Baroness Hayter of Kentish Town
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(11 years, 9 months ago)
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“( ) As part of the FCA’s consumer protection and integrity objectives, the FCA will raise standards of professionalism in financial services by mandating a training and competence regime which must—
(a) apply to all approved persons exercising controlled functions, regardless of financial sector,(b) specify minimum thresholds of competence including integrity, and professional qualifications, continuous professional development and adherence to a recognised code of conduct,(c) be evidenced by individuals holding an annual validation of competence.”
Baroness Hayter of Kentish Town
My Lords, I am impressed that I will be standing opposite an immaculate Whip, which I am sure will make for a good day’s work on the Bill.
The amendments in the first group—
Baroness Anelay of St Johns
My Lords, I hesitate to interrupt the noble Baroness who is carefully moving her amendment, but I remind noble Lords that a substantial number of Peers wish to take part in the Committee stage of the Bill. Will noble Lords please leave the Chamber a little more quietly so that we can hear the noble Baroness?
Baroness Hayter of Kentish Town
I thank the noble Baroness for that assistance.
The amendments would raise the standards of professionalism in the financial industry; partly by adding professional standards to the definition of integrity, partly by introducing a code of conduct and partly by mandating a training and competence regime. That is only what other professions expect: training, a code, a qualification, CPD and proof of competence.
Part of the reason that we trust lawyers and doctors, architects and surveyors, is that they meet these requirements with proof of competence. That is why we trust them with our wills, our conveyancing, our divorces and our lives. A code of conduct enables us to know what is expected of them in terms of behaviour, ethics and integrity, as well as in particular skills and standards.
Let me quote from just one such code—that for solicitors. It reads:
“You must: …act with integrity ….act in the best interests of each client … provide a proper standard of service to your clients”—
—although, having checked lots of codes of conduct, I find that surveyors have to,
“always provide a high standard of service”,
so perhaps we could have some trading up there.
So you have to act in the best interests of clients, provide a good standard of service to your clients and not behave in a way that is likely to diminish the trust that the public places in you or the profession. If only bankers and the rest of the industry had signed up to that and it had been enforced by their professional body or regulator. Sadly, we have learnt the hard way that the culture and behavioural traits of those working in the financial services sector have not been sufficient with regard to professionalism, integrity and competence.
Baroness Hayter of Kentish Town
Is that it?
I will start with a small correction. The Minister said that these amendments arose from LIBOR. If he had picked up my hints when I anticipated him—code for “That’s what his friend said in another place when it was going through Committee in March”—he would know that two of these amendments predated LIBOR.
Lord Sassoon
Just to be clear, I said that these relate to concerns that have arisen in connection with the recent LIBOR scandal. Of course, they arise in relation to the conduct of the industry more generally. I fully recognise that and I did not in any way exclude that from my remarks.
Baroness Hayter of Kentish Town
Not purposefully; I did not mean it like that. But these amendments are built on many other things. I thank those who have contributed to this debate—the noble Baroness, Lady Kramer, as well as my noble friends Lord Peston, Lord Davies and Lord Barnett. On a small issue, if there are new requirements on the Treasury website today, perhaps they could be shared with Members of the Committee.
I think the Minister gave us the ammunition that we are asking for. In talking about his role as chair of a training organisation or an accreditation organisation, he said that he wished more banks did structured training. That is the point we are trying to make. Because they do not all do it, we want it mandated. He also said that there will be a higher entry bar for new approved persons. But this is not just about people coming into this industry; something needs doing now. That is also what these amendments are about.
Most worrying, however, is that there was no reference to a code of conduct. That is why I was slow to get to my feet; I was awaiting another page. Obviously, the Government do not feel that is needed in this industry for financial professionals on whom we rely as clients and consumers. It is highly regrettable that the one thing the Minister did not bother to answer on was the need for a code of conduct. I do not know what it is about that that he cannot accept. I do not know why he cannot accept the demand for proof of competence. As was made clear, there need not be one proof of competence for everyone in this field; there can be a range of them. We are not asking for a single mandate; we are asking for the FCA to come up with a regime that would have competence requirements.
Finally, my question, like that of my noble friend Lord Barnett, is this: what will improve without such amendments? If this is just the FSA becoming the FCA, will we see anything different? I believe we need some signals about a code of conduct and raising standards. This may be something we need to return to later but for the moment I beg leave to withdraw the amendment.
“1BA Memorandum of understanding between FCA and Office of Fair Trading
(1) The FCA must co-ordinate with the Office of Fair Trading (OFT).
(2) In particular, the FCA and the OFT must prepare and maintain a memorandum of understanding which sets out their respective roles and responsibilities and how they will work together.
(3) The FCA must—
(a) lay before Parliament a copy of the memorandum and any revised memorandum, and(b) publish the memorandum as currently in force in such manner as it thinks fit.”
Baroness Hayter of Kentish Town
My Lords, Amendment 104BA stands in my name and that of my noble friend Lord Eatwell. Much will change in the OFT, partly as a result of the Public Bodies Act, the forthcoming Enterprise Regulation and Reform Bill, and this Bill, with responsibility for consumer credit moving from the OFT to the FCA.
This amendment is not so much about that but about the all-important competition role of the OFT, until that, in due course, moves to the CMA. That includes competition references and market studies, as well as super-complaints and promoting competition. Meanwhile, as we know, and welcome, the FCA has also taken on a new remit to promote competition in financial services.
On 14 June in another place, Mark Hoban for the Government welcomed the fact that the Office of Fair Trading and the Financial Conduct Authority will take forward the ICB recommendations to improve transparency across all retail banking products. If the OFT retains the right to conduct market studies in relation to financial service markets, the ABI is concerned about the risk of duplication and/or the lack of co-ordination between the FCA and the OFT. Therefore, the ABI feels that the OFT should be subject to a statutory duty to cooperate and to produce an MoU. It would certainly be the preference of the ABI for the FCA normally to take the lead on competition matters, and for the OFT to undertake market studies only in exceptional circumstances.
Meanwhile, the consumer world, not dissimilarly, would like the relationship between the FCA and the OFT changed from that set out in the Bill. The consumer world would like the FCA to have the same powers as a number of other sectoral regulators to make competition referrals themselves—that is, the equivalent of Section 131 powers. I am attracted to that but have not tabled an amendment specifically on that at this stage, in the hope that this amendment will give the Minister the chance to explain why he has not replicated such an enabling power within the present Bill. Without such a power, the FCA will still have to refer cases to the OFT for market analysis before a referral to the Competition Commission can take place. It sounds—and I guess it will be—a bit slow. It also adds additional, possibly unnecessary, hurdles. The Joint Committee agreed. It said:
“The Government should review its decision on the FCA’s competition powers. The FCA should be given concurrent powers alongside the OFT to make market investigation references to the CC. The FCA will need greater competition powers to achieve its recommended objective than is currently set out in the draft Bill.”
We know from the debate in the other place that the Government, however, prefer the FCA to continue to have to make a referral to the OFT, which would allow the FCA to draw on the expertise of the OFT. However, the Government have agreed that they will review whether the FCA should have specific competition powers in five years’ time.
It is hard to see why a new authority, set up with a specific and new remit to promote competition, should not have the requisite powers. But perhaps we will hear the rationale when the Minister replies. Meanwhile, the OFT is itself keen to establish greater clarity for interested parties on how the OFT—and subsequently the CMA—and the FCA will work together, and the OFT is very happy for this issue to be raised today. The OFT judges it important for effective debate on the Bill that there is an understanding of how the OFT and FCA will work together.
There is, of course, also the matter—a smaller matter, perhaps—of the handover of consumer credit responsibility from the OFT to the FCA, and various transitional issues. The handling of these should no doubt also be included in any MoU.
The current OFT acknowledges that a key issue will be the publishing of a memorandum of understanding setting out the respective roles of the OFT and the FCA, their responsibilities and how they will work together. Indeed, I understand that the OFT has already begun working with the FSA on a draft MoU and is keen to establish greater clarity for those two parties and for those of us looking from the outside.
I am aware, although my eyesight is not that good, that the Minister has a file entitled, “say no to everything”. I hope in this case that he might drop that and just agree that an MoU may be without that remit. I beg to move.
Lord Flight
My Lords, my Amendment 173D covers essentially the same point, but is in that part of the Bill that deals with the practical operation of the competition objective for the FCA. There is clearly a risk of duplication or lack of co-ordination between the OFT and the FCA, so Amendment 173D proposes a legally binding MoU setting out how the two bodies will co-operate together and who will do what. It should be made clear that the FCA would normally take the lead on competition matters in financial services and the OFT would undertake market studies in exceptional circumstances. The competition objective for the FSA is very well worded, very clear and extremely appropriate. Consumers need a healthily competitive market. I am still of the view that the PRA should have a competition objective. It is the lack of competition that led to a cartel in banking. Whenever you get a cartel you get bad habits, so, in my book, a major aspect of having a much healthier banking system is having more competition.
Lord De Mauley
I am pretty sure that the noble Lord is correct in his analysis, but if there is any change to that, I will write to him.
Baroness Hayter of Kentish Town
My Lords, the fact that the Minister does not know the answer to that seems to me to make the case for why we need an MoU. In fact, in his answer he went through the sorts of things that the OFT and the FCA would need to look at—their objectives, their resources and their method of working. We are not setting out what those should be. We are simply saying that there should be an MoU that sets out those sorts of things, things such as when one will take the lead and when the other will.
I accept, sadly, that the specifics in the amendment of the noble Lord, Lord Flight, which we were attracted to, are probably more than we could hope for from the Government. However, as the Minister has admitted that there need to be MoUs for all the other key players—the Treasury, the Bank of England, the FOS, the compensation schemes and so on—it would be extraordinary not to have one for what he now accepts is the prime competition authority: the OFT currently, but the CMA eventually. I hope that the Government will think about this again. The lack of an MoU for the prime competition authority would seem to create a slightly opaque situation for the other market players that want to know who leads on certain items. In the hope that the Minister will think about that, although he did not promise to, I beg leave to withdraw the amendment.
Lord Hodgson of Astley Abbotts
My Lords, I very much support the amendment, as I said when speaking to my noble friend’s amendment a few minutes ago. There is a real danger of failing to distinguish between risk and fraud. They get intermingled in the public’s mind. Clearly, fraud is absolutely unacceptable and needs to be chased down and prosecuted with all possible vigour. Too often, in this compensation-culture era, a risk that goes wrong is seen as fraud: “I should not have lost money”. One difficulty with the interesting concept, proposed by the noble Lord, of duty of care is that although you can explain very clearly to people the risks that they are taking, when it does not happen as you and they hope—things are volatile—they are inclined to forget that they were given the appropriate warnings. Our emphasis must be on making sure that risk is understood; and that fraud is unacceptable; but that the two are completely distinct. There is a confluence in the public mind, sometimes encouraged by the way that the newspapers report it, of two issues. There are plenty of cases where fraud has happened—that is wrong—but there are also cases where people have taken risks which they anticipated would deliver them huge returns. When they did not, because they were highly risky, they did not see themselves in any way responsible; they sought someone else to blame.
Baroness Hayter of Kentish Town
My Lords, I was particularly grateful to hear the words of the noble Lord, Lord May of Oxford. We will shortly come to a specific amendment about a duty of care. I hope that he will be here to repeat his words in 20 minutes or whenever we reach the amendment. I also hope that the Minister can pick up a briefing note that says “support”. His face tells me possibly not.
At Second Reading, I talked about caveat emptor, not having realised that it is no longer the accepted term. I have concerns about it because it is rarely used as an excuse for ordinary consumers to say, “Oh, I lost money”; it is far more used by producers to say, “Well, we told you so”, even if it was, as the noble Lord, Lord Hodgson, said on an earlier amendment, on page 4 of small typed script of something that had been sent to them. I remain of the view that responsibility for ensuring that consumers know what they are buying rests with the provider by producing intelligible and appropriate information. We will turn to the issue of duty of care shortly.
The Joint Committee on the Bill wrote that, should it be essential for the FCA to have regard to the behaviour of consumers, the FCA duty should be amended as set out in Amendment 105, in my name and that of my noble friend Lord Eatwell. As the Joint Committee stated,
“provision of information alone will not significantly improve consumers’ ability to make well-informed decisions. The information needs to be easily understandable and accessible”.
There is widespread suspicion that many purveyors of financial products deliberately try to keep certain customers in the dark. That confusion can mean that some, blinded by graphs and numbers, sign up to a product and later down the track find themselves caught by certain clauses and conditions of which they had, sadly, been unaware.
An issue just as difficult, of course, is the ability to compare prices and thus to shop around—an essential element of the much-vaunted caveat emptor, or competition, on which the Government rely to improve services. Martin Wheatley, the chief executive-designate of the FCA, has described the difficulty for consumers in comparing products such as bank accounts, which are structured in a way that makes it really difficult to establish whether the product is good value. We all know of practitioners who talk in terms so remote from the common-sense understanding of contractual agreements that people are unaware of what they are signing up to. This was undoubtedly the case with the recent interest rate swaps.
Asked whether firms had a duty to go beyond their legal responsibility to consumers, Mark Hoban MP said in another place:
“It is in the interests of firms to ensure that consumers do understand the products that they are buying because it then minimises the risk of problems further down the track”.
Although I agree with those sentiments, that answer seems to be about not having to pay redress later, rather than trying to prevent the mischief in the first place. Unless we do something to reduce such occurrences—today we have already mentioned PPI, personal pensions and mortgage endowments—we will have learnt nothing from what has gone wrong.
However, as the amendment moved by my noble friend Lord Peston makes clear, it is not simply language—the “crystal mark” of plain English—that is important. This is about explaining the risk to which the consumer is signing up, or for which they are paying money so that someone else takes that risk in exchange for the payment. So they might buy a product that covers the risk of inflation but does not cover longevity, or vice versa. Or a product might cover their life expectancy but not that of their surviving spouse. The permutations are endless. What is key is that, in addition to the language being clear, the limits of the product should be clear so that—in the famous words—there are “no surprises”. If I buy a bottle of Coke I will know its size, volume, sell-by date and taste. Regulation has sorted out much of that. We need to give this regulator the ability to expect no less from the providers of services which they are selling to largely unsuspecting customers.
In the other place, the Minister said:
“The Government recognise that there can be significant information and capability asymmetries between firms and consumers”,
and that poor “provision of information” could be a key factor in,
“a consumer ending up with an unsuitable product”.
He therefore fully supported,
“the intention behind the amendments”—[Official Report, Commons, Financial Services Bill Committee, 1/3/12; col. 261]—
in the other place, and therefore the intention behind the amendment that is in my name in this group. I hope that the Minister will now go further than his colleague in the other place, who accepted only the intention behind the amendments, and that he will accept the amendments as they stand. If it would make him feel better, perhaps he could agree to the intention now and bring back a suitably worded amendment on Report.
Lord De Mauley
My Lords, this group of amendments is concerned with the information provided to consumers, so that they are able to make empowered choices and decisions. Amendment 104C seeks to add a new ‘have regard’ subsection to the list of matters that the FCA must consider in advancing its consumer protection objective—namely,
“the need to inform and educate consumers with special emphasis on the unavoidability of some risk”.
I agree with the noble Lord that consumers need to understand that there will necessarily always be an element of risk involved in engaging in a financial transaction, and that they must consider carefully their own risk appetite and the ability of their personal finances to absorb any loss, and enter in to any contract with full information. We cannot pursue a zero-failure regime in financial services, and consumers must understand this. The regulator cannot shoulder the responsibilities that consumers should take for their own decisions and actions, but it can take steps—as my noble friend Lord Hodgson said—to ensure that consumers have the best possible information when they make those choices.
Both financial education—which we spoke of earlier—and effective conduct of business regulation have a role to play in educating consumers about risk. The Money Advice Service will have a key role in improving financial literacy so that consumers understand the difference between available financial products and their uses, what information they should seek out before entering into a contract or transaction, and what rights they have when things do not go to plan. We covered the role of the MAS when we discussed Amendment 104.
Lord De Mauley
My Lords, I think that I have given the right answer but I am happy to write to the noble Lord, Lord Peston, if I can express it in a way that he might find more acceptable.
On Amendments 105A and 106, it is important to note that if we are to create the conditions in which consumers can make better choices for themselves, we need to address some of the asymmetries of information between consumers and providers that still prevail in financial services. I think that that is a point that noble Lords are making. That is why the Government added new subsection (2)(c) to new Section 1C, which will be inserted by Clause 5, before the Bill’s introduction to the parliamentary process. This provision requires the regulator to consider,
“the needs that consumers may have for the timely provision of information and advice that is accurate and fit for purpose”.
This provision complements the FCA’s new power to require firms to withdraw a financial promotion and disclose the fact that it has done so, as well as a new power to disclose at an early stage to the public that disciplinary enforcement action has commenced against a firm or individual. The FSA will carry out a root-and-branch review of transparency and disclosure on the part of firms and the regulator to be completed ahead of commencement of the Bill.
I agree with many of the points made by the Committee in terms of the improvements that we want to see, but I do not agree that Amendments 105A and 106 are necessary. I argue, for example, that referring to information being “fit for purpose” is, in modern idiom, a better way of achieving the aims that we all share. “Fit for purpose” is an umbrella term that includes, for example, information being legible, intelligible and appropriately presented. Information could not be fit for purpose if it was not also those things.
“Fit for purpose” is also broader and allows the regulator to differentiate between the needs of different consumers, to adapt its approach and perhaps to place additional requirements on firms where it considers this necessary. There may be requirements that we cannot anticipate at this point. Using a broad term such as this therefore gives flexibility and allows the regulator to be responsive to changing circumstances and market conditions. Being too exhaustive in the Bill could be unhelpful. However, it is also not appropriate, as the detailed requirements will be set out by the FCA in its rulebook.
I therefore argue that Amendment 105A is unnecessary, as fit for purpose already captures information being intelligible and appropriately presented. Amendment 106 could restrict the FCA’s ability to design a regime on the provision of information to consumers, as “intelligible” is a narrower term than “fit for purpose”.
Baroness Hayter of Kentish Town
Before the noble Lord moves off that particular amendment, perhaps I may point out that the provision also uses the word “advice”. He has covered only the information that has to be clear, but not the point about access to advice.
Lord De Mauley
My Lords, I apologise if my argument covered only one aspect, but it should be taken to cover both.
The noble Lord, Lord May of Oxford, to whom I am grateful for his intervention, asked about a duty of care. Subsection (2)(e) of new Section 1C, which is headed “The consumer protection objective”, states that providers should,
“provide consumers with a level of care that is appropriate … to the … risk … [of] the investment … and the capabilities of the consumers”.
I hope that that is helpful.
I hope that I have made it clear that the Government are fully committed to improving the provision of information to consumers, and that I have succeeded in convincing the noble Lord to withdraw his amendment.
Lord Lucas
My Lords, the amendment concerns a subject raised by the noble Lord, Lord Whitty, at Second Reading. With his consent, I raise the matter now in his absence.
The issue of consent to the use of information on the internet is greatly confused at the moment. We have the principle of caveat emptor, as far as possible; we have a set of data protection regulations which are of variable application; and we have a daft system doing the rounds at the moment under which every website pops up with the message, “Can we use cookies?”, to which you answer, “Yes”, because the website will not function without that. That is a complete waste of time which has been foisted on us by Europe.
The question raised by the noble Lord, Lord Whitty, is interesting and I shall be interested to see where the Government find themselves. When you have a regulated institution with financial data on people, under what circumstances is it allowed to share those data with other bits of the same company which are not regulated? This may apply to Tesco with all the data which it has on Clubcard. Is the retail side of Tesco allowed to look at what people are doing in their bank accounts and to understand what they should be marketing to them? Vice versa, is the banking side of Tesco allowed to look at all the Clubcard data and say, “Hang on, this guy looks as though he is going bust because he is starting to buy cheap orange juice, so we really ought not to be offering him the degree of credit that we are”. If we are to allow such sharing, what degree of information should be offered to consumers about what is happening? There is a standard practice on the internet—I rather suspect that we have all done it—where we are presented with a little form saying, “Have you read the agreement? Tick ‘yes’”, and the agreement is 154 pages long. As it is not really clear where the changes are from the previous one you signed, you tick “Yes” because you want to use the thing. You sort of trust the people you are dealing with.
Are we in the territory where the consent to share information will be hidden away in that kind of automatically signed agreement on the web, or are we in the territory where things would have to be made clear in the preamble to the consent form that this sort of sharing was being permitted and that no disadvantage would be incurred by the customer if they refused to share? I find this a puzzling area and I shall be very interested to know what the Government intend that the FCA should do. I beg to move.
Baroness Hayter of Kentish Town
My Lords, the British banking market is changing, thanks, partly, to the ongoing regulatory reforms, as new competitors enter the market. Clearly, that new competition is very much to be welcomed. Consumers need greater choice both for themselves and to drive up standards. However, we should be aware, as the noble Lord, Lord Lucas, has spelt out, that potentially some of the new entrants to the financial sector happen to possess a large amount of data on their customers from the non-banking activities. Therefore, it will be important for safeguards to be put in place to prevent any abuse of that information.
Clearly, supermarket banks own some of the largest consumer databases in the world, with item-level purchase data on each of the millions of members of their loyalty card schemes. Should that information be used by the banking arms of those conglomerates, it would clearly raise concerns for consumers about their personal privacy and about the potential for misuse. The concerns are fairly obvious. What about invasion of privacy? A consumer’s lender will know everything about what they had purchased and when. For example, imagine that a bank learnt from the supermarket side when a consumer started to buy cheaper food, they would know exactly when payday loans might be welcome. Similarly there is a possibility of the use of that ordinary supermarket data as a credit rating mechanism.
Lord Stoneham of Droxford
My Lords, I am pleased to speak in support of Amendment 107, which was spoken to so well by the noble Baroness, Lady Drake, and I also have sympathy with the other amendments in this group tabled by my noble friend Lord Sharkey.
My personal interest in the success of the coming revolution in pension policy through auto-enrolment makes me especially keen to support this group of amendments. We have to rebuild trust in the financial services sector, where culture is currently suspect, to encourage greater pension savings. An explicit “consumer’s best interest” principle in the Bill would be a powerful tool for the FCA to ensure consumer interests are protected. Fiduciary duty requires those entrusted with other people’s money to put those customers first and provide appropriate stewardship, not to exploit their position to make an unfair profit or to get involved in undue risk where it is inappropriate. If duties were properly observed and enforced, it would provide a sea change in the prevailing culture of the financial services industry and lead to a much better outcome for consumers.
The problem is to get the balance right between consumers and firms. Concern was expressed in pre-legislative scrutiny that the draft Bill was unbalanced, enshrining the principle that consumers are responsible for their decisions but not placing an equivalent responsibility on firms. The new principle, inserted by the Government, to which the FCA must have regard, is that,
“those providing regulated financial services should be expected to provide consumers with a level of care that is appropriate having regard to the … risk involved”,
and the consumers’ capabilities.
The question is whether we are prepared to leave this so vague and open to interpretation that it would provide very weak guidance. With respect, it leaves open the question that it was intended to resolve. For those managing long-term savings, the problem is precisely that there is confusion and misinformation about the appropriate level of care. Explicit confirmation that those managing other people’s money must act in their best interests would be a clear and effective way to get the balance right in the equivalent responsibility for consumers and firms.
When the Bill was considered in the other place, the Minister argued on this clause, as amendments were submitted for an explicit reference to fiduciary duty in the Bill, that:
“Customers should not have to dust down the old statute books and dig out their dictionaries … to identify what standards they can expect from providers”.
He said that it was better for the FCA to set out clear and specific standards via its rules. He also said that he was not convinced that fiduciary duty,
“is the right standard to impose across the board between providers and consumers”.—[Official Report, Commons, 1/3/12; cols. 271-72.]
Our Amendment 107 tries to address these objections. First, it does not rely on the term, “fiduciary duty”; it simply enshrines the common-sense principle that underpins these duties. Where consumers rely on a firm’s discretion, that discretion must be exercised in those consumers’ best interests. Secondly, it would not supersede or restrict the specific standards to be laid down in FCA rules, but rather provide an overreaching principle that the FCA should bear in mind when setting those rules. Thirdly, it would not apply across the board but only where appropriate, particularly where consumers have a relationship with providers that justifies a best-interests standard. I hope that the Minister will closely consider this matter and strengthen Clause 5 by accepting these amendments.
Baroness Hayter of Kentish Town
My Lords, this is perhaps the most important debate today—perhaps the most important of the whole clause—because these amendments are about requiring savings to be managed in the interest of savers, not financial intermediaries. As we have already heard, the Joint Committee recommended that the Bill,
“place a clear responsibility on firms to act honestly, fairly and professionally in the best interests of their customers”.
That should not be too much to ask. As my noble friend Lady Drake said, the Law Commission confirmed that where firms are managing other people’s money, or giving financial advice, they have fiduciary duties to act in those people’s interests, both individuals and institutions such as pensions that represent, after all, large numbers of individual savers. That fact is, sadly, not generally reflected within the industry. Because these are common-law duties, as we have heard, they do not form part of the FSA’s regulatory approach, hence they need to be repeated in the Bill, partly to comfort consumers that the Bill does not trump these common-law protections, partly to give the FSA a powerful tool to ensure that consumers’ interests are protected and partly to ensure that this duty of care is absolutely entwined in the industry’s DNA, where it has, until now, been lacking.
Baroness Hayter of Kentish Town
I am not quite clear, despite all the noble Lord has said, how conflicts of interest will be dealt with. This is not about timely advice or all those other things he mentions, but it is absolutely central to the issue of duty of care.
Lord Sassoon
To be absolutely clear, the regulators—and the FCA in particular—will have very clear powers to make any further rules on top of those that already exist in the FCA’s rulebook in order to deal with conflicts of interest. I can be completely clear and unequivocal on that point. The powers are there and further rules can be made in this area if the FCA at any point regards them as necessary.
Baroness Hayter of Kentish Town
Amendment 106B stands in my name and that of my noble friend Lord Eatwell. Oddly, there is no mention of the Financial Reporting Council in the Bill, despite its central role in the regulation of financial services. Equally absent is the FRC’s stewardship code, although it is clearly relevant to the objectives of both the PRA and the FCA. In the case of the stewardship code or the UK corporate governance code—also strangely lacking; perhaps it is my fault that it is not mentioned in the amendment—the Bill’s drafters may say that that absence is due to the fact that the precise name of the codes may change over time. I think that it was the Cadbury code, then the combined code, then something else, and now it is the governance code. I understand that the drafters may say that they do not want the precise wording of the stewardship code or the corporate governance code included, but I am sure that it is not beyond the wit of drafters to include something such as, “such codes agreed by the FRC as are currently in force”.
The issue of codes and their enforcement is central to the behaviour, standards and culture that we expect of the industry. The Minister has already rejected a code of conduct, but these are separate to that. Since 2010, there has been reasonable progress with the introduction of the stewardship code. About 230 asset managers, asset owners and service providers signed up in the first 18 months of its existence. The stewardship code is addressed to firms which manage assets on behalf of institutional shareholders, although perhaps it was not top of the thoughts of those fixing the LIBOR rate: people who were dicing with money which belonged to others.
Amendment 106B would ensure that the Bill gives regulators a proper, clear mandate to strengthen the stewardship code if needed and, importantly, sufficient teeth to ensure that it is adhered to so that culture changes can happen. In another place, Mark Hoban noted that the FSA supports the FRC’s stewardship code through mandatory requirements on asset managers either to comply with the stewardship code or explain their alternative investment strategy. He said that such powers would transfer to the FCA, but that power is not laid down in the Bill. Surely we need to ensure, via the stewardship code and its monitoring by the FCA, that asset managers must demonstrate their commitment to the code. It needs the force of law to make it happen, because that has clearly not been the case so far.
I turn to the other two amendments in the group, which deal with co-ordination between the FCA and the Financial Reporting Council. Amendment 121B is intended to ensure such co-ordination and Amendment 121C would require a memorandum of understanding. I hope that we do not go back to the briefing from the Box that says, “Say no to memorandums of understanding”. It makes no sense for the Bill to ignore the Financial Reporting Council. It is the UK’s independent regulator to promote high-quality corporate governance. Again, in the other place, Mark Hoban emphasised that the matters of stewardship and corporate behaviour are predominantly the responsibility of the FRC via its codes and the Bill should be about corporate behaviour. Thus, we require to see co-operation—indeed, an MoU— between those two parts of the new regulatory architecture. The two codes need the impetus of an FRC requirement to comply or explain if they are not just to be left on someone’s shelf.
Lord Sassoon
My Lords, I am sorry to say that this is one of those groups of amendments where I do not think that the Committee’s time will be well served. I have repeatedly made public and private offers to the opposition Front Bench to talk to us in the Bill team at any time about any of their amendments. Not once in the process of this—now long—Committee stage, or before it, have the Opposition taken up the offer of talks to discuss amendments.
Lord Sassoon
If the noble Baroness will let me, I will complete my sentence before letting her in. She herself began by saying that these amendments are defective, and that is indeed the case. As I shall explain, however, they also do not reflect one or two of the simple facts of the situation. Although there is, of course, a proper concern in this area, if the party opposite were prepared to discuss those facts, we might not be talking about some of these amendments in the way that we are.
Baroness Hayter of Kentish Town
My Lords, that offer has not come to me. I was at one meeting with the Bill group and asked whether I had access to the Bill team, but I have yet to be given its e-mail address. I had an e-mail from the team about one of our amendments earlier this week, and I have written to it on another issue. I have not had repeated offers. I have talked to the FRC about this amendment, and it knows all about it. I am therefore slightly surprised by the Minister’s comment.
Lord Sassoon
My Lords, I believe that I made the offer in the last Committee session, on the Floor of the House. Hansard will record when I last made the offer in this Committee. I cannot speak to every member of the opposition Front-Bench team but I have made the offer repeatedly to the noble Lord, Lord Eatwell. Indeed, I know that the Bill team has made quite clear to the opposition research team how it can be reached. I make the offer again because I think that there are many things around which we could clear the ground, and that would be helpful for everybody. I can quite understand that there may be issues here, but there are many interested parties who put forward all sorts of good ideas for amendments which, on scrutiny, might not be reflective of the situation as it exists.
Let me help the noble Baroness with a couple of the facts of the situation. First, the FCA has already brought in a rule with which she may be familiar but to which she did not allude: rule 2.2.3 of the current Conduct of Business Sourcebook. This requires UK-authorised asset managers to put statements of commitment to the stewardship code on their websites, or—if an asset manager does not commit to the code—to provide its alternative investment strategy there. I would of course expect the FCA to carry forward this important rule in its own rule book. So I would suggest to the Committee that the suggestions underpinning the discussion we have just had—the contentions around the lack of joined-upness—are not reflected in the way in which the FCA Conduct of Business Sourcebook already explicitly refers to the stewardship code.
I agree with the noble Baroness completely about the need for an MoU. However, what she does not do in her speech this evening is to recognise that the FSA already has an MoU with the FRC. I believe that it covers all the relevant matters. We have discussed the subject of MoUs before. The Bill provides explicitly only for MoUs between the key players in the regulatory system: the Bank of England, the FCA, the PRA and the Treasury. We have discussed why that should be. That does not mean that there will not be—and are not already—MoUs between the new regulators and other bodies; we have talked about the OFT, and there is already an existing MoU with the FRC.
So I understand where the noble Baroness is coming from in this group of amendments. I believe that the matters are already properly accommodated within the Bill. I wish that we could have had a discussion about this outside the Committee, but I am glad to have now got that on the record. I would ask the noble Baroness to withdraw her amendment.
Baroness Hayter of Kentish Town
My Lords, it would not be very satisfactory not to consider such an important issue in Committee. Concern about it is shared not just by the FRC but by the ICAEW, which last night again expressed its support and its belief that the issue is important. As the Minister will know, there are vital and urgent requirements to improve client asset audits. Those can be undertaken only by regulated professionals overseen by their recognised professional bodies, such as the ICAEW, and these are overseen by the FRC rather than the FSA. So this is key stuff. This is not—this will sound awful but I will say it—“a little discussion with the Baroness, who does not really understand it but can be well briefed outside this House”. I think that that was the tone of the Minister’s comments. I am speaking on behalf of organisations such as the ICAEW, which feels very much that it has a key role to play, which it wants to play, in the regulation of this industry. We know that we need improved rules and guidance about how auditors should work. We know that this is in the hands of professional bodies, not the FCA. If there is already an MoU with the FSA, it seems to me that there will be one with the FCA. So I do not think that writing it in legislation will cause a revolution, nice though that would be. There are important issues of discipline in the hands of ICAEW and other professional bodies overseen by the FRC. It would be inadequate for those to be free-floating and not in the Bill. For the moment, however, I beg leave to withdraw the amendment.