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Financial Services Authority

My Lords, I am grateful to my noble friend Lord James for introducing this debate. The role of the FSA needs examining, especially in the present turbulent economic climate, and the at times disturbing contribution by my noble friend will be a most useful step in this process. The more one examines what the FSA does, the more one asks what its real purpose is—or, as my noble friend Lord James put it, what the FSA is for—and how it has benefited the country. How does the Minister, who is an experienced businessman capable of distinguishing success from failure, measure success by the FSA? Can he tell us what the purpose of the FSA is, whether it has succeeded, and what changes he will be discussing with the noble Lord, Lord Turner? Is the only purpose of the FSA to examine the minutiae of how businesses in the financial services are administered? If so, why is such a huge number of staff needed? At 31 March 2008, the FSA had 2,665 employees. At that time, the Treasury had a mere 1,451 full-time staff. The FSA needs nearly double the number of employees to monitor the City as the Treasury needs to run the finances of the entire country, and I see from the press that the FSA is looking to employ more people. What on earth do they all do? Or is the FSA responsible for drawing attention to banks taking potentially dangerous positions on their own account or through their loan portfolios? If so, given the dismal debacle of recent years, has the system put in place by the Prime Minister been a failure? In general terms, can the Minister tell us the criteria that he sets to judge success when he scrutinises the performance of the FSA? How often, indeed, does he meet the FSA to review progress? When the Act which created the FSA went through Parliament, my noble friend Lord Saatchi pointed out that the FSA was being made policeman, judge, jury and executioner. Furthermore, the FSA has immunity from damages. As a result of my noble friend’s intervention, at least an appeal procedure was introduced, but this is a cumbersome process and there is little incentive to go through with it, not only on the ground of cost but due to the danger of creating a powerful enemy which could, with ease, destroy a career. With the benefit of hindsight, does the Minister agree that the result is an organisation with too much power and too little accountability, and, as so often with organisations with these characteristics, the tendency is to avoid difficult problems and go for easy solutions. The FSA has, in its present existence, issued fines of more than £107 million. A number of these fines were for administrative errors which the culprits themselves had reported to the FSA and where there were no findings of deliberately wrongful conduct or systems failure. Can the noble Lord tell is whether the £14 million of bonuses paid to FSA employees related to fines collected? If so, can he explain how justice can be thought to be fair if those responsible for administering it, like some team of inner-city wheel-clampers, personally benefit from their actions? Goodness knows what the cost to the public has been of the many bureaucratic rules imposed on the industry by the FSA, some of which defy common sense and are all too easy to circumvent by those who wish to do so. Those rules were referred to by the noble Lord, Lord Oakeshott. However, the FSA also needs to be looked at for what it has not done. Examples were given to us today by my noble friend Lord James of where the FSA refused to take action. Surely these cases would come under the statutory objective of reducing financial crime. More importantly, the FSA appears to have ignored the trouble being stored up by banks overgearing, with flaky finance, to buy dubious assets. It is not rocket science to see that this was a recipe for trouble. There were enough commentators pointing out the dangers—not least the Bank of England, which gave a number of warnings. There is little point in an organisation such as the FSA if it is not able to work this sort of thing out for itself. The quality of assets may have been a challenge but overgearing and excessive reliance on short-term and volatile finance should have been easy to spot. Certainly the former and the present Prime Ministers asked for banks to be treated with a light touch, but there is a difference between a light touch and turning a blind eye to danger signals. Can the noble Lord categorically deny reports in the media that the Prime Minister suggested the employment of Sir James Crosby, who, when at HBOS, ignored warnings of risks from his own senior staff on the basis that the allegations had been investigated—but by whom? They had been investigated by the very auditors who had given the situation a clean bill of health in the first place. Does not auditing your own audit pose a conflict of interest? The Prime Minister and his loyal Deputy Leader now say that the pension of Sir Fred Goodwin is unacceptable. His pension may be indefensible but it is not illegal and was agreed by the Treasury. Can the Minister confirm that he personally discussed and agreed to the severance package? Since 1689, this country has been subject to the rule of law. Now Miss Harman, one of Her Majesty’s Executive, says that, although the pension was lawful under the law established by Parliament and approved by government, she must now "step in" to block it in what she calls a "court of public opinion". Since when were hue and cry and people’s courts part of British justice? Do we exist under the rule of law or the rule of the mob? Sir Fred deserves censure, but the storm being whipped up by Labour serves only the cynical purpose of diverting attention from the culpable policy failures of Ministers. I ask the noble Lord to tell the House whether it was the duty of the FSA to warn of the impending collapse of our banks—one of the most catastrophic failures of recent times. In pursuit of its statutory objective of maintaining confidence in the financial system, what role did the FSA have in promoting the merger of what Mr Daniels told the Treasury Select Committee in another place was a perfectly viable bank, Lloyds TSB, and the basket case, HBOS? Did the Prime Minister take advice from the FSA at any stage in his talks with Sir Victor Blank? Did anyone anywhere in the FSA warn the Government at any stage that for Lloyds TSB to take over HBOS was to condemn hundreds of thousands of small shareholders, many of them pensioners, to lose both capital and income? If not, does the noble Lord, Lord Myners, agree that it would be wise to scrutinise that failure by the FSA? I ask the noble Lord, Lord Myners, specific questions about the deal between the Government and the Royal Bank of Scotland. Can he confirm whether he or his officials were in touch with either the Royal Bank of Scotland or Sir Fred Goodwin about the terms on which Sir Fred Goodwin left the bank's service? Were the Chancellor of the Exchequer and the Prime Minister informed of those discussions, and was their approval sought at any stage? Does he agree with his right honourable friend Ms Harman that for those involved in financial failures to receive pensions is unacceptable? If so, does that doctrine also apply to the FSA, Ministers and other public officials involved in supervising the failures of the financial system? Will the Minister answer those points as well as the troubling questions put by my noble friend Lord James? If he cannot answer them now, will he undertake to write to me with the answers?