Mr.
Love: May I add to the concerns? The evidence that the
Treasury Committee took showed clearly the unwillingness of the FSA to
carry out its obligations to disclose such matters. Therefore, I put it
to the Minister that if we are not to go down the route of giving the
FSA an explicit power to disclose the information, how can the
Committee be reassured that the FSA will do what is necessary—if
I may put it in the crudest terms—to name and shame those guilty
of such
misdemeanours?
Ian
Pearson: The key point we are discussing is when the
information comes into the public domain. I recognise that there is
some concern and different views about whether that should be done
after the potential for referral to a tribunal and a final decision has
been taken, or before, when the FSA issues its decision notice. A
legitimate debate can be had in that area. I would like to explain the
Government’s views and why we have come to that position. I am
happy to give way before doing
so.
Mr.
Love: I thank the Minister again for giving way so
liberally on the issue, which is critically important. I am not a
lawyer, therefore I defer to the greater knowledge
of my colleagues on the Committee, but I would accept that amendment 5
is not perhaps one that we should wish to pursue. The wording in
amendment 3 and in new clause 1 may well not be entirely appropriate to
achieve what is being attempted, but I think that there is a broad
measure of agreement that something needs to be done about disclosure
and the FSA. I hope that the Minister is willing to take the issue away
and perhaps come back at a later stage in the Bill with something that
will reassure the Committee and the House that action will be taken to
ensure that the FSA lives up to its responsibilities in such
matters.
Ian
Pearson: Let me explain the Government’s position
and how it has developed. I can do that helpfully by specifically
referring to the new clause, which seeks to remove the relevant section
of FSMA, preventing the FSA from disclosing whether it has taken action
against a firm or an individual. The Committee should be aware that the
legal restriction contained in section 348, which the new clause
switches off, is a restriction on disclosing information received from
the authorised firm or from the approved person. However, a statement
such as, “The FSA has issued a warning notice to firm
X” or “The FSA has begun disciplinary proceedings against
person X” does not constitute information received from the
firm. That means that section 348 is not engaged, therefore disapplying
it is unnecessary, so the new clause does not
work. In
fact, section 391 of FSMA would be the relevant provision. It provides
that “Neither the”
FSA “nor
a person to whom a warning notice or decision notice is
given...may publish the notice or any details concerning
it.” It
also provides that the
FSA “must
publish such information about...a final notice...as it
considers
appropriate”— as
I mentioned earlier to my hon. Friend the Member for Wolverhampton,
South-West.
Rob
Marris: Will my hon. Friend give
way?
Ian
Pearson: In a moment—let me make a little progress,
which might help my hon.
Friend. I
recognise that section 391 does not require the FSA to disclose the
fact that someone is subject to investigation, it simply gives the
option of doing so. However, as can be seen from the section—the
hon. Member for Chichester will no doubt remember
this—Parliament was clear at the time that publication should
happen only at the end of the process, after the firm has had a chance
to make representations and the option of referring the matter to the
tribunal. The Government’s position is that that is reasonable,
given—again—that UK law is based on the principle that
people are assumed to be innocent until found
guilty.
Mr.
Tyrie: I hesitate to come to the defence of the Treasury
Bench—indeed, I think this must be a precedent—but there
is another reason why the position that the Government took, after a
lot of persuasion all those years ago, is probably correct. What the
FSA really wants and needs is informal contact from the firm asking
about a product that might have a potential problem. If it thinks that
merely by supplying that piece of information it may find itself
suddenly put at high reputational risk, it will take a more strictly
legal position
and disclose only the minimum. It is the informal relationships that are
created through ARROW visits, through the period in between those
investigations, that is the best way to secure the public and protect
the customer. That is quite independent of the separate issue, which is
about what the public has the right to know. Has ex post taken place?
The public must be informed in reasonable time about an investigation
where a referral has been made to a tribunal. As I understand it, those
provisions already exist in the Bill to enable that to take
place.
Ian
Pearson: The hon. Gentleman makes some relevant and
pertinent points. The Treasury Committee was concerned about the issue,
as my hon. Friend the Member for Edmonton rightly pointed out. That
Committee felt that the balance between disclosure to the public and
the need to protect firms before they had been found guilty of
wrongdoing was tilted too far towards the needs of industry. In its
response to the Treasury Committee report, the FSA made the point about
fairness to those accused of wrongdoing but who had not yet had the
chance to defend themselves, as I mentioned. In addition, the FSA
helpfully responded that it can and sometimes does publicise whether it
is investigating a particular case. It tends to do that only in
exceptional cases—for example, where it is desirable to do so to
maintain confidence in the financial system or to protect consumers or
investors. On the important issue of consumer protection, I think hon.
Members would expect the FSA to have the ability to publicise whether
it is investigating a particular case. Given the fact that that can
happen, the FSA stated, and I agree, that the current framework allows
a balance to be struck between achieving its objectives—in
particular, consumer protection—and fairness to firms and
individuals. It is a question of striking the appropriate balance and
we believe that that balance has been struck in this case, which is why
we will not support the new clause.
Rob
Marris: I talked about the issue, which is pretty core to
our judicial system overall, of innocent until proven guilty, and that
is why I resist amendment 5, as I think my hon. Friend the Minister
knows. But in terms of striking that balance, it seems that the quid
pro quo, or the trade-off, is that the customer and prospective
customer ought to have access to information—perhaps on a
register, to which the hon. Member for South-East Cornwall referred by
medical analogy—about whether a firm with which he or she
proposes to do business is under investigation, under suspension or
whatever. That is the balancing, so the firm can carry on until the end
part of the process, but the trade-off is that the consumer gets to
know that that process is under way.
Ian
Pearson: I can understand the point that my hon. Friend
makes. As I said, that was discussed at great length during the passage
of the Financial Services and Markets Act 2000. It was not something
that it was decided would be appropriate to do. I pointed out the
flexibility in the system at the moment, and I am happy to reflect
further on the points that he and other hon. Members have made, but at
the moment my firm view is that the balance in giving protection to
consumers is appropriate, while at the same time respecting the fact
that firms should not be prejudged until the outcome of investigations
has been fully settled.
12.30
pm I
shall deal briefly with amendment 5. My hon. Friend the Member for
Wolverhampton, South-West rightly made some valid points about why it
would not work. It would actually be punishment before being found
guilty rather than information being disclosed. It is possible to argue
that, in the case of, say, a monetary fine, sometimes it does not
matter if it is imposed before an appeal because, if an appeal is
successful, a fine can be returned to the defendant, perhaps with
interest. However, if we are talking about suspending the permission of
an individual or a firm to act, that is serious. Customers will not
have waited and would have gone to a competitor. The reputation of the
individual or firm might have been damaged even though they might be
eventually be found innocent. That point not only plays to
amendment 5, but to disclosure. There is a real danger of
unfairness. The
whole tenor of the Financial Services and Markets Act is that sanctions
do not take effect until after a final notice has been issued, not a
decision notice. In accordance with section 390, a final notice cannot
be issued until after the period for reference to the tribunal has
passed. We believe that that is the appropriate balance that should be
struck, so we will not support amendment 5. I think that I have covered
the key points with regard to the group of
proposals.
Mr.
Hoban: We have had a helpful debate on the two amendments
and new clause 1. It reminds me of the error message that we
occasionally pick up when looking at a document in Word, when part of a
sentence is underlined and we are told that “fragments need
revising”. The three proposals broaden the scope of the debate
beyond the narrow sanction that is imposed. Two themes run through our
argument, the first of which is how much consumers should know. The
second theme is about the right protection to put in place for a
consumer when there has been a breach of the
rules. On
the first theme, various analogies have floated around about a person
being innocent until proven guilty. That is a fundamental principle of
United Kingdom law and is one that it is right to abide by, but there
is a degree of publicity around a criminal case and, in some
circumstances, people’s rights are protected in such cases.
There is publicity; it does not prejudge the outcome, but people are
aware of cases and know what is going on. Should there be greater
transparency about the enforcement process in the FSA than is currently
the case? That the Treasury Committee errs on the side of greater
openness and greater transparency is reflected in the amendments and
the new clause, while the position of the Government and the FSA is
that the balance is about right
now. While
the debate has been helpful in teasing out some issues, some more
thought needs to go into the right circumstances in which consumers
should have more information than they currently do, and what that
means in compromising the interests of firms. We talked about the
relationship of trust and openness between the FSA and regulated firms,
and I can understand the importance of that. When I talk to businesses
in the City, they say that they want to be able to share information
with the FSA. However, equally, I do not think we want consumers to
feel that there is a cosy relationship—I think the hon.
Member for Edmonton used that phrase earlier— between
firms and the regulator, as if they are in the same
pocket.
Mr.
Love: Earlier the hon. Gentleman touched upon a wider
discussion about the changes that are occurring in the FSA, which, as
it is currently constituted, is funded by the industry. I think
everyone recognises that that will continue in the future—it is
the only practical way to fund the organisation. Almost all of its
personnel come from City institutions. Again, considering the level of
expertise, that is unlikely to change. It is therefore imperative, to
correct its natural bias towards the industry and protect consumers,
for us to write in some prescription to suggest to the FSA that it must
take consumer interests into consideration. I hope that when the
Minister reflects on that matter he will decide that there is a need to
strengthen this part of the
Bill.
Mr.
Hoban: Indeed, and the hon. Gentleman raised some wider
issues in the context of how the FSA is accountable to consumers. We
have the consumer panel, and we said in our White Paper in July that we
would appoint two consumer representatives to the board of the new
Consumer Protection Agency, which has led a successful campaign to get
two consumer representatives on to the FSA’s board. We need to
ensure that a balance is
struck. There
is an issue about information that leads to how we protect consumers,
which is the second theme that has emerged from the debate. The
Minister is right to draw us back to the fact that we are talking about
sanctions where a disciplinary process has been completed.
However—I intervened on him on this point—there should be
a relationship between the breach and the penalty. If one breached the
rules on sales of insurance policies, the penalty should be related to
the sale of those policies. That is right and proportionate.
The matter
becomes difficult when we ask what happens in the interim where there
has been some sort of consumer detriment through a breach of the rules,
which the sanction is then going to tackle. How do we protect consumers
in the interim before we reach the point when the final notice is
published? One argument is that we must have greater transparency: the
consumer should know that a business or firm that they are about to
engage with is going through a disciplinary process. Information will
provide adequate protection for the consumer, and a better informed
consumer can make their choice. Another argument is that we should go
down the route that the hon. Member for South-East Cornwall talked
about in the context of his being a lay member of the GMC panel, which
is that we should take some preventive action between the
identification of the misconduct and the agreement of the final
sanction. That is part of the thinking behind amendment 5, which would
give the FSA a power to suspend that particular activity until a
conclusion is
reached. The
Minister assures us that the powers to take preventive action are
already there for the FSA under section 45. The problem that we have in
debating such Bills is that we make incremental
changes—something that the Minister and the hon. Member for
Wolverhampton, South-West are familiar with from debating the Finance
Bill, where each year there are incremental changes on previous
incremental changes. It would be helpful for the FSA, when it produces
its consultation paper on how it is going to implement the powers, to
reflect on how those things interlock. Should there be more information
available to act as a form of protection for
consumers? Should the powers under section 45 be used as a way of
bridging that gap between the breach and the final section? How does
the jigsaw of consumer protection fit
together? Mr.
Tyrie: My hon. Friend has tabled a very helpful set of
amendments for the Opposition, not least because it has smoked out
exactly this issue. Is not the key to make sure that the FSA is not
asleep on the job during that interim period? The FSA could say,
“Well, we have someone looking at it,” so we can carry on
as if nothing has happened, but what we need is vigilance from the FSA,
to ensure that it is constantly assessing whether it needs to exercise
its powers under section 45. We and the public need confidence that the
ability to provide that is built into the systems of the FSA. The
suggestion of my hon. Friend the Member for Fareham, that the FSA
produce a consultation document to give us that confidence, would be
welcome.
Mr.
Hoban: I am grateful to my hon. Friend for his
intervention and his comments. He is right; we all agree in the
aftermath of the financial crisis that we expect the FSA to use a more
proactive approach to supervision. It is referred to as being more
intensive and intrusive, and I suspect that the logical outcome of that
approach would be a greater use of the powers under section 45. I am
looking for reassurance as to how the FSA would use the combination of
section 45 and the new powers that we are giving it under proposed new
section 206A to protect consumers, to ensure that in the interim, where
it has identified that there is a significant breach—a breach so
significant that the FSA believes that suspending a firm from
undertaking that activity is warranted—consumers are protected.
That is either done through use of section 45 powers or, if the belief
is that those powers go too far and impinge potentially on the issue
raised by the hon. Member for Wolverhampton, South-West—about
innocent until proven guilty—the alternative, which is greater
transparency about the enforcement process. Is that the alternative
form of protection to section 45? We need to resolve that tension as
the FSA moves to a different form of intervention. Regardless of
whether it is the FSA or other regulatory bodies that succeed it, one
of the lessons of the crisis has been a much more intrusive approach to
regulation. I
regret that, as another member of the Committee who is not legally
qualified, like the hon. Member for Edmonton, my amendments 3 and 5 are
defective in the view of the hon. Member for Wolverhampton, South-West.
If I come back to the issue again, I shall beef up my amendments and
make them more inclusive in their wording perhaps. However, we have had
a helpful debate, clarifying the situation for a number of us and
raising some new issues that we may want to return to at a later stage.
I beg to ask leave to withdraw the
amendment. Amendment,
by leave,
withdrawn. Question
put forthwith (Standing Orders Nos. 68 and 89), That the
clause stand part of the
Bill. Question
agreed
to. Clause
14 accordingly ordered to stand part of the
Bill.
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