Bank of England and Financial Services Bill [HL] — House of Lords, 2015-11-11
Topic: Domestic Commerce
John Kevin Sharkey (Liberal Democrats, Centre to centre-left): My Lords, the amendment does for the PRA what Amendment 7 did for the FPC. I can be very brief—perhaps even audible. The amendment relates to the PRA in its current form, which we will try to maintain by opposing Clause 12. The Treasury briefing note sets out the current composition of the PRA as the governor, the CEO of the PRA, the deputy governor for financial stability and appointments by the court with the agreement of the Treasury, so as to ensure a majority on the board of external members. The Bank website says that five members of the board are Bank officials; that the board has a majority of independent external members, including the CEO of the FCA and five others The requirement that the PRA board has a majority of external members is an important provision. Its purpose is clear: it is to protect against and counter overwhelming influence by the Bank. Unfortunately, whether there is really a majority of independent board members is open to significant doubt. It depends on whether or not, as the Bank asserts, the CEO of the FCA can properly be described as either external or independent. As I said on Monday when discussing the status of her membership of the FPC, the CEO of the FCA has, at best, a qualified independence, not to be compared with the true independence of the truly external members. She depends for her job on the confidence of the Chancellor and of the governor. Her organisation is, in many respects, controlled—or can be controlled—or constrained by the Bank or its organs. The summary sacking of her predecessor, Martin Wheatley, by the Chancellor, with, no doubt, at least the agreement of the governor, is a clear and dramatic illustration of just how much independence the CEO of the FCA has when it comes down to it When I raised the same point in the context of the FPC, the Minister disagreed. He asserted simply that the FCA was a completely independent body. The evidence for this is pretty thin, as others have noticed. As recently as August, the Adviser Lounge ran an article headlined: "Financial advice review shows FCA is not independent" It concluded that the regulator can be pushed, both formally and informally, into enacting the Minister’s will. It quoted an historical example. It noted that the former Housing Minister, Grant Shapps, intervened directly in the FCA’s mortgage market review consultation in December 2010—and Grant Shapps was not even a Treasury Minister We need to make absolutely certain that the PRA as currently constructed has a majority of truly external members. These members are the equivalent to non-executive directors; their externality is equivalent to independence. The CEO of the FCA, on the contrary, is not by any reasonable test entirely independent of the Bank. The amendment does not remove her from the board of the PRA but simply defines her as external. This means that, in order to ensure the board has a majority of external members, one more genuinely external member will have to be appointed. This is a perfectly simple, reasonable and precautionary measure. I beg to move.