Previous Section Home Page

Madam Deputy Speaker : Order. Is the hon. Gentleman treating us to a re-run of the speech he made recently? It would be more appropriate if we were to discuss the orders. If he does not do so, there will be a bit of pruning from the Chair.

Mr. Steen : There will be no need for any pruning from the Chair. I just mentioned the word "banks" when you, Madam Deputy Speaker, rose to your feet. I assure you that pruning would not be in order. We are debating banks and banking regulations, building society orders, auditors' regulations and financial services rules. I did not mention those matters in the speech that I made last week, which was so warmly received by the House.

My colleagues are rushing upstairs with great enthusiasm and diving into the Committee Room anxious to start work on curbing the ever-growing number of rules

Column 865

and regulations. While they merrily start to do so upstairs, we downstairs pass more regulations, which we say we do not want.

Mr. Austin Mitchell : In his pursuit of deregulation, is the hon. Gentleman in favour of scrapping all regulations and controls on fraud, and all attempts to stop it? Will his deregulation be a fraudsters' fun day?

Mr. Steen : That is the problem. There is always a good reason for passing every regulation that the House passes. If it is anything to do with safety, hygiene, security or fraud there will always, rightly, be a pressure group or an interest group to push for the regulation. I do not for a moment suggest that some rules and regulations are not needed. The trouble is that there is always an excuse, and usually a good reason, for all the rules and regulations passed by the House. That is the problem that the Government face.

Clearly the Treasury, too, faced that problem when it produced the statutory instruments before us. No one can disagree with the idea that fraud must be stamped out. I simply say that unfortunately, while we have a deregulation Bill in Committee going ahead at full speed with dozens of clauses and new rules to try to reduce the number of regulations, here we are on the Floor of the House passing--perhaps for good reasons--more rules and regulations. So tonight there will be four more sets of rules.

I believe that in every Department a Minister has been especially appointed to keep an eye on deregulation. The Minister said that the Department of Trade and Industry Minister responsible for deregulation has considered the statutory instruments, but is there a Minister in the Treasury responsible for deregulation, or is the Treasury above deregulation? I had the impression that every Department would have a deregulation Minister, and it would be useful to know who the deregulation Minister in the Treasury is. Unless we are careful, deregulation could become simply another layer of bureaucracy, with a whole new subculture of civil servants being consulted on whether something should be deregulated, gloriously oblivious of what is going on next door. There could be a huge sub- structure, and deregulation would be the new in thing. There would be a new quango, a new self-financing regulatory body--a SEFRA--with a Minister and a lot of civil servants. We have already seen the deregulation unit. I am worried that we may all be being hoodwinked into believing that the Deregulation and Contracting Out Bill is opening a new chapter in our legislative history, when deregulation may be no more than a weasel word, describing one thing while something else is really happening.

I am sure that the Minister has a good reason why the four statutory instruments are necessary, and I am sure that hon. Members on both sides of the House recognise that reason. However, I have sat on an immense number of Committees on statutory instruments, and hon. Members always say that the new rules are greatly needed. They usually say that because they want to leave in three or four minutes ; 10.30 arrives, and by 10.35 they have all gone.

The deregulation Bill may not affect the number of statutory instruments going through the House, but I believe that the City would still continue without the statutory instruments, and the country would still be a able to go on if we had not passed the regulations. Will those

Column 866

four statutory instruments really help to run the country more effectively? We are imposing duties on auditors and regulators in the Securities and Investments Board, another quango. Do we need all that?

The insurance regulations have a compliance cost assessment. Have the other statutory instruments had an assessment, too? Apparently the consultees found it difficult to assess the extent of any additional costs arising from the regulations. First there was a regulation, then there was a compliance cost assessment, and employed people were consulted on whether the statutory instrument would cost more. I wonder how much that cost. It could all become a dangerous industry, which could get out of hand.

We seem to live in gobbledegook land. We seem to be able to argue vigorously and passionately about anything and then, on reflection, to argue equally passionately that we did not really need the rule or regulation in the first place. As a nation we are now obsessed to the point of paralysis with rules and regulations. It is surprising that one can move without some rule impinging on one's freedom, so concerned is the state about issues of welfare, hygiene, security and safety.

Madam Deputy Speaker : Order. The hon. Gentleman seems to have forgotten my previous warning. We are not discussing all manner of rules and regulations. We have four statutory instruments before us, and he must address himself to those.

Mr. Steen : I hear what you say, Madam Deputy Speaker, but those four regulations stand in the framework of the whole Government policy towards rules and regulations. One may try, but one cannot separate them from all the other rules and regulations that we are passing all over the place.

I am questioning the wisdom of introducing more rules and regulations, but every time that I try to raise the issue, whether in Standing Committee or on the Floor of the House, the Chairman, Speaker or Deputy Speaker, understandably, says that I am going beyond the rules and regulations under consideration. The result is that one can never challenge the general principle. Every time that one tries to do so one is picked up--that is a symptom of the disease facing the country.

Madam Deputy Speaker : Order. I remind the hon. Gentleman that there is no reason why he should not tear the four statutory instruments to pieces, if that is what he wishes--but that is what he must do. He must not deal with all the others.

Mr. Steen : I am grateful for that ruling, Madam Deputy Speaker. In my own way, although not as clearly as some hon. Members, that is what I was doing. I was pointing out that the statutory instruments before us are better than most, although perhaps we could have done without them.

I was about to give an example of what I am talking about, but perhaps I shall tell the House about it on another occasion, because I should prefer not to be prevented from telling you, Madam Deputy Speaker, the most vivid story illustrating what I am talking about--and clearly this is not the right time and place. In fact, I am never sure what is the right time, but it certainly does not appear to be now.

With reference to the statutory instruments before us, I have already asked the Minister about the drain on the private sector every time that a rule or regulation is passed. It was reassuring to learn that the rules and regulations

Column 867

before us would not impact upon private enterprise. It would be bad news for the country if we were to witness another fight between the private sector and the state. I hope that in the "rules and regulations industry v. the public" story we shall not see a repeat of the final fight between Moriarty and Sherlock Holmes, never knowing who wins in the end.

I intended to make a short speech, and I shall return to the subject from time to time, because it is a perennial annual problem. Every time that the Minister introduces a rule or regulation we understand that it is extremely useful. How can one say that regulations on fraud are not useful? However, the culture of our country seems to have been besieged by rules and regulations, and I am surprised that anyone can make a profit or do business, with all the weight of officialdom and all the rules and regulations that prevent anything from getting off the ground.

That is my message, and I am sure that the Economic Secretary to the Treasury has heard it. I apologise if I have laboured the point, but I shall continue my argument until we cease to pass more rules and regulations which all the legislation that comes before the House is designed to repeal, and we do not need fresh legislation but simply repeal what we introduced before because it was not helpful to the prosperity of this country.

7.27 pm

Mr. Austin Mitchell (Great Grimsby) : I shall not attempt to follow the hon. Member for South Hams (Mr. Steen), with his re-run of the speech that he made last week on the Deregulation and Contracting Out Bill, except to note that now that my right hon. Friend the Member for Chesterfield (Mr. Benn) is issuing his former speeches as a video, it is a bit cheap to come and repeat one's former speeches in the Chamber, rather than publishing them for public consumption. There are appropriate places in which the hon. Gentleman could repeat speeches such as the one that he has just made, but unfortunately the Government are closing most of them down and sending the inhabitants out into the community. The hon. Gentleman's speech was not relevant to the subject with which we are dealing. Talking of re-runs, I feel as if I am involved in a series of re-runs with the Minister. In a series of Standing Committees in the 1980s, such as those on the Building Societies Act 1986, the Financial Services Act 1986 and the Banking Act 1987, he spoke in favour of more effective regulation, and sought the votes of Opposition Members for the kind of policies he is introducing today. Then he spoke in favour, but now--regrettably, because he is well informed on such subjects, and made a powerful and effective contribution to those Committees--we find ourselves on opposite sides.

As we are on opposite sides, I must say that what the Minister is introducing now is too little and far too late. It is inadequate. Indeed, it creates the impression that the Government are in favour of fraud, because they are doing too little. These rules are too little to stop fraud. Are the fraudsters the only people in society who will vote for the Tories at the next election? The reputation of the City of London is going down all the time because of the squalid

Column 868

frauds that are being perpetrated, and the Government are lagging behind in providing an effective regulatory framework to deal with them.

These rules are not the way to regulate on a major issue. We have not had an inquiry. The rules are not based on a thorough inquiry into the way in which audits of financial institutions are conducted. There has not been a thorough inquiry into what happened in the Bank of Credit and Commerce International case. We cannot regulate without a thorough inquiry, yet rules have been introduced without inquiry. The rules will not fit into any framework of stronger structures to back the proposals before us.

We have a confused and overlapping structure. The hon. Member for South Hams may be interested in how confused the structure is and how it can be simplified by agreeing with the proposals put forward by Labour Members. As there are so many overlapping authorities, it is not clear who is responsible for enforcement and compliance. The regulatory area that we are dealing with today consists of the Bank of England, the Securities and Investments Board and the 24 organisations--the siblings--under it, the Building Societies Commission, the Serious Fraud Office, the Department of Trade and Industry, the stock exchange, Inland Revenue and five recognised supervisory bodies that deal with auditors. It is chaos. No one knows who is responsible for what. In that chaos, we get overlapping decisions and conflicting regulations. Everyone tries to insure themselves by regulating too much. The situation drastically needs simplification.

There are no proposals to make the framework more effective and back up the simple proposals before us. All we have is the Government tweaking the regulations from time to time, as they are doing here. We cannot rely, as the Government are doing in these rules, on auditors to be effective and the only police force of financial institutions. Auditors cannot be relied on as a guarantee of public interest and propriety as a counter against fraud because their powers, their role, their functions and the way in which they carry on their business are inadequate to deal with fraud.

Mr. Steen : I understand that the hon. Gentleman is saying that there is too much bureaucracy, which will prevent anyone from acting because it is all overlapping and, presumably, it is paid out of the public purse. An enormous number of public officials are preventing a clear, direct executive arm. Is that what the hon. Gentleman is saying?

Mr. Mitchell : I am saying that there are too many overlapping institutions ; self-regulation has not worked, and has no adequate and firm base on which to work ; and we can be effective against fraud only by replacing self-regulation with an independent, statutorily based regulator who has the power to strike hard, rather than obfuscating everything with the plethora of regulations in the financial sector.

We cannot rely on auditors to be the effective police force that will be required under these rules. We do not even have an effective definition of whom the auditors are responsible to. What the Government are proposing is the bare minimum. As it is so minimal, we must ask whether they are serious about dealing with the sort of fraud that has lead to this attempt to close the stable door after the horse has bolted.

Column 869

Effectively, we know little about what went wrong with BCCI and especially the audit of it, because, in this country, we have not had an inquiry into what went wrong. That case is the justification for these rules. We do not know exactly what happened because the Government have not seen fit to institute an inquiry. We need the information.

When there was a banking crisis in the early 1970s, the last Labour Government instituted a series of inquiries. There were inquiries into London and Counties and London and Capital. The information from those inquiries was published. We knew what went wrong, so we knew how to deal with it. In this instance, there is nothing.

Lord Justice Bingham specifically said that he was not pursuing the matter of audits because it was not his responsibility. The Government should have repaired that omission by pursuing the matter and inquiring into what went wrong. Ministers say that the Serious Fraud Office is looking into the matter. However, that has not precluded inquiries into other cases such as London United Investments and Maxwell. There should be an inquiry into the audits of BCCI so that we know exactly what went wrong.

During debate on the Companies Bill in 1989, the Minister argued that for any system to be effective, there had to be a distance between the regulators and the regulated. However, the only people who have inquired into BCCI, is the Mafia regulating the Mafia. It is auditors trying to regulate auditors. There is not that distance which the Minister asked for in the Committee on which we both sat in 1989.

The only inquiry into BCCI has been the American one. That was handicapped because the British partners of Price Waterhouse did not pass either to that inquiry or to the American partners of Price Waterhouse their information on what had gone wrong. Therefore, the inquiry was inadequate ; but it is the only one. What that inquiry found was appalling. The report states :

"BCCI's accountants failed to protect BCCI's innocent depositors and creditors from the consequences of poor practices at the bank of which the auditors were aware for years."

That is a crashing indictment of the auditors

"BCCI provided loans and financial benefits to some of its auditors Those benefits included loans to two Price Waterhouse partnerships in the Caribbean. In addition, there are serious questions concerning the acceptance of payments and possibly housing from BCCI or its affiliates by Price Waterhouse partners in the Grand Caymans, and possible acceptance of sexual favors"--

the report is more interesting than the book written by the hon. Member for Derbyshire, South (Mrs. Currie), although it does not have as much sex--

"provided by BCCI officials to certain persons affiliated with the firm."

That is an appalling situation. BCCI's books were certified by the auditors as a true and fair record from 31 December 1987 forward. That meant that people had confidence in BCCI. We are told that the auditors gave certificates as a true and fair view and, therefore, encouraged people to invest, yet before 1989 Price Waterhouse knew of gross irregularities in BCCI's handling of loans, especially to CCAH which was the holding company of First American Bank shares. All that was known to the auditors, but they did not spill the beans. Why have we not had an inquiry to reveal what happened in BCCI so that we can base proper and effective regulations on that inquiry?

Column 870

The Government feel that they can rely on audit firms to protect the interests of shareholders, creditors and other stock holders. That reliance, which is strengthened by the rules before us, has always proved inadequate because poor auditing practices are always covered up. There is no way for anyone to know how good or bad an audit is as long as the company survives. We have not developed the proper institutional framework to regulate auditors effectively and make them accountable. In debates on the Building Societies Bill and the Financial Services Bill, Labour Members proposed much stronger provisions on the detection of fraud.

These rules have been introduced much too late because the Government are continuing to rely on an industry and a framework which have a history of failure. They cannot rely on the auditors, who are, effectively, a replacement for regulations.

In the United States, state inspectors quite rightly visit and monitor banks. That is the only effective way in which we can know what is going on. There should be such a requirement in Britain instead of our relying-- as we do by the statutory instruments--on the auditors themselves.

I mentioned earlier that Price Waterhouse partners in this country would not give evidence or provide information to Price Waterhouse partners in the United States. The Government can only deal with that by effective regulation of auditing, and by an effective independent regulator. A banking commission is needed to take those functions away from the Bank of England, which performed so poorly and was shown to have done so by the Bingham report.

My preference is for a securities and exchange commission, as in the United States. That would be an independent commission, with a banking commission and an accountancy commission under it. That would provide an effective framework of independent regulators to whom auditors could report when they found fraud.

My hon. Friend the Member for Edinburgh, Central (Mr. Darling) said that the gaps in regulations do not cover Lloyd's, pension schemes and funds, or banks that are not domiciled in the United States. I have pointed out to the Minister that unless there is a duty to detect fraud as well as to report it, it is doubtful whether auditors could perform their functions.

The Local Government Finance Act 1982 imposes both duties, and the audit industry was in favour of that at the time. The industry saw that it would be able to get its fingers into local authority audits, and so was prepared to accept it then. The industry is only now balking at the proposition, and saying that it is horrendous and it cannot do it.

The firms are advertising fraud detection services all the time. KPMG Peat Marwick advertises that

"investigating financial frauds, and rectifying and recovering from them, requires specialised accounting skills. KPMG Forensic Accounting offers : experience of the techniques of fraudsters and the procedures they may have followed ; awareness of the indicators of possible irregularities ; the resources needed for a fast and accurate investigation ; experience of the quality of evidence required to support a successful case, and the expertise to assemble and present that evidence we can assist in tracing funds and unravelling the most complex international cases".

The firm can provide all that for a fee. Why cannot the firm do it as a compulsory and necessary part of the service? The Minister may claim that it would be more expensive.

Column 871

If a proper audit is done, it cannot be more expensive as it is the effective way to detect fraud. That needs to be a requirement which is imposed on the industry.

I have pointed out that, at present, auditors are not effectively regulated, Lord Justice Bingham said that the

"relationship between client, auditor and supervisor raises an issue of policy more appropriate for decision by parliament" than by the accounting profession. However, that is subject to control by the Auditing Practices Board, which is not a statutory body. We have already been told that the board will impose passive requirements on auditors in this very difficult area. Passive requirements are just not adequate for the detection of fraud. The board's draft standard states :

"the duty to make a report direct to a regulator does not impose upon auditors a duty to carry out specific work".

It does not have to do specific work, and it has been told not to do anything. That is ludicrous. Unless the board does the work, it cannot make the report. The standard adds :

"no auditing procedures in addition to those carried out in the normal course of auditing the financial statements are carried out auditors are not responsible for reporting on a regulated entity's overall compliance with rules with which it is required to comply nor are they required to conduct their work in such a way that there is reasonable certainty that they will discover breaches."

The board is not actually required to go out and look for things--it will just sit there, be passive, and it will all come pouring in. Fraud does not work that way. A fraudster will not rush in saying "Here's the evidence, Mr. Auditor!" It is all well concealed, and unless the auditor has an obligation to hunt fraud down--become the "white hunter" of the British economy--fraud will not be detected. A passive approach to audit, such as the Audit Practices Board is recommending, is simply a recipe for further disasters and further audit failings.

The Government should surely have clarified the responsibility of auditors. Whom are they responsible to and to whom do they owe a duty of care? It is no good saying that they can report fraud to the regulator. Auditors should be responsible also to shareholders and to everyone involved in a company. In fact, they are not, and they have responsibility to no one except the directors who appoint them. The company's shareholders are given little information, and the choice of auditors is firmly in the hands of the directors. The depositors, consumers and employees have no say in the appointment of auditors. Recent legal cases such as Caparo, Al Saudi Banque and Berg Son and Co. Ltd. have shown that auditors do not owe a duty of care to individual shareholders, potential investors or current or potential creditors, even though that information is supposed to be there to help markets understand what is happening to that company. The Government have given no indication that they want to reverse those judgments, but they should do so. There should be a specific responsibility attached to auditors to give them a duty of care, so that information is spread more widely and the shareholders and stakeholders know what is going on, as well as the bank or financial institution.

My hon. Friend the Member for Edinburgh, Central quoted the President of the Board of Trade's book "Where There's a Will"--there's a corpse. The President stated that there should not be a conflict of interest and that

Column 872

accountancy firms should not do other work. That should be a paramount objective of the financial institutions, because DTI inquiries have indicated that work is less adequate when it relies on a man "checking either his own figures or those of a colleague." The DTI report on Burnholme and Forder was critical of audit reports in that context.

None of the auditors who have been criticised by DTI reports over the years has been disbarred from practice. What kind of sanction is that to make auditors do their jobs properly? We need an effective, independent regulator, not the Mafia regulating the Mafia and saying, "It was quite understandable--we'll let you off this time." That is what happens now with the Institute of Chartered Accountants as a recognised supervisory body.

We must have effective control and discipline of auditors. In a written reply to me, the Secretary of State said :

"there has been no occasion where criticism of a company's auditors by my Department's inspectors in reports published since June 1979 has led to an audit partner being excluded from membership of a professional accountancy body".--[ Official Report , 26 March 1990 ; Vol. 170, c. 25 .]

He added in another written reply to me :

"no auditor criticised in an inspector's report has been debarred from auditing as a result of information in that report."--[ Official Report , 22 November 1991 ; Vol. 199, c. 341 .]

The Government have never initiated any criminal proceedings against auditors criticised in DTI report, so there are no effective sanctions. For all those reasons, the instruments are inadequate--they are too little, too late.

The Opposition cannot vote against them, although the hon. Member for South Hams seemed inclined to vote against them. I only wish that the hon. Gentleman had the courage of his convictions. The Opposition are far more responsible that than. Voting against the measures might give an indication that we were as much in favour of fraud as Conservative Members are. We are not in favour of fraud, and we welcome any progress in its detection. That progress includes measures that we asked for when the relevant legislation was passed. For that reason, we must welcome the instruments, but they are just not good enough.

7.48 pm

Mr. John Greenway (Ryedale) : The last half hour has shown that the quality of debate in the House remains extremely high. Even on an issue which, on the face of it, looks as dry as dust, some hon. Members will pick an argument when there should not be much of one. I cannot say that I agreed with much of what the hon. Member for Great Grimsby (Mr. Mitchell) said. He implied early in his speech that most of the City of London was collapsing into a sea of sleaze and other goings on which are extremely to be regretted. We should remind him that all four measures follow the recommendations of the Bingham inquiry into what happened at the Bank of Credit and Commerce International, which was not a British bank but an international bank based overseas. I think that I am right in saying--my hon. Friend the Minister will correct me if I am wrong--that BCCI was the first difficulty that we had experienced for a long time.

I want to explore what role an auditor should play in the insurance and financial services industry in looking at particular firms. I have several interests, of which the hon. Member for Edinburgh, Central (Mr. Darling) is aware. The one that is relevant to tonight's debate is that I am an

Column 873

elected member of the Insurance Brokers Registration Council. The way in which we regulate insurance brokers is laid down by statute. It demonstrates the benefit of a statutory requirement for audit and for proper oversight of how the regulator reacts to what the auditor may say.

I greatly welcome the four measures, which are some of the most beneficial things to come out of the BCCI disaster. The hon. Member for Great Grimsby and I have debated the matter on many occasions. We usually do so on television, not on the Floor of the House and, therefore, not for quite so long. He said that what went wrong with BCCI was that Price Waterhouse knew that there was fraud but did not say so. Lord Justice Bingham pointed out that there was a clear conflict of interest between the interest of the client, for whom the auditor worked, and the public interest. He said that some amendment to the Banking Act 1987 was needed to clarify that, and that is precisely what the measures provide.

No one can seriously criticise the Government when they have not only come up with the regulations to deal with the problem, but have gone further and applied them to financial services, building societies and insurance companies, just to be absolutely sure. I am not a chartered accountant. I am an insurance broker. I am not aware of all the rules and regulations that affect accountants and the way in which audits are carried out. However, I was surprised to hear during the debate that the problem with BCCI was the conflict of interest. Fraud was known and was not declared. The regulations should make that considerably more clear.

I have sat through the debate because I wished to make one particular point. The hon. Member for Edinburgh, Central called for stronger regulation. I expected that. We had the argument the other week about whether we should have statutory regulation or make the self-regulation system for the financial services industry work. I believe that we should try to make the existing arrangements work. We are fast approaching a key point in that process.

I understand that on Thursday the Securities and Investments Board will consider the proposed Personal Investment Authority prospectus. Within a week or so we shall all be able to read it. The key question tonight is what regulatory framework the PIA should place on intermediaries, life assurance companies, pension funds and financial advisers in general, to ensure that the public interest is protected.

We heard earlier about the Levitt case. The hon. Member for Edinburgh, Central referred to community service punishment, so I think that he had that case in mind. What should we do to ensure that malpractice and fraud are picked up quickly? The order relating to financial services certainly helps because it places on the auditor the obligation to report any malpractice and potential fraud that he may see immediately to the regulator. As my hon. Friend the Minister knows, there will be quite an argument when we see the prospectus. I have not had the privilege of seeing it, although I have had the opportunity to discuss its contents with the chairman and the chief executive of the PIA.

It is important that we do not have too many regulations. That is why I have some sympathy with what my hon. Friend the Member for South Hams (Mr. Steen) said. We must not regulate to the point at which firms simply go out of business and give up because it is too expensive and

Column 874

burdensome to operate. We need to get the balance right between the amount and cost of regulation and making it effective.

I plead with my hon. Friend the Minister to bear in mind to what extent the Government should support the PIA prospectus and what should be done. We want a specific requirement not that firms must have this much or that much capital and so on, but that there is a regular audit trail and an annual look is taken at the figures and accounts of all the intermediaries and the firms with which difficulties have occurred in the past.

As I have told my hon. Friend the Minister before on the Floor of the House, that is what the Insurance Brokers Registration Council is required to do for all insurance broking firms. That is what Parliament required in the Insurance Brokers (Registration) Act 1977. It is not an onerous requirement on firms, nor is it excessively expensive. So it would meet any cost compliance test that the Department of Trade and Industry might wish to insist on. It would ensure that a proper look was taken each year at the finances of each firm and, if things were wrong, that they were reported immediately. That is the lesson of BCCI. When things are not all that they should be, they must be dealt with and reported quickly. The orders go a long way to helping to ensure that. For that reason, the House should warmly welcome them.

7.56 pm

Mr. Nelson : This has been a curiously old-fashioned debate in some ways, with hon. Members on one side of the House calling for more regulation and hon. Members on the other side calling for less. My hon. Friend the Member for South Hams (Mr. Steen) eloquently called for less regulation again this evening.

My hon. Friend the Member for Ryedale (Mr. Greenway) takes a close interest in and is well informed on matters of financial regulation. I am grateful to him for the welcome that he gave to the measures. He is right that we have gone beyond what was strictly called for by Bingham. We have extended it to other sectors of the financial services industry. That is all to the good. Therefore, I reject roundly the accusation of the hon. Member for Edinburgh, Central (Mr. Darling) that the orders are timid. They are what was called for by the Treasury Select Committee. They are what was proposed by Bingham and we have introduced them here tonight.

My hon. Friend the Member for Ryedale will have an early opportunity to consider the Personal Investment Authority prospectus, which is being published. I take seriously his point about adequate monitoring procedures and the need for an audit trail. A central criterion for the effectiveness of self-regulating organisations is the methodical nature of their monitoring. I hope that all concerned will consider the matter carefully.

My hon. Friend the Member for South Hams made an amusing but perceptive speech about the growth of deregulation. Some would say that deregulation is the fastest growing part of bureaucracy in Whitehall. There have been calls to deregulate the deregulators. My hon. Friend is right to say that Parkinson's theory can be extended and that deregulation can acquire a life and momentum of its own. The underlying purpose of reducing unnecessary bureaucracy and stripping away the red tape that hinders enterprise and good governance in Britian is

Column 875

one to which the Government are very committed. We intend to promulgate that doctrine throughout all areas and it is being taken forward in legislation.

The hon. Member for Edinburgh, Central said there was a case for a wider inquiry into the auditing of companies. That was not specifically called for by Bingham, although I acknowledge that such a case can be made. We should be extremely careful before extending that, as was proposed by the hon. Gentleman and the hon. Member for Great Grimsby, beyond the direct responsibility to the members or owners of the company. It must be right for auditors to audit and regulators to regulate. It does not help the argument for there to be an overlap in responsibilities and in some way turn auditors into snoopers and narks and make one's regulators more supine. I do not think that there is a case for a widened inquiry into the auditing of companies.

It was said that there was a case for extending the duty of care of auditors beyond members, but again Bingham did not find that necessary as a result of his inquiry into BCCI. I was asked what "material significance" meant. That is set out in the guidelines in the statement on auditing standards. The hon. Member for Great Grimsby asked about Lloyd's. He is quite right that it is not covered by the measures, but it is a condition of the appointment of auditors into syndicates that they shall report. They have a duty to report where those circumstances arise.

I do not have time to deal with the other points, but if I have missed anything in particular, I will write to the hon. Members concerned. The whole import of these measures is to ensure that they look at the criteria of authorisation. They are concerned with the authorisation of firms that take public deposits and investments. When that is brought into question, and when there is evidence to suggest that those criteria are not being adequately met, it must be right to impose a non-costly duty on the auditors to bring that about. That is what the measures do and they are an extremely welcome addition to the stable of measures of regulation. They will improve depositor protection materially.

It being one and a half hours after the commencement of proceedings on the motion, Mr. Deputy Speaker-- put the Question, pursuant to Order [11 February].

Question agreed to.


That the draft Auditors (Financial Services Act 1986) Rules 1994, which were laid before this House on 15th December, be approved. Mr. Deputy Speaker-- then put the Questions necessary to dispose of the other motions to be decided at that hour .

Resolved ,

That the draft Accountants (Banking Act 1987) Regulations 1994, which were laid before this House on 15th December, be approved. Resolved ,

That the draft Building Societies (Auditors) Order 1994, which was laid before this House on 15th December be approved.

Resolved ,

That the draft Auditors (Insurance Companies Act 1982) Regulations 1994, which were laid before this House on 14 January, be approved.-- [Mr. Nelson.]

Next Section

  Home Page