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Financial Services Authority

My Lords, this is an interesting but in some ways slightly awkward debate in the way that it was introduced. I heard the noble Lord, Lord James, say that unfortunately he did not have time to answer, but, as we do not have many speakers, if we had some time at the end, I encourage the Minister to allow the noble Lord, Lord James, to perhaps spend a minute or two winding up. His speech raised some interesting points, but I did not quite get the drift—perhaps I was not concentrating properly—of his suggestion that the regulation or responsibilities of the FSA should change. I declare an interest as a pension-fund investment manager for the past 32 years, and my firm has been regulated by the FSA since its inception. If I understood the general proposition of the noble Lord, Lord James, in so far as he made one, he suggested that some responsibility should be removed from the FSA. I was not entirely sure to whom he was suggesting it should be given. If I am right, we on these Benches would not agree with that. Certainly, there have been many failures. We do not believe that these matters have been investigated nearly rigorously enough, but taking that responsibility away would not solve anything. There is a need for much more effective co-operation between the FSA, the other authorities and the police, and a much more vigorous and rigorous attitude to enforcement by the FSA. On the detailed cases that the noble Lord raised, although I have some idea, it would be helpful to have the names of those companies and events so that we can be fully aware of the matter and look at it—in particular, the names of the target companies in which the IRA was involved. I imagine that one of them might have been Wace; none the less, it would be useful to have a bit more detail, so that we can learn from it. The noble Lord talked about the Greycoat case in some detail; I know a bit about that as well and it is not a happy story. The noble Lord makes a powerful case that that should be looked at again. I was also aware that the noble Lord, Lord Turner, worked for Merrill Lynch for part of that time and, like him, I am sure that the noble Lord will distance himself from it, but I ask the noble Lord, Lord Myners, if he will bring the things that are being said tonight to the FSA’s attention. I hope that he will undertake to find out from the FSA who is looking into this matters, which would be helpful, since that clearly would not be appropriate for the noble Lord, Lord Turner. I hope that we will have some response. The way that the bondholders, rather like the minority shareholders, were treated requires further examination. If, as the noble Lord, Lord James, said, the FSA’s trail ran cold and the authority did not seem very interested, it was probably taking a very narrow view of its responsibilities. This is not a general debate on the FSA, but it is very topical, and the way that the FSA carries out its responsibilities was discussed in an interesting and frank way by the noble Lord, Lord Turner, when he was before the Treasury Select Committee last week. What he said, although significant, was somewhat overshadowed by the furore about Sir Fred Goodwin’s pension, which I do not intend to discuss tonight. It is relevant to the debate that the noble Lord said to the Select Committee of Gordon Brown’s watch at the Treasury: ""‘All the pressures on the FSA was not to say: why aren’t you looking at these business models, but why are you being so heavy and intrusive. Can’t you make regulation a bit more light touch? We were supervising people like HBOS within a particular philosophy of the way you do regulation which I think, in retrospect was wrong’"." That was a quote from the Independent on Sunday. The article continues: ""His views, which no one in Government has had the brass neck to contest, vindicate Paul Moore the HBOS whistleblower, and support the thesis that history will probably conclude that the trail of easy credit and light-touch regulation responsible for the present crisis leads to Gordon Brown’s front door"." I agree entirely with that fair statement on the legacy of light-touch regulation and the failure over the past few years. Like, I am sure, the noble Viscount, Lord Eccles, I have also looked at the Act regarding the way that the FSA in my view is not properly complying with paragraph 10 of Schedule 1 to the Financial Services and Markets Act 2000, whereby it is meant to make an annual report to the Treasury on the extent to which, in its opinion, the regulatory objectives have been met. For the first few years, the FSA’s annual reports complied with those requirements, but they have not in recent years. I have been helpfully briefed by an ex-FSA employee who is, in fact, a former member of the Treasury’s original Bill team which, as he puts it, ""is why I am so familiar with the legislation"." He points out that there is a clear dereliction of the FSA’s statutory duty to give such a report. I ask the noble Lord, Lord Myners, why it has not done so. The noble Lord has not been here for all that time, so perhaps he can look into why the Treasury has not picked it up, if he is not aware of it. The FSA’s public documents—the annual report, business plan and website—even in 2009 almost redefine the aims. The website states that the FSA is a statutory body set up under the Act, ""which sets out four statutory objectives"." However, the FSA does not say what those objectives are—the noble Lord already listed them—and sets out its aims under three broad headings. I fear that we are almost in a situation whereby the FSA has decided that it knows better than Parliament what its objectives should be and has redefined them in a much vaguer way. In particular, they are: the need for market confidence and public awareness; the protection of consumers; and, specifically, the reduction of financial crime. Obviously, those objectives are very specific and very carefully worked out by Parliament, and they are very relevant to the way in which the noble Lord introduced the debate. The noble Lord, Lord James, raised one or two interesting examples. I have stood back and thought over the past few years about where we have got to. I do not necessarily think that the noble Lord, Lord Turner, would agree with me, but I should be very interested to know the view of the noble Lord, Lord Myners, who has been actively involved in these matters as a participant and has regulated much more, even more so than as part of his responsibilities over the past few weeks. My view is that the Financial Services Authority has spent far too much time over the past few years making little people tick little boxes. It should have focused much more energy on putting big questions to the big fish and making them give proper answers or change their ways.