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Mr. Lilley: Does the right hon. Gentleman agree with these comments about that approach:

Mr. Darling: The right hon. Gentleman should be wary of quoting selectively from my speeches. I recognise the passage. If he cared to quote the entire speech--I do not expect him to do so this afternoon, but perhaps he could if he is on the Standing Committee--he would find that I was talking about a sudden and immediate change. We propose a gradual change.

The first stage is in the Bill--the banking supervisory functions discharged by the Bank of England are being transferred to the Financial Services Authority. It will

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gradually take over the work of the existing self-regulatory bodies and, ultimately, that of the Department of Trade and Industry's insurance division which is at present the responsibility of the Treasury on an interim basis. Ultimately, those will all come together.

If the right hon. Gentleman reads that and other speeches that I have made on the subject in the past four years, he will realise that we always had it in mind that we wanted to bring together the regulators in a manageable way as the distinctions between the areas in which they work became increasingly blurred. Interestingly, although I have been speaking for about 25 minutes, we have yet to hear whether the Opposition are for or against the Bill.

Mr. Keith Vaz (Leicester, East): I welcome my right hon. Friend's proposals for the independent supervision of banks. He will not be aware of this, but in another part of the House today a meeting was taking place of the former depositors with the Bank of Credit and Commerce International. He knows that in 1991, when that bank closed, our right hon. Friend the Chancellor of the Exchequer, who was then in opposition, made a strong and impassioned plea for an independent supervisory system. Does he hope that, as a result of these moves by the Government, there will be greater scrutiny of banks to prevent a repeat of the sort of tragedy that occurred for the victims of BCCI?

Mr. Darling: I have great sympathy with what my hon. Friend says. Part of the problem with the self-regulatory system that existed in the 1980s was that, in many cases, the regulators turned a blind eye to what was going on. Certainly, in the case of pensions mis-selling, the industry knew that it was going on, but the regulators chose to do nothing about it.

On banking supervision, my hon. Friend will know that we have made a number of suggestions over the years to improve the situation following the collapse of BCCI and then Barings. As I shall shortly outline, we have taken further steps to ensure that one of the problems that emerged with both BCCI and Barings--that each regulator did not know what the other was doing--will be dealt with. He is right to say that bringing the regulators together will not merely have the advantage of getting rid of a cumbersome and expensive system that is fundamentally flawed in concept, but will ensure that regulation is complementary to the business process and not a hindrance. That will give consumers and the public alike the confidence in the integrity of the system that is lacking.

In the week in which the new FSA came into existence, recognising the fact that the industry transcends political and geographic boundaries, it signed a memorandum of understanding with the Securities and Exchange Commission and the Commodity Futures Trading Commission in the United States.

As my hon. Friend will know, the collapse of both Barings and BCCI showed that it is necessary to have a domestic regulator that has sufficient clout and reputation to deal with its international counterparts. That will now be possible with the new FSA.

As with the second part of the Bill, the objective of the reform is to enhance transparency and improve accountability, through a simpler framework for the

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industry, and to have a new system that recognises that the industry is changing fast. As I said, the traditional boundaries between banks, insurance companies and building societies have become increasingly blurred and, with most institutions offering a wide range of financial services, the world has moved on. Regulatory reform was inevitable and, indeed, it is what the industry and the public want.

The old system was far too fragmented and it was very costly, whereas the new system will deliver better regulation. The unprecedented scope of the powers of the FSA will, of course, ensure a better co-ordinated approach. It will also have a specific duty to root out bad practice and financial crime--something which is necessary if we are to ensure that the United Kingdom continues to enjoy its international reputation in financial business for clean markets and fair dealings. Our standard of living and the long-term future of this country depend on that market. The FSA will be at the cutting edge of improving regulation and supervision here and throughout the world.

Of course, the Bank of England retains responsibility for the stability of the financial system, as my right hon. Friend the Chancellor made clear, but the Bill transfers the supervisory functions to the FSA and, in due course, the Department of Trade and Industry staff responsible for insurance regulation will join the FSA, along with the other self-regulating bodies. That process is already under way, thanks to a great deal of hard work by the staff of the various regulators. The change will be manageable and, at all times, the staff of the FSA will ensure that they keep their eye on the ball and retain a firm grip on day-to-day events in the marketplace.

As I told my hon. Friend the Member for Leicester, East (Mr. Vaz), we have announced a further step in the modernisation of the system of regulation. We believe that there must be clear divisions of responsibility between the Treasury, the Bank and the FSA, and we have set those out in a new memorandum of understanding that was signed by the Governor, by the chairman of the FSA and by my right hon. Friend the Chancellor two weeks ago. A copy is in the Library. The memorandum is based on principles of clarity, transparency, elimination of duplication and regular exchange of information between the three institutions. It also establishes a standing committee which will meet regularly to ensure an appropriate and co-ordinated response to any future failure or collapse.

Finally, part IV contains two additional measures. First, the Bill makes provision to improve the efficiency of the gilts market, so that we can cut costs; secondly, it provides for the modernisation of the central money markets office to allow the market to work with computer records alone. Those measures will not only reduce costs, but strengthen London's position as an international financial centre.

As I move toward the conclusion of my speech, the official Opposition have yet to let us know where they stand. They did not tell us when my right hon. Friend the Chancellor made his statement to the House in May. At least on the question of Europe, we know where they stand--or at least where some of them stand--and we know that they have a policy that has put them on a collision course with business, which knows that the

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national economic interest must come first. Indeed, I noticed in The Sunday Telegraph that the shadow Chief Secretary to the Treasury said:

    "The CBI is bad news for British industry".

There we have it: the Conservative party does not think much of what business thinks.

What is the Opposition policy on the Bank of England? I have searched long and hard over the past few weeks to find a single word from the shadow Chancellor, but I have found nothing. We might have hoped that there would be an amendment before us today that spelled out the Conservative party's position, but there is nothing.

When the shadow Chancellor replies to the debate, perhaps he will answer the two central questions relating to this issue that any respectable Opposition must answer. First, does he support the decision to give operational responsibility to the Bank of England--yes or no? [Interruption.] Secondly, if he does not--as some Opposition Members are mumbling--will he follow the logic of that position and pledge that, at the next election, the Conservative party will campaign to repeal this Act, as the Bill will be by then? Can he answer that, yes or no? We would like to know and business wants to know the answer to those fundamental questions. The whole world--or perhaps only the Conservative party--awaits his reply.

In just a few short months, the Government have made significant reforms to the institutions and practice of economic policy in this country. We have new fiscal rules and a five-year deficit reduction plan and we have introduced major corporate tax reform, a windfall tax on the privatised utilities and a new deal for young people and the long-term unemployed. We reformed the financing of higher education, and we have a new £1.3 billion capital fund to rebuild schools. We have a UK action plan for employment and flexibility in Europe, and we introduced tough legislation on competition policy. We have a new structure for financial regulation and we have given operational independence to a reformed Bank of England.

That is just the start--there is more to come, including the pre-Budget report later this month; capital gains tax reform; consultation on the new individual savings account; the Taylor review of taxes and benefits; the Low Pay Commission report on the minimum wage, and more. The Government are committed to reform and modernisation, and we are delivering. We have taken those decisions because we know that they are right for this country. We have demonstrated our clarity of purpose and our commitment to stability with an open and accountable central bank. Yet again, we have shown that we are preparing this country for the future, at home and in Europe. We are making the tough decisions and putting in place the institutions to deliver economic stability and growth, so that everyone can share in higher living standards and greater job opportunities in future. I commend the Bill to the House.

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