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Economy: Regulators (Regulators Committee Report)

My Lords, as the first speaker in this debate this afternoon who is not a member of the committee, I congratulate the committee and its chairman on the excellence and thoroughness of the report and on all the work that went into it. The Select Committee has given the economic regulators quite a favourable end-of-term report. As the chairman said this afternoon, it would have been somewhat different—somewhat more qualified—as to the Financial Services Authority if it had been published somewhat later. An editorial in the Financial Times on 27 March following the FSA’s self-flagellatory criticisms of the previous day said that we will never know whether an alert Financial Services Authority could have prevented the Northern Rock fiasco but the questions raised are about regulatory practice more than regulatory principle—what the noble Lord, Lord MacGregor, referred to as regulatory process. Your Lordships may believe that this is a criticism of the Select Committee’s report but its favourable comments about regulators cover both principle and practice. Most regulators were said by the report to be interpreting their remit both appropriately and effectively; they gave value for money and have developed some sound consultation procedures. There were some elements of criticism about lack of co-operation between Ministers and one regulator and another, but, in the light of later events—I speak with the benefit of hindsight—the substance of the Select Committee report seems a bit sanguine if this substantial document is to go down as a major work for academics and others to rely on as to the state of regulators, their principles and practice in the year 2008. Chapter 3 is critical of what appear to be major variations in the statutory remits of the various regulators. It says that the Office of Fair Trading does not have a statutory duty to facilitate the development of self-regulation. It is true: we cannot find such a word in the Fair Trading Act 1973 or the other provisions, but I know from experience that the Act, which set up the Office of Fair Trading, requires it to pursue and foster self-regulation among trade associations. Some of the earlier ones are to do with strong consumer interests such as travel and the second-hand car trade. Although only Ofcom and Ofgem have a specific statutory duty to implement the principles of good regulatory practice, so what? Those principles were only stated and articulated in 1997 and the 10 regulators to which the Government referred as the ones examined in detail by the Select Committee now feel obliged to follow those principles. It may be that in due course Parliament will get around to tidying up and filling in statutory gaps but I am not sure that it matters a hoot that practice follows the requirements and it does not appear in specific words in a statute. As the noble Lord, Lord MacGregor, indicated, it seems a little ironic in the light of later events that the Select Committee holds up the Financial Services Authority as a model in terms of risk-based regulation and principles-based regulation. It seems to me that recent events in no way reduce the value of those concepts for regulators generally, yet I agree with what Ed Balls said to the Select Committee: that clarity and certainty are to some extent in tension, one with another, and particularly in terms of tensions with a principle-based approach. The committee is right to spell out that not only consumers but also the smaller regulated businesses in particular may lose out from the lack of certainty and predictability that follows from the absence of prescriptive rules. People do not like prescriptive rules when asked in the abstract whether they like them, but there is a risk of firms exploiting less intrusive and detailed regulation. As the consumer organisation Which? argues, the FSA needs to review the incentives it has in place for compliance and, in particular, to reconsider its traditional opposition to naming and shaming firms that have gone against it. I think that the FSA could learn something from the competition authorities about being prepared to reward whistleblowers who reveal wrongdoing within the firm of which they have knowledge. All the regulators have a clear statutory remit to further and protect the interests of consumers. Regulated companies invariably have internal complaints procedures. There are also various ombudsmen and other redress procedures available. I understand that the financial ombudsman scheme came in for a lot of criticism from business before the Select Committee, but the Council on Tribunals was complimentary, so different views were received by the Select Committee. However, the Select Committee was evidently not convinced because it has called for a review by the National Audit Office. As far as I can see from the Government’s response, they have not accepted that, mainly for the legal reason that there is an absence of power to do so in the Financial Services and Markets Act. Fortunately an independent review is being conducted by the noble Lord, Lord Hunt of Wirral, to which the Select Committee and the Government referred, and I hope that a lot of attention is paid to whatever it says. There are various models for sector-specific consumer panels, and the Select Committee follows the consumer organisation Which? in its preference for stand-alone consumer panels as being more transparent and effective. At present, the Financial Services Consumer Panel is integrated with the FSA, and is not a stand-alone body, and Which?, which I am happy to follow in this, argued convincingly that even if the panel became a stand-alone body, there is still a need for adequate consumer or, at any rate, non-business representation on the FSA. I do not think that even a separate consumer panel should be any sort of argument for excluding anybody with experience of the consumer world from being a member of the authority itself. They have different functions. A consumer panel is a body of people to which requests can be made for information on what the regulator is going to do, but it is not a decision-making body, and it is desirable for consumers and other non-business people to be part of the decision-making body as well. They are not alternatives. In recruiting its staff, the FSA must dip into the same resource pool as the regulated companies, but it has less money to play around with. The noble Lord, Lord MacGregor, kindly quoted a remark I made at Question Time the other day about how the FSA could perhaps learn from the model of the self-regulatory City Takeover Panel which for the past 40 years has recruited by secondment from the firms it regulates. I have perhaps said more about the Financial Services Authority than is necessary or desirable, but my noble friend the chairman of the committee—naturally, given recent events—did so as well. I hope that there is some agreement around the House today that we need a stronger, more robust Financial Services Authority, with wide-ranging board membership and a dedicated and adequately remunerated staff.