new clause 2 proposes that the Treasury

“bring forward regulations to ensure FSCS insured deposits are moved above other unsecured creditors and above floating charge holders in the creditor hierarchy in the event of insolvency on any imposition of losses in resolution.”

We support reform to the bankruptcy procedures so that depositors become a higher ranked creditor than senior unsecured credit—depositor preference—and so that the bond holders become exposed to the true credit risk of the bank that they are lending to.

Retail depositors are not well placed to evaluate the credit risk of the bank in which they place their deposits and therefore they are not able to provide the proper incentives to encourage bank management to control risk. We think it is also important to note that the costs of the FSCS levies are ultimately paid for by bank depositors as a whole or by taxpayers. This links to the recommendations in the Vickers report. The issue of depositor preferences was addressed in the ICB report when it stated:

“the Commission recommends that insured deposits should be moved above the other unsecured creditors and above floating charge holders in the creditor hierarchy.”

This preference applies in insolvency, but any imposition of losses and resolutions should respect the creditor hierarchy so that insured deposits also rank ahead of other unsecured liabilities and those secured by a floating charge in resolution. In their response to the ICB report the Government said:

“on balance the Government supports depositor preference, but believes that further analysis and consultation is needed on the scope of its application”.

I think that was said back in November last year.

Again, can the Minister set out a time scale for how long this analysis and consultation will take? I would not want to be left with the impression that somehow this was being kicked into the long grass, so if we could get some clarity on that it would be helpful. Again, just to be helpful, there are international examples. Depositor preference is already in place in a number of jurisdictions around the world, including Australia, Argentina, China, Hong Kong, Switzerland and the US. We would want to ensure that the Government are not dragging their feet here in the UK. If they support this in principle, the amendment would allow us to act on the Vickers proposals sooner rather than later and ensure that it was done without delay.

Mark Hoban (Conservative, Fareham)

Let me talk about each of the amendments in turn. Amendment 143 would particularise to a considerable degree the powers the FCA and PRA would have in future to make rules for the financial services compensation scheme and would force them to use these powers. In practice I do not think it is necessary. First, the FSA already has these powers, which are continued in FSMA by the Bill. Both the FCA and the PRA will be able to exercise them where appropriate, including in relation to information about compensation given to depositors, payable by the FSCS.

Secondly, the FSA has used these powers to make rules on the subject and is currently consulting on further changes. The current rules already prescribe what information firms must give depositors where their deposits are protected by the FSCS and impose requirements about their frequency and method of communication with depositors. A firm must also disclose—this is relevant to amendment 160—where it operates under more than one trading name or brand and the effect that this has on the amount of compensation payable. We will touch on this a bit more on amendment 160, but it is important—notwithstanding the outcomes of debates in Europe—that where people are banking with individual brands, they understand that the compensation limit is shared across those brands, rather than having one limit per brand.

The FSA has been consulting since December last year on whether to impose additional disclosure requirements on firms to inform depositors about how deposits are protected, and the limits to deposit protection. Those proposals include requiring deposit takers to display prominently, in their branches and on their websites, standardised notices or stickers detailing deposit protection arrangements. European economic area deposit takers with branches in the UK will be required to produce their own equivalent material, including a mandatory statement that clearly identifies their deposit protection scheme and makes it clear that they do not participate in the Financial Services Compensation Scheme. There is nothing to stop consumers, or indeed, members of the Committee, from responding to that consultation. If they have not done so, however, it closes on 9 March.

I therefore say to the hon. Lady that the powers are in place. The FSA is using them, as the consultation demonstrates, but I agree with her that it is absolutely vital to ensure that people understand what they are covered for and who is covering them.

Amendment 160 brings back happy memories because, on 23 October 2008, during the Committee stage of the Banking Act 2009, we spent a happy morning and part of a happy afternoon discussing these issues, in a debate that I instigated. One issue covered was that addressed by the amendment—the requirement for the FSCS to pay compensation on a per brand basis, rather than on a per authorised institution basis.

Although the matter was debated in 2008, the hon. Lady rightly pointed out that it is currently subject to discussion during the recasting of the EU directive on deposit guarantee schemes. The European Parliament has voted through an amendment that would leave it up to member states whether to introduce per brand coverage. We are not seeking to oppose that amendment. However, negotiations on that directive are in progress. If the final version of the directive allows for coverage to be on a per brand basis, further consideration will be needed to decide whether that would be desirable. The FSA or, in future, the PRA would need to consult on any change to the compensation rules. It therefore would not be appropriate to include a requirement for per brand FSCS compensation to be on the face of the Bill, and I hope the hon. Lady will agree to withdraw the amendment.

New clause 2, as the hon. Lady said, would impose a requirement on the Treasury to ensure that the holders of deposits protected by the FSCS were moved above other unsecured creditors and holders of floating charges in the event of the institution’s winding up. As she said, that was recommended by the Independent Commission on Banking, and of course, as retail depositors will have been compensated by the FSCS in such cases, in effect, the FSCS will have taken over their claims on the estate of the insolvent institution. In practical terms, the main beneficiary would be the FSCS, in the first instance, together with depositors protected by the FSCS who have deposits in their accounts above the deposit compensation limit.

As the FSCS is paid for by the industry itself, an effect of bringing in depositor preference should be to reduce the costs for the vast majority of financial services firms—including banks—that do not fail. It could also encourage other unsecured creditors, such as market counterparties, to keep a closer eye on the banks that they have dealings with.

The Government have outlined their support for depositor preference in our response to the ICB report that was published in December last year. We acknowledged, however, that further analysis and consultation is needed on the scope of depositor preference. That should cover issues such as whether all deposits should be preferred, or only all retail deposits, or only FSCS-covered deposits. That work is ongoing, and we plan to publish details of our approach to depositor preference and other parts of the ICB reform package in a White Paper due in the spring. We remain firmly committed to introducing legislation for all reforms that require it by the end of this Parliament. It is very much on our agenda, and we have acknowledged that we see it as an important part of the ICB’s recommendations. It is something that we need to work through in a bit more detail. I hope that reassures the hon. Lady that the recommendation will not be kicked in the long grass or ignored.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I thank the Minister for his response, and I am glad that something in the Committee’s proceedings has brought back happy memories for him. He has not looked very happy at various points during the proceedings, and if we managed to cheer him up we will have achieved something. The Minister said that amendment 143 was unnecessary, because the FSA not only has the powers specified in the amendment but has already used them, which was heartening to hear. I do not intend to press the amendment to a vote.

Regarding amendment 160, it is important that we see some movement, especially in relation to branding. Consumers and consumer organisations are concerned to ensure that people understand what they are getting into with financial products. We are aware of the work that is being done in Europe, which the Minister referred to, but I was slightly surprised that he did not seem inclined to move ahead and do something now on a domestic basis rather than waiting for Europe to act. If I did not understand him correctly, I am willing to be corrected on that. I take it from the fact that he is shaking his head that he is waiting for Europe to act rather than taking the opportunity to do something domestically.

New clause 2 is important because the Government must move on the Vickers recommendations. We welcome the fact that the Minister has set out a time scale for bringing forward a White Paper, which gives us the opportunity to come back at a later date. I take his assurances that he has no intention of kicking anything into the long grass, and I welcome his commitment to doing something about the matter rather than delaying or dithering. I look forward to the White Paper with interest, and I beg to ask leave to withdraw the amendment.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I beg to move amendment 144, in clause 10, page 59, line 18, at end insert—

‘(1C) The PRA shall provide regular reports to Parliament on its duty to co-ordinate with international regulators.’.

Amendment 144 links to similar comments that I have made in relation to other clauses, and we were moved to table it by the suggestions of the pre-legislative scrutiny Committee. We appreciate that the Government noted the recommendation of the joint committee:

“In order that the PRA can be effectively held to account for its duty to co-ordinate with international regulators we recommend a further duty to report on its work in this area.”

We note that appropriate amendments have been made to the Bill. To maintain consistency with the rest of the Bill we have tabled this amendment, which seeks to ensure that regular reports on passporting are provided to Parliament. Again, if we go back to the pre-legislative scrutiny Committee report, paragraph 181 says:

“There is a further way that the PRA’s powers will be limited in respect of firms operating in the UK and the EEA. The Bank of England and FSA state that the establishment of the new European Supervisory Authorities and the European Banking Authority ‘provides an opportunity for the PRA to influence further the supervision of incoming EEA branches’.”

If we accept that that is the case, paragraph 305 sets out how it hopes that the UK regulators will maximise their influence at a European level. The report does point out, however, that the European supervisory authorities will also have powers to direct the PRA and the FCA to act in certain circumstances. For example, the European supervisory authorities will be able to direct the PRA and the FCA if there is a disagreement between two of the EEA regulators in respect of a firm operating in different countries. For example, if the UK and the German regulators disagreed about the requirement that should apply to a bank headquartered in Germany but passported here, or a bank headquartered here but passported in Germany, then either the UK regulator or the German regulator could refer the issue to the European banking authority for mediation. The European banking authority would then have the discretion to mediate and, in some circumstances, to issue a binding decision on the national regulators. There are different interpretations as to when the EBA could issue that binding decision.

The PRA will be under a duty to co-ordinate with international regulators and that is an immensely important duty given the international dimension of many of the firms, the failure of which could impact on the stability of the UK financial system. In order that the PRA can effectively be held to account for its duty to co-ordinate with international regulators, we would like to see a further duty to report on its work in this particular area. Again, I would welcome a response from the Minister as to whether he believes that this is an appropriate thing to do, and if so how he intends to take this forward.

Mark Hoban (Conservative, Fareham)

It is vital that the PRA and the FCA co-operate with international regulators; it is a key part of the job, as we have talked about before. As I indicated in the Command Paper that we published alongside this Bill, we have identified who the interlocutor assessor would be for the two new regulators in the European architecture. I expect that the PRA and the FCA would be as engaged, if not more so, than the FSA currently is with the three European supervisory authorities. The ESAs play an important role in ensuring that there is a common standard of supervision across Europe. They will deal with issues of dispute on the interpretation of detailed European rules, which is important. We saw the EBA in action this year and last year in the context of the European banking crisis. It tried to find some structure around stress testing. It is important that the PRA and the FCA should report on their work to a wider public. As the hon. Lady said, it was a recommendation of the Joint Committee that the PRA should report on its work and engage with international regulators. The Government agreed with that regulation and it has included provision in the Bill that the PRA should include such a report as part of its annual report and the FCA will also be under the same duty.

I draw the hon. Lady’s attention to paragraph 18(1) of proposed new schedule 1ZB and paragraph 10(1) of proposed new schedule 1ZA, which put those requirements into statute. I do not believe that there is a requirement for a separate report to be made to Parliament. There is a requirement under the Bill for the annual reports of the PRA and the FCA to be laid before Parliament anyway.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I seek clarity from the Minister, because the amendment is essentially trying to ensure that regular reports are provided on the specific duty to co-ordinate with international regulators. Is the Minister satisfied that that will be covered in the annual reports laid before Parliament? If any issues emerge in advance of the annual reports, how will they be reported to Parliament?

Mark Hoban (Conservative, Fareham)

Because the annual report is laid before Parliament and because the Bill requires the PRA and the FCA to make a report on international co-operation as an integral aspect of their annual reporting, it will be brought to Parliament’s attention. The co-ordination committee, which was set up in response to a PLS recommendation, will help flush out such issues about co-operation between regulators and their international counterparts.

My experience is that, because the Treasury is also engaged in a number of these processes and because so much of it is in the public domain, we do not need to wait for an annual report to find that there is a problem. If there was a failure of the relationship between the PRA and the FCA and international bodies, the Treasury would certainly know about it pretty quickly. It would be apparent to the industry and would be a cause for concern. As part of its regular scrutiny of the PRA and the FCA, it is open to the Treasury Committee—we have two of its distinguished members on the Government Benches today—to ask such questions, so the annual report will not necessarily be the sole source of knowledge. I hope that that reassures the hon. Lady and that she is happy to withdraw her amendment.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I thank the Minister for making clear what can and will be reported to Parliament. At any suggestion of problems, it is important that not just the Treasury knows about it, but that something is actually done about it, that the various people who are required to put in place any action plans can get that moving, and that Parliament is kept fully updated. I heard what the Minister said about the annual reports, and I accept that that would cover this particular issue. I have some faith that members of the Treasury Committee will ask the pertinent questions, but I do not know whether they will follow that through to vote for particular recommendations; do not tempt me down the route of one thing happening in a Select Committee and something else happening in relation to the Bill. To be serious, I have every faith in the Treasury Committee’s ability to probe, to ask questions, to hold Ministers to account, and to ensure that issues are reported. With those comments, I beg to ask leave to withdraw the amendment.

George Howarth (Labour, Knowsley)

As many as that of opinion––

Cathy Jamieson rose—

George Howarth (Labour, Knowsley)

I call Cathy Jamieson.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I need to jump up more quickly. I sometimes feel that I am still getting used to having to catch the eye of the Chair. In my former career in another Parliament, most things were done through the pressing of a button—[Hon. Members: “Terrible.”] It is terrible even to talk of such things in this place. It certainly did not mean that I was always called to speak, but it was somewhat easier than remembering to stand up, so I apologise, Mr Howarth.

I want to comment on clause 10. It is important that we debate passporting and treaty rights, address overseas regulators and get clarity about which regulators will be making consent notifications. It is also important to press the Minister on what he intends to do about Europe. He has answered a question that I was going to ask on whether the FCA or the PRA would be the appropriate regulator.

The Minister also gave some information regarding procedures and processes that have been put in place to ensure that the FCA and the PRA will have time to consult and liaise with each other. However, I still have some concerns about the ability to meet the required statutory time frame as set out in EU directives. A whole range of them are relevant in this particular case. I will not go through them all, as I am sure the Minister is absolutely aware of everything, from the markets in financial instruments directive right through to the electronic money directive for approving passport applications, which we have also discussed.

I want to raise one point, and again, the Minister may just want to make some final comment on it. Where the authorised person is a PRA-authorised person, the appropriate regulator is the PRA, but in other cases, the appropriate regulator is the FCA. Where an incoming firm is a PRA-authorised person, both the PRA and the FCA may exercise powers of intervention, and in other cases, only the FCA may exercise those powers.

As we discussed earlier, the FCA must consult the PRA before exercising its powers of intervention in relation to a PRA-authorised person or a member of a group that includes a PRA-authorised person. The PRA must consult the FCA before exercising its powers of intervention in all cases. I am sure that that is as clear to every member of the public as it is to all of us. I say these things simply because it is vital that when firms are passporting into the UK, most of the matters that might be of concern to the UK regulators have to do with the conduct of business rather than prudential issues, because the host state regulator remains responsible for prudential matters. I hope that the Minister agrees that the process needs to be made as straightforward as possible. It needs to be made less confusing and more efficient by giving the FCA the obligation to deal with all passporting matters.

We are not just trying to ensure that the Bill works in practice and provides safeguards for consumers, but to have open and transparent procedures and processes, so that the general public will be able to understand what is happening, whom to go to and where different authorities would intervene when problems arise. That is important, which is why I have raised the issues.

Mark Hoban (Conservative, Fareham)

The hon. Lady has raised important issues. One of the benefits of the European Union is the ability for firms authorised in one member state to do business in another through the passporting arrangements. It is vital to have clarity about the responsibilities of different aspects of the regulatory structure and to ensure that we know precisely what is happening, given the varying nature of firms.

Regarding the draft memorandum of understanding on co-operation, we have sought to look at passporting in subsection (3), so that we are clear. In situations where an institution passports inward via the banking consolidation and insurance directives, the PRA will be the lead regulator and the FCA may make representations. If the passporting is under other directives, the FCA will be the lead regulator. However, the PRA may make representations in certain circumstances, when the applicant firm is in the same group as a PRA-regulated firm. It is likely that the groups such activities will be well aware of where the division of responsibility is.

To be clear, the FCA will supervise the market conduct and consumer protection elements of any incoming firm’s business. The PRA will scrutinise the safety and soundness of the incoming firms that would normally qualify for PRA regulation, but working closely with the home state supervisor so that they can co-ordinate action when the activities of passporting firms cause a financial stability risk. The reality, as I think the hon. Lady indicated, is that the most prudential regulation of an inward passporting firm rests with the home state, except for the setting of liquidity standards. I think the boundaries are clear.

The hon. Lady referred to the powers of intervention, which are exercisable only when the home regulator has failed to act. One would expect such interventions to be very rare indeed, but it is right that when there is an intervention that might have a prudential impact, the PRA is involved, and that is the point of the consultation.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I hear what the Minister is saying; that would be rare. Will he give an example of when he would expect those powers to be used?

Mark Hoban (Conservative, Fareham)

It is almost so rare that I cannot envisage one immediately, but it might be when the PRA believes that there is a threat to financial stability and the home state has not acted. One role of the European Supervisory Authorities, which I alluded to earlier, is consistency supervision, so that should tackle that problem.

Clause 11 - Prohibition Orders

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I beg to move amendment 145, in clause 11, page 61, line 7, at end insert—

‘(8A) In the event of a prohibition order being made, the FCA or PRA shall—

(a) publish an explanatory statement regarding the decision; and

(b) include the individual on an updated list of those subject to prohibition orders to be presented on HM Treasury website.’.

George Howarth (Labour, Knowsley)

With this it will be convenient to discuss amendment 146, in clause 12, page 62, line 19, at end insert—

‘If the FCA considers it appropriate to change the way it exercises its powers under section 59(3)(a), it must lay before Parliament a report on its reasons for any changes.’.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I hope to be fairly brief, with one eye on the clock. The amendment highlights the importance of transparency and accessibility of information so that it is disclosed and made transparent. That is why we propose to add new subsection (8A).

We believe that transparency is important, and that information such as lists of those subject to prohibition orders should be easily obtainable at all times. Putting that on the Treasury’s website would achieve that aim. We understand that lists of prohibited persons are already published on the FSA website, and we assume that those lists will also be published on the FCA and PRA websites. Indeed, if someone has become prohibited, there should be an explanatory note about why that person has become prohibited, and information should be given an even higher profile through publication on the Treasury website, because we hope and expect that the general public or anyone wanting that information could trust the information published on the Treasury’s own website.

We also need to ensure that the legislation is fit for the 21st century, and that is why we have specifically mentioned the website. That is important, as many people will use that. Of course, not everyone, as has been outlined in earlier discussions, would have access to the internet, but that is where people who are looking for the information would go. It is a fairly simple amendment and I hope that the Minister will consider accepting at least something during the course of our proceedings.

Matthew Hancock (Conservative, West Suffolk)

It is a pleasure to follow the Opposition Whip, who has made concise and interesting speeches. Long may they continue.

Amendment 145 seeks to change the clause on prohibition orders. I do not support the amendment, because writing the need to publish on a website into law seems to have the problems that we discussed earlier. However, the principle that prohibition orders on people who are not fit and proper persons should be published is crucial. The clause is very important. Prohibition must not only be a sanction for past irresponsible behaviour, but a deterrent for future irresponsible behaviour. That change in behaviour, by ensuring that sanctions are strong enough to change the culture within finance, is written deeply within the Bill and is extremely important. It is one of the key lessons from the financial crisis.

I hope that the Minister will reiterate that the point of prohibition is not only specifically to stop the actions of those who have already committed acts that make them not fit and proper, but to demonstrate the bounds of behaviour that are deemed responsible and reasonable within authorised firms.

George Howarth (Labour, Knowsley)

Order. We have had rather a long session. I suggest we have a 45-minute adjournment. Members of the committee can do the maths themselves.

Mark Hoban (Conservative, Fareham)

I am sorry that my hon. Friend the Member for West Suffolk is not here to listen to my response to his intervention. He was right that prohibition is both a punishment and a deterrent, and that the risk of being deprived of one’s livelihood is a deterrent to those who transgress.

Let me deal with amendment 145. In her remarks, the hon. Member for Kilmarnock and Loudoun recognised the fact that the FSA already publishes a public record of various matters, including all individuals subject to a prohibition order. It does that on a website, setting out the reason why the order has been given and the contact information for anyone who needs further information. We expect the PRA and FCA to do likewise.

Given that the information is in the public domain, I do not agree that we need to duplicate it on the Treasury website. There is a risk of information being fragmented and people not knowing who is responsible for what. I should have thought that the best answer is to ensure that it is in one place, and that we recognise and know where it is. Moving it to the Treasury website would serve no purpose whatever.

With amendment 146, the hon. Lady wants to ensure that, if the FCA changes its policy towards designating controlled functions, it must report to Parliament on the reasons for any changes. The designation of controlled functions is done using rules, and the PRA and FCA will be required to consult publicly on all rules, including those. It would be a little odd to require regulatory reports specifically to Parliament on that set of rules, as opposed to any others. The Treasury does not need to maintain an extra website. It would be odd to single out one set of rules from others in respect of what should be reported specifically to Parliament, so I ask her not to press the amendments.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

It is an absolute pleasure to be back here this evening. [Hon. Members: “Hear, hear.] Hopefully, we can make the Minister happy once again—although perhaps that will not apply to all the members of the Committee who have to remain with us.

On a serious point, I wish to refer the comments of the hon. Member for West Suffolk who promoted me to the Whips Office during his contribution to the debate. I always hold the Whips in the highest esteem wherever I am. That is always wise action to take. The hon. Gentleman made some important points. I understood his argument. He said that he accepted why we wanted transparency, and information to act both as information in itself but as a deterrent.

I recognise the argument about publishing on only one website, but I am slightly bemused why the Minister believes that the Treasury website is not perhaps an ideal place to hold such information. If people were looking for information, they would want to know from a Government website exactly what it is. Surely that would be one of the places that people would look rather than trying to find the information elsewhere. If the hon. Gentleman can assure me that there will be enough publicity or information to highlight where the list of prohibited people will be held so that people can obtain that information, I shall withdraw the amendment. I am not quite sure that I received such an assurance.

The rest of the debate is in Hansard.