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I hope that the Minister will forgive me. He has been a hard-edged practitioner, I know, but I have noticed that even he is falling under the spell of the

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theoreticians. We had a very interesting discussion at Question Time the other day in which we explored the possibility of extending ISA eligibility to AIM shares. The Minister said:

"The noble Lord should recognise that AIM is a market for listed companies. At the time of listing, it is not in itself a source of new capital for investment. That takes place before, so buying a share of an existing company does not represent the flow of new funds into a business".-[Official Report, 27/01/10; col. 1409.]

That is theoretically true, but if the noble Lord takes off his ministerial hat and puts on his investment manager hat, he will recognise that it is practically incorrect. It is incorrect because when as an investment manager you make your investment, you are hoping to sell it; in order to sell it, you need the secondary market. A buoyant secondary market is therefore an important part of the primary market. In addition, when you recycle in the secondary market, you free up funds for reinvestment in the primary market; that is, in new companies. I look forward to discussing with the Minister in Committee how he sees the proposal working in practice, day to day, as opposed to in the laboratory tests that he is running in the Treasury.

That takes me to my second point about architecture. At Second Reading in the other place, a number of exchanges dealt with the speed with which the architecture of the FSA was outlined after the 1997 general election and the lack of consultation that accompanied it. From my worm's-eye view at the SFA, it seemed that the jelly was set pretty quickly. One has to wonder whether a period of reflection might have led to a better structure. As my noble friend Lady Hogg pointed out, one wonders whether greater consultation on the very far-reaching implications of this Bill and the plenary powers that it grants would both improve the proposals and, equally importantly, improve public buy-in. It is interesting that the British Bankers' Association says in its briefing:

"A fundamental concern is whether the consequence of some of these proposed actions can fully be assessed in the short time that has been allocated to the Bill for Parliamentary debate, particularly in those instances where the Bill is conferring statutory obligations in respect of requirements that have not yet been defined".

A further discussion arose in the other place about the attitude of the Bank of England to the dismemberment of its empire. All I recall is the late Eddie George, then Governor and later a distinguished Member of your Lordships' House, turning to his deputy, Howard Davies-now Sir Howard Davies-head of the LSE and then to be the first chair of the FSA, handing him a dollar bill and saying, "This is the buck that stops with you". Whether that was the action of a happy man or an unhappy man, it is up to noble Lords to judge, but I judge the latter. However, this is the question: where does the buck stop? Where does the new financial stability objective rank alongside the Bank of England's view of future economic prospects and the Treasury's politically driven agenda? We need to tease out the relative priorities in Committee.

So much for architecture; I said that I wanted to say a few words about collective proceedings. Here, I follow the points made by the noble and learned Lord, Lord Goldsmith. I have no theoretical objection to the idea of collective proceedings, but I am concerned that

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we have not got the balance right in the Bill. On the narrow question of "opt out or opt in?", for me, the default position should be "opt in" if we are to avoid ambulance-chasing on a grand scale. However, the general point is the truism that we live in an increasingly litigious society, reflecting partly changing socio-economic attitudes and partly the changes in methods of legal remuneration. One only has to listen to Classic FM to hear a firm advertising itself as "fast, friendly and free" to know that increased litigation is with us. Further, from time to time, cases may be brought, not to win the case but to ventilate an entirely separate, often political, grievance. When we were taking the Companies Act through this House, we had many discussions in Committee about the issue of derivative claims, which runs parallel to this issue. The noble and learned Lord, Lord Goldsmith, then for the Government, and his colleague, the noble Lord, Lord Sainsbury, understood concerns about managements being distracted by frivolous claims, or claims whose primary objective was outwith a company's remit. I think that it is fair to say that the Government listened. Various provisions were put into the Bill, particularly at Clause 263, to provide a balance-they were things that a court would have to take into account before allowing a derivative claim to proceed. I hope that the Government will look at those debates and at what was done then and see whether there are not some ways forward here to get the balance right. It is important that companies and managements of banks are not diverted by claims that are not seriously central to their purpose. To do that, we need clear, detailed rules before we leave Committee stage.

I turn finally to the consumer financial education body, which, again, is a good idea which has not yet been properly thought through. I share the concerns of the noble Lord, Lord Barnett, about a quango. I am concerned about the huge and prescriptive nature of Schedule 1, which makes the FSA's task, especially with its new, added responsibility for financial stability, incredibly difficult; that is, of being responsible for regulation of markets on the one hand and for the protection of customers on the other. However, the Government do not call them "customers"; they call them "consumers", which gives the whole game away. When the Minister was running his extremely successful unit trust group, he would not have called them "consumers". They did not consume his unit trusts; they were customers. The whole phraseology around the way in which the body is being set up and the way in which the FSA is approaching it does not hit the central point that we are trying to achieve. I therefore wonder whether the FSA is the right place to be locating the body at this stage. We have a highly prescriptive schedule; we have the absence of any requirement for public interest representatives on the council; and we have a failure in Part 3 of Schedule 1 to require, as opposed to permit, an annual value-for-money audit. Finally, as the Minister said in his opening remarks, the body will establish a new service called money guidance. Offering guidance to millions of our fellow citizens is potentially a huge business. I understand that it is being trialled only in the north-west and the north-east, but it is about to be rolled out. It will require very careful and experienced handling. I am

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not clear at this stage why the Bill does not talk about the establishment of some form of national money guidance as part of the objectives of the body, and how it will be executed and carried out. That is an issue at which we will need to look very carefully in Committee.

There are other important points in the Bill-for example, the provisions on short selling in Clause 13 -which need close examination, but unless we get the architecture right, so that basic structure is effective, unless we prevent our financial institutions being distracted by frivolous claims and unless we have a proper, effective system for educating our fellow citizens, I doubt that we will have a Bill which is fit for purpose.

7.39 pm

Lord Newby: My Lords, the Bill is an odd mixture of the grand sweep and the fine detail. It is, as the noble Lord, Lord Eatwell, said, a pudding without a theme, even though many of its ingredients might in themselves be quite palatable. Just to pursue the culinary theme, the noble Lord, Lord Hodgson of Astley Abbotts, described the infrastructure as made of jelly. I am tempted to say that that is why it wobbled so much in the crisis.

I turn to the grand sweep of the Bill-which is where the Bill begins, with macro-prudential regulation. It proposes formalising the tripartite agreement by establishing a Council for Financial Stability and it adds to the FSA a financial stability objective and an objective of promoting international regulation. As a number of noble Lords have pointed out, these provisions largely formalise what already exists. It is very difficult to believe that they represent a major change of substance. I very much agree with the noble Baroness, Lady Hogg, when she says that a new Parliament should be spending its time discussing many of these big issues. It is perhaps unsurprising that much of the debate in your Lordships' House tonight has concentrated on them.

Although it is commonplace to attack the tripartite system, as we have had it up to now, for its behaviour and performance before the crisis broke, once the crisis did break, it worked pretty well. In the lead-up to the crisis, the problem was not the structure but the fact that there was a bubble mentality that affected all the players, whether it was the Bank, the FSA, the Treasury or the banks themselves. To argue that changes, including the changes proposed in the Bill, would have made much difference to that bubble mentality is largely wishful thinking.

Equally, it is wishful thinking to believe, as the Conservative Opposition do, that changing the name on the door of the FSA will make a fundamental difference in the effectiveness of the regulatory system. The noble Baroness, Lady Hogg, made some very cogent arguments as to why it will be much more difficult to change the system as the Opposition propose to do than they themselves have set out. As she pointed out, they have made it clear that they do not intend to do it in a rush. I will be very interested to see if and when they do indeed get round to it. It seems to me that once you start unpicking the system, the problems that she described will grow in importance.

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More than anything else, what will make regulation over the next decade more effective is the fact that the regulators themselves have just had the shock of their lives and they do not want to repeat going through that process. Future generations of regulators need an enforced study of the circumstances that led up to this crisis. That will be much more relevant to their effectiveness than their job titles or the committee structure within which they are expected to operate.

The big issue that was debated this evening, which we will have to come back to, was whether one should be splitting up the banks. Slightly unusually, I agreed with almost everything that the noble Lord, Lord Lawson, said on the issue. It was extremely interesting that he got such heavyweight support from his Conservative colleagues. There were differences of nuance-whether or not a firewall can be effective-but the basic principle was accepted by the Conservative Benches. I shall be very interested to see whether that support for breaking up the banks is reflected in the summing-up of the noble Baroness, Lady Noakes.

I turn to the measures in the Bill with a less grand sweep. We welcome the establishment of the consumer financial education body, because responsibility for consumer education is fragmented. We currently have a patchwork quilt with holes in it, and one hopes that this provision will result in the replacement of that patchwork quilt by a more coherent approach. I share the concerns of the noble Viscount, Lord Eccles, about the costs and bureaucracy that the body could involve. The important thing is to ensure that, having collected the money, the body gets it down to those who can spend it effectively, which will not be the body itself. Organisations such as the CAB are already doing so much good work in this area.

The watchword of the body is obviously "prevention is better than cure". I generally like the idea which the noble Lord, Lord Sawyer, adumbrated about involving customers in the actions of retail banks. One of the benefits of such an approach would be to improve the education of customers, who would be encouraged to look not just at how the banks work but at how they get involved in the financial system.

We are glad to see legislation on remuneration. We are also pleased to see the likelihood of the imminent implementation of the Walker report. The Bill as it stands is extremely draconian; it means that the Government can do almost whatever they want on remuneration, subject to secondary legislation. As with other aspects of the Bill, it is unsatisfactory that we have not seen draft secondary legislation at this stage.

I do not agree with the noble Lord, Lord Blackwell, when he says that we should not set out non-director remuneration for public view. The levels and forms of remuneration for non-directors played a part, arguably a significant one, in some of the excessive risk-taking by the banks, and therefore in the debacle that followed. In that respect, senior and highly remunerated bank employees are different from Jonathan Ross and Wayne Rooney. Equally, I cannot agree with the noble Viscount, Lord Trenchard, when he says that this should not be a matter for the state. The state is still picking up the bill for the remuneration systems that led to such reckless risk-taking.

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Recovery and resolution panels have not been much touched on; it is a very technical issue. They sound quite sensible in principle, but I have considerable doubts about their practical value. I share the concerns raised by the noble Lord, Lord Eatwell, when he talked about the difference between what is good in systemic terms and what is good for an individual institution. One of the common features of these plans is that they will involve banks that are going into administration selling off parts of their business. If you have a systemic problem as we had 18 months ago, all the banks will be faced with the same problem: they are trying to flog off the same kind of assets into a falling market. The Treasury documentation talks about the banks negotiating a deal with potential purchasers in advance of their going into administration. That seems wishful thinking. It seems extremely naïve to think that one bank could go to another which might be a purchaser and say, "If we go bust, how much will you buy this part of the bank for?".

I also have concerns about the bureaucracy that is implied and planned under this system. I had the benefit on a recent transatlantic flight of reading the Treasury's document entitled Establishing Resolution Arrangements for Investment Banks.Although this document is an intellectual tour de force and extremely long, the more I flicked through it, the more it made my heart sink. It proposes, for example, establishing a board-level business resolution officer-a BRO-who will spend up to a day a week working on resolution plans. The BRO will produce a BIP-a business information pack-for administrators which is described as a "living document", continuously updated. It will probably require a client assets trustee, and it will require a client asset agency as part of the FSA. As the noble Baroness, Lady Valentine, pointed out, this really is over-engineering on a pretty grand scale.

Collective proceedings are the most complex and controversial part of the bank, once we have dealt with macro-prudential management. The principle of giving easier redress to classes of people who have suffered loss as a result of the behaviour of financial services firms is one that everyone supports. My principal concern about the Bill's approach to this is that it puts in place two parallel approaches-one via the FSA and one via the courts. In principle, groups of consumers could pursue the two in parallel, which does not seem sensible. It would be better for the FSA to be the first route for those seeking collective redress. The advantage of going to the FSA first is that the FSA is likely to be able to operate more quickly and cheaply-and to get the redress sorted out-than going through the court route. I agree with the noble Lord, Lord Henley, that the court route should be the last resort, rather than, potentially, the first resort.

Like others, I have several other concerns about the details of the provisions. I agree with the noble and learned Lord, Lord Goldsmith, that there has been inadequate consultation. There has been no consultation of any substance. I am concerned that the provisions apply only to FSA-authorised firms, not to firms holding consumer credit licences. We will table amendments to deal with that.

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At the moment, the Bill raises a number of unanswered questions. Who will be able to initiate collective proceedings? How do the provisions of the Bill chime with international discussions and likely developments here? How will costs be apportioned? Will the "loser pays" principle remain? Is it sensible to have both opt-out and opt-in approaches? These are all issues that need to be debated at some length in your Lordships' House. There is another area where I have some concern. Like a number of other noble Lords, including the noble Lord, Lord Whitty, I fear that-although we will not necessarily get to the US stage of massive class action suits left, right and centre-American law firms are setting up practices in the UK specifically to deal with these issues. Even before we had this provision, in previous mis-selling cases, such as the split capital investment trust case, investors gave law firms significant sums, which they often could not afford, to pursue class actions that were bound to fail. We cannot be at all complacent in this area, but I fear that the consumer bodies have sometimes sounded complacent.

As for the Bill's consumer redress schemes, although the prohibition of credit card cheques is obviously welcome, we will be looking to add a new provision to ban unsolicited increases to credit and store card limits. This is a major problem for the vulnerable groups who build up debt on credit cards, which they are encouraged to do, without having to express their opinions.

This debate has a slightly surreal air to it. We are discussing an extremely important and complex Bill as though it were business as usual. However, we all know that unless the Government give the Bill total primacy over all other parliamentary business over the next month, the chances of it going through your Lordships' House in the normal manner are nil. It is set to be a victim of the wash-up. That is a serious concern. As we have debated tonight, many aspects of the Bill are contentious and need detailed debate. To make matters worse, over the next few weeks we face the prospect of concentrating on those parts of the Bill which will be reversed if we have a Conservative Government, because those are the parts that come up first. Many of the consumer provisions are towards the end of the Bill. We are in danger of giving them little or no consideration. This is a most unsatisfactory situation. What plans, if any, do the Government have to ensure that the Bill is properly debated, rather than being either nodded through or eviscerated in the wash-up?

Lord Goldsmith: Happy though I am that people agree with what I have said, particularly on those Benches, the noble Lord agreed with something that I had not said. For the record, I make it clear that I did not say anything about consultation.

7.54 pm

Baroness Noakes: My Lords, this rag bag of a Bill tells us all that we need to know about a Government who have lost their sense of purpose but are struggling on, pretending that they are doing purposeful work. Two weeks ago we debated the vacuous Fiscal Responsibility Bill. That Bill is now an Act but it is no

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more and no less likely that the Government will be fiscally responsible. This Bill has as its centrepiece the Council for Financial Stability, but if it passes into law, it will be no more and no less likely that financial stability will be preserved. Some parts of the Bill are welcome in principle but are still works in progress and carry the danger of legislating in haste. This House must, in particular, be on guard against good intentions or populism resulting in bad law. We will need to do a lot of work to make what is in the Bill good legislation. There are also great gaps in the Bill where substantive matters should have been addressed. We shall try to fill those gaps. All told, it is not a fine Bill.

My noble friend Lord Henley has already deconstructed the Government's not even half-baked plans for collective action. The spectre of US-style class actions, referred to by the noble and learned Lord, Lord Goldsmith, has rightly terrified the business community in the UK. It has not been reassured by what the Government have said in another place. My noble friend also exposed the weakness at the heart of the changes to the consumer redress powers in Section 404 of FSMA. They are retrospective and sweep away parliamentary oversight and replace it with only judicial review, which is not a proper remedy. We are clear about our support for effective consumer remedies. We would be completely behind the Government if they had demonstrated a balanced and holistic vision of consumer redress in the financial sector, across all consumer-facing sectors and in the European context. However, after 13 years they have chosen to use their last gasps in power to pursue this imperfect legislation.

The consumer clauses might be flawed but they do at least tackle an issue of real substance. There is far less substance behind the clauses which set up the Council for Financial Stability. No one should be taken in by dressing up the failed tripartite arrangements in new legislative clothes. I am sure that lessons were learnt from the failures in 2007 and the tripartite authorities will not make the same mistakes again. They do not need the Bill for that.

The recent financial crisis exposed the consequence of the Prime Minister's vandalism when he tore banking supervision out of the Bank of England. He single-handedly destroyed the link between macro-prudential oversight and micro-prudential action. My noble friend Lord Stewartby reminded us that warning signs of overleverage were analysed by the Bank but not translated into practical action. Interdependencies, which were correctly identified by both the noble Lord, Lord Desai, and my noble friend Lady Hogg, were missed. My party's policy is to reunite macro and micro-prudential supervision in the Bank. There will be no need for a Council for Financial Stability under our policies.

Leaving that to one side, the Bill is just not good enough. It fails to identify who is in charge or where the buck stops, to use the phrase of my noble friend Lord Hodgson. It also fails to identify the tools that are needed to maintain financial stability. It leaves many big issues unresolved. How should banks and other systemically important organisations contribute to the cost of failure? Should the structure of the banking industry be changed to minimise risk? My

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noble friends Lord Lawson and Lord Blackwell offered slightly differing visions of this but agreed that we must address the issue. My honourable friend George Osborne has never ruled this out, but we have always stressed the importance of concerted action in such areas on a global basis. We shall need to return to many of these issues in Committee.

At first sight, the financial stability objective introduced by Clause 5 is just another government U-turn. The noble Lord, Lord Eatwell, reminded us that last year, during the Committee stage of the Banking Bill, he sought to introduce that to the FSA. The Minister said clearly and emphatically that it was not "appropriate". Now it appears that it is. The Minister will need to come to Committee with his files full of analysis of why, one year later, Clause 5 is now appropriate.

We are completely behind the desire to improve financial understanding and education. While I share the distaste of my noble friend Lord Eccles for yet another public body with its own bureaucracy, we support the creation of a consumer financial education body. The base lines in this area are shockingly low and the task is therefore huge.

We are not surprised that the new body will be expensive. The impact assessment talks of costs to the industry and government of £1.5 billion. Only a fraction of this could conceivably come from dormant account money. My party's view is that the financial services industry should pay for this body, but that means that the industry should have a say in what is spent and how it is spent. The Bill does not achieve this.

In the impact assessment, there are some completely wild figures relating to the benefits of the consumer body. We need a much clearer idea about monitoring the achievements of the new body and its value for money. There are also issues about its engagement with consumer groups. Even in this relatively uncontentious part of the Bill, there are major issues for us to explore in Committee.

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