The Government have tabled another amendment to ensure that the competition powers conferred on the FCA are capable of being exercised effectively. One of the powers conferred on the FCA is the ability to conduct a market study in the context of markets for the provision of financial services. If the FCA discovers competition-related concerns, it can refer the market for investigation by the Competition and Markets Authority. The amendment we are discussing today serves to ensure that a legal restriction on the FCA disclosing confidential information would not prevent the FCA from sharing with the Competition and Markets Authority confidential information which was relevant to a CMA market investigation. The amendment would also ensure that the provisions concerning treatment of confidential information that apply to other regulators with concurrent competition powers would also apply to the FCA, ensuring consistency. I beg to move.

Amendment 166 agreed.

Amendments 167 to 171

Moved by Lord Newby

167: Schedule 8, page 157, line 26, leave out “financial sector activities” and insert “the provision of financial services”

168: Schedule 8, page 158, line 7, leave out from beginning to “and” in line 8 and insert “the acquisition or provision in the United Kingdom of financial services,”

169: Schedule 8, page 158, line 23, leave out “financial sector activities” and insert “the provision of financial services”

170: Schedule 8, page 160, line 24, at end insert—

“In section 348 of FSMA 2000 (restrictions on disclosure of confidential information by FCA, PRA etc), after subsection (6) insert—

“(7) Nothing in this section applies to information received by a primary recipient for the purposes of, or in the discharge of, any functions of the FCA under the Competition Act 1998 or the Enterprise Act 2002 by virtue of Part 16A of this Act.

(For provision about the disclosure of such information, see Part 9 of the Enterprise Act 2002.)””

171: Schedule 8, page 160, line 42, at end insert “; but this sub-paragraph is not to be regarded as limiting the effect of the definition of “functions” in paragraph 1.””

Amendments 167 to 171 agreed.

Amendment 172

Moved by Lord Eatwell

172: After Clause 116, insert the following new Clause—

“Arrangements for consulting practitioners and consumers

After section 2L of FSMA 2000 (the PRA’s general duty to consult) insert—

“2LA PRA duty to consider representations from the FCA Consumer Panel

(1) The PRA must consider and respond to representations made by the Consumer Panel established by the FCA under section 1Q of the Financial Services Act 2012.

(2) The PRA must from time to time publish in such manner as it thinks fit responses to the representations.””

Lord Eatwell: My Lords, Amendment 172 derives from, and is a response to, an amendment that the Government successfully moved in Committee, which

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gave the PRA a secondary competition objective directly related to issues of market structure and performance. We have developed in this Bill, and in the previous Financial Services Bill which we also considered in this Session, a twin-peaks approach to financial regulation, with the Financial Conduct Authority looking at conduct of business and the Prudential Regulation Authority looking at issues associated with the prudential behaviour of firms.

Given that the PRA now has a competition objective, we should not allow the twin peaks to isolate consumer representation. The FCA consumer panel has an important role in advising on and responding to FCA proposals with respect to conduct of business but, with the PRA now having a competition objective, the issues which affect consumers directly will involve the competition element of prudential regulation. It is important, and entirely appropriate, that the PRA at least considers and responds to representations made by the FCA’s Consumer Panel—that is all we are asking for—so that decisions which the PRA makes with respect to market structure and performance have an appropriate consumer input. I beg to move.

Lord Newby: My Lords, this amendment concerns the important issue of consumer representation at the PRA and requires the PRA to consider and respond to representations from the FCA’s Consumer Panel.

There is much to welcome in the approach suggested. It is important to ensure that there is sufficient regard to consumer concerns at the PRA, especially where there are specific issues of consumer protection that the PRA should take into account. I welcome the recognition that it will not require the creation of a completely new body in order to achieve this. We need, of course, to be mindful of maintaining flexibility on the best way for the PRA to take into account representations from consumers and the need to avoid overly burdensome arrangements.

Following the earlier discussions on this issue, the regulators have considered how best to ensure consumer interests are communicated to the PRA. The regulators have come to the view that there should be arrangements for the FCA Consumer Panel to be able to raise concerns with the PRA, and I believe that it is worth considering putting arrangements on a statutory basis. We will therefore consider coming back at Third Reading with amendments, subject to reflection on the best way to do that without incurring unnecessary costs or burdens for the regulators or the panel. We would be happy to discuss further with noble Lords opposite the most effective approach to doing this. In view of that, I hope that the amendment can be withdrawn.

Lord Eatwell:There I was with my notes saying how inadequate the noble Lord’s answer was going to be. I am delighted that the Government have recognised the power of this argument and I look forward to discussions with them and to the moving of amendments at Third Reading.

Amendment 172 withdrawn.

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Clause 117: Fees to meet Treasury expenditure relating to international organisations

Amendment 173

Moved by Lord Newby

173: Clause 117, page 92, line 14, at end insert—

“(2) In section 3A of FSMA 2000 (meaning of “regulator”), in subsection (3)—

(a) omit the “or” at the end of paragraph (a), and

(b) after paragraph (b) insert “or

(c) the meaning of “regulator” in sections 410A and 410B (fees to meet certain expenses of Treasury).””

Amendment 173 agreed.

Clause 118: Amendments of section 429 of FSMA 2000

Amendment 174

Moved by Lord Newby

174: Clause 118, page 92, line 21, leave out from “(e)”,” to end of line 22

Amendment 174 agreed.

5.30 pm

Amendment 175

Moved by The Archbishop of Canterbury

175: Before Clause 119, insert the following new Clause—

“Leverage ratio

(1) The Treasury must make an order under section 9L of the Bank of England Act 1998 (macro-prudential measures) enabling the Financial Policy Committee to give a direction under section 9H in respect of a leverage ratio for relevant authorised persons.

(2) The direction above may specify the leverage ratio to be used.

(3) For the purposes of this section “leverage ratio” has the meaning which the Financial Policy Committee considers that it has in European Union Law or procedure from time to time.

(4) The order under subsection (1) must be made within the period of 6 months beginning with the day on which this Act is passed.

(5) In this section, “relevant authorised person” has the meaning given in section 71A of FSMA 2000.”

The Archbishop of Canterbury: My Lords, this amendment stands in my name and in the names of the noble Lords, Lord Turnbull, Lord Lawson and Lord McFall. The issue of leverage ratios may at first sight be less emotionally gripping than some of the other things that we have been discussing over the past few days, but it is central to the recommendations made by the commission. The leverage ratios that banks employ are a vital backstop in ensuring that they hold adequate capital, and ensure the safety and security both of individual banks and the industry as a whole.

A remarkable lecture given by Andy Haldane of the Bank of England sets out the necessity for this amendment. It is called The Dog and the Frisbee and I warmly recommend it, not least for its light humour. Essentially, as the Basel process has gone on through Basel I, Basel II and Basel III, there has been an exponential increase in the complexity of the internal

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measurements of different categories of loan for the amount of capital that had to be set against them. This opened the way very effectively to banks using different internal measures and to the inability of regulators to audit and examine adequately the ways in which banks were setting aside capital for particular risks.

A leverage ratio, because it is relatively if not absolutely simple, acts as a backstop which sets minimum levels of security and safety. The debate around a similar amendment in Committee was rather confusing. Although, as I have mentioned previously, I was unfortunately not able to be in the House that day owing to other duties, I have looked at the Hansard andconcluded that the Government’s position on this recommendation seems unclear. On the one hand, the House was told that the amendment was not needed, as the Financial Policy Committee had the power to set the leverage ratio; on the other, the Minister indicated that responsibility for setting the leverage ratio would be considered once the international levels were implemented through Basel III, which would be some time in 2017 or 2018.

In the light of this, the commission warmly welcomes the clarity of an announcement made yesterday that the Financial Policy Committee will conduct a review into the role of the leverage ratio within the capital framework of UK banks, as this indicates that the Treasury and the Government recognise that they are an important part of the structures that guide the banking system and that it is necessary that we move forward without delay. My commission colleagues and I are grateful to the Government for their willingness to allow the FPC to conduct a thorough and wide- ranging review of its current powers and to make recommendations on further powers it needs. We would welcome a clear statement that the review will not seek to establish whether it is right for the FPC to request this power but that it will have the power and the review will be about how it will exercise it.

We also welcome warmly the accelerated timetable set out in the Government’s announcement. It is right that this power should be available to the FPC as soon as possible and the expectation that the Bank of England will complete its review within 12 months reflects this need. I hope that the Minister can confirm these points. I beg to move.

Lord Eatwell: My Lords, I support the sentiments expressed by the most reverend Primate, in particular in pointing out the considerable confusion in the Government’s position in Committee when they told us, on the one hand, that the FPC had this power already and, on the other hand, that they proposed to give the FPC the power in 2018. We were told both things at once and it was not at all clear that the Government really knew what was happening with respect to the development of the use of the leverage ratio as an important element in the FPC’s toolkit.

However, the matters have been clarified by the correspondence between the Chancellor and the Governor of the Bank of England which was made available to us yesterday. I would like to hear confirmation from the Government that this is a case not of whether a leverage ratio will be available to the FPC, nor of

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whether the FPC will have that within its macroprudential toolkit, but simply of when this power will be available—I hope that it is sooner rather than later—and perhaps how it might be exercised. However, given that the use of macroprudential tools is already set out in great detail in the previous Financial Services Act, even that may be unnecessary.

Lord Lawson of Blaby (Con): My Lords, I support strongly what the most reverend Primate the Archbishop of Canterbury and the noble Lord, Lord Eatwell, have said. I speak in support of them because this is a particularly important issue.

In constructing a safe banking system, a number of things are taken into account, including risk-weighted assets and other matters of that kind, but there is no doubt that the leverage ratio is the single most important element in having a strong and robust banking system. This amendment is not about what number it should be. I mention en passant that the Government say that we must not interfere with what the Vickers committee recommended, yet when the Vickers committee recommended a number which they did not like they disagreed with it. Nevertheless, that is water under the bridge.

The review is quite unnecessary—although it will probably not do any harm—because the issue of the leverage ratio is peculiarly simple. Who will be responsible for setting the leverage ratio, the Treasury or the Financial Policy Committee of the Bank of England? The amendment is important because it would give the Minister the opportunity to make a clear statement. There has been movement since Committee. The Governor of the Bank of England, Mr Carney, gave evidence to the Treasury Committee in another place only yesterday saying that his understanding was that it would be the responsibility of the Financial Policy Committee of the Bank of England. We would like to have that explicitly stated by my noble friend here today.

The Commercial Secretary to the Treasury (Lord Deighton) (Con): My Lords, the amendment would require the Government to make an order giving the FPC a power to direct the PRA to set a leverage ratio within six months of Royal Assent. It is absolutely the case that it will be the FPC which exercises these powers. It has never been the intention that the Treasury would have those powers. For those who are not so familiar with the context, I shall have another go at being less confusing about the background, because it is important to understand why the review is necessary to get to that end case and what the current situation is.

There was a lot of concern around the idea that the Chancellor has the power to set a leverage ratio, which I think was in part a result of some confusion about how the law currently stands and works—which in turn is partly because of the various domestic and international reforms running to different timescales. We are in a process of change and a lot is moving around.

I tried last time to clarify the current powers of the regulator and the future powers of the FPC during Committee. I thought that I nearly succeeded, because I think that the noble Lord, Lord Lawson, is on record as saying that he was encouraged to some extent. That

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was a ringing endorsement compared to how I did on some of the other amendments, so I thought that I had done quite well.

The Government have sought to provide further clarity on this point through the recent exchange of letters with the Governor of the Bank of England. I will return to that. I hope that, with that explanation and a description of the steps that the Government will take to clarify matters further, I can satisfy your Lordships that their concerns about what I agree is a very important issue will be addressed.

First, I shall try to explain the current state of the law. Then I will explain our proposals in that context, because I think that that will give noble Lords the full picture.

Under current law, three bodies are concerned with the leverage ratio: the Treasury, the FPC and the PRA. Of course, the last two are part of the Bank of England group. Of those three, one has the direct power to set a minimum leverage ratio now. That is the PRA. Let me make it absolutely clear: it can do that not just on a firm-specific basis but on a system-wide basis. It can do that now; it has that power. It can set the leverage ratio directly, as it did back in June, or on the basis of a recommendation from the FPC. When I replied to the noble Lord, Lord Turnbull, I talked about the June action of the PRA as the killer fact; it was obviously not as emphatic as I hoped.

Under FiSMA, the FPC has two sorts of powers. First, there is a wide power of recommendation on any issue with regard to financial stability, which it makes to the PRA to exercise under its powers on a “comply or explain” basis. For that to work, the PRA must have powers to apply rules across the whole sector, which, as I have just explained, it does. It is envisaged that that is how most of the FPC’s decisions will be enacted. Secondly, the FPC has a narrow set of macro-prudential tools, which are powers to direct the PRA to act. There are currently two powers of direction. Currently, they are a counter-cyclical capital buffer and sectoral capital requirements. The Government also committed—this was the original situation—to giving the FPC a third direction tool to vary the minimum leverage ratio once the minimum was set in 2017.

For the avoidance of doubt, the Treasury plays no role here. If the PRA wants to set a leverage ratio either under its own initiative or under the recommendation of the FPC, it does not have to ask the Treasury, and the Treasury has no veto. The Treasury is the only body of the three that does not have the power or influence to set the leverage ratio. So the debate is essentially about how and when the Treasury grants the FPC that specific power of direction over the PRA, rather than the PRA retaining some discretion in the matter.

That being established, let me turn to the Government’s recent exchange of letters with the Bank of England. The Government have already committed to give the FPC the power of direction to vary the leverage ratio through time in 2018, subject to a review in 2017, but, given progress internationally—all the transformational change that we just discussed—there is a case for such powers being given earlier, or specified in a different form. To settle this debate, the Chancellor asked the governor, who is the chair of the FPC, to review the

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matter and make a recommendation to him that he could take to Parliament. The Government believe that that is the right approach to granting the FPC additional powers of direction, for a number of reasons.

First, there is an existing process for the FPC being granted such powers, established under the Financial Services Act, which many in this House and the other place, including the chair of the PCBS, helped to design. These are prescribed by the Treasury by order under Section 9L of the Bank of England Act 1998. Before making an order, the Treasury must consult the FPC and make an order in Parliament. This is subject to the affirmative resolution procedure, so must be approved by each House of Parliament.

To fulfil their duty of proper consultation before bringing a proposal under the Act, the Government believe that it is appropriate and necessary that the Bank furnish them with the relevant information from the planned review of the leverage ratio. As noble Lords can see from the governor’s response to the Chancellor, he is more than happy to go along with that process, given the things that are going on this year. Secondly, as a matter of policy, there are a number of outstanding technical issues that will need to be settled before the Chancellor can bring fully fleshed-out proposals back to Parliament.

5.45 pm

It would be helpful if I explained some of the technical issues which are alluded to in the Chancellor’s and governor’s letters. The first issue to fix is: at what level should it be set, relative to risk-weighted requirements? That is not currently settled internationally, which is why the Basel process and the European Banking Authority are going through a long process of review and calibration. We envisage that the FPC would have to consider this too for the UK and, most importantly, explain the circumstances in which it would wish to set a higher level for UK banks, if it believes that necessary. Secondly, if this is a macroprudential tool, how will it operate? If the tool gives the FPC the power to direct the PRA to vary the leverage through time, it will need to be clear under what circumstances it would be varied and how it will interact with other tools such as the countercyclical capital buffer, which does a similar thing for the risk-weighting framework. Thirdly, there is the important question of timing. The international timetable will set a minimum in 2017-18, so there is a question for the FPC as to what the right timetable is for the UK and how it should get there.

These are very important and technical questions in the design of a leverage tool. Once that review has provided evidence to support its recommendations, the Government have committed that they will use their existing powers to grant a power of direction to the FPC before the end of this Parliament.

I have a note next to me confirming that the Chancellor is happy with “when”. That is probably what noble Lords really wanted to hear but I thought that it would be useful to have some background. That timetable fits in with the FPC’s own timetable for defining the

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medium-term capital framework for UK banks. The governor has confirmed, in his letter to the Chancellor, that this timetable is appropriate.

I hope that on the basis of all the background information that I have provided, which I hope gives the context for a very specific answer to a specific question, your Lordships will be comfortable in withdrawing this amendment.

The Archbishop of Canterbury: I am very grateful to the Minister for such an extremely technical answer and I beg leave to withdraw the amendment.

Amendment 175 withdrawn.

Amendment 176

Moved by Lord Turnbull

176: After Clause 119, insert the following new Clause—

“Other provisions about the FCA and the PRA

Abolition of strategic objective of the FCA

In FSMA 2000—

(a) In section 1B, omit—

(i) in subsection (1), paragraph (a) (and the “and” following it)

and, in paragraph (b), “operational”,

(ii) subsection (2),

(iii) in subsection (3), “operational”,

(b) omit section 1F,

(c) in subsection (1K), omit “operational”,

(d) omit section 3B(3),

(e) omit section 3D(4),

(f) in section 55B(4), for the words after “advance” substitute “any of its objectives”,

(g) in section 55H(4), omit “operational”,

(h) in section 55I(5), omit “operational”,

(i) in section 55J(1)(c), for the words after “advance” substitute “any of its objectives”,

(j) in section 55L(6), omit “operational”,

(k) in section 55T, omit “operational”,

(l) in section 88E, in subsection (1) and in the heading, omit “operational”,

(m) in section 89U, in subsection (1) and in the heading, omit “operational”,

(n) in section 137A(1), omit “operational”,

(o) in section 138A(5), omit “operational”,

(p) in section 192C(2), for the words after “advance” substitute “any of its objectives”,

(q) in section 194(1)(c), for the words after “advance” substitute “any of its objectives”,

(r) in section 232A, omit “operational”,

(s) in section 314(1), omit “operational”,

(t) in section 316(1A)(a), omit “operational”,

(u) in section 318(3A)(a), omit “operational”,

(v) in section 340(8), for the words after “expedient” substitute “for the purpose of advancing any of its objectives”,

(w) in section 395(3), for the words after “procedure and” substitute “the regulator considers that, in the particular case, it is necessary in order to advance any of its objectives.”,

(x) in paragraph 11(1)(b) of Schedule 1ZA, omit “operational”,

(y) in paragraphs 6 and 6B of Schedule 1A, omit “operational”, and

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(z) in paragraphs 3C(1) and 3D(1) of Schedule 6, omit “operational”.”

Lord Turnbull (CB): My Lords, this amendment repeats an amendment tabled in Committee, the aim of which was to delete what the commission thought was an otiose strategic objective for the FCA and thereby increase the prominence and importance of what were previously called its three operational objectives, one of which was the promotion of competition. I thought that the reply from the noble Lord, Lord Newby, was unsatisfactory and I wanted to pursue it a bit further. The noble Lord concluded with the following remarks:

“After taking legal advice, the FCA has subsequently written and confirmed that it is happy with the strategic objective. On that basis, we are happy that the FCA is happy and wish to retain it”.—[Official Report, 15/10/13; col. 508.]

Perhaps I might respectfully comment that the object here is not to make the FCA happy but to make it pursue diligently the competition objective, about which a number of people have reservations. I would like to give the Minister the opportunity to give us some further assurance that the competition objective of the FCA will be pursued with the vigour that I think the Treasury and this House want.

Lord Deighton: My Lords, I confirm the observation of the noble Lord, Lord Turnbull, that it is of course not our objective simply to make the FCA happy. I will give a slightly longer explanation of why we think that the current situation will work just fine but, to get straight to the point, it is absolutely because we believe that the overriding mission statement is entirely consistent with the vigorous pursuit of the competition objective.

In looking at this from a personal point of view, I am very comfortable with the notion of an overriding mission statement which works in harmony with the operational objectives, can be used to support and enforce them and is very useful when it comes to shades of difference between them. I am very comfortable in this case because the overriding objective of making markets work well is entirely consistent with our mutual objective of ensuring that the FCA is pursing its competition objective with the utmost vigour.

I hope noble Lords have been able to witness that where we have been able to compromise, I have been very keen to compromise, but I am afraid here it is either yes or no, and in this case I ask the noble Lord to withdraw the amendment on the basis of my suggestion that I think it is going to be okay.

Lord Flight: My Lords, I have one issue to raise with the Minister. The competitive objective, as I understand it, applies equally to the PRA as to the FCA. As noble Lords may be aware, one of the immediate issues is that the capital requirements for banks of different sizes are dramatically different, such that a small bank’s capital requirement for certain forms of mortgage lending is about 30 times the capital requirement for one of the established clearing banks. The PRA has enthusiastically welcomed changing those arrangements and taking up the challenge to create a more competitive environment, but when I recently asked why the huge difference in capital requirements relating to mortgages had not been addressed, I was told that the PRA could

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not move until it was able to get agreement from the EU. I am not sure whether that is correct, but it is quite important to know whether meeting the competition objective is not just a question of having our own powers to do it but that EU requirements impinge upon it.

Lord Deighton: I shall look into that for my noble friend.

Lord Turnbull: In tabling amendments, there are a number of objectives. The first is to get an amendment accepted, the second is to make a point and the third is to receive an assurance. I think I have achieved the second and third objectives. On that basis, I beg leave to withdraw the amendment.

Amendment 176 withdrawn.

Amendment 177

Moved by Lord Turnbull

177: After Clause 119, insert the following new Clause—

“Independent Banking Regulatory Decisions Committee of the FCA

(1) After section 1L of FSMA 2000 insert—

“1LA Independent Banking Regulatory Decisions Committee

(1) There is to be a Banking Regulatory Decisions Committee of the FCA (“the Committee”).

(2) The members of the Committee are to be appointed jointly by the FCA and the PRA and hold office in accordance with the terms of their appointment.

(3) The person appointed to chair the Committee must have experience of acting in a senior judicial capacity.

(4) A majority of the members of the Committee must be persons appearing to the FCA and the PRA to have (and to have had) no professional connection with the provision of financial services.

(5) The remaining members of the Committee must include persons appearing to the FCA and the PRA to have extensive experience in senior roles in banking.

(6) The function of the Committee is to exercise the banking regulatory decisions function of the FCA and the PRA.

(7) “Banking regulatory decisions function” means the function of taking decisions for enforcing compliance with relevant requirements, within the meaning of Part 14, in cases where the authorised person is a relevant authorised person within the meaning of section 71A of this Act.

(8) The banking regulatory decisions function of the FCA and the PRA is delegated to the Committee; and references in this Act to the FCA and the PRA in relation to that function are to be construed accordingly.

(9) The FCA shall meet the reasonable costs of the Committee in discharging its function but the Committee—

(a) is not subject to direction by the FCA or the PRA as to the exercise of its function,

(b) is not accountable to the FCA or the PRA for the exercise of its function, and

(c) may appoint its own officers and staff.

(10) At least once a year the Committee must make a report to the Treasury on the discharge of its function.

(11) The Treasury must lay before Parliament a copy of each report received by them under subsection (10).”

(2) The FCA and the PRA must carry out a review of the operation of the Banking Regulatory Decisions Committee of the FCA.

(3) The review must be completed before the end of 2018.

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(4) The FCA and the PRA must give the Treasury a report of the review.

(5) The report must include an assessment of whether the function of the Banking Regulatory Decisions Committee would be better discharged by a body that was entirely independent of the FCA and the PRA.

(6) The Treasury must lay a copy of the report before Parliament and publish it in such manner as they think fit.”

Lord Turnbull: This amendment is about the future structure of the Regulatory Decisions Committee. This is avowedly a placeholder amendment to allow further discussion. The commission originally proposed that the RDC should be given statutory autonomy within the FCA and that that new regulatory structure should be reviewed by 2018. On further reflection, my commission colleagues and I put forward a rather different proposition, which is that there should be a wider review but there is no reason why it should not start as soon as maybe.

There are a number of reasons why a wider review is justified. The first is obvious. Although we now have two regulators rather than one—the PRA and the FCA—events where enforcement is justified can arise from either of these domains and enforcement action taken by one could help or hinder the work of the other. The enforcement division and the RDC are embedded in the FCA, and it raises the question of whether the RDC should be placed, in a sense, more equidistant between the two.

The second reason for raising this question is that, in banking at least, enforcement decisions could be taking on a greater significance than in the past. Indeed, the past has been characterised by a surprising absence of enforcement, at least in relation to the events of the financial crisis. There have been some major enforcement decisions and some colossal fines around conduct, but virtually none in relation to events leading up to the financial crash. This therefore raises the question as to whether the RDC needs to be upgraded in terms of its chairmanship and membership so that it is capable of handling bigger and more important cases.

The third reason is that, in response to a regulatory infraction or lapse, there is a balance to be struck between using enforcement as an instrument and the supervisory instrument. We should not get into the mode of thinking that enforcement is always the first and best recourse. Supervisors may take the view that a case is better handled by what elsewhere might be called “special measures”, such as seeing that the people who are responsible for the poor behaviour and decisions are moved on, and possibly even sacked; or by getting new people in; or by securing undertakings from management about future conduct. Often, this can produce a quicker and more effective result, whereas recourse to enforcement can cut across this so that instead of a bank immediately getting into a constructive dialogue about what to do next, it begins to dig in and wait for a long, drawn-out litigation.

We therefore need to ensure that, in any particular case, the full range of options has been considered and that the interests of other regulators have been taken into account. In other words, the RDC should only receive a case after that balancing process has taken place. It would be helpful if the RDC was able to question whether all the options and possible responses have been explored.

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The fourth reason is that, in many walks of life, there has been a trend which continues to this day of greater separation between those investigating a case, those who decide whether a prosecution should be undertaken and those who reach a verdict. You could go back to the creation of the Crown Prosecution Service more than two decades ago, and you can see this in a number of professional bodies covering medicine, solicitors and accounting. The hot topic of the moment is the Independent Police Complaints Commission. There is a perception that the RDC is not as independent of enforcement as it could be. It is co-located. It is part of the FCA. Would we be able to achieve both actual enhancement of its independence and, certainly, the perception of that independence if it stood in a more independent position?

Finally, the RDC has to ensure that before any accusation is made in a decision notice that enforcement has been properly researched, the accused has been given a proper chance to put their case, and the case has been gone into thoroughly. This is of particular relevance to smaller practitioners who can be severely damaged by accusations and are not able to clear their name until maybe years later. Unlike big firms, such businesses, such as IFAs, can find that they clear their name but there is no business left to go back to.

All this indicates to me that there is more than enough material on which to base a review and no reason to delay that until 2018, which was included in the earlier amendment. Rather than attempt to legislate now in a process that does not allow proper consultation with practitioners, and which would be confined only to banks, I argue that we should have a wider review. I hope that between now and Third Reading we can have further discussions on this idea. I beg to move.

6 pm

Lord Eatwell: My Lords, I was a member of the original regulatory decisions committee at the Financial Services Authority, which noble Lords may remember was set up after FiSMA ran head first into the human rights legislation because the regulator was in many cases judge and jury. The RDC was set up as a filter, to be an independent assessor of regulatory decisions by the various divisions of the FSA and to stand as a relatively simple procedure prior to the final stage of going to a tribunal if agreement could not be reached between the regulator and the regulated person. In that respect the RDC and the old FSA worked moderately well—but only moderately.

It did not work so well for two reasons. First, there was considerable confusion over its independence. The noble Lord, Lord Turnbull, has, in this amendment, quite rightly emphasised that the RDC should be independent of the various regulatory authorities. The second reason it did not work very well is, unfortunately, contained within the amendment, which states:

“A majority of the members of the Committee must be persons”,


“no professional connection with … financial services”.

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I am afraid that that, on the old RDC, caused us a lot of difficulty. Many of the cases which were quite complicated, with respect to financial services, took a long time because people who were very bright and committed but who had had no previous connection with the industry took a long time to get up to speed on the relevant issues that were considered. That condition in the old RDC arose because the FSA was succeeding the self-regulatory organisations. Therefore that was an overreaction to the role of the self-regulatory organisations such as the Securities and Futures Authority, which I also had the honour to serve on. That was abolished at that time and the reaction was, “Let’s have people from outside the industry in this particular role”.

Therefore, the idea of an independent RDC is a good one. That would avoid some of the very great expense of going to tribunal, where there might be disagreements, and it would also have the great advantage, which the noble Lord, Lord Turnbull, pointed out, of balancing the views of various regulators in any particular case. Of course, that was not necessary under the FSA, but it will be necessary under the new structure. This is worthy of very careful thought and consideration. It could be a very useful, positive step within the sequence of enforcement activities by the regulator.

Lord Deighton: In the spirit of the noble Lord’s approach, which was to move on from the specific amendment, I will not read out my speaking note, as entertaining and well structured as it is. I thank the noble Lord, Lord Eatwell, for his valuable experience here. I feel as the noble Lord does—something in here needs to be sorted out, but at the moment we are not exactly sure quite what the right thing is. However, it is certainly likely to involve a review, as is recommended as part of the amendment. Therefore I am more than happy, in preparation for Report—I am sorry, I mean Third Reading—to see what we can come up with together on a review.

Lord Turnbull: On the basis of that quite generous assurance, I am very happy to withdraw the amendment.

Amendment 177 withdrawn.

Amendments 178 and 179 not moved.

Amendment 180

Moved by Lord Lawson of Blaby

180: After Clause 120, insert the following new Clause—


Meetings between regulators and auditors of relevant authorised persons

(1) The FCA and the PRA must make arrangements to meet the auditors of each relevant authorised person at least twice in each calendar year.

(2) The FCA and the PRA may conduct meetings under subsection (1) jointly or separately (but each relevant authorised person’s auditors must be met separately).

(3) The purpose of each meeting is to discuss matters about which the FCA or the PRA believe that the auditors may have views or information.

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(4) A relevant authorised person has a duty to ensure that its auditors attend meetings in accordance with this section (and compliance with that duty may be considered for purposes of the exercise of functions under FSMA 2000).

(5) In this section, “relevant authorised person” has the meaning given in section 71A of FSMA 2000.”

Lord Lawson of Blaby: I will try to be brief; I hope that the Government can readily accept this. This amendment concerns the need to have regular meetings between the bank’s supervisors and its auditors. I use the old-fashioned word “supervisors” rather than “regulators” because it gives a more accurate picture. I was very glad that the new Governor of the Bank of England, in his recent speech at some Financial Times junket or other—a very good speech indeed—referred throughout to “banking supervision”, which is a more accurate, old-fashioned term. It is important that there should be this regular dialogue. I will briefly go back a little into the history of this.

When I was Chancellor in the 1980s, I was very concerned to discover that there was no discussion between the auditors and the supervisors of banks—which was the Bank of England at that time, as it is now. I looked into it and discovered that it was because they were prevented from doing so. Under their duty of confidentiality to their client, the auditors were not able to speak to anybody about any concerns they might have had about what was going on in a particular bank. It applied to other clients, but the important thing was that it applied to the banks. Therefore, when I greatly strengthened banking supervision in what became the Banking Act 1987, I included legislation to remove that legal barrier. In introducing that I made it quite clear that I expected as a result that there would be a regular dialogue between the banking supervisors and the bank’s auditors so that each could compare notes about concerns they might have had about a particular bank.

I now regret that that was not in the Bill, but it was a clear expectation, stated from the Dispatch Box. These meetings took place for a number of years. Then, as time went on, fewer and fewer of them took place. In the run-up to the terrible crisis of 2008 it was significant—the Economic Affairs Committee of your Lordships’ House took evidence about this—that the meetings had virtually ceased. They did not happen at all, which was a huge mistake. Therefore the Economic Affairs Committee of your Lordships’ House recommended that there should be a mandatory requirement for those meetings to take place. That is all the more important with banks because with other businesses the auditor can qualify the bank’s accounts if it has a concern which the board of the client does not address. That is a signal that everybody can see. However, no auditor ever qualifies a bank’s accounts, and for a very good reason—because it would lead to a run on the bank. That is all the more reason for this dialogue to happen.

The Economic Affairs Committee of your Lordships’ House recommended this mandatory duty. When the parliamentary banking commission came to look at it again, we, too, recommended that there should be this mandatory duty. The Government have said that they entirely agree that there should be these meetings. They have announced that they have been moving

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gradually—I hope that they will move a little further—and have said, “Yes, these should take place, specifically at least twice a year”. However, they have so far resisted having that on the statute book. As noble Lords will know, once bitten, twice shy. We have been through this before: although we had all the good intentions, it was not on the statute book, and eventually it did not happen. Therefore, I say to the Minister, the Government have agreed that this should happen, and I cannot see any reason why it should not be in the Bill. Furthermore, from the history I have recounted, I can see a good reason why it would be folly, and dangerous, not to have it in the Bill. I beg to move.

Lord McFall of Alcluith (Lab): My Lords, as a fellow member of the Parliamentary Commission on Banking Standards, I support the amendment moved by the noble Lord, Lord Lawson. The lack of a relationship with auditors is something that I have noticed since the beginning of the financial crisis. Indeed, at that time regulators told me that, when deciding what regulation banks should be subject to, they sent their less experienced regulators to the smaller banks and their more experienced regulators to the larger ones. By the way, when the regulators go to the larger banks they are sometimes taught by the people working in them because the quality is higher there. So the relationship between the regulators and the auditors is very important.

Martin Wheatley, who is now chairman of the FCA, is on record as saying that the FSA never looked at banks’ business models. In other words, it did not look at the profit and loss element of banks because it felt that it was none of its business. If the FCA is now to adopt the new policy of looking at business models, which tell you everything about a company, then the auditor is going to have a central role to play. I know that the audit profession has been rather taken aback by the criticism of the Treasury Committee and the Parliamentary Commission on Banking Standards, which posed the question, “What is an audit?”. The profession will have to do an awful lot of work on that because it has largely believed that audits cover something that has occurred in the past and not something that will happen in the future. It has not taken high-risk, low-probability strategies or low-risk, high-probability strategies into consideration. Auditors are in the unique position of looking at the business model and so can assist banks in having a forward look at that. They can also help regulators to understand what a business model is about. As the noble Lord, Lord Lawson, said, this measure was not put on the statute book previously and therefore lapsed by default. In the interests of being constructive on this issue and wanting to ensure that we have auditors who keep bank executives on their toes, I agree wholeheartedly with the noble Lord, Lord Lawson, that we need to see this measure written into the Bill.

Lord Eatwell: My Lords, I add the support of these Benches for the commissioners’ amendment. I was particularly struck, as I hope the Government were, by the account related by the noble Lord, Lord Lawson, of what happened when he made these meetings legal but overlooked the need to put them into statute law,

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with the result that they did not happen. We have an opportunity here to make these meetings take place and be effective. Both the Economic Affairs Committee of your Lordships’ House and the commission stand behind this amendment and the views that have been expressed, and I hope that the Government will as well.

6.15 pm

Lord Deighton: My Lords, we are considering a proposal to mandate the regulators to meet the auditors of all the banks they supervise at least twice a year. Strengthening the quality of engagement between auditors and supervisors is an objective that the Government share. I think that there is absolutely no disagreement between us about how important that is and how it has not always worked well in the past. I listened to the concerns of the noble Lord, Lord Lawson, that voluntary commitments for regulators and auditors to meet regularly could easily fall into abeyance. However, some lessons have been learnt from the financial crisis, and the Government have taken meaningful steps to ensure that the new regulator does not slip into the habit of neglecting engagement with auditors.

FiSMA now includes new Section 339A, which requires the PRA to have arrangements for sharing information and opinions with auditors of PRA-authorised firms, and to publish a code of practice to set out the way in which it will comply with this obligation. This code of practice sets out in detail the principles governing the relationship between the regulators and bank auditors and must be laid before Parliament whenever it is changed. This change to the law has greatly improved the regulators’ engagement with auditors since the crisis, so the Government have taken action here. The Government believe that the action they have taken in this respect is in line with changes to ensure that the regulators now follow a judgment-led approach to supervision that ensures regulators are clear in their purpose and direct resources to the most important cases.

One of the criticisms of the old FSA was that its approach did not focus on the most significant issues and too much resource was taken up by inflexible processes. Operationally, this new legal framework forces regulators to be more diligent and allows them to be held accountable. The essential strength of the new legal framework is that it demands diligence from the regulators through parliamentary review and encourages proportionality by allowing them to specify where they will focus their resources. The result has been that the PRA will meet with firms which have the potential to cause major economic disruption in the case of failure at least three to four times per year. The FCA will meet with the auditors of those firms at least twice a year. This is exactly what we want—prioritised, high-quality engagement where it matters.

The Government therefore remain unconvinced of the value of changing the frequency of this dialogue in statute without some reference to proportionality. Two meetings a year with the auditors of important firms is too little, while the same number for very small firms may be too many. The Government favour the current legal framework with its provisions for diligence and prioritised application of resources. Of course, there

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may be refinements that can be made in the law to ensure that the requirements on regulators are always express.

Lord Lawson of Blaby: For clarification, if my noble friend reads the amendment, he will see that it does not say that the meetings should be held twice a year but that they should be held at least twice a year, so there is flexibility there. I hope that he will take this back and bring forward something better than he has said so far—interesting though that is—at Third Reading, because he has not addressed the critical point of the need to have a statutory requirement for these meetings to take place. He can decide what the right periodicity is; what I am anxious about is that there should be this statutory requirement.

Lord Deighton: I was just getting to that. The Government believe that there is a superior approach to strengthening the law in this area by clarifying the requirements on regulators to meet auditors enough times to accomplish their objectives. I think we agree that the periodicity should not be the constraint, although perhaps we could deal with that by a requirement to disclose the frequency of meetings with certain types of firm to ensure accountability. Such an approach would, in the view of the Government, be superior and retain proportionality and the judgment-based approach while increasing accountability. If the noble Lord will withdraw his amendment I will be willing to return to it at Third Reading, subject to further consideration of these issues.

Lord Higgins: Before my noble friend sits down, can we be absolutely clear what he is saying? He is saying that he is going to come forward with an amendment at Third Reading to put this measure on a statutory basis, but leave the frequency point on one side. Is that what he is saying? If not, we should reach a decision on this.

Lord Deighton: That is what I am saying, yes.

Lord Lawson of Blaby: In answer to the useful point of clarification by my noble friend Lord Higgins, will this measure definitely be on the face of the Bill?

Lord Deighton: Yes.

Lord Lawson of Blaby: Given that undertaking, for which I am extremely grateful, I beg leave to withdraw the amendment.

Amendment 180 withdrawn.

Amendment 181

Moved by Lord Lawson of Blaby

181: After Clause 120, insert the following new Clause—

“Proprietary trading

(1) The PRA and the FCA must carry out a review of proprietary trading by relevant authorised persons.

(2) The review must be completed before the end of the period of 3 years beginning with the day on which this Act is passed.

(3) The PRA and the FCA must give the Treasury a report of the review.

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(4) The report must include—

(a) an analysis of any action taken by the PRA and the FCA to monitor whether and to what extent relevant authorised persons engage in proprietary trading and any action taken by the PRA or the FCA to discourage relevant authorised persons from doing so;

(b) an account of any difficulties encountered by the PRA or the FCA in taking that action and an assessment of its efficacy;

(c) an account of any requirement imposed on relevant authorised persons which the PRA or the FCA consider may be engaging in proprietary trading to publish a statement of the exposure to risk of relevant authorised persons in their trading operations and of the controls applied to limit that risk;

(d) an assessment of the impact of the ring-fencing rules on proprietary trading by relevant authorised persons;

(e) an assessment, drawing on experience in countries other than the United Kingdom, of the feasibility of prohibiting relevant authorised persons from engaging in proprietary trading or limiting the extent to which, or circumstances in which, they may do so (having regard, in particular, to any difficulties of definition); and

(f) a comprehensive analysis of the advantages and disadvantages of prohibiting relevant authorised persons from engaging in proprietary trading or limiting the extent to which, or circumstances in which, they may do so.

(5) The Treasury must lay a copy of the report before Parliament.

(6) The PRA and the FCA must publish the report in such manner as they think fit.

(7) The Treasury must, following receipt of the report, make arrangements for the carrying out of an independent review to consider the case for the taking of action in relation to proprietary trading by relevant authorised persons.

(8) The appointment by the Treasury of persons to carry out the review requires the consent of the Treasury Committee of the House of Commons.

(9) The reference in subsection (8) to the Treasury Committee of the House of Commons—

(a) if the name of that Committee is changed, is to be treated as a reference to that Committee by its new name, and

(b) if the functions of that Committee (or substantially corresponding functions) become functions of a different Committee of the House of Commons, is to be treated as a reference to the Committee by which the functions are exercisable;

and any question arising under paragraph (a) or (b) is to be determined by the Speaker of the House of Commons.

(10) The persons appointed to carry out the review must give the Treasury a report of the review once it has been concluded.

(11) The Treasury must lay a copy of the report before Parliament and publish it in such manner as it thinks fit.

(12) In this section—

(a) “proprietary trading”, in relation to a relevant authorised person, means trading with funds on markets on the relevant authorised person’s own account (whether or not in connection with business with the relevant authorised person’s customers),

(b) “ring-fencing rules” has the meaning given by section 417 of FSMA 2000,

(c) “relevant authorised person” has the meaning given by section 71A of FSMA 2000.”

Lord Lawson of Blaby: This is one of the most important matters that we will have to decide, not merely to make the banking system safer but to address the cultural problem. Proprietary trading is, as noble Lords will be aware, trading which a bank does entirely on its own behalf. There is no client at all. It is the

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furthest from the culture that we expect of banking, which is a culture of prudence and of servicing clients. Here, there is no client and we know from experience that, far from there being a culture of prudence, proprietary trading tends to be of a highly speculative and gambling nature.

It has also, incidentally, been connected with some of the greatest scandals. The LIBOR scandal, for example, was a proprietary trading scandal. Even when there is not a scandal, even when it is perfectly reasonable—I have nothing against speculation as such—in my judgment it is alien to what the banking culture should be. Speculation should be left to the hedge funds. It is a hedge fund activity par excellence and it should not be conducted by banks. That is my view. The view of the commission was slightly different. It was that, while that is probably so, there are practical difficulties and therefore there needs to be a full-scale review a few years hence to see how this is working.

At the moment, of course, there is very little proprietary trading going on in this country. Before the great crash of 2008, the amount of proprietary trading that some banks were doing accounted for more than 30% of their total business; it was as big as that. It has now disappeared, but it will almost certainly come back. Incidentally, when we had this debate in Committee my noble friend Lord Deighton said that there was no need to do anything now because there was no proprietary trading going on. With the greatest respect, he missed the point. We are saying that we should review this a few years hence when there may well be something going on. In fact, there almost certainly will be something going on. We are not legislating just for the here and now, but for the medium term and, so far as we can, for the long term. There will not be another banking Act for a very long time, so it is important that this review is in place.

There is one other thing that the review will be able to do. My good friend Paul Volcker, a very distinguished former chairman of the Federal Reserve in the United States, has been largely responsible for introducing what is known as the Volcker rule in the United States, which attempts to ban proprietary trading. Their system of legislation is so appalling that the rule has got encrusted with myriad barnacles which may make it less effective, but, nevertheless, the clear intention was to ban proprietary trading. He is a very wise observer of the banking scene over many years and he understands full well the practical and cultural problems that derive from banks engaging in proprietary trading.

A review a few years hence will be able to take account not merely of what is happening in the banking world in England at the time but will be able to see how the Volcker rule has worked in practical terms in the United States—and, if it has been defective in any way, we can learn from their experience. Therefore, I urge my noble friend, who made a remark yesterday, almost en passant, about proprietary trading when we were talking about the ring-fence, to go further today and to accept the amendment which we, as a commission, feel is right. He may want to change the wording in some way or other—I suspect that the period we set was a bit too soon; it might be sensible to have it a little further out—but I will leave that to his excellent

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judgment. The important thing is that the essence of this must be accepted by the Government. I beg to move.

Lord Lucas (Con): My Lords, I am interested in a side effect of this amendment. I hope that it may result in us taking a proper look at high-frequency trading, which seems to me to be pretty close to theft, organised on behalf of stock exchanges at the expense of the rest of us in mutual funds and pensions. It seems extraordinary that we allow a certain group of investors privileged access to the stream of information coming out of an exchange, and allow them advantages over real investors. Real investors invest in real funds for long-term real return, performing the function of the market in terms of the allocation of capital and giving people an opportunity to invest their money at risk for return in order to enable them to live in retirement and to prosper from giving other people the use of their money. These are important functions of the market and high-frequency trading seems to me to be parasitical on that.

I have heard it argued that it improves, net-net, the terms on which investors are able to trade. That is not what investors tell me. They say it is as if someone is moving ahead of them. Every time they get into the market they can feel the market being moved ahead by the high-frequency traders. I think that that is an aspect of proprietary trading to which we should pay close attention, and I very much hope that this review will allow us to do so.

Baroness Cohen of Pimlico: I support the amendment. Most of what we are legislating to do is prevent banks doing terrible things to customers. Proprietary trading allows banks to do terrible things to themselves. They are no good at controlling it. The real horrors and the things that, more importantly, threaten the financial system are banks getting proprietary trading horribly wrong. There are examples of distinguished banks coming completely unglued in this. Deutsche Bank, UBS and Morgan Stanley all spring to mind. They seem to have a completely uncontrollable Wild West operation—and if the owners of the operation cannot control it, is it not a serious risk to the financial system and something that, as the noble Lord, Lord Lawson, suggested, should not be taking place inside a bank?

Lord Hamilton of Epsom (Con): I, too, support the amendment. The problem that we have in the City today is that everything is moving so fast, and that traders have the capacity to use computers for all sorts of things. My noble friend Lord Lucas talked about high-frequency trading. I suspect that in three years’ time the new way of operating and making money will be something that none of us has even dreamt of. It is very important that this is reviewed and that there is an opportunity to take a very close look at it in a few years’ time.

Lord Deighton: My Lords, the PCBS did express concern, very understandably, despite the fact that proprietary trading is not as big a part of the current challenge as it perhaps was and perhaps will be. The concern is—just to show that I have grasped the point—that it will come back and become a major risk

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in the future. Therefore, the PCBS tabled an amendment that proposed two reviews. The first is a requirement on the regulator to review the steps it has taken to bear down on proprietary trading, and the difficulties it has encountered. The second, following such a review, would be a review commissioned by the Government into the issue, and into the case for changing the law.

I reassure noble Lords that at present we have a robust set of safeguards to deal with risks from proprietary trading. Indeed, as Andrew Bailey made clear in his response to the PCBS, the PRA thinks that it currently has the appropriate powers and tools to address risks from proprietary trading where it endangers the safety and soundness of a firm. The PRA continually monitors and reviews all risks that banks take, including those from proprietary trading, and it uses the capital regime to make these risks safe.

The new conduct regulator, the FCA, has a similarly wide range of tools, including sanctions, to ensure that banks adhere to a high standard of conduct in their business. Finally, ring-fenced banks, which are at the heart of this new legislation, will already be banned from any proprietary trading, further shielding them from any risks to which it might give rise. Therefore, the Government do not believe that there is a case for reviewing a ban on proprietary trading so shortly after these reviews and before ring-fencing has been put in place.

6.30 pm

However, while the regulators are currently equipped to deal with risks if and when they arise, it seems only reasonable that these arrangements should be reviewed over time and that we should take a strategic look at what any future risks from proprietary trading might mean for the UK banking sector as a whole, including whether the regulators’ powers are appropriate.

I believe that the approach recommended by the PCBS on this is the right one. First, it should be for the PRA and FCA to review the situation, assess their powers and recommend further action to the Government. However, it also seems right that we review this matter once ring-fencing is in place and its effects have been analysed. It would therefore make sense for any such review to incorporate the thinking from the wider review into the ring-fence.

Therefore, I propose to noble Lords that the Government commit to a review of proprietary trading if the PRA deems it necessary, having evaluated its powers and practices in this area. The Treasury will therefore ask the PRA whether it feels equipped to deal with any risks from proprietary trading that may have arisen by that time. If the PRA does not think that it has the right tools, the Treasury will conduct a review of proprietary trading and its impacts, including on ring-fenced banks. That review of course will consider further safeguards against potential future risks from proprietary trading, including a ban, should it conclude that such safeguards are necessary.

Any review that does its job will also consider the experience that other countries have had with structural reforms. The Volcker rule in the US would of course be an obvious candidate, as my noble friend Lord Lawson said. By the time of the review, implementation

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of the Volcker rule—“encrusted with barnacles” was, I think, the phrase used; my notes refer simply to “practical difficulties”—may be further advanced. It is more likely that we can learn lessons then, rather than in three years’ time.

It is reasonable to suggest that ring-fencing should be in place before such a review takes place. I suggest that it should take place only after ring-fencing has been in place for at least a year, and possibly should coincide with the wider review into the operation of the ring-fence. The evidence base will then be much richer.

Therefore, I confirm to my noble friend Lord Lawson that I think we are in vigorous agreement and that we will come back at Third Reading with some agreed wording—in particular, to deal with the timing. On that basis, I ask my noble friend to withdraw his amendment.

Lord Lawson of Blaby: I am grateful that my noble friend said that he would come forward with something at Third Reading. That something will have to be not the possibility of a review but a clear commitment to a review. I think that it is a separate matter from the ring-fence. The ring-fence is about a division of banking; this is a ban. As the noble Baroness, Lady Cohen, said, this is not something that banks should be doing at all. It is a perfectly legitimate hedge fund activity, but there is a fundamental difference. On the basis of what my noble friend said—I hope that I have interpreted it correctly—I beg leave to withdraw the amendment.

Amendment 181 withdrawn.

Amendment 182

Moved by Lord Turnbull

182: After Clause 120, insert the following new Clause—

“Remuneration code

(1) The FCA and the PRA must prepare (and may from time to time revise) a remuneration code.

(2) The remuneration code is to apply to all persons who have approval under section 59 of FSMA 2000 to perform a function in relation to the carrying on by a relevant authorised person of a regulated activity which is designated under subsection (6B) or (6C) of that section as a senior management function.

(3) The remuneration code must—

(a) require that persons to whom the remuneration code applies are, except in specified circumstances, to receive a proportion of their remuneration in the form of variable remuneration,

(b) require that a specified measure of profits is to be used in calculating any variable remuneration which is calculated by reference to profits,

(c) require that the nature and amount of variable remuneration is to strike an appropriate balance between risk to the relevant authorised person providing it and fair reward for the recipient of it,

(d) require a proportion of variable remuneration to be deferred for such period, not exceeding 10 years, as is appropriate to strike a balance between risk to the relevant authorised person providing it and fair reward for the recipient of it,

(e) require that no, or only a limited amount of, variable remuneration of a person to whom the remuneration code applies is to be calculated by reference to sales made by the person or by any group of persons employed by the relevant authorised person providing it, and

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(f) require that non-executive directors of a relevant authorised person are not to receive variable remuneration.

(4) A requirement imposed by the remuneration code is a relevant requirement for the purposes of Part 14 of FSMA 2000.

(5) In this section—

(a) “relevant authorised person” has the meaning given by section 71A of FSMA 2000,

(b) “variable remuneration” means remuneration (whether in money or in securities or any other form of money’s worth) the amount or value of which varies in accordance with profits, sales or other matters.”

Lord Turnbull: I shall speak also to Amendment 183. This is about whether there should be a statutory basis for the existing remuneration code. One can analyse this at three levels. First, does the current code permit the kind of actions that the parliamentary commission recommended, such as longer deferrals where the nature of the risk justifies it, and more extensive clawback? Secondly, will those powers be used more rigorously than they have been in the past, particularly for banks? Thirdly, is giving statutory backing through the Bill necessary in order to ensure the correct answer to the second question?

Since tabling this amendment, we received a letter from the noble Lord, Lord Newby, on Monday, which in my view gives a satisfactory answer to the first question. All that the parliamentary commission sought, with the possible exception of forfeiture of some pension rights, can be imposed under existing powers. With regard to the second question—will those powers be used more rigorously?—the letter from the noble Lord, Lord Newby, says that the regulators,

“have stated that they will revise the … Code following consultation in 2014. The Government will work with regulators to ensure that …the Code [takes] full account of the views of the PCBS and the debates”,

on this Bill. Therefore, it is a matter of judgment for the House. Does it want to accept those assurances or does it feel that further amendments are needed to embed this presumption more fully? I think that the correct way forward is for there to be some further discussion about precisely what the review and the outcome might be. I look forward to hearing what the noble Lord has to say.

Lord Newby: My Lords, I am extremely pleased that my letter has at least partially satisfied the noble Lord. He has left me with a remaining question, which is: are we happy to continue to engage with him and his colleagues as we work towards, and consider, the review? I can give him the absolute assurance that we will be very happy to do so. On that basis, I hope that he will feel content to withdraw his amendment.

Lord Turnbull: On the basis of that assurance, I am indeed content to beg leave to withdraw the amendment.

Amendment 182 withdrawn.

Amendment 183 not moved.

Amendment 184

Moved by Lord Turnbull

184: After Clause 120, insert the following new Clause—

“Special measures

(1) This section applies where the FCA or the PRA—

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(a) has reason to believe that a relevant authorised person’s systems or professional standards or culture do not provide sufficient safeguards against the commission of actions in respect of which the FCA or the PRA has power to take action, but

(b) do not have reason to believe that any such action has been committed (ignoring any action which is already being investigated or in respect of which action has been or is being taken).

(2) The FCA or the PRA may give notice to the relevant authorised person of the belief mentioned in subsection (1)(a).

(3) If the FCA or the PRA gives notice under subsection (2), it must invite the relevant authorised person to make representations showing that sufficient safeguards are in place.

(4) Following the giving of a notice under subsection (2) and the receipt of representations under subsection (3) (if any are made), the FCA or the PRA may commission an independent investigation into the relevant authorised person’s systems and professional standards and culture with a view to establishing whether sufficient safeguards are in place; and for that purpose—

(a) “independent” means independent of the FCA, the PRA and the relevant authorised person, and

(b) an investigation may not be commissioned from a person involved in the auditing of companies.

(5) The relevant authorised person must cooperate with the investigation.

(6) Following receipt of the report of the investigation under subsection (4), the FCA or the PRA may by notice require the relevant authorised person to take measures to provide sufficient safeguards and to monitor their effectiveness.

(7) The relevant authorised person must—

(a) comply with the notice, and

(b) appoint an appropriately senior member of the relevant authorised person’s staff to oversee compliance.

(8) Compliance by a relevant authorised person with a duty under this section may be considered for the purposes of the exercise by the FCA or the PRA of functions under FSMA 2000.

(9) In this section, “relevant authorised person” has the meaning given by section 71A of FSMA 2000.”

Lord Turnbull: This amendment concerns the concept of special measures. We were again told, as we often have been, that all the powers necessary are there and that, indeed, they are being used. That may well be the case. However, the Minister did not respond to my suggestion that, if this is part of the armoury of the regulators, it would be helpful if they set that out so that there was wider understanding of the special measures regime. I do not think that the regime has an identity in the way that it has in the US, where they talk about memorandums of understanding. Subject to that, I would be happy to put this matter into the box labelled “For further discussions”. I beg to move.

Lord Newby: My Lords, I think that this is now having the appearance of a Christmas box, in that the noble Lord is asking the Government to agree to things and we are tending to agree to agree to things.

Given all the powers that the regulators already have, we have been slightly sceptical about whether they need to have, as it were, an Ofsted power of special measures. We do not think that they need more powers but, in order to address the noble Lord’s concern that failings in professional standards and cultures should not be overlooked, we shall be happy to discuss this with him further and to involve the PRA in discussions about how we move towards a firm policy in this area.

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Lord Lawson of Blaby: My Lords, I am very grateful regarding a number of issues. The Government have said that they are going to move further and will probably —and, in most cases, definitely—bring something forward at Third Reading. That is excellent, but it means that we are going to have a lot of government amendments to consider for Third Reading. I stress what I said yesterday about how important it is that this House has plenty of time to consider the amendments that the Government, to whom I am grateful, will bring forward. They must be tabled at the earliest practicable date and well before the date set for Third Reading otherwise it will be necessary for that date to be postponed.

Lord Newby: My Lords, I understand the point being made by the noble Lord. I am not sure at this point, without further discussion, whether we need an amendment at Third Reading. We think that the way forward might be a PRA policy statement, but we can have urgent discussions with the noble Lord on that.

Lord Turnbull: It is indeed a PRA policy statement that I am after. I am trying to establish a regime in which the regulator sees things that are going wrong and gets into dialogue with the company about remedial measures to head off the long-drawn-out agony of enforcement. If it is already doing it, it would be helpful to codify it but I am very happy to work with the Minister on that basis. I beg leave to withdraw the amendment.

Amendment 184 withdrawn.

Amendment 185

Moved by Lord Newby

185: Before Clause 121, insert the following new Clause—

“Power to impose penalties on persons providing claims management services

(1) The Schedule to the Compensation Act 2006 (claims management regulations) is amended as follows.

(2) In paragraph 8 (rules about conduct of authorised persons), in sub-paragraph (2)(b), after sub-paragraph (i) insert—

“(ia) provision enabling the Regulator to require an authorised person to pay a penalty;”.

(3) In paragraph 9 (codes of practice about conduct of authorised persons), in sub-paragraph (2)(b), after sub-paragraph (i) insert—

“(ia) enable the Regulator to require an authorised person to pay a penalty;”.

(4) In paragraph 10 (complaints about conduct of authorised persons), after sub-paragraph (2) insert—

“(3) Regulations under sub-paragraph (1) may enable the Regulator to require an authorised person to pay a penalty.”

(5) In paragraph 11 (requirement to have indemnity insurance), in sub-paragraph (2)(b), after “Regulator” insert “to require the payment of a penalty by an authorised person or”.

(6) In paragraph 14 (enforcement), in sub-paragraph (4), for the words from “impose” to “authorisation” substitute “require an authorised person to pay a penalty, or to impose conditions on, suspend or cancel a person’s authorisation,”.

(7) After paragraph 15 insert—

“Penalties: supplementary provision

16 (1) This paragraph applies in any case where regulations include provision enabling the Regulator to require an authorised person to pay a penalty.

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(2) The regulations—

(a) shall include provision about how the Regulator is to determine the amount of a penalty, and

(b) may, in particular, include provision specifying a minimum or maximum amount.

(3) The regulations—

(a) shall provide for income from penalties imposed by the Regulator to be paid into the Consolidated Fund, but

(b) may provide that such income is to be paid into the Consolidated Fund after the deduction of costs incurred by the Regulator in collecting, or enforcing the payment of, such penalties.

(4) The regulations may also include, in particular—

(a) provision for a penalty imposed by the Regulator to be enforced as a debt;

(b) provision specifying conditions that must be met before any action to enforce a penalty may be taken.”

(8) In section 13 of the Compensation Act 2006 (appeals and references to Tribunal)—

(a) in subsection (1), omit the “or” at the end of paragraph (d) and after paragraph (e) insert “, or

(f) imposes a penalty on the person.”;

(b) after subsection (1) insert—

“(1A) A person who is appealing to the Tribunal against a decision to impose a penalty may appeal against—

(a) the imposition of the penalty,

(b) the amount of the penalty, or

(c) any date by which the penalty, or any part of it, is required to be paid.”;

(c) in subsection (3), after paragraph (d) insert—

“(da) may require a person to pay a penalty (which may be of a different amount from that of any penalty imposed by the Regulator);

(db) may vary any date by which a penalty, or any part of a penalty, is required to be paid;”.”

Lord Newby: My Lords, Amendments 185 to 189, 191 to 194 and 197 to 198 are government amendments on claims management companies and non-government amendments on the consumer’s access to redress from CMCs through the Office for Legal Complaints.

Turning first to the government amendments on CMCs, it is clear that bad practice by certain claims management companies operating in the financial services sector has created poor outcomes for both consumers and businesses. As the scale of potential claims for PPI compensation has become clear, CMCs have become particularly active in this market. Unfortunately, this increase in activity has in some cases been accompanied by an unacceptable fall in standards. CMCs have a legitimate role to play in helping consumers claim compensation. However, a minority have been acting irresponsibly. Some CMCs submitted illegitimate claims which clog up the system. This poor behaviour has led to delays in receiving compensation for consumers who have legitimate claims and has increased costs for defendant financial services firms where claims are unsubstantiated. This issue is most prevalent in, but not limited to, the financial services sector and the PPI claims market in particular. Despite the threat of the suspension or cancellation of authorisation, some CMCs act speculatively which can impose unnecessary costs on defendant businesses and ultimately on consumers.

These amendments enable the Secretary of State to make regulations giving the claims management regulator the power to impose financial penalties on those CMCs

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guilty of misconduct, which will lead to tighter regulation of the industry and better outcomes for consumers and businesses. They also make a number of consequential amendments, ensuring that the provisions of the Bill on secondary legislation, including the power to make incidental or transitional provision, are extended to apply to the Secretary of State as well as the Treasury; that the commencement power applies to these provisions; and that providers of claims management services are referred to in the Long Title of the Bill.

Bolstering the claims management regulator’s enforcement toolkit by giving it a power to fine those engaged in malpractice provides an additional means to deter speculative activity. Further, a power to fine could serve as a useful alternative penalty in cases where it can be disproportionate to vary, suspend or cancel the authorisation of a CMC despite it not being compliant. Where a CMC’s authorisation is suspended or cancelled, for example, it can no longer act on behalf of its clients and this can lead to further consumer detriment. We can ensure that these CMCs go on to work in the best interests of consumers by making sure that they adhere to the codes of practice and Conduct of Authorised Persons Rules issued by the claims management regulator. These rules require CMCs to conduct themselves with honesty and integrity, including requirements to not make speculative claims, to not use misleading advertising, and to not partake in high-pressure selling. I apologise for that stream of split infinitives.

6.45 pm

Not only will those who break these rules be subject to fines, the claims management regulator is also currently consulting on these rules in parallel to this amendment to further strengthen the consumer, business and third-party protections they offer. This ability to impose a financial penalty will be implemented by secondary legislation. It will be done by way of amendments to the existing regulations—the Compensation (Claims Management Services) Regulations 2006. A public consultation regarding the detail of the necessary changes to facilitate a claims management regulation financial penalty scheme will be launched in early 2014. Also, any changes to these regulations, including the measure of the financial penalties to be imposed, will be subject to the affirmative procedure, allowing for necessary scrutiny of the detail of the proposals in Parliament. It is critical that we tackle poor practice in this sector. These amendments, giving the Secretary of State power to permit the claims management regulator to fine claims management companies will mean that those non-compliant CMCs will have to pay the price of their poor behaviour.

I turn now to the amendment tabled by the noble Baroness, Lady Hayter, which, like the power to fine, is aimed at bringing about better outcomes for consumers who engage with the CMC sector. The noble Baroness has raised a very important issue of enabling the Office for Legal Complaints—OLC—to act as an important route of redress for consumers who feel that they have been treated unfairly by CMCs. The Government are in full agreement with the noble Baroness that consumers should be able to seek redress

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through the OLC. Although her intention is clear in tabling the amendment, in its current form it does not fully bring about the changes that she seeks to implement. However, as the Government support the spirit of the noble Baroness’s amendment we will give further consideration on how best to put it into effect. With that assurance, I hope that she will feel able to withdraw it.

Baroness Hayter of Kentish Town (Lab): My Lords, first, I welcome the government amendments within this group. As the Minister said, this is undoubtedly a useful addition to the regulator’s toolkit. However, although I am of course delighted that the spirit of my amendment is acknowledged, we cannot wait any longer for this. The Legal Services Act 2007 envisaged that complaints against claims management firms would be able to go to the legal services ombudsman. That was widely welcomed by Which? and everybody else. We know that in August last year the Government made the formal announcement that complaints by consumers against claims management firms would be able to go to the legal services ombudsman. That was agreed on both sides of the House and was warmly welcomed by us.

However, that was in August last year. Since then we keep hearing, “Don’t worry about it, don’t worry about it”. I have raised this issue in other Bills and there was an exchange of correspondence between me and the noble Lord, Lord McNally, about the importance of getting this done. Nothing happened—the last letter was in November. I should explain briefly to the House that the absolute desire is that these complaints should go to the legal services ombudsman. The Legal Services Act only enables that procedure to take money from barristers and not from claims management firms to pay for the ombudsman. Of course, because the regulator is the MoJ, that is a form of taxation so the only thing stopping this happening is the technicality of how we fund it.

That was accepted by the Government but they did not seem to come up with a vehicle to do this. I offered to do it for them via a Private Member’s Bill. That was prepared with the help of Which?, particularly Mark McLaren who did a lot of work on drafting that Private Member’s Bill, which we then offered as the vehicle to solve this. Nothing happened to that, although it was not declined until 12 November when the Government laid these amendments—which we were not expecting. The amendments are very welcome but do not solve the problem for two reasons: first, they do not allow consumers to get redress; and secondly, they therefore preclude the intelligence that would come from complaints. Frankly, people complain against something only if they have a chance of compensation.

Although the Government say that they will look at this, that is what they have said continuously since August last year. That being the case, we will want to put this to the House, either today or at Third Reading. I had hoped that the Government would say today that they would bring this matter back by Third Reading. Perhaps they could clarify whether that will be at some time in the future—which basically means another couple of years—or whether they are willing to do it by Third Reading.

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Lord Newby: My Lords, if we can do it at Third Reading, we will. I am advised that there are a number of technical and procedural issues that we have to go through. I hope we can do it at Third Reading. I shall certainly press very hard that we do, and every effort will be made to achieve that.

Amendment 185 agreed.

Amendment 185A not moved.

Amendment 186

Moved by Lord Deighton

186: Before Clause 122, insert the following new Clause—

“Orders and regulations: general

(1) Any power of the Treasury or the Secretary of State to make an order or regulations under this Act is exercisable by statutory instrument.

(2) Subsection (1) does not apply to an order under section 34 (payment systems: designation orders).

(3) An order or regulations made by the Treasury or Secretary of State under this Act may—

(a) make different provision for different cases, and

(b) contain such incidental or transitional provision as the Treasury or Secretary of State considers appropriate.”

Amendment 186 agreed.

Clause 122: Orders and regulations

Amendment 187

Moved by Lord Deighton

187: Clause 122, page 94, line 9, leave out subsection (1)

Amendment 187 agreed.

Clause 124: Power to make further consequential amendments

Amendments 188 and 189

Moved by Lord Deighton

188: Clause 124, page 95, line 7, after “Treasury” insert “or Secretary of State”

189: Clause 124, page 95, line 9, leave out “they consider” and insert “the Treasury or Secretary of State considers”

Amendments 188 and 189 agreed.

Amendment 190

Moved by Lord Brennan

190: Clause 124, page 95, line 13, leave out paragraph (b)

Lord Brennan: My Lords, this amendment raises an issue of parliamentary importance well beyond the scope of the Bill. Clause 124 is a Henry VIII clause. Its contents involve the usual provision to make consequential amendments following the enactment of the Bill. My amendment is expressly related to the additional power the clause gives to amend subsequent legislation passed in this House in the same Session as the present Bill.

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In restricting the amendment to that particular subsection, it should not be understood that I approve of the use of Henry VIII clauses. They are often the result of a bureaucratic, slipshod approach, whereas years ago statutes in draft form were dealt with with great care. The more such clauses are introduced, the more will be eroded the parliamentary sovereignty that is exercised over primary legislation.

Subsection (b) contains the power to amend future legislation in this Session of Parliament. In Committee, I invited the Government to explain the necessity for this and to note that it was most unusual. In fact, I have been able to identify only one statute where this phraseology has been used—the Financial Services and Markets Act 2000, a Treasury Bill. Please note the difference. You can amend an existing statute under a Henry VIII clause if it is passed, whether it is as a consequence of this Bill or some Bill that has become an Act in the past. However, we are talking about this Bill giving a power for subordinate legislation to amend future legislation. That is an extraordinary power for Parliament to seek to give, no matter how often it is declared that it is only for consequential matters.

It is the one example that I can find and occurred in circumstances which are extremely concerning. The amendment deals with a clause that was introduced in Committee. It was not considered by the Delegated Powers Committee because it came subsequent to that committee’s report, and it was not considered by the Constitution Committee, both of which would normally consider and report on a Henry VIII clause. The Government would then respond to that report and the committee would reply. That process fulfils what the Constitution Committee’s report on the Public Bodies Bill in 2010 said should occur in respect of these clauses—they should be clearly limited, exercisable only for specific purposes and subject to adequate parliamentary scrutiny. That does not mean only on the Floor of the Chamber: it is the committee’s report, the Government’s response and that then informing this Chamber as to whether the Henry VIII power is appropriate. The Government introduced the clause by amendment and, as far as I am aware, they did not bring it to the attention of either of these committees or engage in the exchange that would normally have occurred.

The noble and learned Lord, Lord Judge—who now sits on the Cross Benches—as Lord Chief Justice, described Henry VIII clauses in general as pernicious because they make for sloppy legislation and potential injustice, as well as a lack of parliamentary sovereignty. However, he did not have in mind a Henry VIII clause that allowed amendment of future legislation. Is this academic? No, it is not. Within the present Bill and the Government’s commentary on the Parliamentary Commission on Banking Standard’s report, I identified to the committee three issues which the Government were continuing to consider, each of which would require legislation if they introduced a change in respect of any one of the three. This could occur, presumably, during this Session.

This is important. Is it not rare that a Chamber in a legislature should allow subsidiary legislation to dominate future primary legislation in the sense that it can

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amend it? That state of affairs—something arising that affects a previous Act—should result in the Government of the day amending the new Act accordingly, as is their statutory duty in introducing legislation to the House.

In Committee, the noble Lord, Lord Newby—surely trying to be helpful, as he always is—said:

“I am very happy for Treasury lawyers to set out in a letter the precedents that these powers exactly replicate”.—[Official Report, 23/10/13; col. 1171.]

Five weeks later, I have received nothing and the Government have not given an explanation. It is not good enough. If the matter comes up again at Third Reading, it will be incumbent on the Government, at the very least, to make sure that any amendment concerning this clause should take place in the Chamber, if possible in the presence of noble Lords from those two committees playing their part. I beg to move.

7 pm

Lord Eatwell: My Lords, I support my noble friend Lord Brennan in his attempt to remove subsection (2)(b) from Clause 124. As he has clearly told the House, it would enable secondary legislation to amend future Acts prior to the end of the Session—not this Act, but other enactments. This is an extraordinary power which was justified in Committee by using the argument that there are precedents. No precedents have been produced. It is shocking that the promise of a letter made over five weeks ago has not actually been kept on something which raised considerable concern in Committee. I think that the Government need to take this matter very seriously indeed and not palm it off with what seem to be entirely unsubstantiated stories of precedence.

Lord Newby: My Lords, I understand the concerns expressed by the noble Lord, Lord Brennan, and I assure him again that there is nothing unusual about the form of the power to make consequential amendments in Clause 124, and in particular, subsection (2)(b) does not extend the power unreasonably. My memory of exactly what I have written to whom, given that I have written to quite a number of people, is slightly hazy. I think I may have referred to this issue in what was a sort of portmanteau letter to the noble Lord, Lord Eatwell. It covered a whole raft of issues that had been raised not only by him but by other noble Lords. If I did not do so, I apologise to the noble Lord, Lord Brennan. However, in what I am about to say, I think that I can deal with the main point that he made.

Removing paragraph (b) would limit the power to make consequential amendments to Acts which are passed before the passing of this Act. That can produce unpredictable results depending on the progress of Bills and the dates on which they happen to reach Royal Assent. For this reason, powers to make consequential amendments to existing legislation often refer to Acts which are passed in the same Session as the Act in question. Noble Lords have asked for examples of this, and I can give them several. Such powers can be found in Section 51 of the Constitutional Reform and Governance Act 2010, Section 237 of the Planning Act 2008, Section 28 of the Welfare Reform Act 2007 and Section 118 of the Financial Services Act 2012—the provision on which Clause 124 was modelled.

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The assumption is that Bills of the same Session are likely to have been prepared by reference to the existing law at the beginning of the Session, while the Bills of the next Session would have to take account of the change in the law produced by the Act in question. Where a Bill is amended significantly in its passage through the second House, it is particularly unlikely that Bills passed or made in the same Session will have taken account of all the provisions of the new Bill. That clearly applies in this case, as your Lordships know. The need to implement the recommendations of the Parliamentary Commission on Banking Standards has required very extensive amendments to the Bill in this House, and therefore it will not have been possible for the Bills which are being considered by Parliament in this Session to have taken full account of all the changes in the law which will be made by this Bill. Nor has there been time for the Government to consider all the Bills currently before the House to see if any consequential amendments may be required, or to follow all the amendments being proposed to these Bills. We have not, for example, had the opportunity to review the Pensions Bill, which may have provisions relevant to the subject matter of this Bill, or the Immigration Bill, which has some provisions on banking. We cannot rule out the possibility that it may be necessary for the Government to make consequential amendments to them.

I assure the House that the amendment introducing this power was considered by the Delegated Powers and Regulatory Reform Committee, and that committee has not expressed any concerns in relation to this power. I hope that, in the light of these assurances, the noble Lord will feel able to withdraw his amendment.

Lord Brennan: Will the Minister clarify, first, his reference to the Delegated Powers and Regulatory Reform Committee? Was its response made in writing, has it been published, and is it available in the Printed Paper Office? Secondly, and much more important, is that as his research appears to have been done, can he clarify whether on any previous occasion this power has actually led to the amendment of another Bill being passed in the same Session, but after the Act which gave rise to the power?

Lord Newby: I thank the noble Lord for that question. It is the normal practice of the Delegated Powers and Regulatory Reform Committee to include in one report its views on a number of Bills. I believe that that is what happened in this case and I will definitely write to the noble Lord if it has not.

Lord Brennan: Would it be possible for the Minister to confirm that because I asked specifically in the Printed Paper Office for all the relevant paperwork about this, and I was not given any report.

Lord Newby: I will absolutely confirm that, and I will write to the noble Lord on the second point, which I promise to do speedily.

Amendment 190 withdrawn.

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Clause 125: Transitional provisions and savings

Amendments 191 and 192

Moved by Lord Deighton

191: Clause 125, page 95, line 18, after “Treasury” insert “or Secretary of State”

192: Clause 125, page 95, line 18, leave out “they consider” and insert “the Treasury or Secretary of State considers”

Amendments 191 and 192 agreed.

Clause 126: Extent

Amendment 193

Moved by Lord Deighton

193: Clause 126, page 95, line 28, after “Britain)” insert “and section (Power to impose penalties on persons providing claims management services) (power to impose penalties on persons providing claims management services)”

Amendment 193 agreed.

Amendment 193A not moved.

Clause 127: Commencement and short title

Amendment 194

Moved by Lord Deighton

194: Clause 127, page 95, line 33, at end insert—

“( ) Section (Power to impose penalties on persons providing claims management services) comes into force on such day as the Secretary of State may by order appoint.”

Amendment 194 agreed.

Amendments 194A to 196 not moved.

In the Title

Amendment 197

Moved by Lord Deighton

197:In the Title, line 6, after “subsidiaries;” insert “to make provision for penalties to be imposed on persons providing claims management services;”

Amendment 197 agreed.

Amendment 198 not moved.

Post Office


7.06 pm

The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Viscount Younger of Leckie) (Con): My Lords, with permission, I shall now repeat a Statement made in another place by my honourable friend the Minister for Employment Relations and Consumer Affairs. The Statement is as follows.

“Mr Speaker, I am pleased to announce that the Government are committing a further £640 million in funding to the post office network for three years, 2015-16 up to 2017-18. This enables the Post Office to complete its network transformation programme and to protect and invest in those branches that provide vital services to their communities but which are not commercially viable in their own right.

27 Nov 2013 : Column 1484

In 2010, the Government committed £1.34 billion to maintain a national post office network, modernise branches and safeguard the future of post offices which play a vital role in urban deprived and rural areas. Since then, the post office network has been at its most stable level in over 20 years, in stark contrast to 7,000 closures under the previous Government. This Government remain fully committed to maintaining a network of at least 11,500 post offices, fully compliant with our access criteria, and with a sustainable long-term future. To achieve this, the post office network must meet the changing needs of customers through longer opening hours and more modern premises which are easier and faster to use.

Already more than 1,400 communities have benefited from government investment into their post offices, with a total of 34,000 extra opening hours per week across the network. A further 830 post offices are also signed up to change to the new main or local operating models. In total, this represents nearly one in five of our post offices, and most honourable Members have one or more modernised branches in their constituencies. In fact, over 200 honourable Members, including myself, have personally opened a new-look post office in their area.

The Post Office is drawing on experience from the first year of the network transformation programme to introduce changes that will see the programme completed by 2018. These changes, developed by the Post Office in conjunction with the National Federation of SubPostmasters, were endorsed yesterday by sub-postmasters at a special conference. We will deliver the benefits of longer opening hours and more modern premises to customers at a swifter pace, while making more investment available and providing greater clarity and certainty for sub-postmasters.

The Government do not underestimate the challenges facing the network, the Post Office centrally and, in particular, individual sub-postmasters. In recent years, the retail environment on the high street and more widely has been far from easy for sub-postmasters, and this new investment recognises that reality. The network needs to build on its core strengths of unparalleled national reach and the trust and high regard in which it is rightly held by customers. It must focus on meeting customers’ needs and expectations in a rapidly changing, highly competitive retail market. Ease of access, longer opening hours, shorter queues and modern premises are key to winning new clients and attracting and retaining customers.

With more than 1,400 branches modernised to date, independent research is showing customer satisfaction levels with the new models averaging over 95%. Satisfaction levels among sub-postmasters operating the new models are similarly impressive, at around 80%.

In many locations, new operating models are enabling post offices to be re-established after a significant break in service. At Balnamore in North Antrim, a new local branch opened in August, re-establishing post office services some five years after the closure of the previous branch. The new branch opens seven days a week for a total of 92 hours. At Oxenhope in West Yorkshire, with no post office since June 2011, a new local branch opened in the Co-op now offers post

27 Nov 2013 : Column 1485

office services from 7 am to 10 pm seven days a week. But it is not just about new post office operating models. The post office network is incredibly diverse, and it is just as important to customers in remote rural areas that their post office stays open, as it is for busy town centre branches to be open for longer.

There are around 3,000 post offices for which the new main or local models are not suitable. These branches predominantly serve small, often remote, communities and may be the last shop in the village. They are hugely valuable to their communities. The updated network transformation programme provides, for the first time in Post Office history, a £20 million investment fund allocated specifically to this part of the network. This fund will enable the improvement and modernisation of these branches to strengthen their long-term sustainability.

The investments being made by the Post Office are already creating a strong platform from which it can compete for new work from government and the private sector. Some customers and sub-postmasters have expressed understandable concerns about continued access to Post Office card accounts beyond 2015, when the current contract is due to expire. The Department for Work and Pensions and the Post Office are in discussion about a long-term successor to the Post Office card account, and I can confirm today that all options under consideration conclude that access to pensions and benefits will continue beyond March 2015 across the whole post office network of at least 11,500 branches.

However, the Post Office is also doing much more for government. Over the past two years, the Post Office has won every single government contract it has bid for. It is winning this work competitively, and winning it because it is such a strong partner for government. And there is even more that the Post Office can do for government in the future. For example, under the existing contract with the Passport Office, the Post Office is discussing the introduction of new in-branch services which would allow the majority of customers to apply for their passports digitally, without the need for any supporting paper forms. The intention is to introduce these services from the middle of 2014.

Recently, the Department for Energy and Climate Change announced that it will work with the Post Office to signpost elderly and vulnerable people to the 500 volunteers being trained by the Big Energy Saving Network to help people find ways to cut their bills. These innovations demonstrate a forward-thinking Post Office, introducing new services, growing new revenue streams and bringing new customers into post office branches. With the additional funding in place, we have the basis for building a thriving and sustainable Post Office.

I believe that in the next few years, we will see the Post Office continuing to grow its business, and its network flourish and potentially expand in due course. Creating a financially sustainable network will be key to delivering a Post Office that can be mutualised. Significant progress has been made by the Post Office and its stakeholders already and this will be boosted by the funding committed by the Government today.

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The Post Office will shortly publish further details of the steps it is taking to build a mutual future. The £640 million investment that I am announcing today funds the completion of a transformation programme. It establishes the platform for a vibrant, commercially sustainable post office network with a mutual future. I commend this Statement to the House”.

7.14 pm

Lord Young of Norwood Green (Lab): My Lords, I thank the Minister for repeating the Statement. Let me start by paying tribute to our sub-postmasters up and down the country. They are integral to all our local communities and the social fabric of the country. However, the job of a sub-postmaster has become much more difficult in recent years. Research from the National Federation of SubPostmasters shows that incomes are falling and many work very long hours for very little return.

That situation has not been assisted by the Government, who in 2010 announced plans to use post offices as the “front office for government”. The Government have failed to deliver on that pledge. No new major government services have been awarded to post offices since May 2010. Indeed, the National Federation of SubPostmasters has said that the few new services which have been introduced are one-off transactions available only in a small number of post offices and many services do not make the post office any revenues at all. This resulted in the National Federation of SubPostmasters removing its support for the Postal Services Act. The Government promised £466 million of government work, but the post offices are currently gaining only £130 million from government business. That failure has resulted in the post office network being under more pressure than ever before.

On top of this failure is the abject failure of the network transformation programme as planned. Consumer Futures wrote to the BIS Select Committee just last month showing that only 1,100 have converted to the new models, and the Government require 6,000 by 2015. It shows that the programme is not working, and that is why a degree of compulsion has been introduced.

We can firmly say that today's announcement of additional funding of £200 million on top of the £420 million already trailed beyond 2015 is a vote of no confidence in what this Government are doing to the network. In effect, the Government are increasing the compensation for people to leave and offering more money to convert. Of this, £23 million is for completing a retail survey in order to determine who should be compulsorily converted or removed from the network. If they had delivered on their “front office for government” work, as they said they would, then the £200 million would not be required. It is a payment for failure and yet another broken government promise.

It is true that the National Federation of SubPostmasters voted to approve this yesterday, as most operators feel that the traditional post office model under this Government is not working. Sub-postmasters know that they will now have a degree of compulsion, but they will take the package as they are

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really struggling. That the federation’s members are voting to support this package so wholeheartedly shows that they want to get out. It is the epitome of taking the money and running. Crucially, this money will be used to subsidise exit from the network rather than to go into the network to make it sustainable in the long term.

We welcome the Government’s commitment to the Post Office card account beyond 2015, although I am not sure how absolute that guarantee is. We also welcome the “last shop in the village and community” post office funding, and support the policy that there will be no compulsion. The £20 million will assist in modernisation and help these vital community assets.

By the end of this process £2 billion will have been spent on network transformation and there is concern that we still do not have a model that is sufficiently attractive to current or future operators. It is true that in the past 7,000 offices were closed, but that was a necessary programme to ensure stability of the network. Is the Minister confident that there are sufficient retailers willing to take on the local model?

The Prime Minister said in PMQs in the other place, in answer to a question from the honourable Member for Argyll and Bute, that,

“we have committed that no post office will close in this Parliament”.—[

Official Report

, Commons, 23/10/2013; col. 296.]

However, if you stay and convert and have your salary subsidised until 2015, the question is: what will happen beyond 2015? I would also welcome answers from the Minister to the following questions. Will the current criteria be used for compulsion or will they be updated? Will this require a new state aid application? Where does all this current activity leave the Government’s plan for mutualisation? Finally, if other outlets are not prepared to take on a post office when a sub-postmaster leaves the network, what will happen?

7.20 pm

Viscount Younger of Leckie: First, I thank the noble Lord, Lord Young of Norwood Green, for his response and agree with his tribute to the sub-postmasters. As he alluded to, they do a sterling job around the country, often in quite difficult environments, and I pay tribute to them for all the work that they do and all the hours that they put in. I also agree with the noble Lord when he said, I think, that sub-postmasters have had quite a difficult few years. The past two or three years have been pretty tricky for everyone, particularly in the retail sector, and sub-postmasters have been no exception in terms of the post offices that they run.

However, it is not true to say that no new government services have been won. I can provide evidence that many contracts have been won, including some government contracts, and am very happy to furnish him with that information. The past two years, since 2010, have been, in effect, a success story in terms of the number of new government contracts won, which is a great testament to the work that the Post Office has done.

The noble Lord also raised the issue of the new model. The £1.34 billion that was announced back in 2010 was of course designed to see the Post Office through the next few years, up to 2015, with the objective of renovating 6,000 branches. The noble

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Lord, I think, agreed that more than 2,000 branches—it is in fact 2,250—have pledged to go forward with renovation. Already, 1,400 have been renovated and those post offices have proved their worth in terms of customer satisfaction. He made the point that the money to cover all 6,000 had not been spent, but it is a rolling programme—the extra £640 million is designed to take us further forward, for the period from 2015 to 2018, and to extend the 6,000 to 8,000. It is an extremely good success story and testament to the fact that the money that we spent in 2010 has been used to such good effect in improving the 6,000.

The noble Lord said that more than 7,000 branches were closed by the previous Government, which is true. He said that it was because of the need to create stability, but there was a huge cost to doing it. We are now at the stage where we can say that we have created much more stability for the Post Office. It has never been more stable, and it is certainly more stable than during the previous Government.

Where branches have already been converted, customers are benefiting from much longer opening hours and fewer queues—more than double under the local model and up by 35% in the main branches. We also pledged, back in 2010, that there would be no office closures, a point I will address directly with the noble Lord. We are often challenged on that pledge but I say again, for clarity, that we seek, and have pledged, to keep open 11,500 branches.

The noble Lord raised the issue of state aid. He is quite correct that we need to apply for state aid, as we did for the initial £1.34 billion. We are looking ahead and making sure that we do that in good time. We have every confidence that the state aid application will be accepted. We do not see a problem with it but it is right to clarify that that is indeed the case.

The noble Lord also focused on the issue of mutualisation. I will just add a word of caution here: although seeking mutualisation is a nice long-term aim, there is a long way to go and some settling-down is needed. What is certain is that we are looking ahead, ideally to see how sub-postmasters, and maybe communities, might become more directly involved in investing in the post office network, which we see as vital for the future of this country.

7.25 pm

Lord Stoneham of Droxford (LD): My Lords, in contrast to the gloom and pessimism on the opposition Benches, I welcome the additional funding to speed up and complete the modernisation of the post office network, plus the new funding for the smaller post offices that are not suitable for the principal modernisation programme.

I congratulate the Government on the stability they have achieved and the commitment they have given to the post office network, against a background of a very difficult retail environment and after a decline of one-third in the number of post offices in the previous 13 years. This initiative recognises the importance of a local post office to the social fabric of our communities. It is important now that we work hard to ensure the commercial sustainability of the current network. That will need vital new business.

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I have two questions for the Minister. What prospects does my noble friend see for the development of the Post Office current account business given the damage the commercial banks—along with, sadly, the Co-operative Bank in recent weeks—have done to their brand? With the growth of internet shopping, are our modernised post offices equipped with secure storage space and the technology to notify customers when their deliveries arrive?

Viscount Younger of Leckie: I thank my noble friend Lord Stoneham for his very strong and broad support for what the Government are doing. He makes the very important point that the post office network, and individual post offices, whether local or main branches, will now be in a much better position to compete and to offer much better, streamlined services for the customer. The whole point is that we want to create a more stable environment so that the customer can come in and have a greater offering of retail opportunities, including the financial options.

The Post Office is making good progress towards meeting its commitment to provide affordable and accessible financial services, including current accounts. In May 2013, as the noble Lord will know, it launched a current account pilot, with a national rollout expected in 2014. Alongside that, the Post Office continues to offer an extensive range of savings, credit card and mortgage products. I have no doubt that this offering will be extended as confidence is brought in again and increases in the network around the UK.

Lord Skelmersdale (Con): My Lords, I should probably declare an interest as a director of a mail order firm. I know this debate is nothing to do with Royal Mail whatever but the firm that I am director of uses the local sub-postmaster branches somewhat extensively.

More than 20 years ago, I was in the Minister’s position speaking for the Post Office in your Lordships’ House. At the time, I wondered why sub-postmasters, in particular, were not allowed to hold passport forms, so I welcome this half-change that the Government have made in considering allowing the Post Office to digitise the passport application forms for customers. However, of course, in this day and age, many of us think too much in terms of computers. A vast number of people in this country would not dream of either owning a computer or using somebody else’s computer—for example, the post office’s. Therefore I maintain my plea from all that time ago that the post office, sub-postmasters particularly, be allowed to both issue and receive completed paper passport forms. In my view, that is long overdue.

The other thing I would like to say is that of course it is not only for the Government to produce services for the Post Office to offer. For example, you can go into my local post office in a village on the outskirts of Taunton and ask for either dollars or euros. That is not a government service; that is an arrangement with the banks. If I wanted some Argentinean pesos, they would probably take only three days to arrive. There are all sorts of other non-government services that the Post Office should or could be able

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to provide. I hope that it is thinking along thelines of extra activities that it could offer; for example, booking airline seats. I congratulate theGovernment on a small step in what I regard as the right direction.

Viscount Younger of Leckie: I thank my noble friend Lord Skelmersdale for his support for what we are doing. I am glad that he has made it clear that we are not talking about Royal Mail today and that the focus is indeed on the Post Office for once—a very important part of our life in the UK. I am also glad to hear that he frequents his local post office.

I agree entirely that as the post office system looks towards becoming more confident and settling into offering different types of services, the range of services will entirely depend on the remit of the contracts between the independent post office sub-postmasters and the Post Office. But I am sure that most of them will be thinking about how they can best make their post offices pay and offer the best possible range of services to customers. These extra activities could include the opportunity to get online and go on to a computer, and even perhaps introducing some coffee shops into post offices—who knows?

With regard to his point about passports, the situation is going to remain that those who wish to renew passports will be able to do so, primarily at the main post offices. We do not want to create lengthening queues at local post offices when people want simply to buy a bar of chocolate or some stamps. These issues have been well thought out. Bearing in mind that we want to stick to our pledge of having 93% of the population living within a mile of a post office, being able to renew driving licences and passports is very important, and that is all very much part of the future.

British Indian Ocean Territory

Question for Short Debate

7.32 pm

Asked by Baroness Whitaker

To ask Her Majesty’s Government what plans they have for the future of the British Indian Ocean Territory.

Baroness Whitaker (Lab): My Lords, I will not rehearse the tragic story of the exile of the Chagossians again. Numerous Hansard references can do that. I will just remind your Lordships that it was an acknowledged fundamental injustice—acknowledged not least by the present Government.

As the noble Lord, Lord Luce, said in the most recent parliamentary mention on 17 October:

“This remains a blot on our copybook which we must rectify”.—[Official Report, 17/10/13; col. 695.]

I am very pleased that he will speak tonight, and I look forward to the contributions of my friends the noble Lords, and my noble friends. The noble Lord, Lord Ramsbotham, added that it was,

“contrary to the core values … in the Commonwealth charter”.—[

Official Report

, 17/10/13; col. 703]

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Their views are shared all round this House and very widely in the media, including the Times and ConservativeHome, so all efforts to put all or part of this injustice right will be widely welcomed.

The Minister will be aware that five years ago an all-party parliamentary group, of which I am a member, was established to press for justice. It will have its 40th meeting on 17 December. I congratulate the chair, my honourable friend Jeremy Corbyn, for his unshakeable determination to restore the rights of the Chagossian people, and our indefatigable co-ordinator, David Snoxell, whose advice has been unfailingly constructive. On 17 December we shall have something to celebrate: the latest step in the progress that has been made since the Foreign Secretary’s announcement 11 months ago that he would take stock of the policy on resettlement. I commend the Minister, Mark Simmonds, for the publication on 19 November of the draft terms of reference for a new feasibility study into the resettlement of the Chagos Islands.

The draft terms are thorough, far-reaching, objective and imaginative. It is a very good start to have a wide range of options and a comprehensive analysis of factors, including environmental, social, economic and legal. I am very pleased to see that the legal section explicitly includes human rights. Clearly the Foreign Office is not frightened, like some, of using these words, part of our core native values. Incidentally, Magna Carta, too, has something to say about wrongful exile. This draft, in fact, implicitly acknowledges the violation of the human rights of the Chagossians. The reasoning for the abolition of the rights of return and abode in 2004 has now largely been discredited by this whole new approach, so they should be restored.

I was particularly taken by the possibility that the British Indian Ocean Territory could become a new model for sustainable development. I remind noble Lords that the UK’s latest marine protected area, in the Pitcairn Islands, will seek to employ the people living there to maintain it. That is surely the right model, rather than depopulating it of its rightful inhabitants.

It was very good to see emphasis on possible resettlement on Diego Garcia. I assume that there must have been some prior consultation with the United States, which is also progress and will be supported everywhere. The commitment to wide consultation, especially with the Chagossians, is also to be commended. Can the noble Baroness assure me that Mauritius will also be consulted?

As to costs, I would demur from the assumption in the draft that these fall solely to the UK. I myself established with Commissioner Piebalgs of the European Union—through the offices of my noble friend Lady Ashton, which is not the only good thing she has done recently—that the UK would be eligible for resettlement funds for the Chagos Islanders, and it is not unrealistic to expect contributions from the international community, the American Government or, modestly, the Commonwealth. Let us not give up before asking.

When we come to the timeframe, let us remember that this most welcome progress has not been rapid. The Foreign Secretary’s commitment to work towards a just solution was first made in March 2010, over three years ago. On the timetable proposed, it looks as

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if the terms of reference will not be in final form until next year, to be followed by a period for selecting the consultants, so that the study might not be ready until just before the election in 2015. This is a risk. I understand that following the completed study, there will be a policy review into which it will feed. This, of course, will go wider, and include, for instance, renegotiation of the 1966 UK/US agreement, sovereignty and future management of the marine protected area.

There really must be a solution before the election. I urge Her Majesty’s Government to shorten this timetable to get it in well before the election. Can the noble Baroness advise her colleagues that procedures should be simplified where possible so that it takes six not 12 months; that the consultants should be chosen by the quickest appropriate means rather than lengthy tender; and that experts be identified without delay? These must, of course, be drawn from specialists in small island development, familiar with the culture, strengths and history of the Chagossians. I ask for the Minister’s response to these points, if not now, in a letter.

We have come a long way from the lament of the noble Lord, Lord Skelmersdale, the noble Baroness’s predecessor at the Dispatch Box, answering my late noble friend Lord Brockway—Fenner Brockway—on 11 November 1982, that,

“the departure of the Ilois from the island settlements must have been a sad and distressing occasion”.—[

Official Report

, 11/11/82; col. 411.]

That is a far cry from the present Foreign Secretary’s admirable statement that,

“it is not in our character as a nation to have a foreign policy without a conscience, and neither is it in our interests”.

But it has taken too long to get there and we still need to make up for that.

7.40 pm

Lord Avebury (LD): My Lords, I congratulate warmly the noble Baroness, Lady Whitaker, on securing this debate and on all the hard work that she has put into securing a just solution for the problems of the Chagos Islands and their inhabitants over many years.

I agree with the noble Baroness in welcoming the feasibility study on resettlement of the Chagos Islands announced by the Government last week, and I also agree with her that the consultants should be invited to produce their final report in time for the policy review to be carried out, and conclusions reached on it, before the 2015 general election campaign. That was the view expressed by the Chagossians themselves in their response to the initial consultation published by the FCO in September, and by the chairman of the All-Party Group on the Chagos Islands in a letter to the Foreign Secretary of 16 July—a reply to which, I am sorry to say, has yet to be received.

One would hope that there would be consensus between the political parties on the absolute right of the inhabitants to return to the homeland from which their ancestors were unlawfully evicted almost half a century ago. Certainly, my right honourable friend the Deputy Prime Minister has always been strongly supportive of the rights of the Chagossians, and I am sure that he would have a major input into the policy review if it took place this side of the election. I can

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say much the same about the right honourable gentleman the Foreign Secretary, who was always supportive of the rights of the Chagossians when his party was in opposition. I therefore hope that when the policy review is conducted the coalition will come to the conclusion that we all hope for: namely, that the Chagossians should have that right of return. However, if the feasibility study does not take place this side of the election and the review has not been held by the time the campaign begins, the principle of those rights, and the attitude of the parties to it, would obviously be factors to be considered by the British electorate in deciding how to vote in 2015.

The only factor mentioned in the ministerial Statement as needing to be considered, other than the practicality of resettlement, is whether the presence of the Ilois on the outer islands, 140 miles from Diego Garcia, would have any adverse effects on the operations of the US base. We know from WikiLeaks that the US embassy did not respond to an FCO request to,

“affirm that the USG requires the entire BIOT for defense purposes”.

The embassy received the famous assurance from the FCO’s director of overseas territories, Colin Roberts, that there would be no “Man Fridays” on the BIOT’s uninhabited islands. It would be useful if the Government would now cancel that 2009 undertaking and obtain an assurance from the Americans that they would have no objections under the UK/US 1966 exchange of letters to a repopulation of the outer islands. There is no reason why this clarification should be deferred until the feasibility study has reported, as the ministerial Statement appears to suggest. The obvious peg for the matter to be settled is when the 1966 agreement comes up for renewal in 2014.

Picking up the point made by the noble Baroness, there is no mention of Mauritius being consulted at the stage when preliminary views were sought on the feasibility study, in spite of the fact that we are committed to returning the islands to Mauritian sovereignty when they are no longer required for defence purposes. Yet we are nearing the point when major decisions will be made about the future of the Chagossian people and of the Chagos Islands, in which it is inconceivable that Mauritius, as the future sovereign power, would not be involved.

There is an appeal pending in a case brought by Mauritius against the UK under the international Convention on the Law of the Sea, to be heard in mid-2014, which is indirectly about the UK’s failure to consult Mauritius on the declaration of the BIOT as a marine protected area—the motivation for which, as we now know from the WikiLeaks cable, was to make resettlement impossible.

There is also an appeal to be heard in March 2014, in a case brought by Monsieur Olivier Bancoult on behalf of the Chagossians, challenging the consultation process on the MPA, where the High Court had ruled that the WikiLeaks cables were inadmissible as evidence. It would be a disaster for justice, not just for the Chagossians, if this decision was upheld, but I hope that neither of these cases will be used as a reason for boycotting the Mauritians now, thereby risking further litigation in the future.

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As my noble friend is aware from our correspondence, I strongly believe that we should attempt to engage Mauritius in a dialogue about the future management of the islands and of the MPA, both of which will ultimately be its responsibility. Certainly, Mauritius should be invited to comment on the draft terms of reference for the feasibility study, including in particular the proposed timeframe, which was discussed so ably by the noble Baroness, Lady Whitaker.

I also suggest that to help break the ice, the new BIOT science adviser, Dr Mark Spalding, who seems ideally suited to the task, along with scientists on the BIOT Science Advisory Group, should have a meeting with their Mauritian counterparts to discuss a joint approach to the MPA and the science of Chagos, sharing data, current research and scientific measurements. The draft terms of reference of the feasibility study make it clear that the MPA can be amended. Revising it now, in consultation with Mauritius and with the Chagossians to take account of their interests, would potentially save much trouble in the future.

7.47 pm

Lord Luce (CB): My Lords, like the noble Lord, Lord Avebury, I am very grateful to the noble Baroness, Lady Whitaker, for introducing this debate, particularly at this time, in the light of the Government’s decision—a good decision—to have a wide-ranging feasibility study on the future of the Chagossians.

I think that it was in early 1982, when I was a Minister of State at the Foreign Office and had responsibilities for the African continent and the Indian Ocean, that I paid my first visit to Mauritius. When we landed, we were the only aeroplane at the airport. I came down the steps and the high commissioner whisked me away. At that point, I noticed that there were some 2,000 people at the airport. I expressed surprise that for one aeroplane there should be 2,000 people and I asked him why they were there. He said, “That’s a demonstration”. I said, “A demonstration against whom?” He said, “A demonstration against you”. So I said, “Look, if there’s a demonstration, the important thing is to meet the leaders. Please lay on the demonstration again and ask them to demonstrate again”.

They demonstrated the next day outside the high commission. I invited the five leaders, five marvellous Chagossian ladies, to come in and have tea. That was the first time that I realised that what we had done in the late 1960s and early 1970s by expelling 1,500 people, going back two, three and even four generations, was a really black mark for our country. It was serious abuse of human rights. I very much regret that, because I decided with the noble Lord, Lord Carrington, to resign very soon after that, I did not do more about the issue at that time.

I believe that the issue has undermined our voice in the case that we put for human rights all over the world. If we are going to argue for upholding the Commonwealth charter on core values, which we do, we have to be able to say that we are strong, in our own country and in our own foreign policy, on respecting human rights. Last week, on 21 November, we had a splendid debate, led by the noble Lord, Lord Alton, in which I could not take part, on human rights all round

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the world. When we do that, we need occasionally to pause to remember that we abuse human rights from time to time. In this case, we have, and we need to put it right.

I commend the Government for taking this action. I commend the Foreign Secretary and Mr Simmonds, the Minister, and the previous Minister for Africa and the Indian Ocean, Mr Bellingham, for the thought that they have given to this issue and for the way in which they are searching for a way forward. We should also remember the late Robin Cook, who, in 2000, restored the right of return, which was then abrogated in 2004. He should be remembered for that.

As the noble Lord, Lord Avebury, and the noble Baroness, Lady Whitaker, said, as the Government have now taken the lead on that issue, it is also essential that they should decide on the way forward before the 2015 election. As the noble Lord, Lord Avebury, said, the critical factor is that, under the 1966 exchange of letters between the United States and the United Kingdom on Diego Garcia and the British Indian Ocean Territory, the idea was that after the completion of 50 years, renewal for another 20 years from 2016 would be considered. This is the critical factor in why decisions need to be taken speedily. There would not be adequate time between the summer of 2015 and the renewal, if there is to be one, in Diego Garcia in 2016, for a new Government to give proper consideration to all those issues. The time span would be too short.

I should like to mention three aspects of this that are relevant to the timing. First, there is the feasibility study, which is admirably broad-ranging. It is imaginative and takes into account every facet of the issue, looking at all the options, costs, environmental issues, employment, political and economic issues, the fishing problem—which is very important to the Chagossians—ecotourism, and so on. Against that background, as the noble Baroness, Lady Whitaker, said, there is the study by the Foreign Office of the bigger issues to do with the future of the British Indian Ocean Territory, the future of the marine protection area, the sovereignty issues, resettlement of the Chagossians and relations with the United States and Mauritius.

I agree that it is very necessary that the feasibility study should be completed speedily, preferably by mid-2014, to give time for the Government to have discussions with the United States and Mauritius, after the completion of the study but before the election. That means speeding things up. That is why this debate is important.

The second issue is our relations with the United States and the need, in my view, for informal discussions, even at this stage, before the study is completed. Both the United Kingdom and the United States need to understand the mutual parameters on this issue that we have to live with. In the past two or three years, during my visits to Washington, I have called in on the State Department. On all occasions, I have asked where it stands on Diego Garcia and the British Indian Ocean Territory. One positive answer that I have always had is that the United States is prepared seriously to consider the employment of Chagossians in Diego Garcia itself, if that is what Chagossians want.

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