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Mr. Brian Cotter (Weston-super-Mare): On behalf of my hon. Friend the Member for Twickenham (Dr. Cable), may I say that, as the right hon. Gentleman knows, we targeted our efforts on certain issues? I pay tribute to my hon. Friend's work in that respect.
Mr. Heathcoat-Amory: The Liberal Democrats were certainly economical with their targeting, and the effort of intervening on Report clearly exhausted the hon. Member for Twickenham (Dr. Cable), who has left the Chamber.
We should try, even at this stage, to make improvements to the Bill. It still has to go to another place. As we have emphasised repeatedly, the financial services industry is not only extremely important and successful, but highly mobile. The City is under almost ceaseless attack. The competition in world markets is pitiless and continuing. A regulatory system in this country must respect that. While it must be effective, it must avoid imposing excessive costs. Whenever possible, it should promote competition at home and competitiveness in world markets. If it fails to do that, the economy will suffer a great deal of industrial damage, and
consumers will also suffer. An industry that is driven to Dublin or Frankfurt may be subjected to a lower regulatory standard. Consequently, jobs could be lost and the general standard of regulation could suffer.
It has been observed that over-regulation leads to concentration of an industry by driving out small firms. Regulations are big business friendly because they raise the threshold of entry. Small businesses suffer. If a concentration occurs, further regulation is needed, and thus the ratchet effect increases constantly.
It is important that the authority's procedures are fair and can, if necessary, be challenged in court. There is a huge concentration of power in the authority. It combines rule making, investigating, disciplinary action and fining. Fines can be unlimited, and people can be deprived of their livelihoods. Failure of the procedures would lead to injustice in a domestic context, and the authority could also be torpedoed by the European convention on human rights.
I retain many doubts about whether the proposed statutory immunity will survive in the long term. If the authority acts negligently or incompetently and severely damages an individual or a firm, its action may breach the European convention on human rights if the person or firm is denied access to the courts to seek restitution. Statutory immunity is therefore vulnerable.
If the authority is torpedoed, the consequences could be serious. They could jeopardise, at least in the short term, the whole regulatory structure and render ineffective the powers that the FSA needs to ensure fair trading. We responded constructively to that by pressing the Government to accept the recommendation of the Burns committee that the complaints investigator should not only be genuinely independent but able to recommend financial awards against the authority when it acts wrongly. I regret that the Government have rejected that suggestion.
Instead of accepting our amendment to elevate the importance of competition, the Government followed a highly bureaucratic route of bringing in the Office of Fair Trading, which will report to the Competition Commission, which will report to the Treasury, which will alter the authority's rules. It would have been far better if the FSA's statutory objectives included supporting competition at home and competitiveness abroad.
The Government accepted some of our suggestions. The Bill is an improvement on the original measure, which was published in July 1998. However, the Government rejected our suggestions on too many subjects, and many matters remain outstanding. Time prevents me from listing them all, but I shall mention some of them.
We tried to improve the accountability of the FSA's internal procedures by suggesting the appointment of a chief executive as well as a non-executive chairman. Its accountability would also be improved by enhancing the role of the non-executive members in line with good practice in the private sector. Again, the Government turned that down.
We also tried to ensure that the FSA is subject to regular independent reviews and that the existing rulebook--not only new rules--is subject to cost-benefit
analysis. That would have been some defence against the inevitable tendency of public bodies to expand over time and would at least have ensured that the cost base from which it operates would be subject to cost-benefit analysis. Again, we were turned down.
Territorial scope, the treatment of electronic trading and how products are offered over the internet--often across national boundaries--are complex issues. The Government seem to have adopted the precautionary approach of catching them all and exempting some by secondary legislation. That is unsatisfactory, particularly given the time that they have had to consider and consult. It would have been better had they set out a strategy--preferably one of home state supervision and regulation, which could be jeopardised if the Bill proceeds in its current form.
Mr. Barry Sheerman (Huddersfield):
I am intruding on the debate, although I was deputy chairman of the Burns inquiry. I got off after four months, with good behaviour. The time between spring and the end of summer was invigorating and interesting and it was fascinating to watch Lord Burns, the poacher turned gamekeeper.
Mr. James Plaskitt (Warwick and Leamington):
That is why he has gone hunting.
Mr. Sheerman:
Indeed. I wish Lord Burns well in the more difficult task on which he has embarked as a chairman.
The procedure for handling the Bill is of great constitutional importance. I am very interested in our constitutional processes, the background to which is constant sniping and criticism of the traditionally hasty passage of legislation through both Houses of Parliament. I enjoyed not only the long and interesting consultation that the Government took in hand, but the pre-legislative inquiry, which was totally new and set a precedent as it involved both Houses of Parliament. All who served on the Burns committee found that the peers--even some of the hereditaries, although one should not say that--assisted our deliberations and that their expertise improved the Bill.
What did we achieve? The pre-legislative inquiry made many sound and serious recommendations and I have been reading the Library report on how many were accepted over the past few days. A large number were agreed to and the Government have to be congratulated on being flexible and open to change. However, I still have one disagreement: the post of chairman and chief executive should be split in half. I say that honestly. It was a recommendation of the committee and I still think that there is something in it. I might have been tempted to vote for it, if the Opposition had had the courage to force a Division.
The process of consideration was interesting and should not be forgotten as it represents a way of dealing with complex legislation. The Bill is one of the most complex
that the House will have to consider and if that process was good for it, it must be good for other Bills. We should extend the method and the Commons and the Lords should work together to improve Bills. The Bill has to go through subsequent stages, and I think that it will be further refined. However, we already have a better Bill and we have discovered a process that works. We should not forget that. We should use it.
As with all Oppositions, the right hon. Member for Wells (Mr. Heathcoat-Amory) showed why a pre-legislative inquiry is better. We sat round a semi-circular table. We were not scoring points across the divide day after day. We collaborated as a team to improve the Bill, and we did. One problem is that, when we get into a confrontational position in the Chamber, both sides have to find something to fight over. Some of the amendments, and some of his comments, showed that the Opposition have had to find something to criticise in a fundamentally good Bill.
Mr. Loughton:
I am grateful to my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory). Some of us were present at what seems like the birth. Before that, the Bill was conceived in the Labour manifesto, of dodgy parentage. The first contractions were experienced in the draft Bill in July 1998, but there was no sense of urgency at that time. The patient was then rushed to hospital in serious need of help, and given over to the specialist, Lord Burns, in February 1999. On the face of it, the chief gynaecologist dealing with the Bill agreed with Dr. Burns's prognosis, but would not commit herself.
Despite that, there was a serious need for further opinions from consultation exercises. However, before the consultant's results even arrived on the scene, the patient was taken to the delivery ward and in July 1999 we had a new Bill altogether. No sooner had it arrived in the delivery ward, than the lead gynaecologist and the whole medical team were changed, replaced by rookies who were not privy to the patient's history, condition or entire medical records.
All that time, the patient was left in limbo, not knowing whether she was going to give birth, or to how many offspring. Contractions gathered pace between July and December of last year, although at times the new medical team seemed to have little understanding of what they were doing, which bits go where, who was responsible for what, and what will be produced, where and when.
Now, 18 months after the contractions started, the entire method of delivery is to be changed, and a straightforward single birth looks like becoming quadruplets all in the breach position. Members of the Government Front Bench are trying to perform an emergency caesarian, aware of all the time that has been wasted up till now.
My fear is that at least one of those quadruplets will appear with two large bolts attached either side of its neck. The nature of the beast that we are creating in the
FSA will prove to be a Frankenstein monster that will turn on the financial services industry, and the potentially destructive powers of its regulatory zeal will soon run out of control. I thought that was a rather better metaphor than the leviathan that we have mentioned so many times.
I had lunch today with a senior director of a financial services firm in the City, who echoed many similar comments that have been made in recent weeks. He said that despite everything that we have inserted in the Bill, the balance of the rights of the regulated person against the powers of the regulator to initiate investigation, impose regulations and penalties, and ultimately withdraw authorisation and destroy whole livelihoods, has been completely tilted in favour of the regulator.
There is a climate of fear in the City. Firms will take excessive investigation on the chin, and the ensuing penalties will be out of all proportion to the misdemeanour or ability of firms to do anything about a rogue trader or a rogue incident. The climate of fear is such that firms are afraid to raise any objections in case they are singled out for intensive scrutiny and never given the benefit of the doubt.
Despite all our attempted safeguards, that climate of fear, far from being dispelled, is potentially worsened by the unlimited fining ability and enormously increased powers. That is very worrying, coming from so many practitioners of long standing. The cost of this Frankenstein's monster is forecast in the new budget document, just released, to be £162.5 million next year, up from £154 million for this year, an increase of 5.5 per cent.--and that is before taking account of the likely cost of regulating mortgages and whatever else.
At the end of the day, what so many people from the Labour Benches never realise is that the consumer will pay the cost of extra legislation. The very people that we are here to protect will be paying excessive amounts of money for excessive regulation. That is our fear.
The problem with the Bill is the unparalleled conferment of regulatory authority on an autonomous body. It covers the whole financial services sector, and now, apparently, mortgages. It covers prudential and conduct-of-business aspects, and has very wide-ranging powers: authorisation, legislation, investigation, intervention and discipline. It must be accountable and inspire confidence, but quite patently, as our deliberations show, it does not.
The generality of the objectives is such that they are open to interpretation. There is insufficient regard to competition, despite the parallel Cruickshank report that we considered midway through Committee. There are insufficient checks on the FSA's doing its job properly, and it needs to be accountable to Parliament. Too much is governed by rules to be made under delegated legislation and not subject to parliamentary review.
Far too much in the Bill is left open-ended. The chairman-chief executive split--the hon. Member for Huddersfield (Mr. Sheerman) quite rightly mentioned it; it is a shame he was not here to mention it earlier--is another example of the lack of accountability by the FSA. When Howard Davies leaves in a few years' time, we shall be dealing with entirely different characters.
There is a lack of commitment in the Bill to regular reviews and a proper look at the cumulative effect of regulation in an international context. The whole Bill is completely lacking in detail. The statutory immunity is
not counterbalanced by independent investigation and a compensation scheme. The ultimate recourse of judicial review is impractical and just will not happen.
The extent of regulation is down to what the Treasury decides to specify at any given time. As my right hon. Friend mentioned, the lack of certainty under the market abuse clauses must surely in time be subject to the ECHR, articles 6 and 7. What is the role of the FSA with regard to systemic risk?
There is so much detail still to come at this late stage. Even today we have heard that there are no further details about the FSA's role as the competent authority. The mechanics of the excessively bureaucratic legal aid scheme, which is to be published, and the rebating of excess fees and fines we know nothing about. All this is so late in the day after such a long birth.
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