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Lord McIntosh of Haringey: The noble Earl made an interesting speech about a whole range of issues concerning transfer. He has hardly spoken at all about the amendments and I am somewhat at a loss to know
how to respond. I shall start by saying something about the transfer of supervisory functions, why we think it is necessary and what stage we reach with this Bill.We believe that there is a general need to modernise the regulatory structure for financial services. Since the Financial Services Act 1986 was passed, huge changes have taken place. Some of those were anticipated and provided for by the 1986 Act and some occurred since then and led, among other things, to a considerable increase in complexity of the boundaries between different financial institutions. We need, therefore, to bring regulation of banking securities and insurance under one roof in order to secure more effective and efficient regulation.
What we are proposing reflects the way the sector itself is developing, with the traditional boundaries becoming increasingly blurred. The existing system is too complex and too fragmented. There is too much scope for gaps and costly duplication. We are, therefore, proposing reforms aimed at bolstering public and international confidence in the British regulatory system and hence the British financial sector.
I acknowledge that this Bill is only the first legislative step. We are taking the opportunity of this Bill to transfer banking supervision to a new single regulator--the Financial Services Authority. It makes sense to transfer banking supervision as other changes are taking place within the Bank. It will allow the Bank to concentrate on its new range of functions. At the same time, we recognise that this is only the first step in the process. There will be wider regulatory reform to follow in the second Bill, which is now being prepared and which will be published in draft before it is included in any Queen's Speech. The extra time we have in preparing that second Bill gives us more opportunity to consult and to achieve lasting reform. We will be consulting on a draft of this Bill in the course of this summer.
I cannot go any further in responding to the more general points made by the noble Earl. I do, however, have to respond to his amendments, because Amendments Nos. 45 and 48 in particular call for an estimate of the cost to businesses of complying with the regulatory requirements of the authority transferred under this section. We have made such an estimate and have included it in the Financial Memorandum, which is found with the Explanatory and Financial Memorandum of the Bill, and I read that in full:
- "The Government's expectation is that the overall cost to business under the new arrangements in respect of the transferred functions and cash ratio deposits will be no greater than under the current arrangements".
I hope, therefore, that I can persuade the noble Lord that Amendments Nos. 45 and 48 are unnecessary.
Amendments Nos. 46 and 47 are also unnecessary, in that it is perfectly obvious, from everything that has gone before in this discussion of the Bill and indeed from its drafting, that the Bank will retain its responsibilities under Parts I and II. All references to transfer in Part III are to that part alone. It is also
obvious that the authority will assume those powers immediately on transfer. There can be no other interpretation of the Bill as drafted.Amendment No. 49 asks for no change of substance to the memorandum of understanding unless notice of such change has been given to both Houses of Parliament.
The Earl of Home: I have not yet moved Amendment No. 49.
Lord McIntosh of Haringey: I beg the noble Earl's pardon. I hope I have reassured the noble Earl that his Amendments Nos. 45 to 48 are unnecessary.
Lord Stewartby: There is one point that I wish to raise with the noble Lord for clarification. Although I take comfort from the penultimate paragraph of the Explanatory and Financial Memorandum to which he has referred, that appears to me to refer to the direct costs to business of the expense charged by the authority and the implications of cash ratio deposits.
As I understand Amendment No. 48, my noble friend is talking about the costs of complying with the regulatory requirements, which are generally regarded as being a substantially higher figure. It would be nice to have a reassurance that the pattern of supervision is not to be altered in such a way as to impose even greater costs of compliance on the institutions concerned. For example, Section 39 reports under the existing Banking Act involve an enormous amount of work by the institutions concerned. They have to pay auditors to produce them. I should like an assurance, if the noble Lord can give it to me, that the sentence in this memorandum covers, so far as a reasonable assessment can be made, the actual costs which the institutions themselves incur in complying with their responsibilities.
Lord McIntosh of Haringey: The Financial Memorandum means what it states:
- "The Government's expectation is that the overall cost to business under the new arrangements in respect of the transferred functions and cash ratio deposits will be no greater than under the current arrangements".
I can give the assurance that the noble Lord seeks in the sense that the Bank does not create any new regulatory requirements. It merely transfers the existing supervisory function to the Financial Services Authority. Of course we cannot anticipate how efficient and cost-effective individual institutions are in the way in which they comply with regulations. What they need is the assurance I have just given that there are no regulatory requirements.
I can also give the noble Lord the assurance that the Bill places on the FSA a legal requirement to consult on its fees, as on any other rules that it makes for the financial services industry, on the basis of an analysis of costs and benefits.
The Earl of Home: I thank the noble Lord for kindly saying that I made an interesting speech which had nothing to do with the regulations. I was advised that that was the best way of bringing the points I was
making into the debate, although I repeat what I said at the beginning that it was an unashamedly probing set of amendments.I accept what the Minister has said about the costs being referred to in the Financial Memorandum. We are getting very close to the time when, in terms of pounds and pence, we ought to have some idea of what the costs at least of this transfer should be. However, for the time being we will leave it at that. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 46 to 48 not moved.]
The Earl of Home moved Amendment No. 49:
The noble Earl said: The Bill sets out the objectives of the authority in broad outline, and the memorandum of understanding between the Treasury and the Bank and the authority puts flesh on to that skeleton. There are parts of the MOU that I should very much like to see incorporated on the face of the Bill. Viewed in isolation, the Bill certainly does not meet the Government's own objectives, one of which is transparency. That word occurs, quite rightly, very early on in the MOU.
The MOU is a very well thought out document and I congratulate those involved in its drafting. It sets out in detail more of the objectives behind the Government's thinking, which is also welcome. A great deal of what we have been talking about and shall be discussing is in the MOU, not on the face of the Bill, and it seems desirable that there should be some mechanism whereby the MOU should be tied into the Bill in one form or another.
Any government can change direction quite radically in their thinking and the application of their stance towards financial institutions. They can do so simply by instructing the three signatories to re-write the MOU. It has, after all, total control over all these three bodies. Surely it is right that Parliament should be made aware of any significant changes anticipated to the MOU. By including the words "of substance" in my amendment, I acknowledge that from time to time it may be desirable to make some changes to it. I am even giving the Government the right to decide what is, or is not, of substance. The MOU is, however, such a fundamental part of this Bill that the formal link between the two should be worked out in one form or another. I am not sure that my wording is necessarily the most appropriate way of doing this, but I am concerned more with the principle. I beg to move.
Lord McIntosh of Haringey: We do not need to be too concerned with the detailed wording. The noble Earl has made a very helpful speech and he is quite right to say that the memorandum of understanding is important to the understanding of this part of the Bill. In his
The memorandum of understanding is a flexible working document rather than a legal instrument. Although we do not envisage changing it, if it were necessary to change it, and the Treasury, the Bank of England and the FSA needed to change the way in which they work, it is important that they should be able to agree to do so and to put the new arrangements into immediate effect.
The noble Earl has recognised that point by including the phrase "of substance" in his amendment. Certainly, if the arrangements have to change, and in particular, if substantial changes have to be made, the Government would publish the revised memorandum of understanding. I am quite sure that the Opposition would seek an opportunity to have the matter debated in Parliament if it were of sufficient importance. Of course, I cannot promise that because it would be a matter for the usual channels, but it would seem an entirely proper request.
Page 10, line 7, at end insert--
("( ) The Treasury shall ensure that no change of substance is made to the Memorandum of Understanding of June 1997 between the Treasury, the Bank and the Authority, unless notice of such change has been laid before both Houses of Parliament.").
6.30 p.m.
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