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Financial Services Authority

My Lords, I congratulate the noble Lord, Lord James of Blackheath, on initiating this highly topical debate. I found the specific experiences that he described most illuminating. Regulation of the financial services sector must become much more effective in the future, as I am sure the noble Lord, Lord James, will agree. The current crisis has clearly revealed the weaknesses shared by the Treasury, the Bank of England and the FSA to monitor and supervise the activities of the City of London. But, as I have remarked previously in the House, that does not absolve in the slightest degree those bankers and other financiers from their responsibility in bringing about the crisis in the first place—not that they, for their part, seem to recognise their culpability and publicly fully and unequivocally apologise for that. In that regard, it is good to see in today’s Evening Standard that Mr Stephen Green, chairman of HSBC, has apologised for the unwarranted, out-of-control bonus system that has occurred in the City. The noble Lord, Lord Turner, the chairman of the FSA, trailed last week that there is to be a "regulation revolution" in how the authority will work in future. He was also frank enough to admit that he would not have predicted the crisis in which we are all now engulfed, and that the FSA's past record was unsatisfactory. We eagerly await the imminent publication of the FSA's plan for its future mode of operation. As has been remarked by Robert Peston and other authoritative commentators, the future UK economy will be very different from that which obtained during the previous three decades. Privatisation, and the self-centred greed culture that was its inevitable concomitant, dictated public policy during that era. All that, perforce, will now have to change given the unprecedented increase in state intervention and investment of public money deemed necessary to prop up those institutions previously regarded as the quintessence of capitalism. How times are changing. As I have remarked before in your Lordships' House, it gives a quite different complexion to the term "private/public partnership". In their original manifestation, PFIs were a rip-off in terms both of public accountability and value for money; now, the new types of PFI—the bail-outs to the banks and other industries—will be a total drain on the taxpayer. It is clear from the continuing arrogance and stubbornness of the bankers themselves and other financiers in hedge funds and the like that there will have to be much closer regulation by way of scrutiny and assessment; the public's universal anger demands no less. It is imperative that the FSA and other regulatory bodies take the strongest action if public outrage is to be contained. Two rigorous policies must now be pursued. First, there must be a step increase in the criminal prosecution of those directors and senior managers whose conduct has flouted the provisions of the Companies Act 2006. My Oral Question last week to the noble Lord, Lord Myners, sought to elicit how many such prosecutions are in train and I await his promised response. In yesterday's Observer, Andrew Rawnsley's column was entitled, ""These bankers are lucky that they are not going to jail"." Along with Sir Ken Macdonald, the former DPP, I fervently hope that the guilty ones will soon be sentenced to serve long terms of incarceration. The FSA, the serious fraud squad and the Serious Fraud Office have not shown the zeal that is needed to root out the perpetrators. The authorities in the USA, France and Ireland have shown much greater energy in this regard. Will the Minister say whether the relevant UK agencies are showing enough determination? I echo the sentiments expressed by the noble Lord, Lord James, in that regard. Secondly, the FSA must be vigorous in policing excessive remuneration packages by enforcing its code of practice. Since entering your Lordships' House in 1997, I, together with the noble Lord, Lord Lea of Crondall, and the late Lord Dormand of Easington, have regularly asked Questions about "fat cat" pay. Until very recently, there were no critics from the Tory Benches; they kept very quiet for fear of upsetting their financial backers. Successive Ministers—at least five, I recall—parroted the same complacent reply that it was up to shareholders to deal with such enormities. It was rather worrying that in answer to a question today on bonus payments for the directors of Network Rail, the Transport Minister, the noble Lord, Lord Adonis, said that it was not for him to interfere in those bonuses, even though Network Rail is a wholly government-owned body. I was going to congratulate the noble Lord, Lord Myners, on being the first Minister to condemn such rewards until it was reported over the weekend that the thinking behind his rhetoric had not influenced his initial endorsement of Sir Fred Goodwin's pension package. It is not an easy task for the FSA and other regulators to devise smart policies that achieve effective supervision and policing of the recidivists in the City while at the same time avoiding the over-reaction of a Sarbanes-Oxley type that occurred in the USA following the Enron debacle. We must hope that the noble Lord, Lord Turner, and his colleagues are up to that formidable task.