My Lords, when I came into the Chamber this afternoon I was nervous because I would have to make a confession, that I do not really understand large tracts of the Bill. I thought that I had better be honest about that. My noble friend Lord Higgins has put his finger on the spot—this is nothing that can be sorted out by fine words. There is an awful lot of verbiage in the Bill. There are pages and pages of elements designed to go wholesale into the record of other Acts. That is not a workable way of dealing with this sort of technical and difficult material. We have to acknowledge that. A great deal still remains to be done on this legislation. I have no doubt that many amendments will be tabled, but it is easy to lose track of them all. There are so many—so many are
fundamental, and so many adjust other ones—that you do not get a clear run at it. My nervousness about coming in this afternoon is somewhat eased by having got that off my chest.
I have looked at banking legislation in some considerable detail for 25 or 30 years. Although I have often found the whole performance difficult to follow, I have never met anything quite as complicated and unmanageable as the present Bill. It is not an advantage to say that the ring-fence issue will be with us perhaps rather more strongly than it has been so far. Personally, I think the two cultures are incompatible. We need a change of culture—that is absolutely fine and other noble Lords have mentioned that. You do not have the same sort of mental processes going on if you run a retail bank as against an investment bank. We kid ourselves if we do not face up to that. The whole scene has become structurally complex with whole new architectures put in place. For obvious reasons, there has not been an opportunity to examine most of them in careful detail—as there needs to be. There is a lot of work ahead on this Bill. Some of that work will be very technical. Again, one has to face up to that. A lot of it will need detailed attention.
I take one particular example: the Prudential Regulation Authority. What is it trying to do? In the literature of this complex subject over the past three or four years, there is an almost continuous confusion between regulation and supervision. They are not separated in the minds of many people—practitioners, commentators and others—so we start from a very difficult and unbalanced situation. Regulation is—funnily enough, because that is what the Latin word means—about making rules and using the structures to construct this new architecture. But it is not just a question of terminology. If you start going at a problem and you are mentally confused between regulation and supervision, you are not going to get to a sensible answer. I fear that this is what has happened with quite a lot of what we were looking at before.
My noble friend Lord Higgins’ comment about a three-dimensional jigsaw was very good, because that is exactly what happens. We almost have to cut the Bill up and lay it in different quarters so that you know to what it is referring. That was a vivid way of describing it.
Many more issues need delving into. Does the FCA, the Financial Conduct Authority, receive supervision charges? Does it do most or all of the supervision and the criteria for that? What is actually meant does not come out of the text. I had assumed that it was a fairly simple issue, but I am not at all sure that it is. This is typical of the sort of thing which brings misunderstanding. After all, if people do not understand the difference between regulation and supervision, they are hardly going to get it right, because a whole lot depends on what is put into the assumptions. I do not think that we have so far had any serious comment on this. There are those who deal with this sort of matter all the time, but they have not come up with any serious reactions about supervision. You have to look through pages and pages of paperwork on this sort of thing before you can even find the
word, whereas regulation is lightly talked of, as if it were the answer to all our problems, and yet it is based on an incomplete understanding of the tools.
Are people who have not worked in—or had a full experience of—financial markets, which cover the retail end of business life, likely to be people whose judgment will be satisfactory and reliable when they look at the particular issues which these bodies throw up? It is no great discovery to say that the PRA, the FCA and the FPC added together should cover the whole of the territory that we are addressing, but they do not entirely do so. It leaves me wondering about what happens inside the businesses themselves, because all these changes have undoubtedly created an enhanced role for the audit committees of insurance companies and banks and so on.
The difficulty of finding the right people to operate as private sector employees ends up with a doubt as to whether one was actually getting the right skills to handle these very difficult issues. This throws a greater responsibility on audit committees and auditors, internal and external, but they do not seem to have got their heads together to find out why it was that such appallingly made business was put together by people who were not fully experienced in part of the area where they were meant to operate. After all, how deep should an audit committee dig into the material without getting to the point where it is second-guessing senior management? Those are two different roles. We keep coming up with the fact that there are too many loose ends for it to be easy to understand what is really going on. There are huge discrepancies between published accounts of large companies and the outcome of what has happened once people have recognised the bad debts and what they do to a balance sheet.
That is plenty from me and I am sorry that so much of it was vague and imprecise, but I attribute a little bit of that to the material and not to others here today. My colleagues and other noble Lords have been very patient.
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