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Mr. Jim Cousins (Newcastle upon Tyne, Central): I am extremely grateful to my right hon. Friend, and I am conscious that I am interrupting his flow. May I take him back to his reference to mortgages? He said that there will be a reserve power to regulate the provision of mortgages. He will be aware that many of his own hon. Friends would like that power to be used. So far, he has not referred to the provision of long-term care insurance, which is another important matter; nor has he referred to general insurance. It is not easy to separate the training, professional intermediaries and products that constitute long-term care insurance and general insurance on the one hand and those that will be regulated by the Bill on the other. Does he intend to clarify those matters?
Mr. Milburn: I am grateful to my hon. Friend for those questions. May I deal first with the point about mortgages? He will be aware that the Council of Mortgage Lenders has now produced its mortgage code. It has been pretty well adopted by the industry and we want to see whether it works in practice. We shall not just wait and see, but shall monitor the process. We shall take statistics and information not just from the CML, but from the ombudsman concerned. If my hon. Friend and others have concerns about the effective regulation of mortgages, the Government will be happy to hear them.
On long-term care insurance, my hon. Friend will be aware that both Lord Burns's Joint Committee and the royal commission recommended that we regulate for long-term care insurance. We are looking at those recommendations carefully, particularly in the context of the royal commission's report. In due course the Government will respond to the royal commission's report and it is important that what we say is in line with what we are doing in the Bill.
Finally, on general insurance, my hon. Friend will be aware that schedule 2 provides for the regulation of a number of areas that are currently unregulated, including general insurance. We want to see whether the industry's own efforts, through the new General Insurance Standards Council, can safeguard the public interest in the way that we want. We want to give that a fair wind and, again, we shall monitor how well the industry puts its own house in order.
In all those cases, we shall take action where necessary, but we want a regulatory system that is in line with the appropriate principles of light-touch regulation, which offers protection where necessary but does not impede effective regulation of the industry. I believe that that is the right approach. I also believe that the approach that we are taking in the Bill, through a one-stop arrangement, is one that others will seek to emulate. Indeed, others as far apart as Ireland and Japan are now following the lead that this Government established in May 1997 when we first announced our proposals for the Financial Services Authority. There is little doubt that the trend that we have started towards regulatory consolidation will intensify in the future to reflect the parallel changes that are taking place in the industry.
Mr. David Heathcoat-Amory (Wells):
It might be thought that this Bill would appeal only to financial specialists, but it raises some important and broad issues of principle, including matters of human rights and the rule of law, the realities of international competition and the perils of over-regulation. It is therefore a substantial Bill that it is our duty to consider.
The Bill has had a somewhat delayed birth, despite its early conception in the weeks following the general election in 1997. I do not blame Ministers personally for that because several important changes have been made to the Bill and Ministers inherited a fluid situation. It now runs to 367 clauses, including 130 additional ones since it was first published. Bills have a tendency to expand the longer they are left, so on those grounds alone it is probably wise that we should legislate as soon as possible. Indeed, it is not the Opposition's intention to hinder unnecessarily the legislation in this House or in the other place.
The importance of the Bill is undoubted. As the Chief Secretary said, the financial sector is one of our biggest and most successful industries. It is a huge employer and generates colossal overseas earnings for this country. In many respects, the City is the largest international market in the world. When we talk about the City, we must be careful not to overlook the fact that financial services are transacted in every part of the United Kingdom, and the Bill will affect all those who buy and sell financial products. Also, Edinburgh is an important international centre in its own right.
The very success of the UK's financial services industry also makes it vulnerable. It is by definition operating in a very competitive global marketplace and the same forces that brought firms, banks and other institutions to this country could equally drive them away. They are highly sensitive to changes in taxation and regulation. We have been critical in the past about tax changes and we still want to know what the Government intend to do about the threat of the withholding tax to the City of London.
Regulation can be a deterrent, but when it is done well it can be an asset. We are anxious to ensure that the Bill sets in place a structure that provides a reason for people to come and transact business in the United Kingdom, not a reason for them to leave. Therefore, we believe that regulation should be minimal, but that is not an argument for no regulation or for weak regulation. Markets require rules. Some of the more brainless critics of the free market system allege that it is about the law of the jungle. That
is the opposite of the case. There are no rules in the jungle, whereas the free enterprise system requires laws and rules. It requires defined property rights and it requires security of transaction.
We support the principle of a Bill that will provide for such a structure in this country. We support the aim of giving statutory cover to the Financial Services Authority. The authority badly needs that: it is operating with only partial secure legislative cover, which itself creates uncertainty in the marketplace.
Let me say in passing that we are not sure whether it is wise to transfer banking supervision to the FSA. However, as that has been done in the Bank of England Act 1998, and as we wish to move on, we shall not press the matter--although I hope that, if a systemic risk is posed to the banking system, the procedures for the FSA to co-operate with the Treasury and the Bank of England will prove adequate to the task. We certainly believe that the Bank had considerable expertise in this regard, and we are pleased that many of its staff have transferred to the FSA to do the same job.
With that proviso, we accept in principle the case, as advanced by the Chief Secretary, for consolidating a number of existing regulatory bodies. None the less, we have some major concerns. Overall, we want to ensure that the new regulatory system is an asset, and that it is effective in tracking down and dealing with dishonesty, while at the same time respecting the principles of British justice and providing fairness for the accused. In doing that, the FSA must be vigilant and not over-regulate. All public bodies have a tendency to expand their responsibilities, expand their powers and expand their expense. That is a natural dynamic in the public sector, but if it imposed extra costs on the marketplace and on savers, the consequences could be highly detrimental. The danger of what I call "regulatory creep" must be countered by the provision of safeguards in the legislation itself and the designing of countervailing pressures to stop that danger from becoming a reality.
How does the Bill shape up? The draft Bill published in 1998 was seriously flawed in a number of respects. In particular, it is now clear that that Bill could never have survived a challenge under the European convention on human rights--which, of course, is now to be incorporated into British law, giving members of the public a right to test its provisions directly in British courts without having to go to the European Court of Human Rights.
The earlier Bill was, however, a consultation draft, and it did provide the essential raw material for the Lords-Commons Joint Committee on Financial Services and Markets. The Committee was originally due to be set up in January and to report by Easter. In fact, it was finally formed in March. Despite the tight time scale on which it operated, and despite the delays, I think that it was an undoubted success. Much of the credit for that goes to its Chairman, Lord Burns, who conducted our proceedings so skilfully. I also thank the very able Clerks, who did a great job in creating and distilling the enormous amount of evidence, both written and oral, that the Committee received.
The Joint Committee had less than two months to complete its main report. That is why we concentrated on six areas, including the FSA's objectives, the scope of the
legislation and the FSA's powers and procedures, as well as the knotty issue of market abuse and how that could be defined in legislation.
We were a little shocked--I think that I speak for a number of the members of the Joint Committee--when the Treasury suddenly landed on us another 100 clauses halfway through proceedings on the draft legislation. We were unable to examine them. To be fair to the Treasury, they were of secondary importance. Nevertheless, it is true that large chunks of the Bill remain completely unscrutinised, either by the Joint Committee or by any other Committee of the House. We will need to examine the Bill very carefully at every stage to ensure that the assurances that Ministers have given--in good faith, I am sure--are in fact reflected in the Bill.
I stress that the Joint Committee was a useful procedure. The House may like to do the same with other legislation. The subject lent itself particularly well to the procedure. It meant that, in a relatively unpartisan atmosphere, hon. Members could examine issues that did not fall naturally to one side or the other of a party political debate.
We noticed with regret that the Liberal Democrats hardly participated. I am glad to see the hon. Member for Twickenham (Dr. Cable) in his place now and look forward to listening to what he says, but it was somewhat surprising to us that the Liberal Democrats, who are usually so forward with their suggestions for innovative ways in which to scrutinise legislation, barely participated in the Joint Committee.
We had a stream of high-calibre witnesses, including trade associations, City practitioners, consumer groups, regulators, ombudsmen and lawyers. Indeed, we had two useful sittings with the Economic Secretary to the Treasury who gave the Government's view. Nevertheless, as I have mentioned, some matters still cause us considerable concern--I expect that I speak not just for Conservative Members but for Labour Members who participated, who may have their own points to put in due course. We will use the Standing Committee and Report stages to strengthen and amend the Bill in ways that we think are essential. I thank in particular my hon. Friend the Member for East Worthing and Shoreham (Mr. Loughton), the only other member of the Conservative party from the Commons on the Joint Committee, who brought particular City expertise to bear on the issues.
We were pleased when the Government announced that they accepted most of the Joint Committee's recommendations. As I mentioned, we will be vigilant in ensuring that they are actually carried through into the drafting, because there have been occasions when that was not the case. Solicitors, for example, noticed at an early stage that although they had received some assurances about the registration of their members in relation to their incidental financial advice, those assurances were not entirely carried through into the draft statutory instrument when it was published.
Our concerns about the Bill may be said to fall into two general areas. The first is the very wide power still vested in the FSA, and the danger that any concentrated executive power can lead to abuse. The second is the danger of over-regulation, with consequential damage to the United Kingdom's position.
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