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Banking Bill

My Lords, the purpose of Part 4 is to make a number of changes to Part 15 of the Financial Services and Markets Act, which provides the legal framework for the Financial Services Compensation Scheme. As I explained in Committee, that framework already allows the Financial Services Authority to deal in its rules with most features of the compensation scheme, and I am afraid I have to take the same view of the noble Baroness’s amendment now as I took then. However, I shall address some of the points raised in Committee and again today, and I hope I shall be able to convince your Lordships that the matters in the amendment are best dealt with by the FSA in its rules. First, there is the question of the speed with which the FSA can make its rules. The Financial Services and Markets Act 2000 lays down a process that the Financial Services Authority must follow in making its rules. This process normally involves public consultation so, with the best will in the world, it will take a minimum of three months. In practice, of course, it will take longer if a full and open consultation is to be pursued. One must allow also for internal consideration, informal consultation and discussion papers and consideration of the responses to consultation. I am sure that your Lordships would agree that where Parliament confers wide-ranging powers to make rules on a body such as the FSA, there is real merit in having such processes in place. But the Financial Services and Markets Act also allows the FSA to short-circuit this process if it, "““considers that the delay involved in complying…would be prejudicial to the interests of consumers””." It is under that provision that the FSA acted to remove the co-insurance element in the deposit protection rules of the Financial Services Compensation Scheme in September 2007 and to raise the deposit compensation limit to £50,000 in October 2008. I struggle to agree, therefore, with the noble Baroness, who says that the FSA has not always evidenced the capacity to be fleet of foot; or indeed with the observation in Committee by the noble Lord, Lord Newby, that the FSA had been, "““dilatory beyond measure in increasing the limit to £50,000””.—[Official Report, 20/1/09; col. 1656.]" An increase to £50,000 had already been widely discussed, including in the authority’s joint consultation documents on financial stability and depositor protection, which preceded the Bill, while the specific FSA proposal to raise the limit to £50,000 had been known since July 2008. In the circumstances of last autumn, when ongoing market turbulence meant that consumers appeared to be increasingly concerned about the level of coverage available for their savings, the FSA decided that an immediate increase to £50,000, without formal consultation, was in the interests of consumers to reduce any continuing uncertainty. I do not see how the Treasury could have acted more swiftly, particularly if the necessary regulations were subject to the affirmative procedure. Clearly, it would be impossible to move as swiftly with the draft affirmative procedure if Parliament was not sitting. I accept, of course, that it would make little or no difference in normal circumstances. The Treasury would obviously consult widely before producing a draft regulation. It may even publish draft regulations for consultation before they were laid in Parliament. But normal circumstances are not the problem. I have no doubt that when it comes to unusual circumstances, the FSA is better placed to move quickly and has already demonstrated that it can do so. On the content of the regulations, the noble Baroness, Lady Noakes, argued in Committee—and I think the noble Lord, Lord Newby, agreed with this—that some decisions about the compensation scheme were too important to be left to the FSA. They were, as she said today, as much political as technical. I see the point, but I think that there might be a misunderstanding about the nature of what we might call the legislative hierarchy in the Financial Services and Markets Act. Essentially, the Act provides for the framework for the regulation of all financial services in the United Kingdom—not just banking. Some aspects of that framework are set out in the Act itself; other aspects of the framework are provided in secondary legislation made under the Act. Detail, on the other hand, is left for the Financial Services Authority to deal with in its rules. So the distinction is not between what is political and what is technical but between what is framework and what is detail. I would also say that the political/technical distinction would be an unworkable basis for deciding what should be in primary or secondary legislation and what should be in the FSA’s rules. What may be political to one person may be technical for another. What was political one day might be technical the next—or vice versa. How many people would have described the deposit compensation limit as political two years ago? And if the deposit compensation limit is political today, why is the investor compensation limit not political? If paying compensation on a per-brand basis is political, why are the eligibility criteria for FSCS claimants not political? As I said in Committee, it would be inappropriate simply to put matters relating to deposit-taking in primary legislation. The FSA is better placed in practice, and more logically placed in the FSMA legislative hierarchy, to consult and make rules on these matters, as it is on the other detailed matters in the compensation scheme, and in financial services regulation more generally. I therefore ask, most pleasantly, that the noble Baroness, Lady Noakes, withdraw Amendment 67.