The House of Lords may be the last chance for some much needed changes to the Financial Services Bill which will create the new financial regulators.
Peers will return to debating the bill in the autumn, with many of the Treasury select committee’s concerns about the accountability of a reformed Bank of England yet to be addressed.
The TSC called for a number of improvements to the Bank’s governance, including beefing up the power of its court of directors and publicising the minutes of court meetings.
TSC chair Andrew Tyrie withdrew relevant amendments in June after Treasury financial secretary Mark Hoban said he would look again at the proposals. Heavy pressure from the Lords on regulatory accountability looks like the best way of changing the Government’s mind.
One important issue likely to see some serious opposition in the Lords is the Government’s plans to allow the regulator to publish early warnings of possible enforcement actions.
The big concern is that the new powers could be used to name and shame firms which have had no chance to defend themselves and may subsequently be found not to have done anything wrong.
FSA figures for 2009/10 show nearly a third of the 114 enforcement cases concluded during the year did not result in disciplinary action although this figure dropped to 10 per cent for 2010/11.
Conservative Lord Howard Flight says he will be tabling an amendment to oppose the plans and is likely to find support from other peers.
The Government and FSA say the new powers would be used sparingly and are necessary to help alert consumers more quickly to troublesome firms in situations where it could take months or even years to reach a publicised outcome.
Such frustrations are understandable but it is not clear that the safeguards policymakers are planning would mitigate a worrying shift towards being found guilty until proven innocent.
A subsequent retraction at a later date is unlikely to repair the unfair damage to a firm’s reputation.
Those scrutinising the bill in the Lords should also be looking to push the Government into ensuring the FSA’s independent appeals process, the Regulatory Decision Committee, is retained. It is worrying that a final decision has yet to be made.
With the regulatory authorities set to become ever more powerful under these reforms, the House of Lords could be the last thing standing in the way of a huge loss of regulatory accountability.