My Lords, I am grateful to my noble friend for his explanation of what are quite technical orders. Before I go any further, I declare an interest as an authorised approved person under the Financial Services and Markets Act. I am therefore accountable to the Financial Conduct Authority. I will focus on the practical implications of what we are discussing, in particular the misconduct and appropriate regulator order, which is one of the three orders we are considering; how these tie in with the Bank of England and Financial Services Bill, which had its Second Reading yesterday evening; and how the regulatory footprint will come to be felt by companies, banks and individuals.
As I understand it—I am sure my noble friend will put me right if I am wrong—we essentially have a structure of two pillars. The Prudential Regulation Authority is concerned with the strategic aspects—corporate discussions, decisions and difficulties—and the Financial Conduct Authority is concerned more with the behaviour of individuals. It therefore operates at a slightly lower level. I will quote from the Minister’s letter to my noble friend Lord Trefgarne, in his role as chairman of the Secondary Legislation Scrutiny Committee. Harriett Baldwin wrote:
“Both Orders relate to the government’s implementation of the Senior Managers & Certification Regime (SM&CR), which is designed to manage individual conduct and standards in the banking sector”.
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As my noble friend said in his opening remarks, one of the key requirements is the issue of fitness and propriety—that is, of a person’s integrity, competence, relevant experience in an area and so forth. What I have some difficulty in understanding is how the PRA, or indeed the SM&CR, will enter into cases where the fitness and propriety of the individuals would not be called into question. There would therefore be a basis for the FCA proceeding by itself, rather than having proceedings by either or both. Does this matter? Maybe not, but maybe it will. I remind my noble friend of Clausewitz’s saying: “Better a bad general than a divided command”. Individuals will not always be clear which of the two regulators is the more important: are they dancing to the tune of the PRA or the FCA? Within the City, there is evidence of a certain amount of turf warfare between the two organisations. I think that the PRA, with its strategic view, considers itself superior to the FCA, which deals with individuals. I think that Mr Martin Wheatley said that his organisation was considered to be down among the weeds—a rather unfortunate way of describing his flock, but never mind.
While what we are putting in place here may seem very clear from the Olympian heights of Her Majesty’s Treasury, in this case I am a worm. I have a worm’s-eye
view of what is being proposed and there are questions that I would like my noble friend to answer. He may wish to write rather than doing so on the hoof this afternoon, as I understand that we have to get on with this. We need to maintain standards in our financial services industry and there is a degree of public mistrust in what has been going on in that sector. The first question is: how will co-ordination be effected between the FCA and the PRA so that individuals are not caught up in trench warfare between those two organisations? Secondly, which of the two authorities will take priority when cases come before them? If both authorities get involved, will one be able to issue a cease and desist order so that the unfortunate individual does not find him or herself facing in two directions? Answering that would, at any rate, give me a degree of clarity about how this is to work on the ground as opposed to what is expressed clearly and succinctly, but in a quite dry and academic way, in this order.
Finally, as my noble friend said, one of these orders introduces a new regime: the senior managers and certification regime. Under whose bailiwick does that fall? Is it the PRA or the FCA, or will yet another regulator be involved? I would like to see how that fits together in terms of the organisation which many thousands of people will have to comply with, in a field where the compliance costs and the difficulties of meeting the regulators’ requirements have become a lot more difficult. Of course I understand the importance of our financial services regime being kept up to date. We live in an era of rapid change, so we have to change our structures to keep up to date with evolving practices, but I am anxious that we should always think about the practical implications of what we are proposing for those working in the industry. I hope that my noble friend will be able to give me some reassurance on these points when he comes to wind up.