The Public Bill Committee has published its Committee Stage report on the Financial Services Bill, which indicates that the only revisions made at this stage have been technical amendments. The main theme of debate was the inter-connectibility of the new regulators, with the Opposition seeking more contact between the new bodies. The Government’s guiding principle remains that each part of the new system should be clearly and solely responsible for specific parts of the regulatory system. Amongst many interesting comments, those on strict liability and on warning notices are worth a quick mention.
Strict liability for executives and Board members
In the debate on 8 March, the Opposition sought to address the issue of executive responsibility for the actions of financial institutions under amendment 149, which would amend the power of either regulator to make general rules about regulation (in proposed clause 137F) to include (amongst the provisions covered by such rules) provision
“for a legal sanction based approach introducing a strict liability for executives and Board members.”
The Opposition argued that the corollary of the broader social utility purpose of banks was that the responsibilities that fall on the shoulders of banking executives should be proportionately higher and more strict, referring in particular to Lord Turner’s comment: “The fact that no individual has been found legally responsible for the failure begs the question: if action cannot be taken under existing rules, should not the rules be changed for the future?”. Some members of the Committee pointed out that a legal sanctions-based approach would currently be limited by existing contracts of employment although this could change over time.
The Minister acknowledged the importance of the issues, but was concerned by the wording of the amendment which would impose ‘strict liability’ on those it would affect – and could for example include substantial damages on board members. He noted that the FSA had referred to “strict liability” in the context of saying that a bank director who has failed should no longer be allowed to work in the sector. The Government remains committed to doing a joint consultation with the FSA on issues including the point about strict liability and will publish that consultation in the spring [defined as starting on 21 March and ending middle of June].
The Minister noted the potential implications under human rights law and the risk attaching to the recruitment of suitable people to work in financial services. He stressed the need for proper public consultation and, where necessary, legislation, although he also suggested that it may, alternatively, be possible to use the FSA’s rule-making power. The amendment proposed was rejected 10 votes to 8.
The Public Bill Committee also had a brief debate about the issuance of notices by the FSA (and future regulators) about investigations into authorised bodies. Note was taken of the fact that once the FSA issues a notice, the reputation of the firm is damaged. There was discussion of an amendment to ensure that any subsequent findings that exonerated the firm were made public, but the Minister felt that there were sufficient powers in the existing legislation to allow for retractions by the FSA and future bodies.
Concern was also expressed that if the requirement for consultation before the disclosing of a warning notice remained, the person named would simply take out an injunction to stop publication of the notice, which would effectively mean that no warning notice was issued (to the detriment of the public). The Minister was adamant that warning notices should be published because of the importance of making it known that disciplinary action is to be taken; he stressed the importance of ensuring that the situations where they cannot be published and should not be published are narrowly prescribed. However, he felt the removal of the requirement for consultation might raise human rights issues and a possible breach of proper administrative process.
Recent experience with the publication of notices at the Decision Notice stage doesn’t augur terribly well for the use of this power at an even earlier stage of the process (see comments at foot of this earlier post).