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Mr. Loughton: I am interested in what the hon. Gentleman has to say. In a way, it is a shame that he was not able to elaborate on his comments in the Joint Committee. During three months of intensive sittings he made two cameo appearances of half an hour each, I believe. As for the inclusion of mortgages, how does he think that the Financial Services Authority will be able to cope with 1.4 million mortgage transactions a year? An enormous number of staff would have to be taken on. How can the hon. Gentleman give an opinion at this early stage on the voluntary code set up for the Council for Mortgage Lenders, which has already brought about many successes, all of which he has conveniently forgotten to mention?
Dr. Cable: The hon. Gentleman has made several points. If he were a member of the Select Committee he would know that I dealt extensively with the mortgage regulation issue during the cross-questioning. The hon. Gentleman referred to 1.4 million mortgages. Regulation would operate through a series of test cases. It is ludicrous to imagine that every mortgage transaction would be subject to individual regulation. Of course that would not happen. There is already a bureaucracy within the mortgage lending industry. It is a voluntary one, but it exists. I think that it is implied in what the Government have been saying that the transfer will take place, be it in six months or 12 months. I am arguing for it largely because of the signals that we need to send to the industry that the transfer takes place now. I do not see the gulf that the hon. Gentleman is describing.
Liz Blackman (Erewash):
The importance of financial services to the United Kingdom's economy and the high standing of that sector in the global context have been well rehearsed in the Chamber this afternoon. It is essential that the sector should be seen to function efficiently and properly. In recent years there has been damage and some loss of confidence as a result of bad practice.
There is no better example than pensions mis-selling. Such scandals not only affect the standing of financial services but ruin the lives of people who, in the case of pensions mis-selling, saved and invested in good faith, determined not to rely on the state. The Government are to be congratulated on tackling that abuse, but some of the pensioners concerned have already died and some have not yet been compensated. For those people, the torment and worry have been incalculable. There has been widespread recognition that change was necessary, and the Bill and the setting up of the Financial Services Authority have been the response.
I remind the House of the case of the Child Support Agency. No one disagreed with the principle, but the legislation was deeply flawed, with the result that the lives of many women, children and men have been severely damaged. That will continue until new legislation comes on stream. The problems with the CSA in its current form are due to the lack of consultation and pre-legislative scrutiny.
The right hon. Member for Wells (Mr. Heathcoat-Amory), the shadow Chief Secretary to the Treasury, described the original draft Bill in July 1998 as deeply flawed, and did so again this afternoon. However, the draft Bill was clearly intended as the start of a process that would produce much more effective legislation. Indeed, the right hon. Gentleman acknowledged that the process has been useful.
I read in this month's edition of Securities and Investment Review that Howard Davies had described the progress of the draft Bill as taking the scenic route, which I think is a pretty good description, and it is right that that should be so.
My hon. Friend the Member for Huddersfield (Mr. Sheerman) described the scenic route that the Bill took--as it moved forward, the Government offered their response. Not only did the Bill move into the Joint Committee, but responses from the Select Committee on the Treasury and other Committees were taken on board.
Much has been said about the Joint Committee and its role as a prototype. It achieved incredible results over a short period and enjoyed excellent cross-party co-operation. As a relatively new Member in an entirely new set-up, I was struck by the genuine desire on the part of all members of the Joint Committee to get the Bill right. That is extremely important.
The shadow Chief Secretary displayed a positive attitude towards the Bill this afternoon. I read in a newspaper--I know that I should not believe everything that I read in newspapers--that he said that it had rather restored his faith. For those reasons, the Opposition agreed to the carry-over, which is remarkably helpful in dealing with legislation of this magnitude.
I pay tribute to the Chairman of the Joint Committee, Lord Burns, who was exceptional in the way in which he handled the Committee and ensured that we met our tight deadline.
At the heart of the Bill is the objective of consumer protection and the principle of caveat emptor--buyer beware. That means that the consumer cops it if things go wrong, so he or she should take reasonable precautions. I welcome the fact that the Bill recognises the distinction between the wholesale and retail sectors of the market. I particularly welcome the acknowledgement that, within the retail sector, there are vulnerable consumers and also consumers who are much more able; and the fact that the vulnerable consumers need good advice and accurate information for their protection.
The accountability of the FSA is crucial, and the consultation process has been extremely helpful in strengthening it, in the ways that my right hon. Friend the Chief Secretary outlined earlier. It is right that Treasury Ministers should appoint board members and apply Nolan standards, that the majority should be non-executive, that there should be consumer and practitioner panels, that the FSA should have regard to their representation--it is essential that those two wings of the financial services spectrum be represented--that the chairmen of those panels should be subject to Treasury approval, and that an annual report should be published.
In cases in which the FSA has acted in good faith, it should have immunity, provided that complaints procedures are strengthened. The Government have acknowledged that the investigation of complaints should be effective and independent of the FSA. The FSA is therefore required to maintain an independent investigator, whose initial appointment and its renewal are subject to Government approval. That is absolutely right.
The FSA annual report is clearly important for the transparency and accountability of the authority. The Bill does not require a report on regulatory burdens and compliance costs, but the Government expect the FSA to take them on board and would not hesitate to use reserve powers accordingly. We should all be concerned to ensure good value for money.
With regard to discipline and enforcement, the Government acknowledged in March that internal disciplinary processes lacked fairness and transparency, and that the FSA would be able to act as prosecutor, judge and jury. There clearly needed to be a separation between those investigating complaints and those responsible for decisions. The Government responded by ensuring that investigation would be separate from enforcement, and that the adjudication tribunal would be part of the court service.
With reference to costs and fines, the Government accepted the recommendation that each side should bear its own costs, so as not to deter firms from defending themselves, but that the tribunal should have broad discretion to award costs. Checks and balances will operate. I believe that the Government's conclusion on fines is right: they should be rebated to the regulated community, so that there is no incentive to maximise fine income. Consultation will follow. I favour arrangements to even out the volatility.
The last aspect to be considered by the Joint Committee was the nature of the civil justice regime and how that would sit with the European convention. Lord Stein's comment that
On market abuse, I am pleased that the Government have recognised that they are in danger of venturing into criminal territory, and have provided additional safeguards to ensure that those being prosecuted are covered in that respect.
I, too, am concerned that mortgages are outside the scope of the Bill. Buying a property is the biggest financial transaction that most people make in their lives, and the range of products on the market is increasingly complex and confusing.
"the new regulatory system must be just and must protect convention rights but . . . in order to serve the interests of the public it must be effective"
28 Jun 1999 : Column 61
was a principle reflected in the Government's response to our deliberations on the disciplinary regime.
Discipline is clearly confined to a regulated group. The Government therefore argue that it is a civil matter, and take a pragmatic approach to it. The Government's legal opinion was extremely helpful in providing case law that was quite convincing in support of their approach.
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