Secondly, Sections 387 and 388 of FiSMA already require warning and decision notices to give the regulator’s reasons for the action it proposes or the decision it has taken. There are similar requirements in the new provisions inserted by this Bill for other notices where that is appropriate. Of course, if the person concerned disagreed with the reasons that the regulator gave, he or she could challenge the action or decision before the tribunal.

Amendment 176 seeks to compel each of the regulators to consult with persons whom it considers appropriate when preparing and issuing a statement of policy with respect to the imposition of penalties and the amount of penalties under the new powers in new Part 12A of FiSMA in relation to unregulated holding companies. Again, I entirely agree with the spirit of the amendment: the regulators should consult on their statements of policy. But let me reassure the noble Lord, Lord McFall, that this amendment is not required, as new Section 192N(9) already requires the regulators to consult when preparing and issuing a statement of policy.

5.30 pm

The purpose of Amendment 165ZA in the name of the noble Lord, Lord Davies, is to require the regulators to publish explanations of decisions to issue prohibition notices to individuals and to require the Treasury to publish a list of individuals subject to such notices on its website. As I have said, regulators ought to give explanations of their actions and I do not think anyone would dispute the need for the identity of persons subject to prohibition orders from the regulators to be

8 Oct 2012 : Column 861

made known. That is already the position under FiSMA and the Financial Services Bill will not change that.

First, when the FSA seeks to prohibit someone working in the financial services industry, FiSMA already requires the FSA to give reasons in the notices for the decisions it is proposing to take or has taken relating to the prohibition. Final notices are generally published by the FSA and decision notices may also be published. They are, of course, published on the FSA website and I encourage your Lordships to look at these notices to see the detailed explanations that the FSA gives for its decisions. On the second limb of the amendment, FiSMA already requires the FSA to maintain a publicly available record of a number of matters, including of individuals to whom a prohibition order relates. This deals specifically with the point made by the noble Baroness. The FCA will keep these records in future and the Bill, in paragraph 17 of Schedule 12, also amends FiSMA to require the PRA to assist the FCA in keeping the record up to date. In particular, the PRA will be required to notify the FCA if it makes a prohibition order, so that the FCA can update the register.

Amendment 170ZA in the name of the noble Baroness, Lady Hayter, would require the Treasury to lay before Parliament any statements of policy concerning penalties to be imposed on sponsors made by the FCA under new Section 88C, and sent to the Treasury under new Section 88C(8). New Section 88C follows the model of other sections in FiSMA about statements of policy on penalties and these do not require such statements to be laid before Parliament. I think there may be a misunderstanding about the nature and role of these statements and I shall explain why the Government do not think it appropriate for statements of policy of this kind to be laid before Parliament.

No one disagrees, of course, with the proposition that certain important reports and other documents that the FCA or PRA give to the Treasury should be laid before Parliament, but the statement of policy issued by the FCA under Section 88C, or similar sections, is not such a report. It is more akin to the guidance issued under FiSMA. This explains why the procedure in new Section 88D, which the FCA must follow before it issues a statement, is essentially the same as the procedure when the FCA issues guidance, which is now set out in new Section 139A. The Treasury must be notified of any new guidance or changes to existing guidance but is not responsible for publishing it, because it will have already been published by the FCA, and the Treasury does not have to lay copies of FSA guidance before Parliament at present. That has never been thought necessary or appropriate—they are all available on the FSA website. I do not think it would be appropriate to change that approach now, either in relation to new Section 88C or elsewhere. The sheer volume of material is an issue, but the real point is that the FCA’s ordinary rules, guidance and statements of policy are not matters that would normally be of routine concern to Parliament: they are extremely dry documents of concern mainly to practitioners and advisers. I hope that, in the light of my explanation, the noble Baroness will be satisfied with what the Government propose.

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Lord McFall of Alcluith: I beg leave to withdraw the amendment.

Amendment 150 withdrawn.

Amendments 150A to 152A not moved.

Amendment 153

Moved by Lord Sassoon

153: Clause 9, page 58, line 40, at end insert—


55Z1 Notification of ESMA

A regulator must notify ESMA of—

(a) the giving by it of a Part 4A permission to an investment firm, where the regulated activities to which the permission relates are investment services and activities,

(b) the giving by it of a Part 4A permission to a management company (as defined in section 237(2)), where the regulated activities to which the permission relates fall within paragraph 8 of Schedule 2,

(c) the cancellation by it of a Part 4A permission of a description falling within paragraph (b), or

(d) the cancellation by it of a Part 4A permission under section 55J(6), in reliance on any one or more of the conditions in section 55K(1)(b) to (d).

55Z2 Notification of EBA

(1) A regulator must notify EBA of—

(a) the giving by it of a Part 4A permission to a credit institution, where the regulated activity to which the permission relates falls within paragraph 4 of Schedule 2,

(b) the cancellation by it of a Part 4A permission of a description falling within paragraph (a).

(2) “Credit institution” has the meaning given in section 1H(8).”

Amendment 153 agreed.

Clause 9 agreed.

Clause 10 : Passporting: exercise of EEA rights and Treaty rights

Amendment 153A

Moved by Lord Davies of Oldham

153A: Clause 10, page 59, line 18, at end insert—

“( ) In seeking to ensure an appropriate degree of protection for consumers, the PRA and FCA shall—

(a) require banks to provide clear and prominent warnings to consumers where deposits are not covered by the Financial Services Compensation Scheme; and

(b) make and maintain effective arrangements to consult consumers on the prominence and method of such warnings.”

Lord Davies of Oldham: My Lords, Amendment 153A relates to that part of the Bill which refers to passporting, where a UK-authorised firm may be eligible to carry out its permitted activities in any other EEA member state, subject, of course, to its fulfilment of the requirements under the scope of the relevant single market directive. We are concerned about consumer protection for firms operating in other EEA states

8 Oct 2012 : Column 863

which originate in this country. The amendment, which is quite clear and self-explanatory, requires either the FCA or the PRA to require banks to provide clear and prominent warnings to customers where deposits will not be covered by the Financial Services Compensation Scheme. Everyone will know the anxieties that have occurred as a result of the proliferation of a vast range of banking activities. This is a question of the basic operation of the bank elsewhere, and we think that the Bill should contain a fundamental identification of the obligation of banks so that customers know exactly where they stand with regard to any resources they may have committed to the banks. I beg to move.

Lord Sassoon: My Lords, I completely agree about the importance of such warnings and clarity about what compensation schemes apply to particular bank accounts, which is precisely why it is already covered in the FSA’s handbook. As the noble Lord, Lord Davies of Oldham, may not be aware, section “Comp 16” of the FSA handbook requires precisely what the noble Lord requires. Firms from the EEA passporting into the UK are required to inform customers that they are covered by their home state’s scheme. Firms from outside the EEA are required to be separately authorised in the UK, so that they are covered by the FSCS. We completely agree on the importance of this and of raising consumer awareness of it. Again, lots of good stuff went on in many areas during the summer and this is another one. If the noble Lord and the Committee generally want to look at the press release, it was put out on 31 August and sets out details of the FSCS awareness campaign. The notes to editors in it make clear the different health warnings that have to be put down for UK branches of EEA banks and the precise form of words. I do not happen to bank with one of those banks; I bank with a British bank which now adds an extra page—it is not great for the environment, but the extra page sets out the details of the coverage of the FSCS and EEA banks are now required to do something similar.

The noble Lord makes a very good point, but I believe that we should leave it to the FSCS and the regulators to do what they are already doing, rather than writing inflexible requirements into legislation. The advantage of the current approach, as I am sure he will acknowledge, is that the regulator and FSCS can adapt their approach over time, but it is a useful matter for us to have spent four minutes on and I hope that the noble Lord is able to withdraw his amendment.

Lord Marlesford: May I just make one very small point to my noble friend? I declare an interest straightaway as a modest customer of the national savings bank. Along with many other people, I suspect, I assumed that if one had money in the national savings bank there was no way in which one would not be paid, however much money one had in it, in the event of any sort of default. When it transpired a couple of years ago that the national savings bank had put most of its money into the Bank of Ireland, certain fears were raised. It then became clear that the rules on the limit of compensation applied to money deposited with the national savings bank, just as they did to anything else. There was an implicit guarantee by reputation,

8 Oct 2012 : Column 864

as it were, on money put in the national savings bank, and the noble Lord’s point underlines the need for implicit guarantees to be cancelled by explicit denials of obligation.

Lord Desai: I add to what the noble Lord, Lord Marlesford, has said. As a depositor in the US, I had a cheque book and it said on each cheque that I wrote to what extent my deposits were guaranteed by the FDIC. It is all right for the FSA handbook to say something, but it would be much better if on my debit card or cheque book—although people do not use cheque books any more—it said to what extent my deposit was guaranteed. If it said that, it would be very good.

Lord Sassoon: I thought that I had said this, but I shall say it again. The detail of what is covered is a requirement that comes with your bank statement, which is a more appropriate place. It is better to have it attached to the bank statement than on a cheque when you are paying money out. So it is there, and it is completely clear in the rules in the FSA handbook.

Lord Desai: I do not carry my bank statement with me, but I do carry my debit card.

Lord Davies of Oldham: My Lords, I am grateful for the additional contributions from the noble Lord, Lord Marlesford, and my noble friend Lord Desai, who at least emphasised the justification for our concern that we should make this issue as explicit as possible. My amendment would put it in the Bill. I accept what the Minister says on the enhanced flexibility of it being within the framework of the relevant regulators, but at times we need to assure the country that we are addressing ourselves to the very real anxieties that people have in the context of developments in recent years, particularly when considering this Bill. I accept the Minister’s remarks. He may be somewhat relieved that my batting average dropped below 100 as soon as I lost the first amendment this afternoon. It was some relief to me; even Don Bradman, after all, had an average of only 99.94, so I do not mind if it declines a little further, given the assurances that the Minister has given to the House.

Amendment 153A withdrawn.

Clause 10 agreed.

Schedule 4 : EEA passport rights and treaty rights

Amendments 154 to 164

Moved by Lord Sassoon

154: Schedule 4, page 198, line 39, leave out sub-paragraph (2) and insert—

“(2) For “the Authority” or “the Authority’s”, in each place, substitute “the appropriate regulator” or “the appropriate regulator’s”.”

155: Schedule 4, page 199, line 1, leave out “(7)” and insert “(8)”

156: Schedule 4, page 199, line 2, leave out “(8)” and insert “(9)”

157: Schedule 4, page 199, line 10, leave out “(9)” and insert “(10)”

158: Schedule 4, page 199, line 13, at end insert—

“( ) In the heading, for “Authority” substitute “appropriate regulator”.”

159: Schedule 4, page 199, line 32, leave out sub-paragraph (2) and insert—

“(2) For “the Authority” or “the Authority’s”, in each place, substitute “the appropriate regulator” or “the appropriate regulator’s”.”

8 Oct 2012 : Column 865

160: Schedule 4, page 199, line 34, leave out “(11)” and insert “(11A)”

161: Schedule 4, page 199, line 35, leave out “(11A)” and insert “(11AB)”

162: Schedule 4, page 200, line 39, leave out sub-paragraph (4) and insert—

“(4) In subsections (3) to (11), for “the Authority” substitute “the regulator”.”

163: Schedule 4, page 201, line 1, leave out “(10)” and insert “(11)”

164: Schedule 4, page 201, line 2, leave out “(11)” and insert “(12)”

Amendments 154 to 164 agreed.

Schedule 4, as amended, agreed.

Clause 11 : Prohibition orders

Amendments 165 and 165ZA not moved.

Clause 11 agreed.

Clause 12 : Approval for particular arrangements

Amendment 165A

Moved by Lord Flight

165A: Clause 12, page 61, line 13, leave out from beginning to end of line 8 on page 62 and insert—

“(3) The PRA and FCA must, in relation to dual-authorised persons—

(a) specify in rules those functions carried on by authorised persons which are significant-influence functions;

(b) set up and maintain joint arrangements to exercise their power under section 59(3)(a) to approve holders of any significant-influence function.

(4) The FCA must, in relation to FCA-authorised persons—

(a) specify in rules those functions carried on by authorised persons which are significant-influence functions;

(b) set up and maintain arrangements to exercise its power under section 59(4)(a) to approve holders of any significant-influence function.””

5.45 pm

Lord Flight: My Lords, I think it is self-evident that in gaining the advantage of twin peaks and what I hope will be a much better regulation of the safety of banks comes the cost of the requirement for elements of dual regulation and involvement. Rather contrary to what I had to say earlier about the authorisation of banks, when it comes to the authorisation and approvals of holders of controlled functions my amendment proposes, in essence, joint responsibility on behalf of the PRA and the FCA to approve holders of significant-influence functions for dual-regulated firms. Generally the industry has concerns that the proposed process for approving holders of controlled functions covered in Clause 12, which amends Section 59 of FiSMA, appears unnecessarily complex and might not have been fully thought through. From the drafting, it is unclear which regulator will be responsible for designating and approving some functions. The only straightforward, common-sense approach would be a joint responsibility on the part of the PRA and the FCA for granting approvals. Whatever system is put in place, it is important that it is run jointly in order to be as efficient as possible.

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The draft MoU between the PRA and the FCA gives further details of the proposed system, but this makes it clear that there is an assumption that certain roles—for example, the CEO and the chairman—are inherently prudentially focused and so should be approved by the PRA, although with FCA consent. The holders of these senior roles are as much responsible for ensuring that the firm meets conduct standards as prudential standards; in the case of many businesses, the conduct standards may be more fundamental than the prudential standards.

I would like to hear the Minister’s comments on this territory, but one approach that might make life simpler is to have joint responsibility for the more senior dual-registered holders.

Viscount Trenchard: My Lords, I support my noble friend Lord Flight in his amendment, principally because it reads much better and is much easier to understand than the equivalent part of the Bill, which is confusing to say the least. I further agree that there is a very considerable risk that approved firms, having to apply to two regulators separately, is going to reduce the attractiveness of London and lead foreign firms to consider establishing in other centres businesses that could be established in London. There is already a perception that it is extremely cumbersome to obtain approval for significant-influence persons and that it is more difficult to do that here than in other financial centres around the world, so I definitely believe that my noble friend’s amendment would represent a significant improvement.

It is also important to ask my noble friend the Minister whether, if joint responsibilities are to be agreed between the PRA and the FCA, that would mean a single procedure. If the two regulators are made jointly responsible but operate slightly different procedures that with time become more different, it makes it much more time-consuming and expensive for regulated firms to comply with the requirements.

Has my noble friend also thought about customer-dealing functions? His amendments deal perfectly with the significant-influence functions, but the Bill as drafted also deals with customer-dealing functions, and I see no reason why these should not also be dealt with in an extremely simple and understandable manner using a form of words similar to his.

Where joint responsibilities between the two regulators are agreed, will this lead to the avoidance or elimination of the duplication of staff between them? If you have two regulators doing the same thing, you have double the people and you may have even more people who are responsible for talking to their equivalents at the other regulator. Where joint responsibilities under the memorandum of understanding or elsewhere are agreed and put into force, can that be done in a way that reduces rather than increases the number of persons necessary to carry out the process?

Lord Sassoon: My Lords, I can assure my noble friends that these matters have been carefully thought about. To some extent, the somewhat tortuous drafting is entirely to achieve a simpler and more cost-effective result, even if the drafting of the Bill is more complex

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than my noble friend has suggested, although I do not think he is doing it to make the drafting more comprehensible.

As with our earlier discussion about the authorisation of firms, we need to recognise that there are already difficulties in this area. My noble friend Lord Trenchard quite rightly points out how aspects of the authorisation processes in London are of concern to firms, particularly from outside Europe. I understand that. As he and I have discussed over a long period, different aspects of this go over many years. Whether it is the FCA or the new regulators, there is an ongoing challenge to make sure that the system is sensitive, appropriate and efficient, quite regardless of the new architecture. He makes an important point, but I suggest that it is a different point from the narrow but equally important one here about where best to do it in a dual-regulation, dual-supervision environment.

Amendment 165A would establish a different system for designating significant-influence functions, or SIFs. For dual-regulated firms, the PRA and the FCA would jointly make rules specifying which functions are SIFs and then put in place joint arrangements for approving individuals to perform them. For FCA-only firms, this would be done by the FCA alone. I can see the attraction of the approach which my noble friend Lord Flight is proposing. The language and the on-the-face-of-it approach perhaps appear simpler than the arrangements in the Bill at present. However, the arrangements in the Bill have been thought about, and we believe that they are preferable because they put one regulator in charge of leading the process for approving those who wish to carry out roles involving significant influence over the conduct of affairs of an authorised person. In most cases, this will be the relevant prudential regulator, although the FCA will be able to designate SIFs in dual-regulated firms where the PRA has not done so. For example, the FCA will have a greater interest than the PRA in the chief anti-money laundering officer, so it may wish to designate this function in the absence of the PRA.

We certainly do not think that the administrative process should be excessively difficult or lead to log-jams. The Government expect the two authorities to run a single administrative process for SIF applications, taking into account the statutory timeline. Indeed, the draft memorandum of understanding, published by the Bank and the FSA, makes clear that that is exactly what they will do: run one administrative process. I cannot answer my noble friend’s question about whether there will be more or fewer people. All I can say is that they have already documented a process to make it as efficient as possible.

With the explanation that this has all been very carefully thought out and that, although there is no perfect way to do it, we believe that the basis in the Bill as drafted will work better in practice for firms and for the regulators, I hope that my noble friend will withdraw his amendment.

Lord Flight: My Lords, I appreciate that this is a tricky issue to solve to the optimum, whichever route you choose to go down. I would just comment that, particularly as the drafting of the legislation is less than clear, I hope the Minister might give an undertaking

8 Oct 2012 : Column 868

that the two new regulatory bodies would issue codified statements for people wanting to seek approval as to where they should go as a first port of call, depending on their functions. This would make life easier, particularly for non-UK parties. With that proviso, I beg leave to withdraw the amendment.

Amendment 165A withdrawn.

Clause 12 agreed.

Clause 13 agreed.

Schedule 5 agreed.

Clause 14 : FCA to exercise functions under Part 6 of FSMA 2000

Amendment 165B

Moved by Lord Flight

165B: Clause 14, page 63, leave out lines 34 and 35 and insert—

“( ) In section 72—”

Lord Flight: My Lords, this group of amendments is concerned really with the same issue: the designation of the competent authority in the Bill. When FiSMA was introduced, it was straightforward to transfer authority to the LSE as the definition was of competent authority. The Bill as redrafted clearly makes the definition the FCA itself. These amendments seek to revert to the previous arrangement as an insurance policy against a potential, albeit unlikely, wish to change the listing authority in the future, so they are designed to retain all existing references to the competent authority in the FiSMA, to change the designation of competent authority to the FCA and all existing references to the authority to the FCA, to retain existing provisions relating to the duties and powers of the competent authority and to retain the existing ability to transfer the designation of competent authority to another person.

I am aware that the Treasury’s position has been to want to put beyond all doubt the fact that the FCA would remain as the listing authority, and I understand that point. There had been some discussions about merging the listing function with the Financial Reporting Council, although the consensus of consultation was against it. There is a practical argument in favour of leaving things defined the way they are, to enable changes to be made in the future without having to revert to primary legislation.

6 pm

Lord Sassoon: I am not the first noble Lord to have jumped up a bit fast this afternoon but will probably not be the last—apologies for that.

On the amendment, we need to go back over a little of the history, which is all to do with the question of who was going to be the listing authority at the time FiSMA came in. My noble friend Lord Flight refers to the past couple of years, but as I understand it—and I remember a little of this—it was unclear at the time FiSMA was enacted whether the FSA would undertake the listing functions on a permanent basis. As a result,

8 Oct 2012 : Column 869

Part 6 of FiSMA was prepared as a self-contained part of the Act and included some provisions—for example, those relating to fees and penalties—that are included elsewhere in FiSMA to apply to the FSA in its general capacity.

I suggest, on the point about the listing authority having a special status and being more flexible in order to be moved around in the future, that that would not have been considered at all if it had not related to the circumstances a decade or so ago. Since then, not only was the listing authority with the FSA through that period but, as my noble friend said, the Government considered the question, at a very early stage of the work leading up to this Bill, of the appropriate future home of the listing function. As my noble friend recognises, as a result of that consultation in July 2010, which was essentially about whether the listing function could be merged with the Financial Reporting Council, the clear view among the vast majority of respondents was that listing should be with the FCA, along with other parts of market regulation. FiSMA also includes provision for the possible transfer of the competent authority functions to another organisation.

Clause 14 gives effect to that decision. I say again to my noble friend that if it had not been for the particular circumstances of uncertainty going back a decade and more, there would not have been this anomaly. We are now tidying it up and making the listing function a core part of the FCA, as with all other major parts of its activity. I hope that, on the basis of that explanation, my noble friend will withdraw his amendment.

Lord Flight: My amendment was there to raise the matter for discussion and I am satisfied with the Minister’s response. I beg leave to withdraw the amendment.

Amendment 165B withdrawn.

Amendments 165C and 165D not moved.

Amendment 165DA

Moved by Lord Stevenson of Balmacara

165DA: Clause 14, page 64, line 8, at end insert—

“(3A) In section 73(1), at the end insert—

“(g) to foster ethical corporate behaviour, including respect for internationally-recognised human rights”.”

Lord Stevenson of Balmacara: My Lords, the purpose of this group of amendments is to demonstrate that government recognises that business has a responsibility to respect human rights and sustainable development, to focus corporate behaviour on its wider social and environmental impact, to provide information to affected individuals and communities, and to inform better the investor community.

The Government have said that in discharging its general functions the FCA must act in a way that is compatible with its strategic objective—ensuring that relevant markets function well—and in a way that advances one or more of its operational objectives. I argue that these amendments would be entirely compatible with both the FCA’s strategic and operational objectives,

8 Oct 2012 : Column 870

as it would uphold the integrity of the Stock Exchange and ensure that businesses take into consideration the full impact of their operations. This approach is supported by a wide range of organisations, including Aviva Investors, the Carbon Disclosure Project, Save the Children, the Co-operative and the World Wildlife Fund.

There is of course a legal case for this. In June last year, along with every other member of the UN Human Rights Council, the UK endorsed the UN framework on human rights and transnational corporations, which enshrines the state duty to protect alongside the corporate responsibility to respect human rights. The Government, including the Prime Minister, have been enthusiastic in their support for these principles, but so far they have not spelt out how they intend to fulfil them. Listing requirements specifically relating to human rights and sustainable development would be a strong first step. The UK has a duty to protect human rights under international conventions to which it is a signatory. The human rights obligations of states under international law include the taking of effective measures to prevent human rights abuses by third parties, including companies.

The Combined Code on Corporate Governance,issued by the Financial Reporting Council, gives guidance to companies on reporting CSR-related matters. The listing rules of the London Stock Exchange require companies incorporated in the UK and listed on the main market of the exchange to report on how they have applied the combined code in their annual report and accounts. Overseas companies listed on the main market are required to disclose the significant ways in which their corporate governance practices differ from those set out in the code. The reporting obligations in the Companies Act 2006 extend to everything of relevance to the company within the terms of Section 417 of the Act. There are no geographical restrictions on what information is relevant or may be disclosed. Markets are driven by information. If the information they receive is short term and thin, these characteristics will define our markets. These amendments would serve to improve the information available to investors and all external stakeholders.

A recent survey of global stock exchanges conducted by Aviva Investors revealed that 57% of respondents agreed that strong sustainability requirements for listed companies made good business sense for the exchange. Only 14% of respondents disagreed. A lack of regulatory support was highlighted by over half the respondents as a factor that discouraged them from undertaking sustainability initiatives.

Stock exchanges play a vital role in economic development as one of the primary tools for the allocation of capital in both emerging economies and developed ones. Yet at present there is no requirement on applicants to the London Stock Exchange to provide information on their social or environmental impact, which means there are no sanctions available to the UK Listing Authority, even if a company listed on its main market is found guilty of the most grievous human rights abuses.

London is already behind the curve in this area and we suffer reputational risk if we do not act. For instance, the Hong Kong stock exchange mandates that mineral companies must: divulge the likely,

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“impact on sustainability of mineral and/or exploration projects”;

reveal the,

“claims that may exist over the land on which exploration or mining activity is being carried out, including ancestral or native claims”;

and state the company’s,

“historical experience of dealing with concerns of local governments and communities on the sites of its mines”


“exploration properties”.

The Shanghai stock exchange requires listed companies to commit to environmental protection and community development while pursuing economic goals and protecting shareholders’ interests. In Luxembourg, listed companies must have “high standards of integrity”, and behave in a “responsible manner”. In Malaysia, listing rules include provisions on CSR reporting, and the stock exchange has also developed a CSR framework with accompanying guidance for directors. Human rights are also referenced throughout guidance materials elaborating on the framework, most recently in a training tool for directors.

The business case for human rights and sustainable development reporting is therefore robust. The current listing requirements are in place to allow investors to make good and informed decisions about the merits of investing. Arguably, this would be impossible without information on the social and environmental impact and responsibility of a company. The UK’s largest institutional investor, Aviva Investors, has called for a,

“listing environment that requires companies to consider how responsible and sustainable their business model is, and also encourages them to put a forward looking sustainability strategy to the vote at their AGM”.

It is widely accepted that environmental and social governance performance can have a significant impact on shareholder value and should therefore be taken into full consideration by companies in their reporting and financial disclosure.

When a similar amendment to the Bill was raised in the other place, the then Minister said that the proposers,

“have raised some very important issues and there is a lot of truth in what they say. The reputation of the UK listing regime depends partly on the behaviour of companies, and we need to think about that quite carefully”.

He also said:

“Matters of stewardship and corporate behaviour are predominantly the responsibility of the Financial Reporting Council, which is responsible for the stewardship code and corporate governance issues”.—[Official Report, Commons, 22/5/12; col. 1028.]

However, as the FRC recently explained to the Treasury Select Committee, its role is about implementation and not about applying sanctions.

A gap is developing between what we would all agree is best practice and what needs to be done to ensure that the rules are followed; effective sanctions must be available. There is currently no single body responsible for all aspects of company behaviour, including the raising of finance. Under the current regime, the listing process provides the funds that companies need to invest and grow, and shareholders have the primary responsibility for holding business to account for its behaviour. However, there is no regulatory body responsible for both sides of that equation with sufficient

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powers to intervene. I believe that the FCA should take the lead as it has the authority, the expertise, the personnel and the funding to enable it to exercise vigilance over all UK listed companies. I beg to move.

Lord Sassoon: My Lords, Amendment 165DA would require the FCA to have regard to fostering ethical corporate behaviour when exercising its listing functions. While we would all agree on the importance of corporate ethics, the issue here is whether we should make changes to the Bill to give the FCA specific roles or responsibilities in relation to them. The Government consider that the answer to that question is no.

The objective of our reforms is to put in place a new regulatory system with properly focused regulators who have clear responsibilities and objectives. This, of course, replaces a regulatory system which was not sufficiently focused and failed when the point came to protect consumers adequately. However important additional, worthy objectives might be, we need to be mindful at all times of the need for focus on the new bodies which we are creating. In this particular case, there are of course already other bodies or agencies engaged in these important matters. In particular, as the noble Lord, Lord Stevenson of Balmacara, knows, the Financial Reporting Council is responsible for the corporate governance code and the stewardship code to which he referred. That is where I believe we should leave this responsibility, rather than blurring or muddling the lines.

Amendment 167E is more specific. It would require the FCA to make listing rules to require all listed energy and mining companies to carry out human rights due diligence and then require the companies concerned to make annual human rights impact reports to the exchange. Again, I can appreciate what is behind Amendment 167E but do not believe that it is necessary.

First, the FSA currently—and the FCA in future—is already able to make listing rules covering both points made by the amendment if it considers it appropriate to do so. I see that the noble Lord is nodding. We do not need to give new powers in this respect to the FCA, or to include new requirements in FiSMA. However, I know that the noble Lord will come back and say it is one thing that it has the ability to do it, and another thing if we think it to be sufficiently important. I understand that, but it does have that ability.

Secondly, we see the way forward to be encouraging transparency and supporting action in the countries in which mining and other extractive activity takes place. That is why the Government support the EU proposals to improve transparency in the extractive—oil, gas and mining—and forestry sectors. We are already engaged in the EU negotiations on this issue. The Government also support the extractive industries transparency initiative and encourage resource-rich countries to sign up to it. Under that initiative, companies publish the payments they make to Governments of resource-rich countries, and these Governments publish the payments they receive from extractives so that the benefits from extractives can be seen by all. Therefore, while I appreciate that the noble Lord wishes to go harder on this, I believe that the Government are being active on the case. These are important issues and it is better to leave it to the FRC through the code on the one hand,

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and to push forward with these important international initiatives on the other. On that basis, I ask the noble Lord to withdraw his amendment.

6.15 pm

Lord Stevenson of Balmacara: My Lords, I thank the Minister for his comments. I understand where he is coming from and indeed he answered for me in some senses by explaining what he thought I might say in response, so I will not add to that. At the heart of this there are just two points. It is true that the bodies he mentioned have responsibilities. However, because there is no single body with the clear authority to act, it is a bit of a muddle and it is something that in future we may have to come back to. As the Minister said himself, the current FSA has, and the future FCA will have, the powers to set down rules, but the fact that the FSA has not done so is obviously relevant. I was grateful to the Minister for his comments about the EU initiatives in this area. These are important, and certainly the transparency that he has sought is at the heart of what I have been saying. That said, I beg leave to withdraw my amendment.

Amendment 165DA withdrawn.

Amendment 165E not moved.

Amendments 166 and 167

Moved by Lord Sassoon

166: Clause 14, page 64, line 25, leave out from “State)” to end of line 26 and insert—

“(a) in subsection (1), for “competent authority”, in the second and third places, substitute “FCA”, and

(b) in subsection (3A), for “competent authority” substitute “FCA”.”

167: Clause 14, page 64, line 32, after ““other”” insert—

“( ) in subsection (1A), for “competent authority”, in the first place, substitute “FCA”.”

Amendments 166 and 167 agreed.

Amendments 167A to 167D not moved.

Clause 14, as amended, agreed.

Amendment 167E not moved.

Clause 15 agreed.

Clause 16 : Listing rules: disciplinary powers in relation to sponsors

Amendments 168 to 170ZA not moved.

Clause 16 agreed.

Clause 17 : Primary information providers

Amendments 170A to 173 not moved.

Clause 17 agreed.

Clauses 18 to 20 agreed.

Schedule 6 agreed.

8 Oct 2012 : Column 874

Clause 21 : Proceedings before Tribunal

Amendment 173ZA

Moved by Lord Flight

173ZA: Clause 21, page 77, line 36, leave out paragraphs (a) to (c)

Lord Flight: My Lords, it is widely known that there are some concerns within the industry that in a more interventionist and judgment-based regulatory environment, the ability to challenge the regulators’ decisions should be strengthened rather than weakened. My amendments in this group essentially seek to retain the current provisions. I am obviously aware that the Government’s Amendments 184 and 185 go a long way to alleviate the underlying concerns here. Under them, the regulator will be obliged to issue another decision notice, not a final notice, when the tribunal gives a direction to the regulator to reconsider a non-disciplinary case.

However, if I have understood it correctly, the Government’s amendments enable the tribunal to substitute its opinion only in disciplinary cases and not in judgment-led decisions. I am not clear why judgment-led decisions should not be included, because they are the most sensitive and perhaps the most appropriate for further consideration. I look forward to hearing the Government’s case for tabling amendments on this issue. I beg to move.

Lord Sassoon: My Lords, I am happy to speak next. In doing so, I will first need to go through the analysis of my noble friend’s amendments and the effect of the Government’s amendments in the group. I invite the noble Baroness to break in at any stage if it would help her.

The starting point is that the experience of the last few years has shown that we do not want a regulator with broad responsibilities that is too much focused on narrowly policing compliance with rules. We are still dealing with the consequences of that approach. The reforms, in particular those in this clause, are about giving the new regulators the right focus and mandate. They are also about judgment, and empowering the regulators to use their knowledge, experience and expertise to take difficult decisions, often on a proactive and preventive basis. The changes to the arrangements for appealing firm-specific decisions set out in Clause 21 play a key role in making this happen.

I will be clear about what our changes will mean. Clause 21 carries forward the rights of those who are dissatisfied with a firm-specific decision of the FCA or PRA to refer the matter to the tribunal, and preserves the ability of the tribunal to reconsider the matter afresh on a full-merits basis. There have been no changes to the grounds on which the tribunal will consider references. It will continue to consider references on a full-merits basis. In addition, for disciplinary matters or references under Section 393 of FiSMA that relate to third-party rights, the ability of the tribunal to substitute its opinion for that of the regulator remains unchanged.

8 Oct 2012 : Column 875

What has changed is the nature of the directions that the tribunal will be able to give in the case of references that do not fall into the above category. In these cases, where the tribunal decides not to uphold a decision, it will not be able to substitute its decision for that of the regulator. Instead, it will be required to remit the decision back to the regulator, giving directions that it considers appropriate. The directions will be limited to findings relating to matters of fact or law that should or should not be considered by the regulator, and whether or not there were any procedural deficiencies. This is an important part of the move to judgment-led regulation, which recognises that it is the regulator’s job to take regulatory decisions, while providing a mechanism for judicial scrutiny of the fairness of those decisions.

I have already set out why the Government attach significant importance to the new arrangements for appealing non-disciplinary decisions. However, we must also ensure that we provide a fair regime for firms, and give certainty and clarity around procedures. That is what government Amendments 184 and 185 seek to do. Where a non-disciplinary reference is made, the tribunal remits the matter to the regulator. The regulator must then reconsider the matter in accordance with the tribunal’s directions. These amendments seek to provide clarity about what happens next. They require the regulator to issue a second decision notice rather than moving straight to a final notice, as would be the case under the Bill as drafted. Once a final notice has been issued, the firm’s or individual’s options for further challenge are strictly limited. A final notice can be appealed to the High Court only by way of a judicial review, on more limited grounds and at the risk of higher costs and lengthier delay.

Amendments 184 and 185 would require the relevant regulator to issue a second decision notice in all such cases once it has considered the tribunal’s direction and reached a new decision in accordance with the tribunal’s findings. This means that the firm or individual could challenge the second notice, for example if they do not think that the regulator has properly considered the tribunal’s direction in reaching its new decisions. There will be a second hearing before the tribunal, which will be able to consider the full merits of the matter and deal with the case more speedily and, because it will already be familiar with the case, at lesser cost to the firm and the regulator.

The amendments will increase fairness for firms and substantially strengthen the new arrangements. I hope that I have done enough to convince my noble friend. I think he already recognises that the government amendments go a considerable way toward allaying his concerns. Having heard the further explanation of how the process is intended to operate, I hope that he will feel able to withdraw his amendment.

Lord Flight: My Lords, I thank the Minister for his explanation of a rather complicated territory. Certainly I think it is as much as we are likely to get here. There is still a slight question in my mind about whether tribunals should be able to overrule judgment-led decisions. However, it seems that a reasonably fair system has been set out for members of the industry. I beg leave to withdraw the amendment.

8 Oct 2012 : Column 876

Amendment 173ZA withdrawn.

Clause 21 agreed.

Clause 22 : Rules and guidance

Amendment 173A not moved.

Amendment 173ZAA

Moved by Lord Sassoon

173ZAA: Clause 22, page 78, line 37, after “directives” insert “or the emission allowance auctioning regulation”

Amendment 173ZAA agreed.

Amendment 173ZAB

Moved by Lord Sharkey

173ZAB: Clause 22, page 79, leave out lines 1 to 29 and insert—

“137B FCA general rules: clients’ money, right to rescind etc.

(1) Rules relating to the handling of money received or held by an authorised person in specified circumstances (“clients’ money”) may—

(a) make provision which results in that clients’ money being held on trust in accordance with the rules;

(b) treat two or more accounts as a single account for specified purposes (which may include the distribution of money held in the accounts);

(c) authorise the retention by the authorised person of interest accruing on the clients’ money; and

(d) make provision as to the distribution of such interest which is not to be retained by the authorised person.

(2) An institution with which an account is kept in pursuance of rules relating to the handling of clients’ money does not incur any liability as constructive trustee if money is wrongfully paid from the account, unless the institution permits the payment—

(a) with knowledge that it is wrongful; or

(b) having deliberately failed to make enquiries in circumstances in which a reasonable and honest person would have done so.

(3) In the application of subsection (1) to Scotland, the reference to money being held on trust is to be read as a reference to its being held as agent for the person who is entitled to call for it to be paid over to him or to be paid on his direction or to have it otherwise credited to him.

(4) Rules may—

(a) confer rights on persons to rescind agreements with, or withdraw offers to, authorised persons within a specified period; and

(b) make provision, in respect of authorised persons and persons exercising those rights, for the restitution of property and the making or recovery of payments where those rights are exercised.

(5) “Rules” means general rules of the FCA.

(6) “Specified” means specified in the rules.”

Lord Sharkey: My Lords, Section 55 of the Financial Services Act 1986 provided that the regulator may make regulations with respect to money that authorised persons of any descriptionhold in such circumstances as are specified in the regulations. This was augmented by the EU investment services directive which in 1996 required the UK to,

“make adequate arrangements especially in the event of the investment firm’s insolvency”,

8 Oct 2012 : Column 877

and most recently by the European Market Infrastructure Regulation as well. The power of the regulator to make rules under Section 139 of FiSMA has been hotly debated and contested in the courts. Many hundreds of thousands—probably millions—of pounds have been expended in legal and administrators’ fees in determining the scope and application of the rules when an authorised firm becomes insolvent.

In addition to that of Lehman Brothers International (Europe), the credit crunch resulted in a number of failures where client money rules continued to be at the centre of identifying and returning to clients’ money held for them by an authorised firm, bank, clearing house or intermediate broker to whom the money had been paid on behalf of the clients. One important and complicating factor in trying to resolve the proper and speedy return of cash lies in the arguably different status of cash held and cash received. The Supreme Court has ruled that the protection of clients’ money extends to money received by the firm and not just money held in client money bank accounts. We are therefore proposing in Amendment 173ZAB that the power to make rules includes the power to make rules relating to the handling of money received by the firm as well as that held by the firm.

In addition, the Bill appears to delete specific provision in relation to the application of these rules in Scotland. I ask the Minister to confirm that, in proposing the deletion of Section 139(3) of FiSMA, relating to the position of the statutory trust in Scotland, they have taken appropriate Scots law advice and in particular to confirm that the proposed change would not give those contracting under Scots law—for example, under most agreements with the Royal Bank of Scotland—a different outcome in relation to the receiving and holding of client money than would be obtained by those contracting under English law. I beg to move.

6.30 pm

Baroness Kramer: My Lords, I will speak to Amendment 173AAZA in this group and I will be brief. Your Lordships will recognise that this amendment is part of the family of amendments that we on these Benches have moved. Amendment 173AAZA addresses the issue of social enterprise. It gives the FCA the power to make general rules for social enterprises to advance the consumer protection objective and the competition objective, and for services to small and medium-sized businesses, to defined groups within the more deprived economic and social environment and for environmental purposes.

It is the contention on these Benches and through much of this House that the current organisations that provide financial services fail to meet the needs of important communities, especially small and micro-businesses and deprived communities, and very often they certainly do not provide the necessary financial services to environmentally-oriented projects. Part of the barrier to the entry of new organisations that could meet those financial needs is the approach of the regulator which is very much a one-size fits all approach. Throughout this Bill we have been calling for the regulator to have the power to deliver appropriate

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regulation. This amendment addresses those issues particularly around social enterprises and other organisations with a social objective.

We recognise that the Government are somewhat sympathetic to the issues that we have raised. This is a probing amendment but also a reminder that although we went away for the summer we have not dropped, and will not be neglecting, these issues as this Bill proceeds to its end.

Lord Flight: My Lords, three different sets of amendments that I have tabled are grouped together here and they cover rather different territories. I will be as organised as I can in presenting them.

Amendment 173AA is about fair process for product intervention powers. I understand, and have a deal of support for, the regulator being able to ban promptly products that are clearly undesirable. However, if additional product intervention powers are put in place, there ought to be legislative safeguards to ensure that the powers are used as a last resort and not regularly. Amendment 173AA seeks to put in place safeguards for the use of product intervention powers, such as those set out in the EU markets in financial instruments directive.

Many noble Lords may have noted that Martin Wheatley, the designate head of the FSA, had made statements about shooting first and asking questions later and had perhaps over-made his point. One of the issues I want to speak about on Report regarding the new regulatory order is that I have encountered reluctance by the industry to raise criticisms with the regulator for fear of unpleasant reciprocal action. I fear we are slightly swinging from an era where regulation was very lax to one in which there may not be enough open debate between the regulator and the industry.

My Amendments 173ACA to 173AE seek to remove the requirement to publish details of directions prior to the conclusion of the representation process. There is an analogous issue that will come up in due course with regard to warning notices. In a world where anything published is a label of guilt, I am inherently opposed to the publication of notices before there has been fair representation and a fair judicial process.

My Amendment 173AF covers slightly different territory. The Bill already gives the FCA the right to introduce rules without consultation where it would be considered that a delay would be prejudicial to the interest of consumers. This additional power, which my amendment seeks to block, is unnecessary and provides the FCA with excessive powers without appropriate checks and balances.

Amendment 173AG raises the issue that very little detail is included about what should be covered by the statement of policy. It would be better if the statement of policy were clear and transparent, particularly if there is no consultation on the specific use of the powers. Finally, the statement of policy should be used for production intervention powers generally.

I cannot find the appropriate notes. Amendments 187RA and 173AAC both cover completely different territory. As noble Lords will be aware, financial advisers are the only category of people who do not have protection from the statute of limitations for a period

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beyond 15 years. In practice, this means that if there are any outstanding issues when a financial adviser retires, there is no closure. There are many such situations. Sometimes issues may be with the ombudsman or the regulator from way back and there is no indication whether any action will be taken. This is a messy situation and it is ultimately unfair to financial advisers, and not helpful to clients, as it stops financial advisers being able to hand on or sell their businesses to others in the industry. I can see no really fair justification why financial advisers should not enjoy the same protection as those in other industries. I may add something further after the Minister’s response.

Baroness Hayter of Kentish Town: My Lords, I am sorry that we do not have the other amendments in order to be able to have a long discussion about “may” and “must”, but such are the events of the evening.

There are two major areas of concern for us in this set of amendments, and I am afraid that they are found in the amendments tabled by the noble Lord, Lord Flight. Unsurprisingly, one involves the so-called toxic products powers, and the other financial promotions. We have already congratulated the Government on their initiatives in this Bill on both of these issues, so it will come as no surprise that we would not support any weakening of their well chosen tools. Product intervention powers are absolutely key. They will allow the FCA to take prompt action to prohibit the sale of a particular product or to counter a product feature either on a temporary or permanent basis. There has been widespread mis-selling of endowment mortgages, PPI, interest-only mortgages and self certified mortgages; we all know the list. It demonstrates that the FSA failed to act swiftly enough to prevent widespread consumer detriment. It is highly unlikely, despite some of the lobbying that I know we have been receiving, that the retail distribution review would have had an effect on any of those, and nor indeed the TCF initiative. After all, treating customers fairly was always a part of FiSMA.

Product intervention needs to be seen as more than just a decision on whether to ban a particular product. It can also be used to control the way banks vary the terms or other specifics. Many products are not in themselves toxic. Even PPI was a very good product for a certain group of people, as were interest-only mortgages. The issue arose over the way they were sold—their packaging and their terms. That is what made them toxic. We would not want to see any weakening of what the Government have already put in the Bill.

With regard to the new and, I think, long overdue powers on financial promotion, these will allow the FCA to publish details about misleading adverts once they have forced their withdrawal. It seems extraordinary that that is not already the case. Surely if an advert is found to be misleading, every consumer who might have seen it or been influenced by it should know that it was not all that it sounded. Making public the findings on financial advertisements will also encourage other consumers to report anything that they think is a little suspicious. The power to publish will provide a real incentive for firms to improve standards and, I think, to be wary of allowing their marketing departments

8 Oct 2012 : Column 880

to push the boundaries. Research by


shows that many adverts for financial products have been in breach of consumer law. The organisation asked consumers about this, and two-thirds responded saying that they want the financial regulator to be proactive in taking misleading financial adverts off the market. We know some of the numbers in this area.


asked the FSA how many adverts it had removed. In 2010 the authority removed 262 misleading adverts, and last year it removed 327, which is almost one for every working day. However, we do not know what the adverts were because no details are available to us as consumers. So the fact that in future the FCA will be able not just to take action but to publicise it is a power that we welcome. We would not want to see it diminished in any way.

We are sympathetic to the quite different amendments spoken to by the noble Lord, Lord Sharkey, and the noble Baroness, Lady Kramer, and again we look forward to the Minister’s response.

6.45 pm

Lord Sassoon: My Lords, I shall start with Amendment 173ZAB. We are talking about new Section 137B which provides for FCA rules about the handling of clients’ money and related matters. It will replace existing Section 139 of FiSMA which is entitled, somewhat enigmatically, “Miscellaneous ancillary matters”, which does not really do it justice. However, as my noble friends have identified, it does not exactly reproduce Section 139. Their amendment would ensure that it tracks Section 139 in every respect by reinserting one subsection which, as my noble friend explained, relates to how references to money held on trust are to be construed in Scotland. Following consultation with the Scottish Law Commission, we reached the view that the relevant law in Scotland was sufficiently similar to the rest of the UK that it was neither necessary nor desirable to make different provision for Scotland in this way. I can reassure my noble friend that the recent Supreme Court judgment on Lehman Brothers also supports the view that a firm in Scotland which receives and holds a client’s money is obliged to hold that money in a way which preserves it for the client’s benefit as a trustee. This confirms that the approach taken in England, Wales and Northern Ireland is also correct for Scotland and that it is unnecessary to carry forward Section 139(3). I am happy to confirm that.

I turn now to social enterprise rules and Amendment 173AAZA, which seeks to give the FCA a new power to make social enterprise rules. I was of course delighted that my noble friend reminded us that social enterprises have not gone away over the summer break. I could leave it at that but I should probably do slightly more justice to this, although what I say will be entirely consistent with where I was before the break. We discussed in some detail the role that the FCA should or should not play in relation to social investment and enterprise and I will not repeat the whole of that debate. For the purposes of this amendment, I simply wish to put on record that where those running a social enterprise are carrying out a regulated activity, they will need to be authorised and will therefore be regulated by the FCA and will be subject to the rules that the FCA makes.

8 Oct 2012 : Column 881

The drafting of the FCA’s objectives as well as new Section 137R make clear that the FCA should distinguish between different types of authorised persons and their consumers. There is therefore no need for a bespoke power. Specific rule-making powers in Clause 22 exist only where such rules go beyond the general rule-making power—for example, because they extend to unauthorised persons or affect third party rights. I would suggest that that is plainly not the case here.

On product intervention, I turn first to the group of amendments that seek to amend the FCA’s new product intervention power. This new power provides the FCA with a clear mandate from Parliament and the right tools to support a new and more proactive approach to consumer protection with greater regulatory scrutiny of the products themselves. I am grateful to the noble Baroness for her recognition of and support for the importance of the new rules in this area.

Amendment 173AA would restrict the circumstances in which the FCA may make product intervention rules. I should like to reassure my noble friend that to a large extent the Bill already requires the FCA to exercise the power in the way intended in the amendment. To be clear, however, there is one respect in which I do not sympathise with the amendment; namely, proposed new subsection (11)(a). This seeks to raise the threshold for intervention to where a product or practice,

“gives rise to significant investor protection concerns or poses a serious threat”,

to market integrity or financial stability. The amendment would prevent the FCA intervening to advance its competition objective in relation, for example, to high exit fees which, I am sure my noble friend would agree, have a negative impact on switching. The Government believe that this is an important feature that we want to see in the marketplace. The power would therefore become an exclusively negative rather than a positive tool. That would represent a significant step back in terms of consumer protection and is why I cannot support my noble friend’s amendment.

Amendment 173AF deletes the option for the FCA to make temporary product intervention rules. It is correct that the FCA’s rule-making power is very broad. The new power puts beyond doubt that the FCA has a mandate in this area. It also introduces a safeguard as temporary rules expire after 12 months plus breach of a ban can render a contract unenforceable. The default will be that any product intervention rules are made under the normal rule-making procedure, with prior cost-benefit analysis and public consultation. However, given the speed with which a new product can gain traction in the market, and the fact that the FCA cost-benefit analysis and consultation take a minimum of six months, we think it is important that, specifically for product intervention rules, the FCA has the option to intervene more swiftly albeit with the limitation that I have just outlined.

I turn to Amendments 173AG and 173AH on the FCA’s statements of policy under this power. The purpose of the statement of policy is to provide industry and consumers with clarity around the circumstances in which the FCA will make temporary product intervention rules in the absence of prior consultation.

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The FSA has published a draft of the statement on its website and noble Lords will see that it sets out the factors that the FCA will take into account before and the process it will go through. Linking the statement to the temporary rule-making power does not, of course, preclude the FCA from publishing information about its general approach to product intervention. Indeed, the FSA has already published a discussion paper and a policy statement on this topic.

However, the link we have here is consistent with the wider approach taken in FiSMA and in the Bill that policy statements are required only where there is a very specific need to provide further guidance on how the regulator will exercise a power or function; for example, the power to impose penalties. Therefore, out of the very many policy statements that the FCA and the FSA have and will have, only 10 policy statements are required by FiSMA, as amended by the Bill, principally relating to enforcement and imposition of penalties. In this instance, the need for guidance does not extend to the general product intervention power as the process for making such rules is set out in the Bill itself so the statement is deliberately limited to the temporary power because of the very particular effect that a temporary power will have through the short cut to making it. Finally, while I can reassure my noble friend that I expect the FCA’s statement of policy to cover the main points in Amendment 173AH, I do not believe it appropriate to specify this much detail in the Bill.

I turn to the group of amendments that start with Amendment 173AAC relating to the issue of a longstop requirement for complaints about financial services. When the FSA last looked at the issue in 2007, it said that to introduce a time bar, it would need to be clear that the potential detriment to consumers was outweighed by the benefits to consumers and firms arising from greater certainly among independent financial advisers about the extent of their liabilities. It is this cost benefit analysis that needs to be addressed. The FSA said in its published response of 5 November 2011 to the Treasury Committee’s retail distribution review report that,

“the FSA believes the FCA should review this issue again at some point in the future”.

I certainly believe it is important that the expert regulator looks at this issue and undertakes the necessary consultation with consumers and firms. I am grateful to my noble friend for this amendment because it has prompted me to look back at the rather unspecific commitment that the FSA gave to the Treasury Committee. As a consequence of my noble friend’s prompting, I followed up on the point with the FSA and it has made a commitment that the FCA will consider whether to investigate the case for a long stop as part of its business planning for 2014-15. The timing of that is linked to the settling down of the RDR. Therefore, I am grateful to him for prompting this and I would encourage industry and consumer groups to continue a dialogue with the FSA on this topic.

I turn to the Amendments starting with 173ACA on the new power to make rules concerning financial promotions. I cannot agree with Amendments 173AC and 173ACA. Financial promotions can have an

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immediate detrimental impact if consumers act on them. Quick and decisive action is therefore needed on the part of the regulator and we must empower the regulator to use its judgment to make a call on a promotion. It may be too late once the promotion has been made or while the regulator undertakes further investigation. This is why the power applies both where it is clear that rules have been breached, and where in the view of the regulator this is likely to be the case, and enables the regulator to prevent a promotion from being made. To provide the most obvious example of why “likely to” is required, the FCA needs to be able to require a firm not to circulate a promotion where it becomes aware of a promotion before it is actually circulated and the FCA is of the view that it is likely to breach financial promotion rules if circulated.

Finally, I turn to Amendments 173AD and 173AE, which seek to change the disclosure obligations attached to this power. Amendment 173AD seeks to change the duty on the FCA to publish information about a direction it has given to a power to do so. Amendment 173AE seeks to block the FCA from publishing information where a direction has been revoked. The fundamental shortcoming of the current financial promotions regime is that in most cases the FSA is not able to publish the fact that it has asked a firm to withdraw a misleading promotion. The power—which I am grateful to the noble Baroness for giving her support to—is designed to address the deficiency by giving the FCA a broad requirement, including a requirement to publish such information about the matter as it considers appropriate.

The Government believe it is important that the FCA should disclose what it has found for a number of reasons: it will help consumers, as they will be able to see what the regulator did and why; and, importantly, it will also increase the accountability of the regulator, as it will have to outline its thinking and set out where it has or has not taken action. The importance of the regulator both taking effective action and being seen to be taking effective action in this area is vital.

However, I accept that there may be circumstances when it is not necessary or appropriate to publish the information about a direction. Therefore we will look again at subsection (11) and consider carefully whether we should change the provisions relating to disclosure from a duty to a power. We will return to this issue on Report. On the basis of those reassurances and explanations I hope that my noble friend Lord Sharkey will feel able to withdraw his amendment.

Lord Sharkey: I am grateful to the Minister for confirming the Scottish situation. However, I am not entirely sure whether I am correct in understanding him to say that there is now no need to add explicitly cash received to cash held in Amendment 137B. On the assumption that that is the case—I can see that he is nodding to say that it is—I am happy to withdraw the amendment.

7 pm

Lord Flight: My Lords, I congratulate the Minister on embracing such a broad range of issues, which have been grouped together here. I would like to add only

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the following. I am pleased to hear what he had to say about the publication of directions relating to promotions, which was really the main point of my amendment. Regarding the issue of the Limitation Act and the 15-year longstop, I am also very pleased to hear that the Minister is focusing on this. As things stand, RDR is likely to result in many thousands of financial advisers ceasing to be in business, with other major problems that can be dealt with at another time in another place. It will be a much bigger issue than it is at present in terms of all these people who are, if you like, retiring and going out of business, and it seems fundamentally equitable that the general law of limitations should apply to all transactions without any special treatment for financial services claims or ombudsmen’s complaints. I wonder whether the judiciary should be advising about this, at least as well as the regulator.

The general issue of promotions will be an interesting double-edged sword for the regulator. I am a commissioner of the regulator that was the first to ban split-level investment trusts at a time when I think the regulator over here was rather slow in being aware of the problems and issues. The very full powers given to the FCA will put it in the limelight to get there in good time and do it right. As I said at the outset, I am certainly not opposed to the power. There has been an obvious need to be able to deal with “wrong” products quickly and effectively. I am still slightly concerned that the framework of the FCA using those powers is pretty broad and I suspect that the FCA itself may want to have a more defined framework for fear of criticism.

Those are the main thoughts behind my amendments in that area. I thank the Minister for his response, which essentially satisfied the points I raised.

Lord Sharkey: I beg leave to withdraw the amendment.

Amendment 173ZAB withdrawn.

Amendments 173AA and 173AAZA not moved.

Amendment 173AAA

Moved by Lord Sassoon

173AAA: Clause 22, page 81, line 44, after “directives” insert “or the emission allowance auctioning regulation”

Amendment 173AAA agreed.

Amendment 173AAB

Moved by Lord Davies of Oldham

173AAB: Clause 22, page 82, line 10, at end insert—

“( ) provide for a requirement that an employee representative should be a member of the remuneration committee of a relevant body corporate; and

( ) provide for a requirement that the remuneration consultants advising on remuneration policy shall be appointed by the shareholders of a relevant body corporate.”

Lord Davies of Oldham: My Lords, this amendment raises issues of enormous significance in this Bill and of course with regard to financial services generally.

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The whole nation is all too aware of the need for effective action on the remuneration of directors of companies.

In 1980, the median pay of the highest paid directors in FTSE 100 companies was £63,000; by 2010 it was £3 million. In 1980, the median wages were £5,400; in 2010, £25,900. In other words, the ratio of directors’ to employees’ median pay rose over the 30-year period from just 11 times to 110 times. That cannot be justified by any concept of performance of the companies. The same thing, of course, happened elsewhere. It is not just the United Kingdom. Almost the same figures are to be seen in the United States over that period.

Of course, it is not as if the crisis that we have gone through in the past five years has enormously changed things. In the past two years we have gone through a double-dip recession. We have seen FTSE share prices stagnating. We have seen significant public sector cuts and rising unemployment. The increase in pay for FTSE 100 chief executives in this period has been 12%, lower than in some years in the past, but how on earth can one justify these increases against an economy that is underperforming and companies that are inevitably reflecting such poor returns?

It would be remiss if this Bill did not quite specifically address the issue of directors’ pay. One important dimension of this is contained in the first part of this amendment; namely that,

“an employee representative should be a member of the remuneration committee”.

I am not holding out any great hopes that one individual on any remuneration committee is going to work wonders, but I am saying that it would force the remuneration committee, and directors, to take recognition of the absurdities of the past three decades and get things back into some proper balance between achievement and remuneration.

The second point of the amendment is also fairly clear. This situation has developed partly because the remuneration committees are not only hopelessly unrepresentative of the company, they are unrepresentative of anything or anyone except those who are benefiting from these high rates of pay. Consequently, there is an inevitable dynamic to build lavishly on the past. I do not excuse the public sector from this. We have seen it in the public sector, with similar increases in the relationship between chief executives of local authorities and the median pay of their workers—not in the same proportions as in industry and finance but nevertheless significant and unjustifiably so. You see the same factors at work; namely, that the remuneration committee is not significantly representative, and that the remuneration committee says, “Of course, in order that the reputation of our organisation should be enhanced or at least match a comparable organisation, we have to show that we pay our chief executive significant sums”.

We have got to get a grip on this situation. This Bill provides for remuneration to be considered. This amendment makes quite explicit two bases on which the Bill could be significantly and precisely amended to improve things. I beg to move.

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Lord Davies of Stamford: My Lords, my noble friend and namesake has put forward a most valuable amendment, and I support it.

I have a long-standing interest in the subject—no longer a financial interest but in the past I have served on the boards of both financial and non-financial companies and institutions. Until I joined the Government I was chairman of the remuneration committee of the largest building and concessions group in the world, Vinci, which had then more than 150,000 employees and €30 billion in turnover. I was therefore in a fairly prominent position with regard to remuneration decisions.

I have no financial interests at all now in industry or business but I still have a great continuing intellectual interest in this subject and a very pressing policy interest, for exactly the reason that my noble friend has set out. The excesses of remuneration that we have seen over the past few years, both in this country and elsewhere in the EU and the US, have contributed greatly to the malaise we currently face, and of course a great many of the worst abuses—although not all—have arisen in the financial services sector.

That situation is not good for the future effective performance of a capitalist market economy, and it is certainly not conducive to a happy society. This is an important and pressing problem. My noble friend has obviously given this matter a great deal of thought, and has come up with two excellent suggestions to deal with it, although he himself said that no one solution—let alone a purely legislative solution—will solve the whole problem.

I deal in turn with the two proposals he has put forward, first in relation to employee representatives on the remuneration committee. Vinci, a multinational, is a French company, and we therefore had the benefit of two employee representatives on the main board. I have become a considerable supporter of that system. I made a proposal in the formal consultation that the Government launched a few months ago on corporate governance. Nothing much seems to have happened to it, unfortunately. I wrote to the Minister and spoke in this House, suggesting that we should incorporate the same provision in this country’s company law in future. When I was chairman of the Vinci remuneration committee, I explored the possibility of putting one of those two employee representatives on our board, on our remuneration committee. I discovered, however, and I think my noble friend may find this helpful, that the individual concerned had a certain personal reluctance to do that. I think he felt that he would spend all his time with his workmates defending any level of executive remuneration, which was bound to be much greater than that of his workmates, and that his life, job and role would be rather blighted as a result. So the right solution may be to introduce an element of compulsion. It is not a magical solution, but it can only be helpful.

My noble friend’s second proposal is even more important. He raises the issue of remuneration consultants. I do not think there has been anything like enough attention paid to the role of remuneration consultants. I have not seen any articles in the financial press or otherwise about the role of remuneration consultants. As far as I know, the matter has never been raised in this House and it is time that it was. Every major

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public company will have remuneration consultants reporting to the remuneration committee, and we had that in Vinci. However their influence was quite nefarious in many cases. The reason for appointing them was often simply to protect the remuneration committees or the boards from criticism. People often hire executive search consultants for similar reasons. It is not merely for the value that they add, although they do add a lot of value in certain cases. It also protects the boards against any accusation of cronyism or nepotism. In the same way, companies automatically take on remuneration consultants, which is a valuable business for them.

The only remuneration consultants I have ever come across are subsidiaries, either of executive recruitment firms or of accountancy partnerships or firms. They have almost a universal franchise now. Everybody feels they have to hire them. In practice the way they work is very dubious. They carry out for their clients a survey of the executive remuneration in comparable companies of a comparable size in a comparable sector, and then present it to the remuneration committee with a proposal for a level of increase for the senior executives for which the remuneration committee has a responsibility.

Let us say that the average increase is 10%, just to have easy figures to deal with, and they say, “We think 10% is appropriate”. However, remuneration consultants like to flatter their clients, in which case they add one or two points on top of that. The board, particularly the remuneration committee, may feel proud of their firm, and feel attached to their chief executive. They will want to encourage him and not humiliate him. So they will probably say, “Okay, we’ll give him 13%”. That will be good in relation to competition. They will be saying to the public that they think they have the best chief executive, the best finance director, and the best senior executives. That is fine. The decision is taken. Everybody feels protected and covered by the fact that they have had professional advice from professional remuneration consultants. The next week, the remuneration consultants go on to their next client, and they say “The latest figure is actually 13%, so you may want to start with that figure as your basis”.

I would not be talking about recruitment consultants in the House of Lords without having a lot of experience of the subject or having thought carefully about it. These remuneration consultants do amount to a kind of engine of inflation of remuneration of senior executives. The sooner we face up to that the better.

If we face up to it, what do we do about it? My noble friend has come up with the solution that the remuneration consultant should be responsible to the shareholders, rather than the board. Again, it very much depends on how that is interpreted, how it works in particular cases. There is no solution and no magic wand and I know my noble friend would be the first to say that. However, if we want to change the culture—I think we need to do so—this is a good and sensible way forward.

There has been no collusion at all between myself and my noble friend on this matter. I had no idea he was going to put down this amendment until I saw the Marshalled List today. However, I do think it has been particularly well-conceived and is particularly pertinent,

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whether or not it is accepted immediately by the noble Lord, Lord Sassoon. The noble Lord, Lord Sassoon, never seems to accept proposals put forward on any Bill that I have seen him taking through, although he is a very competent Minister, but he seems to be very embattled whenever anybody makes a suggestion for improvement. Whether the Government are prepared to accept that today or not, I do hope that my noble friend’s initiative will start a debate on this subject and cause a lot of thought to be put into this subject, and action to be taken on this matter, which seems to be very necessary.

7.15 pm

Baroness Noakes: My Lords, I do not like to disappoint the noble Lord, Lord Davies, but this is not the first time that recruitment consultants have been debated in your Lordships’ House. I recall more than one occasion when we had a discussion of the role of recruitment consultants in the levels of pay within the financial sector and more generally, but before the noble Lord joined your Lordships’ House. It is a subject which has previously arisen and I am sure that if the noble Lord searches Hansard he will find earlier debates.

Lord Davies of Stamford: My Lords, I daresay I stand corrected. I am delighted to hear that I was wrong in that respect.

Baroness Noakes: More broadly, I think everybody accepts that executive pay has some problems attached to it. I do not wish to dismiss the amendments of the noble Lord, Lord Davies of Oldham, out of hand, although it will not surprise him to find that I do not support his amendments. I do not support them because they come close to interfering in the corporate governance model, which broadly serves the UK extremely well. The corporate governance model has boards which are responsible for making decisions, and these boards have committees of boards, including remuneration committees, which are responsible to those boards. To insert somebody who is not a board member outwith the context of having employee representatives on the board starts to change that dynamic. Similarly, if you have remuneration consultants who should be reporting independently to the remuneration committee being appointed by the shareholders, it is difficult to see what the relationship then is to the board and the board’s committees. There are a lot of problems in the solutions that have come up.

Remuneration is under huge scrutiny. There have been proposals from BIS in the last few years, and the regulatory ratchet has been increased with greater intensity. The involvement of the FSA, for example, in banking and other financial institution regulations, is not minor, and equally with regulators in other parts of the world. So we may have a problem which almost certainly will not be addressed by the amendments before us and which already has a lot of moving parts.

Lord Davies of Stamford: I am most grateful to the noble Baroness for giving way a second time. I wanted to rise to agree with her. She is absolutely right.

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You should never put on a remuneration committee someone who is not a member of the board. The remuneration committee must be a sub-committee of the board, and it was in the context of employee representatives being fully members of the board in every possible sense, that I put forward my suggestion.

Baroness Noakes: I am pleased to see that we are in agreement. Finally, I was concerned whether or not the noble Lord, Lord Davies of Oldham, thought that his amendment meant that all listed companies would be dealt with by the PRA and the FCA, because I do not think they have powers to deal with other than those bodies that are within the regulatory net, so it would only cover a relatively small proportion of his target.

Lord Sassoon: My Lords, my noble friend has made the first point that I would make. The noble Lords, Lord Davies of Oldham and Lord Davies of Stamford, talked as if we were debating provisions that related to all listed companies, but my noble friend is completely right that this section does not apply to great global companies such as Vinci and others. Although it relates to an important group of companies, it is related essentially to authorised persons.

The Bill allows regulators to make rules regarding the role of employees in relation to remuneration committees and, in theory, the requirement that remuneration consultants be appointed by shareholders if they think that such rules would advance their objectives. However, I accept that, in practice, it is uncertain that that test would be met, particularly in the latter instance. In any case, other appropriate processes are already in place to consider these questions in the context of wider corporate governance reform—which, again, is precisely the point that my noble friend makes. This is a wider series of issues.

It is important to be reminded that, in January this year, the Department for Business published its response to its consultation on executive remuneration, which considered among others, the possibility of giving employees a say on remuneration. Although I do not want to be drawn into a wider debate—we should focus on financial services—the consultation responses nevertheless illuminate what would be appropriate or, as I would say, inappropriate for financial services businesses alone.

The Government’s view is that, while there will be qualified and enthusiastic employees willing to take on such a role, there are strong arguments against this proposal, including—on this I agree with the noble Lord, Lord Davies of Stamford—that members of the remuneration committee need to be full board members if they are to understand the overall financial strategy and the wider business and economic context which impact on remuneration policy; that introducing external representatives on a single committee risks obscuring directors’ collective responsibility, as well as potentially creating additional tensions, which might reduce the effectiveness of the UK unitary board model; and that the level of responsibility of employee representatives and the possible conflicts of interest they might face would need to be resolved.

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As a result of the BIS consultation on executive pay, the Government have decided to proceed with some key reforms, such as the introduction of a binding shareholder vote on remuneration, but the case for requiring companies to include employees on remuneration committees has not been made, and the Government are certainly not going to make or accept it in the narrower context that we are discussing today.

Lord Flight: When I sat on the remuneration committee of a financial services business, we already received substantial directions from the FSA as to what we were supposed to do, what we should do, how much we could put up pay and all sorts of things. I find it somewhat strange, but the direction is there and functioning already.

Lord Sassoon: Again, my noble friend is ahead of me and I shall not make that point—I am addressing some very narrow and specific matters—but he is completely right that we could debate whether the interventions already being made are appropriate. He may say that that they are excessive; I would say, “Well, that is for the FSA and there are important issues”. But, yes, the FSA is very active in this area, specifically on remuneration consultants.

The suggestion that remuneration consultants be appointed by shareholders was looked at in the consultation but it was not widely supported. I am sorry that the noble Lord, Lord Davies of Stamford, did not spot it, but the proposal has been the subject not only of debate in this House in the past but of the recent consultation. It was not widely supported because of the costs associated with the appointment process and issues to be resolved about the remit and the flexibility of the proposal to accommodate new work. The benefits of the requirement would be uncertain.

However, a majority of respondents to the consultation said that more transparency over the use of remuneration consultants would be beneficial. Suggestions of areas for more transparency included appointment processes, advice provided, fees paid and management of conflicts of interests. The Department for Business is looking at ways in which it can improve transparency in the use of remuneration consultants by companies.

I am grateful to the noble Lord for raising these important issues, which are being taken forward in a wider context. The FCA will have all the powers that it needs to act in this area, as it does already—and as my noble friend pointed out—the FSA. I hope that, on the basis of that information, the noble Lord will feel able to withdraw his amendment.

Lord Davies of Oldham: Of course I shall withdraw the amendment, but not because the noble Lord, Lord Flight, has persuaded me that the FSA has been so much a busybody, so interfering and so effective that remuneration has never been an issue in the financial services. That argument runs counter to the facts on remuneration on which the nation as a whole has a firm grip.

I of course accept the chiding of the noble Baroness, Lady Noakes, that the Bill concerns only the financial services sector. I also hear from the Minister that it is

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extremely dangerous to take the first step because you might then stumble into the second step, and I am not sure that the Government are that committed to any significant strides forward on that at the present time. However, if the Minister is able to assure me that the development of ideas in the Department for Business is such that we are going to see legislation which gives some effect to the principles that I have adumbrated this evening and which helps to resolve what for the nation looks an outstanding scandal with regard to the issues of distribution of resources in our society, I go home with a little consolation and withdraw my amendment.

Amendment 173AAB withdrawn.

Amendment 173AAC not moved.

Amendments 173ACA, in substitution for Amendment 173AB, to 173AE not moved.

Amendment 173AEA

Moved by Lord Davies of Oldham

173AEA: Clause 22, page 89, line 27, at end insert—

“137QA Advisory fees in respect of mergers and acquisitions

Either regulator may make rules (“fee structures in respect of mergers and acquisitions”) about the advisory or consultancy fee arrangements where an authorised person contracts a third party to give advice on the possibility of a merger or acquisition of control of any other body corporate.”

Lord Davies of Oldham: My Lords, I assure the Committee that I shall be brief, being cognisant of the passage of time. The amendment is simply the product of the FSA’s report—a report of great significance in which the noble Lord, Lord Flight, would be interested—into the RBS and its merger with ABN AMRO. We all know the significance of that merger and the disaster which befell RBS as a result of it. All that my amendment does is reflect the fact that the fees for the advice on that merger were extraordinarily high, disastrous though the merger proved to be. I merely suggest an amendment to the Bill which would add to the list of general rules the power for either regulator to make rules about consultancy fee arrangements in respect of mergers and acquisitions, and I think that the time is ripe for that. I beg to move.

7.30 pm

Lord Sassoon: My Lords, the Government’s view is that, in general, decisions about advisory arrangements and consultancy fees are commercial decisions for firms themselves. However, the regulators could in fact already make the rules described in this amendment under the general rule-making power if they judged that was an appropriate way to advance their objectives. For example, if the PRA was satisfied that there was a problem with advisers being incentivised to advise in favour of high-risk mergers and acquisitions in a way that threatened the safety and soundness of PRA-authorised persons, it could step in to make rules to regulate the appointment of advisers.

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Respecting the brevity with which this amendment was introduced, I should probably leave it at those two key reasons why we believe that it is redundant. I ask the noble Lord, Lord Davies of Oldham, to consider withdrawing it.

Lord Davies of Oldham: My Lords, I will certainly withdraw the amendment, having benefited from the clarity of the Minister’s reply—although I cannot say that I agreed with it.

Amendment 173AEA withdrawn.

Amendments 173AF to 173D not moved.

Amendment 173E

Moved by Lord Davies of Oldham

173E: Clause 22, page 102, line 10, at end insert—

“( ) Before the end of 2013, a regulator may, in consultation with HM Treasury, ask the Competition Commission to provide a report giving section 140B advice with reference to the Independent Commission on Banking recommendations on competition.”

Lord Davies of Oldham: My Lords, I am once again jettisoning a whole sheaf of notes in deference to the hour that we have reached. Amendment 173E, as part of the competition scrutiny provisions included in this Bill, calls for the Competition Commission, in consultation with the Treasury, to publish a report by the end of 2013 providing advice about the effect of regulating provision or practice,

“with reference to the Independent Commission on Banking recommendations on competition”.

The intention of the amendment is clear. It is to ensure that we make progress with regard to competition in banking, to show that we are in earnest about the necessity for early reforms and to use this Bill and the competition procedures within it to ensure that the maximum pressure is brought to bear on the competition authorities—and of course, behind them, the Government—to take as early action as is possible to remedy what the nation expects to be remedied in the light of the experience of the recent past. I beg to move.

Lord Sassoon: My Lords, this amendment is identical to one tabled in Committee in another place, where my honourable friend the then Financial Secretary set out the reasons why the amendment is not appropriate. There are three such reasons. First, 2013 is the wrong time for a review of progress against the ICB recommendations. The ICB report itself recommended that the earliest that the market should be reviewed is in 2015, when it will be clearer whether its recommendations have led to improved market conditions. Secondly, there is no convincing reason why this review, if there is to be one, should be limited in scope to the ICB recommendations themselves. There may be new issues that the ICB report had not considered in depth and which it would be expedient to review at that time. Thirdly, we do not need this provision to ensure that the banking sector receives appropriate scrutiny from the competition authorities in the short term. The

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OFT, for example, launched a review of the personal current account market in July this year, which is likely to consider some of the issues covered by the ICB. The OFT has a power to refer markets to the Competition Commission at any time if it considers that a feature of the market,

“prevents, restricts or distorts competition … in the UK”.

I am very happy to give those reassurances and clarifications to the noble Lord in the hope that he will withdraw his amendment.

Lord Davies of Oldham: My Lords, of course I will withdraw my amendment. However, the noble Lord should not anticipate that when a Minister speaks in the Commons, the Opposition automatically assume that he has always produced exactly the accurate response to our amendments, which we then accept, and that we are duly grateful for the greater wisdom of the Administration. Far from it—we often derive some considerable satisfaction from pressing them at some length on another occasion. However, on this occasion I have not got any length. I beg to withdraw the amendment.

Amendment 173E withdrawn.

Amendment 174 not moved.

Clause 22, as amended, agreed.

Clauses 23 and 24 agreed.

Clause 25 : Powers of regulators in relation to parent undertakings

Amendment 174ZA

Moved by Lord Sassoon

174ZA: Clause 25, page 107, line 27, leave out “any part of”

Lord Sassoon: There are of course other amendments in the group but for the moment I will just speak to the two government amendments. New Part 12A of FiSMA, as inserted by Clause 25, confers on the regulators for the first time substantive powers in relation to unregulated parent undertakings of authorised persons. These new powers strengthen the regulatory framework by ensuring that the regulator can take appropriate action in relation to a parent undertaking that itself is not regulated but which controls and exerts influence over an authorised person.

Amendment 174ZA extends the meaning of “qualifying parent undertaking” so that the new Part 12A powers can also be applied to body corporates which have a place of business in the United Kingdom. At present, the powers are restricted to a parent undertaking that is a body corporate incorporated in the United Kingdom. There is a risk under the new Section 192B(2), as currently drafted, that some financial groups may be beyond the scope of new Part 12A powers or indeed may engage in regulatory arbitrage and restructure their operations to remove themselves from scope. Left unchanged, it would be possible for a firm to evade the powers by incorporating their parent undertaking overseas while retaining a place of

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business in the UK. It is important that the powers can be deployed for the purpose for which they were designed.

Amendment 174ZB is a bit of small tidying up of the drafting. As there is only one system of company law in the UK, it is not possible for a body corporate to be incorporated only in “part of” the UK. That is why we are making that second amendment. I beg to move.

Lord Whitty: My Lords, I am perfectly happy to accept and support the Minister’s proposals. My two amendments, and I think those of my noble friend Lord Tunnicliffe, attempt at this point to reflect the reality of the changing structure of banking and the potential changing structure of financial services, and their interrelationship with retail. It could go wider than this, but it specifically relates to the phenomenon of supermarkets obtaining banking licences, establishing banking subsidiaries and operating in the banking and financial services area.

This presents significant issues of consumer information and consumer privacy. My first amendment is a simple one. We have, in this Bill, a number of safeguards in relation to financial companies’ relations with their parent company. However, among other things, subsection (4) of the previous Act’s proposed new Section 192B defines a parent undertaking that is susceptible to these protections:

“Condition C is that the parent undertaking is a financial institution of a kind prescribed by the Treasury by order”.

It then goes on to say that those conditions can be changed by the Treasury. However, the reality is that Tesco—I am not particularly having a go at Tesco—would not fall within that definition. Yet Tesco will have a banking operation and has every intention of building on that. My first amendment would therefore delete that restriction, so that a parent undertaking of a financial company could, in fact, be a company of any kind and not simply one which falls within the Treasury’s—from time to time altered—definition of a financial institution.

My second amendment relates directly to the area of potential consumer detriment. Again, I take the example of Tesco. There have been examples in the United States already, so it is not necessarily directed at Tesco; I have a Tesco card myself, as I am sure many other Members of the House do. I would not presume that Tesco would be in a position, deriving data from my Saturday afternoon purchases, to offer to their banking subsidiary indications of my current or potential credit-worthiness. Noble Lords may feel that I do not need that protection, but there will be many who do. The pattern of purchases, particularly for the more vulnerable consumers, can vary dramatically from time to time as circumstances change. Their credit-worthiness can alter if the interpretation of that data is such that the banking subsidiary thinks that they are no longer as credit-worthy as they were last month or last year.

This is an issue of privacy. This is an issue of clarity. It is an issue of confidence that consumers who have quite happily allowed the retail parent company to acquire very detailed information on their purchasing patterns should not have that information used for the entirely different purpose of establishing credit-worthiness

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and the ability to seek loans, overdrafts or banking facilities from a banking subsidiary. I emphasise this because the change in the structure and interface between banking and large-scale retail and other conglomerates is likely to get larger. In broad terms, the consumer interest benefits from this wider competition and the expertise that it may bring. However, Tesco itself has recognised that one of the synergies arising from its move into the banking sector would be using the club card for credit assessments, and one which, alongside a loyalty scheme, could benefit the banking as well as the retail side of its business. I do not think that that is right. I do not think that the ordinary consumer who goes to Tesco every week would think that it is right. It is, of course, also a facility available to a banking subsidiary of a supermarket which is not available to its competitors, who are part of a purely banking or financial institution.

I hope that the Minister will recognise this problem, and will at least agree that the first deletion is appropriate and to take away the issue raised by my second amendment and come back to us at a later stage, indicating his way of dealing with it. It is an issue which, as I say, is likely to grow in importance and makes hundreds of thousands of consumers vulnerable. I do not beg to move, as the Minister has done so, but I hope that he will take my words into account.

7.45 pm

Lord Tunnicliffe: My Lords, I agree with all the points that my noble friend Lord Whitty has made and I will not rehearse them. Coming at the whole thing from a slightly different direction, it seems to me that Clause 25 is highly admirable. It seems to say that if you have an authorised person and that authorised person is owned by someone else, the regulator must be able to get at the someone else. It is a sensible clause in that it uses terms such as,

“may have a material adverse effect on the regulation by the regulator”.

It uses that twice, in both of the conditions in which it can happen. It is a very narrow clause. It is what we who like regulation find very good at setting out what the regulator may do.

Clause 25 also says that a regulator must adhere,

“to the principle that a burden or restriction which is imposed on a person should be proportionate to the benefits, considered in general terms, which are expected to result from its imposition”.

So the whole idea that the owner of a regulated person should come under regulation seems entirely a sign of good principle, and has proper safeguards set against it.

However, for the life of me I cannot understand what new Section 192B(4) is doing there. It states:

“Condition C is that the parent undertaking is a financial institution of a kind prescribed by the Treasury by order”.

Any owner of an authorised person should be susceptible to regulation within the limitations set out in Clause 25. This was debated in the Commons, but we make no apology for bringing it back here. In the Commons, Mr Hoban said:

“This is a proportionate expansion. We want to avoid the sense that the FCA or the PRA could intervene in the price of bread at Tesco or Sainsbury’s”.—[Official Report, Commons, Financial Services Bill Committee, 8/3/12; col. 466.]

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That is an absolutely ridiculous reason to deny it. Clearly, the body of this clause says that it shall be used for serious material things in a proportionate way, which could have nothing to do with the price of bread at Sainsbury’s. I hope that the Minister will give a really full explanation of why this clause should not apply universally to all owners of authorised persons, not just to those as set out in condition C in subsection (4) of new Section 192B.

Lord Sassoon: My Lords, the noble Lords, Lord Whitty and Lord Tunnicliffe, have been very clear about the purpose of these three amendments: that they seek to extend the power to capture all parent undertakings, including non-financial parents. The starting point here has to be the recognition, which was partly given by the noble Lord, Lord Tunnicliffe, that we are talking about some new and important powers that go significantly beyond anything that the previous Government put in place in their architecture.

I know that the noble Lord, Lord Tunnicliffe, said that he approved of a lot of this. The fact is that we are moving the boundary forward very significantly, but to an appropriate place for the time being, while nevertheless taking the power—the noble Lord, Lord Whitty, recognised this—to move the boundary further if appropriate. I would have been rather happier if there had been more of a tone of approving of and recognising a significant shift, and gently encouraging us onwards, rather than a tone of outraged incomprehension that we have not moved very much further.

Lord Tunnicliffe: If I can help the Minister, I am entirely happy to welcome this clause—my opening remarks welcomed it—but I cannot understand why it has this serious limitation. The rest of the clause is beautifully balanced and seems entirely appropriate. Why does it not apply to more owners?

Lord Sassoon: My Lords, we are getting into significant new territory here. These are untried and untested powers in the United Kingdom. We want to make sure that they are targeted and used in a proportionate manner. That is why the Government have proposed limiting the powers to parent undertakings that are financial institutions of the kind described by the Treasury, which helps to keep this new and very significant power within acceptable bounds—and bounds within which Parliament can be clear about the movement of the regulatory boundary. I take the case of the supermarkets because they are an important area and the clearest case of where the boundary should be under focus. It is important and helpful for noble Lords to raise this matter in debate now, because it is quite proper that as experience of these new powers is gained and the evolution in the structures of holding companies for financial services institutions moves forward, these matters are kept under some form of scrutiny.

Let me deal first of all with the specific matter of data sharing, because this is a granular thing that affects customers in these groups now. The Data Protection Act 1998 already provides robust safeguards around the disclosure of customers’ personal information,

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including disclosure to another group company. Therefore, in the case which the noble Lord, Lord Whitty, postulates, the movement of data from one part of a group—the non-financial part—to the financial part will require consent from the consumer.

The Act also requires that the personal data have been obtained fairly from the customer in the first place, which would involve identifying any third parties to which the information would be disclosed. We believe that the current provisions in the Bill—in that specific respect and more broadly—strike the right balance between giving the regulator more intrusive powers over unregulated parent undertakings, protecting the personal data of consumers and ensuring that the net regulatory burden imposed on industry is proportionate.

However—and I restate this—the Government are very much alive to the concerns raised by noble Lords, and it is precisely for that reason that they have taken a power to remove the requirement that the parent undertaking be a financial institution. We have not put that in there unthinkingly; we have put it in there because we recognise the concerns that noble Lords have raised. I am sorry if the noble Lord, Lord Tunnicliffe, does not think that I have recognised the positivity with which he has come at this clause, but he does not perhaps recognise or give enough weight to the fact that we really are making a significant step forward and need to pause and think carefully before going further. The power, however, is there and the Government will use that power as and when it becomes clear that the balance needs to be struck differently. I am happy to restate that, so I hope that what I have said will reassure noble Lords that the Government take this matter very seriously.

Amendment 174ZA agreed.

Amendment 174ZB

Moved by Lord Sassoon

174ZB: Clause 25, page 108, leave out line 25 and insert “which—

(a) is incorporated in the United Kingdom, or

(b) has a place of business in the United Kingdom.”

Amendment 174ZB agreed.

Amendments 174A to 176 not moved.

Clause 25, as amended, agreed.

Lord Newby: My Lords, I beg to move that the House do now resume. In doing so, I inform the House that because the Question for Short Debate tabled by the noble Lord, Lord Alderdice, will now be taken as last Business, the time limit for the debate becomes 90, rather than 60, minutes. Speeches should therefore be limited to nine minutes, except for those of the noble Lord, Lord Alderdice, and the Minister, which will remain limited to 10 and 12 minutes respectively.

House resumed.

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NHS: Mental Health Services

Question for Short Debate

7.55 pm

Tabled By Lord Alderdice

To ask Her Majesty's Government how they propose to strengthen the provision of mental health services in the National Health Service.

Lord Alderdice: My Lords, the noble Lord, Lord Layard, and his colleagues at the Centre for Economic Performance produced an excellent document in 2006, The Depression Report. This important document pointed out that, within the community, a massive amount of distress was caused by depression and anxiety. They were a major form of deprivation of normal life—one which was going largely untreated for the majority of patients. They invoked huge economic cost to those concerned, to their families and to economic life in the country. He and his colleagues pointed out that there were treatments available at that time and they were not incredibly costly or unnecessarily long-term.

Therefore, the report recommended a substantial investment in the training of therapists in NICE-approved training, working in teams and supplied with centrally commissioned funding. Over a period of seven years, this would achieve a major change in providing psychological therapies for people suffering from depression and anxiety. This was a very important report, but it was also an effective one, because based on that—and with much other work—the noble Lord, his colleagues and others who supported him were able to persuade the Government to make a significant investment at the time and to press for substantial changes.

Even at the time, I was a little anxious that the focus of this whole programme to increase access to psychological therapies was on cognitive behavioural therapy and some other therapies approved by NICE. One of the reasons for that was not that I had any kind of crib about those approaches to therapy, but because it seemed to me that they were relatively new and espoused with a degree of evangelical zeal. One of the things that we do know, after a long period, is that every new therapy that comes in—when it is passionately pursued by committed people—very often shows itself to be effective with patients. Then, after a period of time, it is maybe not quite as effective: not because it is not a useful therapy or a good approach, but because it is probably the case that most of these approaches to therapy, given the right therapist—the person with the right personality and training—the appropriate patient and the development of a therapeutic relationship, can be substantially effective. With the wrong personality of therapist, the wrong personality of patient and the wrong problem, they can make the situation much worse. So we know, for example, that if we use short-term therapies for people with certain kinds of personality disorders, it can make the situation much worse rather than better. Those are patients who require a longer-term approach to therapy and often a multidisciplinary team bringing various different kinds of skills.

I am not terribly surprised now to find, for example, that although the Swedish Government spent almost £200 million on training therapists and providing services

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that were almost exclusively CBT—other kinds of therapy were pretty much set aside, which was not the case with IAPT, to be fair—they began to conclude, as was published recently in the major Swedish social work journal, that this was not necessarily the way forward and that it was the therapeutic relationship with a patient that was important. That is not a criticism of that approach to treatment because the same criticism could be made of many others. It simply is to say that all the time we should continue to develop our understanding and evidence base. We cannot assume that when we have demonstrated something, that is it and we can put it to bed, forget about it and not explore it any further. We need to keep working at it.

It also demonstrates that psychological approaches of various kinds are effective, sometimes remarkably effective. However, it has to be the right treatment, the right training, the right person over the right period and so on, which requires a lot of work and a multidisciplinary and multimodal approach. It requires a number of different approaches to therapy. I mention that at this early stage because I always want to get that out of the way.

One could make certain criticisms but the report had a tremendous effect. It jolted the Government into starting to provide significant amounts of money for training, for bringing people forward and for valuing psychological therapies. Therefore, when the noble Lord, Lord Layard, contacted me earlier this year and said, “John, we have another report coming out”, I was very excited because I knew that the quality of the report would be high, the argument would be persuasive and that it would be done to improve things for our patients, which is the important thing.

When the report was published in June, I was not in any way disappointed. It was all those things. It was concise and clear, and it pointed at the problem in stark terms that many of us who have worked in this area for years found refreshing. Basically, it made the point that half of all illness is mental illness, which was not a surprise because we have always known that. It has a serious degree of morbidity. People’s lives are hugely damaged by mental illness, and there is enormous misery for them and their families. There is a huge cost but there are ways of dealing with these things. In the report, the noble Lord and his colleagues did not deal just with depression and anxiety. They dealt with the whole raft of mental illness, although not particularly with things such as dementia, other more organic disorders and drug and alcohol addiction, which are also important and fall within the wider group.

I was very keen for your Lordships’ House to find an opportunity as soon as possible to ask the Minister what Her Majesty’s Government’s response is to this report, which is the main burden of my remarks. I think that the report is clear and it marks up a number of issues and problems. I am very proud and pleased that the coalition Government have been prepared to give £400 million to increasing and developing access to psychological therapies. However, one of my anxieties is that I keep getting reports that that money is being substituted, and that some psychological therapy services are being closed down and IAPTs are being increased,

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rather than that IAPT money is coming in. We do not know whether it is adding to the services that are available.

Places such as the Maudsley, St Thomas’, Forest House in Walthamstow and Camden Psychotherapy Unit have provided well trained and good services. It is not a matter of cost because, in some of these services, the therapists coming in are good, well trained and well supervised people who provide therapy for nothing or for very small amounts of money. But it is easier for commissioners to commission one large organisation to provide one approach to therapy, rather than to pick up those who have very often provided all sorts of different approaches to therapy in the communities.

After all the things we went through because we want to see a change in the approach to commissioning, I was particularly sorry to hear that some of the new commissioning groups are simply saying, “We are going to carry on the way the previous commissioners were carrying on and we are not going to change”. If that is true, it is extremely disappointing. I seek reassurance from the Minister that he will monitor this; that he will make sure that the money is not substituted and is extra money for psychological therapies; that it is for the range of therapies; and that there is an understanding that short-term therapies—for example, for people with personality disorders—are sometimes counterproductive. We need to create long-lasting major change for these people because they are very damaged and need input over a period of time. If we do not do that, they will cost a lot more through the criminal justice system. There will also be a transgenerational transmission of their disorders, which we will need to take into account whenever we think about the costs to the community. We need different approaches to treatment that are suitable to these people.

My concern is not about just the therapeutic relationship with people in outpatient therapy. I have been very disturbed to learn that in places such as Rampton, Broadmoor and Ashworth, patients increasingly are locked up at night in wards because there are not enough staff. That is not managing the relationship. I increasingly find reports of young doctors who see a patient only once. The patient is checked in and in no time the patient is out. The young doctor does not even learn how to develop the professional relationship. Indeed, there are managerial relationships which are not very professional and are based on no evidence that they bring a positive outcome in the running of services. If we are talking about an evidence base for the therapy, we need an evidence base for some of the management approaches that have been undertaken, which are clearly and demonstrably not working.

In September, at our party conference in Brighton, I was very pleased that the report from the noble Lord and his colleagues, and the recommendations from it, was warmly and overwhelmingly supported in a motion to the conference. I want warmly and overwhelmingly to support them. There will be some issues, which we will need to explore, including the recommendation that the GPs should get more training in psychological therapies. That is absolutely right but perhaps it should

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be not only through IAPT teams. Perhaps there should be a bit more of an emphasis on the idea that there might be a range of therapies available.

I am hugely encouraged that we are seeing some espousing of this by the academic community. I trust that the £400 million will be extra money and that it will be added to. I know that the Minister is sympathetic to this but I hope that he will give us a little more than sympathy and reassurance. I hope that he will be able to encourage us as we see this developing over the coming months and years.

8.06 pm

Lord Wills: My Lords, I congratulate the noble Lord, Lord Alderdice, on securing this debate on this most important subject. It is a tribute to his work, and to my noble friend Lord Layard and other speakers in this debate, that nowadays this Government accept without question, as did the previous Government, that there is no health without mental health. That is huge progress from the situation just a few years ago.

However, as the noble Lord suggested, there is no reason for complacency. There are formidable challenges ahead. Others noble Lords with far greater experience in this sphere than I have will no doubt speak about those challenges in the rest of this debate. In my few remarks I want to focus on the role of the voluntary sector in delivering mental health services and, in particular, something that might be able to be done to support it.

The voluntary sector has become more and more important in delivering mental health services. We heard a few examples from the noble Lord, Lord Alderdice, of its invaluable work in delivering mental health services and in providing care and support to well over 500,000 people who use mental health services every day across England in a wide variety of community and hospital settings.

The voluntary sector is by nature more heterogeneous than statutory health and social care organisations. It is that very variety that has helped generate much of the innovation that service users value in the delivery of mental health services. But it also makes more demanding the task of supporting it through all the challenges that it faces. I should be grateful for any detail that the Minister can give about how the Government intend to support voluntary sector organisations in the months ahead, with all the difficult challenges of funding that we all recognise. Earlier this year, in a statement of the Government’s intent, a recently departed Health Minister said:

“It is crucial that we continue to champion our voluntary organisations, because their expertise allows them to design and develop innovative solutions to the big challenges we face in health, public health and social care”.

It would be interesting to hear how the Minister intends to continue that theme and support voluntary sector organisations in the months and years ahead.

Among all those challenges that the voluntary sector faces, including the fundamental one of adequate and sustainable funding, it needs to negotiate its way through a thicket of complex statutory provision.

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There have been two major mental health Acts in the past 10 years and more than 100 pieces of legislation that might be relevant to those delivering mental health services. That is daunting to work through for anyone, but especially for those operating in the voluntary sector, who often do not have any significant back-up or support at all. That is why it is very welcome that the Mental Health Providers Forum is about to publish a resource that brings together in one place the most commonly used legislation in mental health to show how it relates to policy and practice, as well as to the experience of all those who use mental health services. The Department of Health should be congratulated on its role in funding the development of this resource, which will help practitioners, managers and trustees to combine legally sound decision-making with safe and effective practice. I hope that the Minister can assure me that he and his department will do all they can to bring this resource to the attention of all those concerned.

8.10 pm

Baroness Meacher: My Lords, I congratulate the noble Lord, Lord Alderdice, for tabling this important debate; a debate, in my view, of national importance and of particular importance to the Government in their quest to take a million people off employment support allowance, or, in the future, universal credit figures within about 10 years. That is a major objective of this Government. We know that more than 40% of ESA claimants have mental health problems, the vast majority having depression or anxiety. That is nothing new. We also know that NICE recommends improving access to psychological therapies, and CBT most particularly. Not everyone likes the conclusions of NICE, or IAPT, but we have to take seriously the enormous amount of work that NICE does in looking at all the research available on a subject such as this and drawing its conclusions.

I do not share the views of the noble Lord, Lord Alderdice, that the style of therapy does not matter too much and that you can have bits here and there. This is a much more serious matter and people who practice these therapies tell me that these treatments, like other medical or pseudo-medical treatments, are potentially dangerous if they are not done really well. The quality of the therapist is absolutely vital and the methods and the types of therapy that they use. If we want to help people, rather than make them worse, it is no good using the wrong type of therapies, or short-term therapies, with the wrong kinds of people. We have to be very careful. It is essential that these IAPT services are of the best possible quality, which means, of course, using the best possible people. These services need to be available right across the country, so that GPs, wherever they are, can refer people for such help so that they do not lose their jobs—that, surely, has to be the first priority—or, if they have already lost their jobs, so that they can be prepared, as soon as possible, to get back into work and stop claiming benefits.

I shall leave my noble kinsman Lord Layard to talk about the national perspective. I shall talk about what is going on on the ground, as I am familiar with that. One problem is that the tendering process can result in services being provided by two or three different organisations. Far from just giving these services to

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the NHS, our experience is that they tend to be divided between different organisations. That may be all right but, over the years, health and social services have struggled to ensure that services provided across several organisations hang together and provide a good pathway of care for patients. It is very difficult on the ground; it sounds nice, but it does not work. The second best solution is to ensure that these different organisations work effectively together so that patients have a good pathway.

Competition rules may be being misinterpreted, but commissioners on the ground understand that these different organisations must use different IT systems, even though they are very happy to use the same one. The result is that these organisations do not communicate effectively with each other. That may be due to the limited understanding of commissioners. I do not think that the problem lies with competition, per se; I think it lies within the capacity of commissioners to operate competition in the best interests of patients and, to be perfectly frank, that simply is not happening.

Another issue is the tariff for IAPT services. The “any qualified provider” guidance for commissioners makes it clear that local commissioners should set their own tariffs. We know what happens if they do that. We know that the money supposedly put into IAPT psychological services is not ring-fenced and that local authorities are tempted to siphon it off into other things, and who can blame them? I do not blame them, but it means that we have to be very careful if we want a really good psychological service to deal with the unemployment problems of people with anxiety and depression. We cannot cut corners and a lot of tariffs are being set too low because of a lack of understanding.

The most serious problem, as I understand it, applies to steps 3 and 3 plus services. To treat effectively those with severe anxiety, severe obsessive-compulsive disorders and those with tricky, difficult and often multiple problems we need skilled therapists. That cannot be done by a low-cost therapist. Under AQP rules, a session of high-intensity therapy costs £40 to £50. High-intensity therapists themselves will cost more than that. There are also other costs such as administration, office costs and so on. However, when properly funded, we know from research that these services are highly cost effective; they get people back into work. The big question is why this is happening.

Even if trusts downgraded their intensive therapists from band 7 to band 6, which will inevitably mean losing their very best people—the noble Lord, Lord Alderdice, said, that they should not do that—and even if they made huge and probably unrealistic assumptions about productivity, organisations could not afford these services at steps 3 and 3 plus. My understanding is that steps 1 and 2, although challenging, will be deliverable. The whole benefit of the IAPT programme is that it is a stepped care programme. If someone is identified as needing step 2, and after a bit the therapist realises that that person has much deeper and more extensive problems than they originally presented with, they will need step 3 and if step 3 is not there, the value of step 2 will be lost. Such people will not get better and they will lose their jobs or not get back into work. That is the sort of concern felt at

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the bottom, where people are trying to deliver these services. I am not saying that they should all be delivered by the NHS. The NHS is having to renegotiate contracts and is having to cut the amount of money to deliver the same service, or something nearly as good. However, with IAPT it is not like that; it will all be tendered out, and change will be much more radical.

The view that I have had from others is that this consequence is more of a cock-up than a conspiracy. People are not trying to destroy this, but these AQP services will go live in November 2012 through to March 2013. The consequences of all these inadequate tariffs and problems on the ground, separating the different bits of the service across organisations, will become apparent during that six-month period and will get worse over time.

Before I finish I want to refer to a rather nice little piece of information, which supports my concerns. I happened to be at the Verulam School in St Albans talking about the House of Lords last Friday. The sixth formers were an impressive group of people. They were so concerned about mental health among young people—that is, themselves—that they undertook a survey of 1,800 young people in the St Albans area, which is not known for its deprivation. They really got at some of the problems and concluded:

“The value of mental health provision and the overwhelming need for it has become clear to us, as has the need for appropriate access and early support”.

They were very concerned about cuts to counselling support services for young people in St Albans. If you go along to east London you will find that things are even tougher, but it was interesting to find that result in a relatively well heeled part of the country.

I appeal to the Minister to do all that he can to rescue this inexpensive and highly cost-effective contribution to the Government’s goal to reduce unemployment. Will he try to ensure that IAPT is removed from the AQP system, if at all possible, even at this late stage? Will he try to secure the continuity of the central policy unit for IAPT? Those two things would transform everything. I have great trust in the Minister and look forward to hearing his comments.

8.21 pm

Lord Layard: My Lords, I, too, am grateful to the noble Lord, Lord Alderdice, for securing this debate. I declare my interest as a national adviser to the IAPT programme and chair of the group to which the noble Lord, Lord Alderdice, referred.

We are now at a critical juncture in relation to the IAPT programme. On the one hand, we have some wonderful features. We have the Government’s commitment to parity of esteem for mental health, which is very important. For the out-service we have the Government’s commitment to providing treatment in 2015 for 15% of the 6 million people suffering from depression or anxiety disorders, which is a very important commitment. As part of this, the Government have also committed to training 800 therapists a year over a three-year period.

The issue is what is happening on the ground. Up to 2011, the programme was an extraordinary success. Starting from scratch it reached, within three years,

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10% of those 6 million people. That is extraordinarily good going from a standing start. This is not a service that was being modified; it was created in a vacuum, which was a really major achievement. Equally, on the training side, 3,400 therapists were trained in evidence-based therapies, using a state-of-the-art national curriculum developed by the central team and its experts. The outcomes were also good. Recovery rates approached 50%, which was the target, and the programme has been extraordinarily successful in measuring the outcomes of its patients. In fact, it has accumulated the largest body of patient-reported outcomes, physical or mental, in the whole of the NHS.

All these achievements have been brought about by the fact that there was a central leadership with good administrators and a good network of experts co-ordinated within the Department of Health and by the extraordinary contribution and self-sacrifice of the outstanding clinical director, Dr David Clark—I must mention that because we have been extraordinarily privileged to have perhaps the world’s leading clinical psychologist leading this programme. It is therefore not surprising that the world’s leading scientific journal, Nature, last week acclaimed this as a world-beating programme. People all over the world are looking to it to see if it can continue developing.

However, although the programme is only half way through its development phase, its future is already in doubt and, as I mentioned, the Government are at serious risk of not achieving their commitments for 2015. In 2011-12 there were 530 training places, not the Government’s commitment of 800, and numbers are looking even more precarious in the present year. Services for patients are not expanding, as would be required to get from 10% to 15%, but are being cut in some localities and are standing still in others. At the same time, waiting times in IAPT are rising.

Also increasing is the problem, which was just referred to, of commissioners focusing, through their financing arrangements, more on those who need the least help—the easiest to help who can be dealt with cheaply. There is a serious dead weight if you give the help to the people who least need it. That will increasingly go on under these financial pressures unless serious steps are taken to stop it.

What can the Government do? As the services are locally commissioned, the Government have no way to force local commissioners to spend the money that was set aside in their baseline for IAPT in the spending review. They do, however, have tools, the first of which is the central guidelines embodied in the NHS outcomes framework. This is what commissioners read. They cannot read all that paper and prose but they can read the one sheet that contains 60 outcomes for the NHS. Where does IAPT appear in those 60 outcomes? It does not. That is just not good enough.

Depression is 50% more disabling than most of the chronic physical illnesses that are now a big focus for the NHS. Depression and anxiety account for at least one third of all morbidity in Britain. The NHS is there to deal with the mass of morbidity in the country, so how can it possibly be that the main treatment for those conditions is not in the NHS 60 outcomes?

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I agree that this is not a conspiracy, but it is a failure which happens because mental health so often gets overlooked. Unless we have IAPT outcomes within the NHS outcomes framework, it is nonsense to be talking about parity for mental and physical illness.

We have waiting time targets for all physical conditions treated outside general practice, but there are no waiting time targets for depression and anxiety. That is not parity of esteem either. There is also a huge problem with local commissioners paying less and less for therapy, leading to a bias against those in greatest need. We need a central initiative and national tariffs if we are to secure parity of esteem for serious mental illness as against physical illness.

I must come, finally, to the question of the central leadership of the programme, which is, as I explained, why it has succeeded. The programme is only half way through its development but its present coverage is 10% compared to the 15% to which the Government are committed. Even then, the programme will not have touched most of the 3 million people with physical conditions who are also mentally ill. This problem has not yet been tackled, although it is costing the NHS a huge amount in the physical healthcare budget due to the comorbid mental condition. The estimate is that something like £10 billion a year of the NHS physical healthcare budget relates to comorbid mental conditions that ought to be treated. Big savings could be made from that. We claimed in our report that at least half a billion pounds could be saved by extending psychological therapy to that group. Extending IAPT on that scale would cost the NHS nothing in net terms. On top of that, it would save the DWP and the Treasury the money on benefits, which would again repay the cost of the therapy. However, none of this will happen without central leadership. It really is just like that. The question is: what is being planned for the central leadership of the programme next April, when it ceases to be housed in the Department of Health? So far, we have had no public word on that critical question.

There is a real risk of a disaster in the making, not intentionally but by mistake. I have to ask the noble Earl three questions—not to embarrass him, because I know his heart is in the right place. However, I get heartrending letters from people every week and there are millions of people out there whose lives are at stake in all this. If I might, I should like to end with the three questions. First, what plans do the Government have for the central IAPT leadership team? That really is crucial. Secondly, will the IAPT outcomes be incorporated in the outcomes framework? Thirdly, will the Government introduce rights to waiting times in mental health as in physical health? I hope that the noble Earl can help us on all these points, either today or shortly hereafter.

8.32 pm

Baroness Tyler of Enfield: My Lords, it is always daunting to follow someone as eminent as the noble Lord, Lord Layard, in a debate on mental health, but that is what I will seek to do.

Like many other noble Lords this evening, I very much welcomed the Government’s mental health strategy, No Health Without Mental Health, which gave clear

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priority to a long-neglected area of health policy. The implementation framework for that strategy, which was published earlier this year, was equally welcome in ensuring that the strategy did not simply gather dust. Like my noble friend Lord Alderdice, I greatly welcome the £400 million that the Government have invested in improving access to psychological therapies—IAPT—as a key plank of the strategy.

While I am pleased that the NHS Commissioning Board has endorsed the framework, it is also vital that the board makes the implementation of the strategy one of its key priorities. Like the noble Lord, Lord Layard, I think that means that it should feature prominently in the commissioning board’s mandate and the NHS outcomes framework. I ask the Minister to update, and I hope assure, the House on that point.

However, even that will not be enough to make a reality of improved mental health services for all. More is needed and I want to pick out three things. First, the forthcoming changes in the commissioning arrangements give the potential for a greater focus on early intervention. This means commissioners in CCGs and the national commissioning board having access to the right level of mental health expertise, both to assess mental health needs and to commission the right services to meet those needs.