Monday 8th March 2021
(3 years, 9 months ago)
Grand CommitteeFinancial Services Bill 2019-21 View all Financial Services Bill 2019-21 Debates Read Hansard Text Amendment Paper: HL Bill 162-VI(Rev) Revised sixth marshalled list for Grand Committee - (8 Mar 2021)
Lord Eatwell (Lab)
My Lords, I have sympathy with the concerns behind these amendments. As the noble Baroness, Lady Bowles, and my noble friend Lord Sikka have spelled out so clearly, there is an intimate link between accounting standards and effective prudential regulation. It is probably true that nothing has a greater impact on policy than the manner in which relevant variables are measured.
That relationship between accounting standards and prudential regulation has been exposed just this last week with the collapse of Greensill Capital, a supply chain financing firm. Its business model was based on flaws in UK accounting—that was how it worked. As the Financial Times reports:
“While a company that uses supply-chain finance owes money to a financial institution, accountants do not class these facilities as debt. Instead a company typically books the money owed in the ‘trade payable’ or ‘accounts payable’ line of its balance sheet, mingled in with all the other bills owed to suppliers. While a footnote to the accounts might explain how much of this line is made up of money actually owed to financial institutions, rather than suppliers, there is no requirement to disclose it.”
Lack of disclosure means that the supply chain has proved popular with struggling companies looking to mask their mounting borrowings. When nervous lenders remove these facilities from heavily indebted companies, it can create an effect similar to a bank run on their working capital position, whereby that quasi bank run then escalates into risk to the financial services sector. Who really suffers? Typically, it is the SMEs at the origins of the supply chain. Greensill is not an isolated example. Parliamentary investigations into the collapse of the Carillion group, already mentioned, found that it made heavy use of the Government’s supply chain finance programme. MPs investigating the outsourcer’s demise said that the scheme allowed it to “prop up” its failing business model.
This is a major concern in the prudential management of the financial services sector in the UK. If accounting standards and methods do not accurately represent the fragility or strength of an institution, especially a financial institution, they severely compromise our efforts at prudential regulation.
A quite different prudential and market conduct risk created by accounting standards arises from the fact—again already mentioned—that while the UK’s accounting standards apply IFRS, the US maintains its own GAAP different standard. Are the UK Government pursuing negotiations with the US Administration to encourage the adoption of a common standard, perhaps one that accurately represents the risks present in financial institutions?
The issues raised by the noble Baroness, Lady Bowles, and the noble Lord, Lord Sikka, require urgent consideration, not just by the accounting profession but by Her Majesty’s Treasury and by the prudential regulators.
Earl Howe (Con)
My Lords, as we have heard, Amendments 74 and 77 concern accounting standards. I have listened carefully to what the noble Baroness, Lady Bowles, and other Members of the Committee have said. It is perhaps best to begin by making a key distinction: the objective of accounting numbers is to show a true and fair financial position of a company; the objective of regulatory capital numbers is to provide information to the regulators in meeting their supervisory objectives. These are different numbers used for different purposes.
Amendment 74 proposes a kind of conflation of those purposes by requiring UK banks to align their accounts prepared under international accounting standards with their regulatory capital equivalent where the regulatory capital number is lower. My noble friend Lady Noakes rightly made the point that I have just made: these accounting standards are international. It is in the UK’s interests to maintain convergence with international accounting standards—IFRS—set by the International Financial Reporting Standards Foundation. The IFRS bring consistency to financial statements and allow investors easily to compare the financial statements of companies across the world. It is therefore consistent with the Government’s aim of ensuring that the UK retains its reputation as a global hub for business for the UK to continue to adopt these standards.
The amendment would result in financial statements of UK banks not being prepared in accordance with those international accounting standards. UK banks wishing to maintain listings abroad would however still need to prepare a second set of financial statements. The UK prudential regime for banks is supported by detailed regulatory reporting. It is these reports and other data gathered from firms that are the basis for prudential regulation, and not financial statements and annual reports.
A subset of the information contained in the regulatory reporting is published in the form of what is referred to as Pillar 3 reports. These reports include details of the regulatory capital held by banks. Therefore, while Pillar 3 reports are not identical in form to financial statements prepared for accounting purposes, they already provide a significant amount of the information sought by this amendment.
Baroness Kramer (LD)
My Lords, I read all the amendments in this group, and I found myself in support of every one of them. It is an excellent group. We all realise now that Amendment 136F, tabled by the noble Baroness, Lady Meacher, is in the wrong group, which I suspect is why she is not speaking on this group under the heading that I loosely call offences.
Picking up on that theme, I say to the noble Lord, Lord Leigh of Hurley, that he was the victim of an attempted fraud. It is astonishing that action did not follow. When we discuss that group of offences, one of my underlying concerns is about the lack of resources to pursue offences of any kind within the financial services spectrum, so I suspect that that is probably where the resistance has been coming from. It is an area that we need to resource properly, and we need to make sure that when a red flag is raised by an experience such as his there is follow-up, knowing that that will have been one of many attempts to defraud and that some of them will have succeeded. I hope that the Government will look at resourcing.
When I look at quite a number of the amendments in this group, whether on buy now, pay later, bills of sale or mortgage prisoners—which I think we will deal with in more detail later—it strikes me that all of them could have been headed off at the pass as problems if we had had an underlying duty of care. That takes me back to the first group of amendments that we dealt with, because with that in place we would not have had a regulator hanging back to see what the competitive implications were, whether or not various tests were reached and so on. It would have shaped very early the framework within which these activities sat. It really is a very strong argument for that duty of care.
On the excellent Amendment 79, I understand, following Chris Woolard’s report, that we are to expect action. The Woolard report raises the issues in detail; I will not repeat them here today but I will say this: if the FCA does nothing more than introduce an affordability test, which is how it tried to manage the payday lenders, we can guarantee that this House will intervene. We will expect stronger action than that, to make sure this problem is grasped—and not allowed to encourage people to fall into debt which frankly they cannot handle—and to put a proper framework around what is essentially a form of lending. I note in that context that Klarna is described today as the most valuable new start-up in Europe; its rate of growth and the appetite for buy now, pay later should set alarm bells ringing.
I thank the noble Baroness, Lady McIntosh, for supporting my Amendment 92. It is a probing amendment that deals with a crucial aspect of financial inclusion—I find echoes of this in some of the words of the noble Lord, Lord Holmes. The inadequacy of basic bank accounts and the reluctance of many of the banks that offer them to engage with the needs of basic bank account customers is an underlying problem. It certainly means that basic bank accounts do not lead to appropriate vehicles for people in the most disadvantaged end to borrow or save, or to engage much more broadly with financial service products. In this day and age, that is a serious issue.
The situation is better today than it was a few years ago; I remember listening to high-street banks who would encourage those coming in to open a basic bank account to go down the street to Nationwide, where they would receive a friendlier reception. Basic bank accounts were regarded just as cost; this was not only inappropriate but meant that those who were welcoming ended up with the greatest share of the burden. I have always taken the view that trying to make an institution provide a service to a customer that they do not want will mean a failed product. We have about 7.5 million people with basic bank accounts and some 1.2 million people completely unbanked. We have to grasp this nettle.
In the United States, intended or not, the approach to people who have been shut out of the financial services system has been different and rather more effective. I would like the Government as well as the regulators to go away and look at it. Under the Community Reinvestment Act 1977, any bank that sought permission to acquire or merge with another bank—something almost every bank was doing at the time—was required to demonstrate that it fully served the disadvantaged communities in its service area. As a civil rights measure, banks were basically red-lining African American, Latin American or Central American communities. They were allowed to serve those communities by supporting local institutions identified as much better fitted to the purpose. This gave a new lease of life to community development financial institutions—CDFIs—of all kinds, including credit unions and community banks. The major banks invested in them to pass that threshold and be able to do acquisitions and mergers, and supported them with expertise in marketing and technology.
I would very much like to see that model here; that is the purpose of my amendment. The DWP’s 2019 report on financial inclusion states:
“Social and community lenders such as credit unions and … CDFIs … provide a lower cost alternative to high-cost lenders, they are small in comparison and lack the visibility and capability to compete at scale. The UK needs a much larger, more vibrant social lending sector”.
CDFIs know the needs of their clients—that is where their work is targeted. They often work with local charities and civil society groups to provide money advice, business advice and a wide range of additional support to make people financially capable.
Some investors in the UK are developing new entities in this space. I am aware of two potential new mutuals, one in the south-west and one in London, targeted at this group of people. The recent report by Ron Kalifa on fintechs identified that new fintechs have the capability to provide a tailored, low-cost offering. But the reality is that very few new players have emerged to serve the excluded sector, which tells me that the system that we have at present is not working. I want all major UK banks to engage with this sector and for the regulator to make it a requirement, not just an act of charity or public relations. That could be done within the banking licence or through regulation, but that would change it from being a passive set of actions to an active way in which to make sure that this gap in the market is filled by people capable of doing it well.
I thank the noble Lord, Lord Naseby, and others who supported Amendment 93, which deals with the current and accelerating crisis of access to cash. The Government promised legislation at last year’s Budget, but there is no sign of it yet. Covid has driven a sharp drop in cash usage from three in 10 people before the crisis to just one in 10 people. That is a huge drop, but it still leaves about 5 million people who rely on using cash. Of course poverty and age are often a characteristic, but for many people it is a strong cultural preference; they want to use cash, and it is really their right.
As I understand it, the Government are going to follow the direction recommended by the noble Lord, Lord Holmes; they will be able to confirm whether that is correct. That would permit retailers to provide cash without a purchase, which would help, but it is still very hit and miss. The Access to Cash Review done by Natalie Ceeney in 2019 highlighted the fact that retailers’ reluctance to accept cash is driving a lot of the change. Bank branches are closing across the country, especially in rural and disadvantaged communities. LINK, the largest cash machine network, has a contract with the Post Office, but it has about 18 months or so to run. Free-to-use ATMs are disappearing fast; when I talked to the industry, the estimate that I was given was that, if we do not do something quickly, half the ATMs in the country will be pay to use within 18 months.
We will need intervention by the FCA. Lots of commercial companies are involved in the system and any change or rationalisation throws up competition issues. The banks, for example, could be given an obligation to provide free access to cash but then allowed to use a utility model whereby they combine to provide free, shared smart machines capable of a range of services, perhaps with an assistant present to help users to navigate the machines. That changes how we think about this issue quite dramatically—and normally we would have time to do that, but we are now faced with an urgent situation.
I quote one final phrase of Natalie Ceeney’s report, because to me it says it all:
“It is … critical that action is taken now, so that no-one is left behind.”
I recommend that the Government take urgent action to deal with access to cash.
The Minister of State, Cabinet Office (Lord True) (Con)
My Lords, I thank all those who have spoken very genuinely, because we are considering an important group of amendments on consumer access to credit. I am very grateful for the continued and thoughtful interest of noble Lords in this area. I assure all those who have spoken that we are listening carefully and will read this debate.
Amendment 79 would require the Treasury to introduce legislation to bring buy now, pay later products into FCA regulation, to which all speakers referred. The Government are committed to protecting the interests of consumers and, since Second Reading, as the noble Lord, Lord Tunnicliffe, said in moving his amendment so ably, the Woolard Review has recommended that these products should be brought into the scope of FCA regulation. The Government are acting swiftly, following the outcome to this review, just as the Economic Secretary committed to do during this Bill’s passage through the other place. That is why, on 2 February, we announced our intention to legislate to bring them into regulation. However, it is important to know that these products are interest free and, therefore, inherently lower risk than most other forms of borrowing, so it is essential that regulation protects customers in a way that ensures that they can continue to use these products to manage their finances, rather than more expensive forms of credit on which they might otherwise rely. The Government therefore intend to consult stakeholders to ensure that a proportionate approach to regulation is achieved.
Lord Tunnicliffe (Lab) [V]
My Lords, the last Labour Government were supportive of facilitating access to sharia-compliant financial services, and we understand—and welcome—that Her Majesty’s Government have made similarly helpful noises during their time in office. This is an interesting time for financial services as some firms prioritise divesting from fossil fuel projects, and so on. If such moves are possible, surely we can make progress on services that do not have involvement in industries such as gambling or alcohol?
Amendment 88 raises the issue of sharia-compliant student finance, which was subject to a recent e-petition on the Parliament website. In their response, the Government recalled their consultation on the matter back in 2014 and said that they intend to publish an update on progress later this year. While we appreciate that it takes time to engage with communities to understand their needs, evaluate feedback, devise new schemes and ultimately make them operational, there has been a significant wait for new products, and we need evidence from the Minister that we will soon turn a corner.
Lord True (Con)
My Lords, as has been eloquently expressed, these amendments relate to sharia-compliant finance and specifically to the availability of sharia-compliant student finance products. This is an area where the Treasury and the Department for Education are in close contact. The Government are committed to ensuring that all students in England with the potential to benefit from further and higher education are able to access it. I know from this debate and from others that many noble Lords of all parties are keen to see action on this.
On the specific amendments, which the noble Lord, Lord Sharkey, stated are probing, Amendment 80 seeks to require the Treasury to publish an assessment of the availability of sharia-compliant financial services, I can assure noble Lords that the Government are committed to ensuring that no UK customer is denied access to competitive financial products because of their faith. As referred to in the debate, the United Kingdom is indeed the leading western hub for Islamic finance, a position we have maintained for several years now. Treasury Ministers and officials conduct regular engagement with key stakeholders in the Islamic finance sector to inform our policies.
Amendment 88 seeks to add access to sharia-compliant student finance to the FCA’s objectives within Section 1B of the Financial Services and Markets Act 2000. It would be ineffective to add this objective because student loans are exempt from FCA regulation, meaning that the FCA would not have the powers to fulfil this duty. Additionally, student finance provision is a devolved matter while the FCA is our UK-wide regulator. Finally, as I have explained, work is under way in government to ensure that all eligible students are able to access student finance.
A number of noble Lords commented on the pace of this work. As the noble Lord, Lord Sharkey, said, the Government published a consultation in September 2014 into a potential model that could form the basis of a new student finance product. The Government signalled in the consultation response that they would need to take new primary powers to enable the Secretary of State for Education to make alternative payments in addition to grants and loans. These were secured in the Higher Education and Research Act 2017. The Government have also carried out work with the Islamic Finance Council UK on an alternative student finance product for tuition fee and living cost support compatible with Islamic finance principles.
As has been stated, the implementation of alternative student finance is currently being considered alongside the review of post-18 education and funding. The interim report of that review was published on 21 January and the review is due to conclude alongside the next multi-year spending review. The Government will therefore provide an update on alternative student finance in due course. We should not underestimate the scale of complexity here. The Department for Education is trying to replicate a system of student finance that delivers the same results as now where students do not receive any advantage nor suffer any disadvantage through applying for alternative student finance.
I am sure that our colleagues in the departments concerned have heard the concerns expressed by noble Lords. I hope that, for these reasons, the noble Lord, Lord Sharkey, will feel able to withdraw his amendment.
Lord Sharkey (LD) [V]
I thank everybody who has spoken in the debate on this group. I confess that I should have said clearly at the beginning that my amendments and their text were not the issue; the amendments were simply the fossilised remains of my scope negotiations with the Public Bill Office and a means of introducing the subject of sharia-complaint student finance.
I must say that I am, as usual, extremely disappointed by the Minister’s evasive and unconvincing response. It is a great pity. I still do not understand why there has been such a long delay in addressing this serious problem. The Minister has not offered a reason for the delay except to point at various complications. Perhaps I should remind him that the takaful version of the Help to Buy mortgage system was introduced from a standing start in six months. This has taken nearly seven years, and we have not got there yet. I simply do not understand why this is going to be prolonged and why the Minister cannot give us any assurance about a firm date for the introduction of a sharia-compliant student product.
I also do not understand—I never did—why the Augar review is at all relevant; perhaps the Minister can explain why at some other point. However, I understand that the Muslim community continues to suffer a direct disadvantage without any good reason or plausible excuse. The Government are acting in a completely mean-spirited and heartless way. They are failing in their moral duty, failing to fulfil their explicit promises and failing to provide any real comfort that they might eventually do what they should have done long ago. They are behaving neglectfully and really rather disgracefully. We will return to this issue later.
Lord Eatwell (Lab)
My Lords, those of us who were involved in the discussions on the Financial Services Act 2012 will no doubt remember the debate in which the noble Lord, Lord Sassoon, then speaking for the Government, revealed that the principals of the tripartite committee—the noble Lord, Lord King, Gordon Brown and Howard Davies—had never met. He then revealed that the committee had slowly moved down in terms of the seniority of the officials who attended, and it was basically steadily downgraded into complete irrelevance. It was a co-ordinating committee between the Bank of England, the Financial Services Authority and the Treasury, and it did not meet. What this suggests to me is that an effective committee to deal with some of the issues of co-ordination, which have been referred to by the noble Lord, Lord Blackwell, in moving his amendment, must have an organic purpose identified and shared by the participants. There must be, if you like, some enthusiasm about the operations of the committee which encourages everyone to participate fully.
In the discussion we have had on this amendment, I have been struck by the nostalgia for the FSA. I shared with the noble Baroness, Lady Noakes, the feeling that breaking up the FSA was unnecessary. Indeed, I think it was mainly done to show that something was being done rather than having to face up to the intellectual, analytical and groupthink failures to which the noble Baroness, Lady Kramer, referred. However, if there is the problem which the noble Lord, Lord Blackwell, has identified, the noble Baroness, Lady Noakes, has once again come up with the right answer, which is that there would be an organic interest of both to work together if they had to report to a suitably well-resourced and tough parliamentary committee which then ensured not only that the conditions of the MoU were being followed but that other identified overlaps were being dealt with in a productive way. So I think we come back once again to the debate we had concerning parliamentary scrutiny and identify, yet again, a positive role for Parliament in this respect.
Earl Howe (Con)
My Lords, this debate has taken us back to a number of the issues that were brought sharply into focus during the passage of the Financial Services Act 2012. It has been useful. I therefore begin by assuring the Committee that the Government agree that we now have an important opportunity, not least in the wake of our exit from the EU, to review our regulatory framework and ensure that it is high-quality, agile and fit for the future. I assure my noble friend Lord Trenchard in particular that we will progress the future regulatory framework review as a priority and take specific action in high-priority areas, as I have set out in previous debates. I hope noble Lords will forgive me if I do not rehearse the remarks that I made in our earlier debate on competitiveness—a subject to which we will return, I am sure.
Amendment 86 seeks to establish a new joint co-ordination committee for the PRA and FCA to ensure that their activities are consistent and proportionate. Of course, the Government agree that it is important that the PRA and FCA work closely together and take a co-ordinated approach to the regulation and supervision of firms. However, I respectfully submit that this amendment is not necessary to ensure that that is the case. As my noble friend Lord Blackwell noted, the PRA and the FCA have different statutory objectives, which will naturally—and, on occasion, rightly—lead to differing priorities as these objectives are pursued.
I note the reservations expressed by my noble friends Lady Noakes and Lord Trenchard. However, this model was agreed by Parliament in the Financial Services Act 2012 as part of the post-crisis reforms, and the Government and regulators have taken a number of actions to support and improve co-ordination between the institutions while they carry out their different objectives. I believe that this addresses in a very real way the issue that my noble friend Lord Blackwell seeks to highlight through his amendment.
As mentioned in the amendment itself, there is already a memorandum of understanding between the FCA and the PRA, as set out in the Financial Services and Markets Act as amended. The MoU sets the framework for co-operation on a number of issues, particularly dual-regulated entities. In April 2020, the regulators introduced the new Regulatory Initiatives Grid, supported by a senior co-ordinating forum. The grid’s purpose is to increase co-ordination across the regulatory landscape. It provides a user-friendly overview of upcoming changes to allow the sector to plan for the future more effectively.
The senior co-ordinating forum is chaired jointly by the chief executive of the FCA and the chief executive of the PRA. It discusses the combined impact of regulatory initiatives across the financial services sector, and seeks to allow the Government and regulators to identify and address any peaks in regulatory demands on firms. The forum also provides a clearer picture of upcoming initiatives so that firms are better placed to plan for them, supporting the regulatory principles of proportionality and transparency.
I hope that those remarks are helpful in providing the background to the co-ordination that we have seen put in place and that, therefore, my noble friend Lord Blackwell will feel sufficiently reassured to be able to withdraw his amendment.
Lord Blackwell (Con) [V]
My Lords, I thank all noble Lords who have contributed to what has been a very helpful discussion. In moving this amendment, I was not advocating recreating the FSA; there may be a debate about that at some point in time. My point was that, having split out these separate objectives, there are points at which there are conflicts and that does not remove the need to resolve those conflicts or to have a mechanism to do that.
I listened with great interest to the noble Baroness, Lady Bowles. Her experience with the EU is clearly very relevant. I have, of course, studied the memorandum of understanding between the two regulators, but my reading is that it is much more about setting out the clarity of their individual roles and their rules of engagement, including such things as exchange of information. It does not require them to resolve issues of conflict or set priorities. It is a much lower-level setting out of the boundaries and how they should operate across them. The simple fact is that I think practitioners would say that it has not led to those issues being dealt with.
My noble friend Lady Noakes and the noble Lord, Lord Eatwell, talked about reporting to Parliament. Clearly, that is a major area, which we have discussed and will discuss further, and it may be helpful here. However, I find it difficult to believe that a parliamentary committee—particularly the Treasury Select Committee but maybe we can move to some other form of committee —would get into the level of detail of the regulatory load on institutions and those priorities. It may be able to check whether meetings are happening and the agenda is being followed, but I do not think that it can resolve the issues.
As the noble Lord, Lord Eatwell, says, if there is such a committee, there has to be a purpose. One of my reasons for specifying looking at the load on the major institutions is that it is only when you get down to the granularity of how the different agendas are loading up on specific institutions that you can have a meaningful discussion about where the conflicts arise. I am not wedded to this particular mechanism or this particular committee. I am not even sure that legislation is needed. As the Minister said, it is an issue I have raised with the chief executives of the PRA and the FCA. There is nothing to stop them doing this of their own volition. I would perhaps encourage the Minister to sound out with those chief executives how they view this and what they might consider doing to help ensure that the priorities are properly addressed. There is a consultation he has under way. He may take a view on whether this kind of legislation or some amendment along these lines would be helpful. In the meantime, I beg leave to withdraw my amendment.
Earl Howe (Con)
My Lords, the noble Baroness, Lady Bowles, has taken us into an interesting topic area: regulatory equivalence.
The UK has long been a global leader in financial services. As we adapt to our new position outside the EU, it is essential that we continue to support a stable, innovative and world-leading sector. We have already considered the UK’s international standing in another debate. With these amendments, we are considering equivalence and the UK’s relationship with the EU in relation to financial services. I know that there is a lot of interest in this issue, so I will take this opportunity to provide an update on where we are, to the extent that I am able to do so at this point in time. Perhaps, though, I could begin by saying something about our approach to making these decisions.
Amendment 90 seeks to impose an obligation on the Government to make an equivalence determination only where they have determined that the relevant overseas jurisdiction has legal and supervisory standards equivalent to those of the UK. It also seeks to prohibit the Government granting an equivalence determination based only on an agreement to make determinations on a reciprocal basis.
I am happy to confirm that the Government are already committed to conducting their equivalence assessments of overseas jurisdictions on the basis that the relevant legal and supervisory framework of that jurisdiction provides equivalent outcomes to the UK’s. This is outlined in the guidance document on the UK’s equivalence framework which was published in November 2020.
In addition, an example of the legislative requirement for granting equivalence can be seen on page 35 of the Bill. It amends the money market funds regulation to allow the Treasury to make equivalence determinations and states:
“The Treasury may not make regulations under paragraph 1 unless satisfied that the law and practice of the country or territory imposes requirements on MMFs which have equivalent effect to the requirements imposed by this Regulation.”
There is a key point for me to make here. This is not a so-called “line-by-line approach”, where we require a country to have identical rules. We believe that compliance with internationally agreed standards and equivalent regulatory outcomes in different countries can be achieved in different ways and through different legal frameworks.
In that context, there is a further important point that I invite noble Lords to note: granting equivalence is a decision we make independently with no reciprocity requirement. The UK would not grant equivalence just on the basis of reciprocity but would always carry out an assessment to ensure that the other jurisdiction is equivalent. The Government must lay a statutory instrument in Parliament to make an equivalence decision. This will give all noble Lords the opportunity to consider and scrutinise Her Majesty’s Treasury’s decisions as part of the normal legislative process.
I turn to consider our relationship with the EU. I say to the noble Baroness, Lady Kramer, that there is no question of us dismissing this relationship with a wave of the hand or otherwise. Amendments 100 and 105 seek to impose obligations on the Government to report on the status of the EU’s considerations about UK equivalence and on the status of negotiations on the regulatory co-operation memorandum of understanding between the UK and EU. I have already said that the granting of equivalence is an autonomous matter for the UK, and this is equally true for the EU, so the Government are not in a position to report on what the EU may or may not be thinking at a given point in time, even if we wanted to.
The noble Baroness, Lady Bowles, characterised the UK regulatory system as a squidgy balloon and hence difficult for the EU to grapple with but, as I have previously set out, the EU is well used to assessing regulator rules and practice as part of its equivalence assessments, and we see no reason why it would not be able to assess the UK in the same way if the will is there.
However, I can provide an update on our own actions. In November, the Chancellor announced a package of equivalence decisions for the EU and EEA member states. We did this to provide clarity and stability for industry. My noble friend Lord Hodgson asked me a number of factual questions about the existing equivalence decisions between the UK and the EU. If he will allow, to ensure a full and accurate response, I am happy to write to him on those questions.
We are not ruling out further equivalence decisions for the EU in the future, and we continue to believe that comprehensive mutual findings of equivalence between the UK and EU are in the best interests of both parties. The Government remain ready and willing to work with the EU to achieve this. For their part, the EU has granted only minimal decisions for the UK. As per our joint declaration with the EU on financial services, which was agreed alongside the trade and co-operation agreement, we have agreed to establish structured regulatory co-operation on financial services by the end of this month. My noble friend Lord Trenchard will be glad to note that we believe we are on track to do that.
This co-operation will support engagement on issues of mutual interest, including facilitating transparency and dialogue around the process of adopting, suspending and withdrawing equivalence decisions, but I should be clear that it is not envisaged, in the joint statement or elsewhere, that the agreement of the MoU on regulatory co-operation will directly entail any new equivalence decisions. This MoU will be publicly available to Parliament after the conclusion of negotiations. I reiterate that the Government are committed to operating an open and transparent approach to equivalence with the EU, but I am afraid that the Government cannot provide updates on this discussion in real time.
My noble friend Lady Neville-Rolfe expressed concerns that we may have given EU firms some kind of advantage over UK firms. In the absence of clarity from the EU, the UK has acted to provide clarity and stability to industry, supporting the openness of the sector, and to deliver our goal of open, well-regulated markets, but these decisions should not be seen simply as altruistic. They will allow firms to pool and manage their risks effectively and to support clients on both sides of the channel in accessing our world-leading financial services and highly liquid markets, so there are benefits for the UK as well as for the EU.
Finally, Amendment 100 also seeks to impose a legal obligation on the Government to publish a strategy to provide security to UK retail investors in the event of equivalence being withdrawn. I reassure noble Lords that, as set out in the guidance document on the UK’s equivalence framework, the Treasury will seek to ensure that withdrawal of equivalence is undertaken in line with the principle of transparency. That means that the Treasury will endeavour to engage with interested parties as part of the process and will seek to provide Parliament with appropriate scrutiny. I say to the noble Lord, Lord Eatwell, that I recognise the importance of clarity and stability regarding the potential withdrawal of equivalence. When withdrawing an equivalence determination, it will be undertaken in an orderly and controlled manner to ensure that investors are protected.
The noble Lord, Lord Eatwell, made clear a similar concern in relation to the overseas funds regime, given that the provisions of the Bill also create a new equivalence regime there. I assure him that we do not envisage that in the event of equivalence being withdrawn investors would be forced to divest their investments in the fund, but instead that the fund should continue to service them. The Bill also includes a power so that the Treasury may take steps to smooth the transition for funds if equivalence has been withdrawn.
I realise that noble Lords might have wished for a slightly fuller account of our discussions with the EU on the MoU and equivalence issues, but I trust that the reasons for me being constrained on those matters are clear. I hope nevertheless that I have provided the Committee with a sufficient update on this topic and ask that the amendment be withdrawn.
The Deputy Chairman of Committees (Baroness Fookes) (Con)
I have received a request to speak after the Minister from the noble Lord, Lord Northbrook.
Earl Howe (Con)
My Lords, I hope that my response to this debate has indicated that, of course, we regard mutual determinations of equivalence as desirable. However, I have also made it clear that there is advantage to both the UK and the EU in our adopting an autonomous position to take decisions for ourselves in this area. Of course, I am hopeful that our discussions with the EU will progress in a helpful way, and I assure my noble friend that, as soon as I have news that I can vouchsafe to him and other noble Lords, I shall certainly do so.
Baroness Bowles of Berkhamsted (LD) [V]
My Lords, I thank all noble Lords for what has turned out to be a very interesting debate. For once, the crafting of my probing amendment produced exactly the responses that I was hoping to obtain. Here is the thing: in many respects, I can agree with everybody, even though noble Lords were obviously coming from different positions.
The noble Viscount, Lord Trenchard, and the noble Baronesses, Lady Noakes and Lady Neville-Rolfe, think that we just have to get on and plough our own furrow. The Minister has said that that is essentially what we are doing, but we are maintaining the hope or ambition that the EU will, one day, come round and finally realise that there is mutual advantage in equivalence decisions or whatever one wants to call them. In my opening speech, I said that I had sometimes failed to persuade it of that, and, ultimately, we already see the pattern: once it realises it needs it, we will get it, but not before. It will not concede a general mutual benefit, which is one of the big differences between the UK and the EU. I fully support the line that the UK is taking, which is to be open and to show that openness works. There lies the power of London—and common law has a hand in it as well.
The Minister has been clear. On the adoption of the squidgy balloon, as I termed it, I did not mean that in a disrespectful way; I was just trying to say that the EU looks for something concrete, and we have a squidgy balloon, although the outcome might end up being around the same. It has difficulty with that, but we are proceeding with the squidgy balloon, and, therefore, we will have to take in our stride whether we get equivalence or not. I think that that is what the Minister has said, quite fairly and clearly.
However, he has confirmed that standards will be maintained. I knew that I was broadly quoting from guidelines in the first part of my amendment; that was not a happy accident. However, there was confirmation that there will always be this looking at the outcomes and what is supporting that, which applies no matter the route we take to equivalence or whatever else it is called—as the noble Baroness, Lady McIntosh, explained, there are various routes to achieving the mutual recognition, however it comes about.
From my perspective, this has ended up being quite a satisfactory debate—probably nobody is happy, but we are where we are. On that basis, I beg leave to withdraw my amendment.