Bank of England and Financial Services Bill [Lords]
February 2, 2016
Mark Field: I will be neither as discursive nor as time-consuming as my right hon. Friend the Member for Chichester (Mr Tyrie), but he made some important points. Even before 2008, banking was one of the most highly regulated industries. Although I agree that ideally we need to move towards a much more competitive world in the banking sphere, it is also worth reflecting that one reason why we have not had a great upsurge of challenger banks is because—at least in the retail banking sector—the banking world is insufficiently profitable to make it worth while for such competitors to come through. One reason for that is because there is ever more regulation and compliance in the retail world. It is therefore perhaps predictable that the furore surrounding this Bill has been concentrated on the role in the institutional architecture of the Financial Conduct Authority, and the changes that have already been referred to regarding the Government’s original proposals on the senior managers’ regime.
As the MP for the City of London, I have had my ear to the ground over 15 years as Governments—Labour, the coalition, and now Conservative—have grappled with devising a framework of regulation and compliance, in particular one that was fit for purpose in the aftermath of the financial crisis of 2008. We should all accept that that is not easy work and, in making such changes, it is important not to undermine our global competitive advantage in financial services—again, that was alluded to by my right hon. Friend the Member for Chichester, who pointed out that the most effective regulatory framework will probably have an international nature, rather than one specific to the UK.
We should all be much poorer if regulation is designed simply to punish banks and bankers. By the same token, sensible voices from the City of London—there are more than might be appreciated by certain elements on the Opposition Benches—fully recognise that the British public need to see the risk of future bail-outs kept to a minimum. For all the talk of maintaining free markets and global capital flows, the sheer importance of the financial system to the economy as a whole means that there will continue to be some form of implicit guarantee from taxpayers in the event of a future financial crash. The price to be exacted by the public for that guarantee is rigorous regulation and watchful compliance, as well as the ongoing banking levy that has been introduced and is, I think, here to stay.
As the Minister will recall, I must confess that I have consistently argued against the reversal of the burden of proof, which had been proposed as a key element of the senior managers regime. I am pleased that we have not implemented what was going to come into place on 7 March. I should therefore rightly pay fulsome tribute to the Treasury for rowing back from this draconian and potentially unenforceable measure. Likewise, I am pleased that the Government have fiercely resisted attempts in the other place to resist that.
There was already plentiful evidence that senior executives of global banks were thinking twice about relocating, or indeed continuing to be based, here in the United Kingdom. The notion of a criminal liability being levied on management for actions committed by junior bank staff who were perhaps working even in another jurisdiction, and such liability being regarded by the courts essentially as strict, risked leading to an exodus of senior management from London. Indeed, it has been my understanding that the senior managers regime, as originally proposed, was the single biggest consideration in the ongoing deliberations by HSBC and Barclays that they might headquarter outside the UK—more important than concerns over the bank levy, bonus caps, remuneration caps and the whole ring-fencing agenda.
Mark Field: I am not suggesting that for one minute, but we need to make legislation that is effective and enforceable. I think there were human rights implications about having a reverse burden of proof. If we are going to try to encourage a banking and professional services industry that is worth its salt here in the UK, we need to ensure we do not put it under burdensome regulations that apply here in the UK but not across the globe.
I agree very much with the Chancellor’s decision not to renew the contract of the first chief executive officer of the Financial Conduct Authority, Martin Wheatley. The concern went beyond the well-publicised leak over pensions policy, which saw £3 billion wiped off insurance company shares. In truth, Mr Wheatley had lost the confidence and, more importantly, the respect of many leading figures in the City. I suspect some Opposition Members would regard that as a badge of honour, but frankly for an industry regulator to let it be known that he regarded those working in the financial services industry as inherently dishonest is not the way to win hearts and minds. To be quoted as saying he would “shoot first and ask questions later” in championing customers against the banking fraternity may have played to the gallery, but it was not sensible regulation.
I am unconvinced that that superficially robust approach ever truly benefited customers. I commend my hon. Friend the Member for Aberconwy (Guto Bebb) for securing a Backbench Business debate later today on the failure, thus far, of the FCA to secure fair redress for victims of financial mis-selling of interest rate hedging products. I have constituents—I am sure all Members do—who are still waiting for redress from the mis-selling of such products in 2007. They now find themselves out of time, under the six-year rule, to initiate legal proceedings because the Financial Services Authority advised them to rely instead on its own processes and the FCA subsequently failed to devise a satisfactory structure for compensation.
I was pleased to see last week that the respected head of the Prudential Regulation Authority, Andrew Bailey, was appointed as Mr Wheatley’s successor. I know from my own dealings with him that he is no soft touch. I trust that his experience and his reputation for fairness, not only at the PRA but at the Bank of England, will restore credibility to this vital part of the regulatory infrastructure. The breadth of his experience should hopefully ensure that he is able to take a comprehensive view of the financial system that avoids some of the mistakes of the discredited tripartite system of oversight. Going forward, I believe City regulators—and central bank governors, for that matter—would perhaps do well to give careful consideration to the famous advice one is given on joining the Whips Office: why say one word when none will do? I fully endorse the clauses of the Bill that recalibrate the duties of the FCA. I hope the Government are now able to convince an admittedly sceptical public and a very wary financial services community that in its new iteration the FCA will achieve more—much more—of what was intended when it was set up.
It was fair of the hon. Member for Leeds East (Richard Burgon) to point out that the other place had made changes to regulation, but I am not sure it went far enough. I still think there is the risk of a virtually untrammelled power being given to the Governor to appoint or remove deputy governors. Granted, such appointments and dismissals would necessitate a statutory instrument procedure in the House, but such a process would not pass muster as good corporate governance of a FTSE 250 company, so why, in view of the Bank’s extensive powers, should it be tolerated here? This is not simply an academic concern. We are potentially enabling a Governor to pack his board with worthies happy to do his bidding and thereby outweigh the influence of the Bank’s independent directors.
As Mark Carney begins the second half of his term, we have seen in the past week the swooning of the financial press over Mario Draghi’s decisive actions as President of the European Central Bank. This cult of the central banker is nothing new—it goes back to the 1920s and the greater control central banks had in the aftermath of world war one—but I have long been sceptical about the practicality, or even the desirability, of fully fledged Bank of England independence. In the final analysis, strategic economic decision making must lie with elected politicians operating within financially responsible Ministries. The composition of the Bank should neither be nor, more importantly, appear to be the plaything of the Governor.
In wholeheartedly supporting the Bill, I trust that the Minister will give some thought to those genuine governance concerns as it makes its way through the House.