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7.38 pm
Sir Peter Lloyd (Fareham): I agree with much of what the hon. Member for Bexleyheath and Crayford (Mr. Beard) said. In particular, he was right to say that the Financial Services Authority will need to cater for the differences in the retail and wholesale selling of financial products. I do not think that that has been emphasised enough this evening.
First, I must declare an interest as a member of Lloyd's, although I shall not comment on the part of the Bill that deals with that much-tried organisation. Instead, I start with the general observation, which has already been made by both Front-Bench spokesmen and by most of those who have spoken in the debate and which will no doubt be repeated before it ends, that London is a hugely successful financial centre, which attracts business and practitioners from all parts of the world, to the economic benefit of the United Kingdom economy.
Despite several highly publicised scandals and failures, London has continued to flourish because financial organisations, and their customers at home and abroad, find that it is the best place to do business, and because the regulatory system compares favourably with those in financial centres in other parts of the world. The recent survey compiled by the London chambers of commerce attests to that. The comparative lightness, flexibility and honesty of our system is the attraction. With the Bill, the test for Parliament and for the Government is so to improve the regulatory regime that scandals are reduced--if not eliminated--without reducing the attractiveness of London to honest businesses from all over the world.
It is a truism to say that we live in a global market, but financial institutions can certainly relocate easily to more congenial environments in other parts of the world. The Bill will fail dismally if, along with eliminating the scandals, it manages to prevent businesses from coming here.
It is sometimes argued that a Bill such as this must strike a balance between commercial freedom and the protection of the customer. That analysis is not right. I am sure that a major reason that foreign firms locate in London is the honesty and reliability of the institutions with which they deal here--including the regulatory system. Firms with good products to sell cannot compete to best advantage if the market is not open and transparent. What is good for markets, competition and customers is bad for crooks and incompetents.
The Bill will be judged on how well it helps markets to work better; there is no underlying conflict between service providers and customers. However, that simple truth could be lost in the complexity of this measure and in the considerable discretion that will be left--quite rightly--to the FSA and its staff. I am glad that the four principal objectives of the authority have been set out in the Bill: market confidence; public awareness; protection of consumers; and the reduction of financial crime. The FSA will have those objectives before its collective mind and knows that it will be judged on them. My only complaint is the same as that made by my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory); he said that there should be a fifth objective--the encouragement of competition. He is right, because
competition is one of the best guarantees of good service to consumers and customers; that objective should also be at the front of the Bill.
Mr. Beard:
If the prime purpose of the FSA was to promote competition, it would undoubtedly inhibit it from co-operating internationally with other regulators. They would feel that they were being duped in a ruse to stimulate competition in the UK. That would remove one of the great powers of the authority under the new arrangements: that it can co-operate internationally and can contribute to an international regime of regulation.
Sir Peter Lloyd:
That is not true at all. Competition--internally, nationally and internationally--is highly desirable for all customers and consumers. It should be the objective of all regimes in this country and abroad. I do not accept the point made by the hon. Gentleman. It troubles me that he thinks that such an objective would make it difficult to co-operate with regimes abroad. We should not go along with them, as he suggests; they should bring their attitudes up to date in the interests of their own customers, consumers and businesses.
Like other hon. Members who have spoken in the debate, I am glad that the Government want to build on the existing structure, eliminating its shortcomings, rather than starting again from scratch. The Government were wise to proceed by consultation. The first draft of the Bill smacked too much of the Star Chamber; it was much improved as a result of the brief report of the Treasury Committee and of the fuller deliberations of the Joint Committee. As several hon. Members have pointed out, we shall need continuing parliamentary scrutiny of the FSA's use of its powers. The authority will need to be overseen regularly by a Select Committee, taking regular evidence--not merely by occasional debates in the House or a by debate on an annual report. Parliament needs to examine the authority regularly, thoroughly and carefully, through a Select Committee, so that Parliament and the public can see how the authority is working.
Part of the Bill's purpose is to streamline the bewildering array of regulatory bodies and bring them together under one roof so that the public will more easily know where to take their complaints. There will be greater consistency in the rules and their application; and duplication, and hence costs, will be reduced. However, the trouble is that large conglomerates can end up by being more, rather than less, expensive. I trust that there will be a mechanism to ensure that value for money audits are regular and searching; they should not merely publish comparative statistics, which people can take or leave, but should make an active and dynamic inquiry into the organisation of the FSA and whether it uses its powers cost-effectively. I hope that the Economic Secretary will say something about that matter when she winds up. It is important for London as a financial centre that regulation is economical as well as effective.
The Chief Secretary spoke approvingly of one-stop shopping as one of the Bill's objectives, although my hon. Friend the Member for Ryedale (Mr. Greenway), who is no longer in the Chamber, had some doubt as to whether the Bill would achieve that objective. The problem of one-stop shopping is that the shop assistants may not know well the needs of their different types of customer,
or the characteristics of their different suppliers. At least the old system encouraged regulators to build up an intimate knowledge of their specialist area, although it failed dismally in respect of the mis-selling of private pensions. However, it is not obvious that the new system proposed in the Bill, in which the FSA will stretch across a range of different financial markets, will be any better. When all is said and done, why should the FSA be any more aware that things are going wrong than the organisations that it will subsume? That short question goes to the heart of the Bill and of the benefits that it is supposed to produce. I hope that the Minister will address that point.
Large organisations tend to develop a corporate approach; indeed they usually take pride in doing so. A real danger is that the FSA may try to deal in much the same way with very different market sectors, and with different customers with different requirements. That will cause harm to the markets and disbenefit to the customers. Having been put together as one seamless organisation, the FSA will need to decentralise and specialise, if it is to know its constituent markets intimately and to regulate flexibly and effectively. I hope that the Minister will tell us that she is aware of that potential problem, and will explain why she is confident that it will not become an actual problem.
The most glaring shortcoming of the original Bill was in the Star Chamber powers that it gave the FSA and the apparent assumption that they would be used in a Henry VIII fashion. Thanks to the Joint Committee and the Government's response to it, the Bill is greatly improved in that respect, although I fear that, in parts, it may have moved only from the 16th to the 18th century.
I am concerned that, in investigations that involve companies or individuals regulated by the FSA, there is, as I understand it, no right to silence or legal aid, and the burden of proof is only that of the civil courts, even though someone's reputation and livelihood is at risk. Despite the Minister's assurances in his opening remarks, I am not convinced that the original criticism of the Bill--that it makes the FSA prosecutor, judge and jury--has been entirely met by the recent changes. The concerns expressed by my right hon. Friend the Member for Wells still need to be addressed.
I shall not ask the Minister to respond to all of those points when she replies to the debate, not only because I have already asked enough questions for her to deal with this evening, but because that whole area is so crucial and so complex that it must be dealt with point by point in Committee. Scandals in the City have not always lain in the failure to protect customers and the public; sometimes, they have lain in what appears to be the heavy-handed and unfair way in which the authorities have occasionally proceeded against an alleged rogue trader whom they happen to have had in their sights. Such spectacles have not enhanced the respect in which the regulatory system is held.
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