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Labour: More voices needed in a crisis

Labour wants more senior regulators to be able to inform the Chancellor directly of problems in the financial system which risk public funds.

Under current proposals in the Financial Services Bill, the Treasury will get the power of direction over the Bank of England once the bank governor informs the Chancellor there is material risk to public funds.

Labour’s amendment aims to require the bank to ensure deputy governors and the FCA chief executive can “consult the Treasury directly” when they consider there to be a risk. Unlike the governor’s warnings, they would not act as a trigger for power of direction over the bank but Labour says they should increase the pressure on the governor to explain why he has not triggered the hand-over of power.

In February, Shadow Chancellor Ed Balls said the lack of official channels for other regulators to raise concerns represents a “deeply confused and highly dangerous” hole in the power. 

Speaking to Money Marketing, Leslie says: “The bill concentrates an awful lot of power in the hands of the governor. Disagreements between the deputy governors and the governor of the Bank should not be hidden away, and whatever the personal judgement of the governor, other voices must heard be heard by the Chancellor.”

A memorandum of understanding will set out how the Bank and the Treasury will function in a crisis. Labour want this to include provisions for a temporary stability committee to be set up to coordinate the work of the two bodies.

Another Labour amendment to the bill seeks to press the Government over the coalition agreement’s commitment to “foster diversity and promote mutuals” in financial services. It would require the regulators to monitor the number of members of mutual societies and mutuals’ market share and “make provision for the increased diversity of the financial services sector and promotion of mutual societies”.

Leslie says: “If the Government votes against it, people will rightly question whether the coalition agreement is worth the paper it is written on.”

Leslie has also tabled two amendments to enable designated representatives of small firms to raise super-complaints with the Financial Conduct Authority and to make it easier for them to benefit from decisions in test court cases. It would mean settlements laid down in court cases apply even to firms that were not involved in the litigation, unless they decide to opt out. The move follows MP concerns over the possible misselling of interest rate swaps to small firms.

Leslie says: “The interest rate swap story has shown there is a gap around small businesses being able to raise super-complaints, and that some small firms are too scared to pursue these things though the court alone for fear of annoying their bank manager. These amendments aim to fix those problems.”

Other areas to be considered include:

  • A requirement for an employee representative to sit on remuneration committees and for remuneration consultants to be appointed by stakeholders.
  • Details of what information the PRA and FCA should collect from regulated firms.
  • Giving the FCA powers to make rules or apply a sanction to regulated firms who offer credit on terms it considers cause consumer detriment.

Today is the last opportunity MPs have to make changes to bill. It then goes to the House of Lords where peers will be able to propose and vote on their own amendments which will then need to be approved by MPs.



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