I am grateful to the Minister for setting out so clearly the background to the Bill and why it is needed, and for his answers to some of
the questions that I raised. I do not think that anyone would doubt the need for this Bill or something very similar. LIBOR is clearly not fit for purpose, but we cannot just shut it down without replacing it with something, and that something has to have some kind of statutory backing.
As I mentioned, there have been concerns raised inside and outside Parliament about exactly how the Bill is worded and whether its present wording is the best possible way to achieve the objectives that we all want to be delivered. By far the biggest of those—the shadow Minister, the right hon. Member for Wolverhampton South East (Mr McFadden), mentioned this as well—is the degree of immunity from legal action that has been offered to the administrators of critical benchmarks. Again, I do not think that anyone can reasonably oppose the argument that we need to provide some kind of immunity—otherwise, it would just become a circus and the only people who would benefit are lawyers—but there is a question about whether the Bill goes far enough in this regard. Will the Minister respond in more detail to that question when he sums up?
The same questions were raised in the Lords on Second Reading on 13 October. I have to say that although in reply Lord Agnew made a succinct and powerful argument about why some immunity was needed, I do not feel that he addressed the question that had been asked: whether the immunity that the Bill gives is at the right level and goes far enough.
It is unfortunate that we do not have the chance to call expert witnesses to the House and question them on the record about the relative merits of the approach to immunity that the Bill proposes, versus the alternative safe harbour system that the shadow Minister mentioned and that I understand is being used in the United States of America. Could the Economic Secretary give an indication of whether safe harbour has additional risks that we are not aware of? Is there a risk that it could introduce more risk and more damage to the system, rather than less?
LIBOR is referred to in about $300 trillion-worth of financial contracts around the world. The shadow Minister mentioned that about £450 billion-worth is likely to end up being covered by the Bill; my quick guess at the arithmetic is that that will mean less than 0.2%. However, that is the danger of referring to percentages: we could say that 99.8% of contracts will successfully transition, but that still leaves £450 billion-worth that will not. We therefore need to make sure not only that the Bill passes, but that we get it right. The consequences of getting it wrong, or even not quite right enough, could be significant.
It has been mentioned that LIBOR is used to determine the interest rate of about 200,000 mortgages in the UK. The Financial Conduct Authority says that it expects the “majority” to have transitioned by the end of year. That could mean that only one contract of that sort will be left in the whole United Kingdom, but it could mean that there will be 99,999. It makes quite a difference.
About half of those 200,000 mortgages are for people in their own homes, and half are for buy to let. Let us not think that it is a harmless thing when buy to let goes wrong; the vast majority of buy-to-let properties are still somebody’s home, even if that somebody happens not to be the owner. If the worst happens and any of those mortgage borrowers get into serious difficulty, it
will be no comfort to them whatever to be told that 11 million other people are blissfully unaware of the problem. To someone with a mortgage that goes bad, the badness rate for mortgages is 100%. We should never forget that.
I understand why the Economic Secretary was reluctant to commit to any kind of compensation scheme in future, but I would certainly appreciate it if he confirmed that the Government will not completely close the door on that possibility should circumstances demand it. We do not foresee a problem just now, but nobody thought that LIBOR could be manipulated as it was, until the fraudsters discovered that it could. Nobody thought about the problems that mini-bonds could cause, until the fraudsters found a way of causing them.
A further question on legal immunity arises from the global use of LIBOR. The Bill can give administrators immunity from being sued in courts in any UK jurisdiction, but is the Economic Secretary aware whether the transition away from LIBOR might leave them with any increased risk of being sued in overseas courts? Obviously we cannot prevent people from bringing actions in overseas courts, and even if they fail it is still an expensive and disruptive process for the administrators to have to defend themselves. Although we cannot legislate against the practice, is he aware of any circumstances in which the Bill could increase the risk of legal action in an overseas court?
The Financial Conduct Authority will have regulatory responsibility in relation to the Bill. Notwithstanding my well known views about its fitness for purpose, within the current regulatory framework the FCA is where responsibility should reside. However, I share the concerns raised in the Lords about the FCA’s accountability to Parliament. Effectively, the Lords Minister’s response was that there is direct statutory accountability from the FCA to Parliament, but that is not enough. Accountability achieves nothing if Parliament does not have the proper procedures in place to make that accountability work. The arrangements we have in place just now do not work.
The Treasury Committee is overloaded with work. It simply does not have enough hours in the day to hold the FCA and other regulators to account to the necessary extent. I would almost argue that the FCA merits a separate Select Committee of its own, but when we add the scrutiny needed of other regulators in the financial services sector, there is a strong case—an unarguable case, I believe—for establishing a separate Select Committee, or even a Joint Committee of both Houses, dedicated to holding our financial services regulators to account. We have seen what happens when they get it wrong. I do not think that Parliament is doing its job sufficiently just now to keep them held to account.
The LIBOR rate-fixing scandal reminded us that in the financial services sector, as in many other places, there is no limit to the ingenuity of some very senior people in positions of great trust when it comes to devising frauds on a massive scale. There is no loophole in regulation too small to be exploited.
I support the Bill’s passage. I have not tabled any amendments, but I will agree to the unamended Bill with my fingers crossed, because I fear that only time will tell whether it is 100% watertight. In the sometimes murky environment in which the Bill will operate, anything less than 100% will not be enough.
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