Financial Services and Markets Act 2000 (Designated Activities) (Supervision and Enforcement) Regulations 2024

Tuesday 17th December 2024 Grand Committee

Considered in Grand Committee

16:20

Moved by

[Lord Livermore]

That the Grand Committee do consider the Financial Services and Markets Act 2000 (Designated Activities) (Supervision and Enforcement) Regulations 2024.

[The Financial Secretary to the Treasury (Lord Livermore) (Lab)]

My Lords, with the leave of the Committee, in moving this instrument, I shall speak also to the Financial Services and Markets Act 2000 (Ring-fenced Bodies, Core Activities, Excluded Activities and Prohibitions) (Amendment) Order 2024 and the Short Selling Regulations 2024. Noble Lords may be aware that the Secondary Legislation Scrutiny Committee raised the ring-fencing and short selling regulations as instruments of interest in its secondary legislation report, published last month.

The regulations being introduced today will ensure effective, proportionate regulation for the financial services sector in three ways: first, by reforming the ring-fencing regime to be more flexible while upholding financial stability safeguards; secondly, by creating a new framework for the regulation of short selling; and, thirdly, by enabling better supervision and enforcement of designated activities under the Financial Services and Markets Act 2023.

I will first address the reforms to the ring-fencing regime for banks. As noble Lords will know, ring-fencing was introduced following the global financial crisis, on the recommendation of the Independent Commission on Banking, and came into full force in 2019. It requires large complex banks to separate the services that they provide to households and small and medium enterprises from investment banking activity.

In 2022, an independent statutory review of the regime recommended updates to ensure that it operates as intended and is proportionate. This statutory instrument improves the regime and implements changes from the review. The reforms that it contains will improve competition in the banking sector, reduce costs and support economic growth. They have been developed with the Prudential Regulation Authority, which is content that they also maintain appropriate financial stability protections.

The reforms will ensure that, in future, only the largest and most complex banks are subject to the regime, with two key changes. The first of these is an increase in the primary deposit threshold—the amount of core deposits a bank can hold before it is required to ring-fence—from £25 billion to £35 billion. This accounts for growth in the deposit base and other relevant economic indicators since ring-fencing was introduced, and supports competition. The second is the introduction of a new secondary threshold that exempts retail-focused banking groups from the regime where investment banking activity accounts for less than 10% of common equity tier 1 capital.

This statutory instrument also makes changes to the way in which banks within the regime can operate. It introduces measures to encourage more investment by ring-fenced banks in UK small and medium enterprises and to reduce the compliance burden associated with the regime. It also creates significant new flexibilities to allow ring-fenced banks to operate globally, subject to Prudential Regulation Authority rules, as well as to provide a wider range of goods and services to their customers.

I turn now to the Short Selling Regulations 2024. Short selling is the practice of selling a security that is borrowed or not owned by the seller with the intention of buying it back later at a lower price to make a profit. Short selling plays a role in the proper functioning of financial markets. It provides essential liquidity to markets, which drives investment in British companies; it helps drive economic growth; and it helps ensure that investors pay the right price when investing in shares.

This statutory instrument introduces a more streamlined UK short selling regime, which focuses on equities rather than both equities and sovereign debt. The new regime also includes a reformed public disclosure regime for short selling to ensure that there is transparency over short selling activity, without the issues identified with the current regime through the 2022 call for evidence.

There can, however, be risks associated with short selling. As such, it is important for the Financial Conduct Authority to have the tools necessary to monitor short selling activity effectively and to intervene. This statutory instrument provides the Financial Conduct Authority with broad rule-making powers in relation to short selling. This will allow the Financial Conduct Authority, in effect, to oversee short selling in UK markets. It will also mean that the UK’s short selling rules can be adapted and updated by the Financial Conduct Authority in a more agile way in the future—for example, to better adapt to new global standards or to take account of market innovation and new business models.

This instrument also retains the Financial Conduct Authority’s powers to intervene in short selling activity in UK markets in exceptional circumstances—an important feature of the current regime.

Finally, the Financial Services and Markets Act 2000 (Designated Activities) (Supervision and Enforcement) Regulations 2024 give the Financial Conduct Authority the broad rule-making power for short selling that I have just mentioned. The new short selling regime operates under the designated activities regime introduced into the Financial Services and Markets Act 2000 by the Financial Services and Markets Act 2023.

The designated activities regime allows the Treasury to designate certain activities to be regulated by the Financial Conduct Authority without the requirement for those carrying on the activities to become full authorised persons, such as banks or insurers. This enables proportionate regulation of activities where it would be inappropriate to require full authorisation.

The designated activities supervision and enforcement regulations enable the Financial Conduct Authority to supervise and enforce rules that it makes under the designated activities regime. They do this by extending the Financial Conduct Authority’s existing supervision and enforcement powers under the Financial Services and Markets Act 2000, so that they can be used in relation to designated activities, even where those carrying out the activities are not authorised persons. The extension of these powers applies, in the first instance, to designated activities covered by the Consumer Composite Investments (Designated Activities) Regulations 2024 and the Short Selling Regulations 2024. This will enable effective supervision of the regimes that those regulations introduce.

In closing, these SIs ensure that our financial services industry is subject to a rule book that is fit for purpose, more proportionate and tailored to UK markets. I beg to move.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, first I declare my interests in financial services, as in the register—just in case. I will speak to the Financial Services and Markets Act 2000 (Designated Activities) (Supervision and Enforcement) Regulations and then to the Short Selling Regulations.

The set of rules and provisions under which the FCA can give directions is important. Every time something is the subject of such a direction or supervisory action, there is an opportunity to go to a tribunal. I wonder whether the Minister has any statistics, from looking at the FCA’s present powers and at when tribunals can be invoked, on how frequent that is. I am trying to get at one of the things that has irritated me, which, as the Minister knows, is that the FCA seems quite slow to respond when something is going on in the market. One’s instinct, if we know that something is going wrong, is to want quick action. These provisions allow that, but they could always be subject to challenge. So how might that interfere? The question is a little theoretical, but is anything already being done in that way with which we might compare it? I realise that that information might not be to hand; if it is not, I would be happy to have a letter.

16:30

The particular instances when these directions can be given—they are not sort of day-to-day things—are laid out separately in the statutory instruments relating to that subject matter. So, we have the short selling one before us today and a few weeks ago we dealt with the CCI one. I noticed that the consumer composite investments regulations say:

“The FCA may give a direction only if it appears to the FCA—

(a) in the case of a direction given to a person, that in carrying on the activity the person is failing, or is likely to fail, to comply with a requirement imposed on the person by designated activity rules made by virtue of regulation 6, or

(b) in the case of a direction given to a person or a description of persons, that it is desirable to exercise the power for the purposes of advancing any of the FCA’s operational objectives set out in section 1B(3) of FSMA 2000”.

Two of those are to do with consumers and the other one is basically to do with the integrity of markets. But the provisions for short selling are different. It still has the first one about failing, but it does not have the one about the FCA’s operational objectives, and then it has a list of other things that are relevant vis-à-vis short selling—I do not need to read them out.

So I am slightly puzzled as to why the one to do with the operational objectives does not appear as a routine. It seems that the two that were put into the consumer composite investments regulations seem to be two fundamental points: that you are failing or that it is not in line with the FCA’s operational objectives. I would have expected those to be replicated in every statutory instrument that comes along as they go into the designated activities regime. So I am curious about why it is left out.

I can see that it might have been thought that the consumer side does not apply quite so much to things such as short selling, but I think that would be wrong and, in any case, there are still others. But, apart from that, I am relatively happy with the proposals, as long as they are not so tribunal-bound that they cannot act, and we have not missed out on putting in other occasions when they might want to be able to intervene.

With that, I turn to the short selling regulations. I am well aware of the history of those regulations, which were a spinoff from AIFMD and extraordinarily difficult to negotiate to get into anything halfway sensible. So, it is quite nice to see that actually most of it has now been kept and that, of the things that the UK objected to most and we could not get out of, two have been have taken out—and for the most part, that is reasonable. I think some people say, “Well, why can’t you short sell sovereign debt and have sovereign CDSs?” I think that the liquidity is such that you do not have to worry about whether you are going to be able to get hold of them, but experience has shown that, if you cannot short the sovereign, the markets will find a way to do the equivalent, which means shorting those people who are holding the sovereign, which happens to be banks–and it is probably a worse thing to be shorting banks than it is to be shorting the sovereign. So it is a reasonable provision to not have those in any more.

The other one was to do with how much transparency there should be over short selling provisions. We went round and round this argument at the time, and everybody was very cross about all the short selling that had been done against Greece and during the financial crisis. They wanted to know who the culprits were but, generally speaking, the aggregated numbers are what really matters. If you have too much transparency, you can expose the strategies of other financial organisations, so I agree that going back to where we used to be is correct in that sense.

In reading through the response on short selling, I noticed that there were more than 800 consumer respondents, most of whom responded in a standard way—I think online. In their response, the Government explained that a lot of the things said by consumer respondents were more relevant to the US situation. That was probably a fair statement, although I obviously do not have access to the consultation documents. However, this again shows that people are interested in what goes on in short selling. They are concerned, even if they do not know exactly what the legislation is. To some extent, that reinforces my thinking that it is necessary to consider how consumers view things. Apart from that, there were only about 25 respondents, which is not very many.

I have to say, on my favourite subject of consumer collective investments, that there was a substantial response to that consultation, which the Government not only ignored and said very little about but then did precisely the opposite of what was said. There is an interesting contrast between the way in which that was dealt with—I know that the noble Lord was not necessarily the Minister at that time—and the more sympathetic way in which the consumers were dealt with. That is all I have to say at the moment.

[Baroness Kramer (LD)]

My Lords, I shall speak to these three statutory instruments in the order in which they appear on the Order Paper. I know the Minister spoke to them in a different order—three, one, two—but I am much more simple-minded, I am afraid, so will go with one, two, three. I am also speaking without the professional experience of my colleague and others who are present in this debate, even if not participating, so there is an element of “man-on-the-street reaction” to some of the questions I have around these various statutory instruments.

I will start with the designated activities regulations. I would like to understand much better the circumstances under which this first of the three SIs allows the FCA to exempt businesses or persons from being an authorised person when they are carrying out activities such as short selling and credit default swaps. Indeed, the language is quite loose, so it may well include other complex financial structuring and sales.

The reason that I would like to understand those circumstances is that I remain very exercised by the 2008 financial crash. It is an experience from which we all have to learn, and which we must be careful not to forget, but it was, to a significant extent, triggered by the ignorance and negligence of businesses and people who were carrying out structured finance. Indeed, credit default swaps in particular were at the heart of much of the crisis. Short selling, which is wrapped into this SI, particularly uncovered short selling, is definitely a risky activity. Why should these risky activities be carried out by people who have not been through an authorisation—in effect, an approval process?

I understand that the industry often says that this is an onerous process but, having been on the committee that first recommended that process, the heart of the authorisation process is to verify that the person carrying out the activity meets the test of being fit and proper. Indeed, the core of the process is a criminal records check and a process to verify that the expertise and experience that has been claimed by the individual or the business is actually true. Neither of those can ever be taken for granted. People who have been involved in financial mis-selling over and over again turn out to be serial offenders whose history was never checked and who are shown to have been involved in previous mis-selling practices. We saw that extensively with the mini-bond scandal but it has a much wider history than that.

Firms have told me that, since they have had to go through the authorisation process, they have been shocked to find how many of their decision-makers were hired not on the basis of their expertise or CVs but because they were a friend of somebody who was important in the organisation who had highly recommended them. When they started checking the CVs, as the Minister may be aware, they discovered that many people had gravely exaggerated; the experience and expertise that they had claimed turned out not to have a whole lot of substance behind it.

In an industry where there is so much at stake and so much capacity to manoeuvre and do the wrong thing, why are we limiting the authorisation process? I want to understand better the circumstances in which the FCA will make the decision that the authorisation process need not apply. It is a pretty significant decision. I understand the industry push-back; all the organisations feel that they are virtuous, so why should anybody look over their shoulders?

On the whole I am comfortable with the second SI, which focuses on short selling, but I do not understand—here, I am in a different position from my colleague, my noble friend Lady Bowles—why individual firms will no longer be required to publish net short positions above 0.5% of issued capital. I should have thought that investors would like to have this information, but I understand that, from a systemic perspective, an aggregate number may be sufficient for the regulator. However, it concerns me that we are reducing transparency in this area and I should like to understand much more clearly why transparency has been such a problem that it has to be removed. It does not take a lot of activity for this information to be public, so it cannot be particularly onerous to publish it. What are the harms that the industry feels exist because of publication? Perhaps we could have some examples of where a firm has been harmed. Presumably, that evidence has been put before the FCA or we would not have the drafting of this SI.

Why can the Treasury arbitrarily change the threshold for reporting net positions to the FCA? To me, the Treasury does not need to be accountable to anybody for changing that threshold and I just do not understand why that is and what the circumstances are.

I am also concerned that the financial services industry has been playing the growth mantra in order to move to a lighter-touch regulation environment. Whenever there is a debate on short selling on the Floor of the House, many people stand up and argue for uncovered short selling to be allowed far more extensively on the grounds that it will bring more players to invest in high-risk projects. The argument is made continuously that uncovered short selling will increase the liquidity in the market and offset any increased risk. I regard uncovered short selling as a risky activity, and I am not clear how this SI impacts on the FCA’s scope—without reference to Parliament, scope increases to allow a much greater range of uncovered short selling. As I was reading the language, I could certainly see that interpretation as possible.

16:45

The third of the SIs—the one that the Minister focused on at the beginning—is on ring-fencing. I feel pretty strongly about this issue, having gone through the experience of listening for two years to our banks describing the actions that created the crises of 2007 and 2008. Among that evidence, one of the most important conclusions that we as a committee came to was that the lure of the free money from retail deposits, and the lure of putting that into risky investments, was irresistible to what some people call the “casino” side —the investment side—of banking. The Government and the regulator have already lifted the bankers’ bonus cap, and they have weakened the clawback for bonuses received on deals that go badly wrong. I start to worry when those two changes are combined with amendments that provide easier access to that so-called free money—the retail deposit money.

The changes in this SI are restricted: they largely change the size of the banks that have to obey ring-fencing rules. Can the Minister tell me how many banks are affected by that change? It would be nice to know the identity of the current set of banks that would be affected by the change because that would give us a sense of how much risk is being added into the market.

I understand that the Government are hopeful that money from deposits—the free money—will go into UK SMEs. I say to the Minister that I think he is an optimist, as I do not think a lot of it will happen, but we must recognise that, as UK SMEs scale up, they have a high failure rate—it is about 49%—so there is a real impact in fuelling those kinds of investments. We must be careful not to take financial stability for granted but to understand that it requires constant vigilance. If the Minister could help me with those issues, I would be grateful.

[Baroness Neville-Rolfe (Con)]

My Lords, I rise to address these three significant pieces of legislation, which collectively aim to refine and enhance the regulation of our financial services sector. The measures come at a pivotal time for not only our financial services industry but the broader economy, as we navigate the challenges and opportunities presented by our post-Brexit regulatory autonomy.

My overall concern is that we are moving too slowly and too modestly to reduce the constraints that existed in the EU regime, and to encourage the competition and dynamism that we need for growth. This means that the US financial services industry and the industry in newer markets, such as Singapore, are eroding our prime position despite our dual advantage of time zone and the English language. Questions have been asked about the effectiveness of our stock market; indeed, that was highlighted today by the reaction to the Canal+ listing in London, which, obviously, we all welcomed. We look forward to debating the reforms announced in the Mansion House speech.

In the light of all this, the instruments demand careful scrutiny. I will also follow the sequence on the Order Paper. The first measure under consideration deals with the supervision and enforcement of designated activities. This legislation builds on the regulatory framework of the Financial Services and Markets Act 2000, empowering regulators to oversee specific activities that pose systemic or consumer risks. From our perspective, this is a necessary and prudent step. By focusing regulatory attention on designated activities rather than institutions alone, we can ensure that oversight remains targeted and proportionate.

Yet it is vital that this power is exercised judiciously. Overzealous enforcement could stifle innovation and deter smaller players and start-ups from entering the market at all. We would like to see a regulatory approach that provides clarity and certainty, enabling businesses to thrive while protecting consumers and market integrity. We also want to keep compliance costs down for business, especially smaller business. Historically, that has not always been the way of the financial regulators—nor, I am afraid to say, of the Treasury. Does the Minister agree that financial regulation should be more careful about the costs that it imposes? I know from the Mansion House speech that the Chancellor wants to be more competitive; I would like to see that reflected in financial regulation.

Incidentally, I was surprised to see this in paragraph 9.1 of the Explanatory Memorandum:

“The government does not generally assess successful enforcement action—such as fines levied after a breach of rules—as a cost to firms”.


From my experience, enforcement can be very costly to a firm: in legal fees, to fight any unfairness and possible reputational damage; in diversion of management time and talent; and in finding money from tight budgets for any fine. That is a good reason for a firm to comply with the established rules but it is also a reason for our regulators to work hard, in order to make compliance with the law easy, and not to judge themselves on the amount of fines they levy.

There is a related point on which I would very much welcome a response. The Minister may be aware of the huge concerns raised by the financial services sector about the FCA’s proposals earlier this year to name and shame firms involved in FCA enforcement action. It is consulting again, I am glad to say, on modified proposals. Can the Minister say whether the FCA intends to apply these new rules to the persons who are within the designated activities regime, which is at issue today, rather than, or as well as, the authorised persons regime? I know that the Chancellor, like her predecessor, has expressed concerns about naming and shaming. Clearly, we need to tread with great care in this area.

I look forward to hearing the answers to the questions from the noble Baroness, Lady Bowles of Berkhamsted, about tribunals and speed. I should like to say that her grasp of technical aspects of financial services law is extremely helpful to this Committee in the scrutiny of complex SIs such as these; we owe her a great deal. However, I have to say, I am not sure that I completely agree with her on FCA objectives, as I think that responsible growth and dynamism need also to come through in the way the FCA behaves.

That brings me to the second measure, which addresses short selling—an activity that has long been a point of contention in financial markets. Short selling, when responsibly undertaken, contributes to market liquidity and price discovery, as the Minister explained. Personally, I would have been more radical in moving away from the EU regulation, and perhaps in giving the FCA narrower rule-making powers. However, the proposed regulations seek to establish a robust framework for managing the risks of short selling while preserving its legitimate role, for example in times of crisis; I think that “exceptional circumstances” was the term the Minister used.

Moreover, on public disclosure, I welcome the move to a list of securities that are within the scope of the rules—this is in paragraph 5.11 of the second SI’s Explanatory Memorandum—rather than having a list of shares the FCA considered to be exempt. This will be clearer and easier. However, I urge the Government to ensure that the reporting and compliance burdens on market participants arising from this new instrument remain proportionate. Excessive red tape hinders the competitiveness of our financial markets, and I believe that we still have too much of it.

I say in response to the noble Baroness, Lady Kramer, that I, too, have learned a lot from history. She mentioned what I think she called “casino banking” but, as a former bank non-executive director—long after the financial crisis—I can vouch for the thoroughness of the checks that are made on personnel with responsibilities. My only concern is that this might be a less leisurely process because, obviously, personnel changes are often needed to run organisations well.

The third and final measure relates to amendments to the ring-fencing framework established in the wake of the global financial crisis. Ring-fencing was designed to protect retail banking operations from the risks associated with investment banking. Although this principle remains sound, the financial landscape has evolved considerably since the original provisions were enacted.

The proposed amendments rightly seek to introduce greater flexibility into the ring-fencing regime. This is a sensible response to changing market dynamics and the need for regulatory frameworks to evolve. Having said that, I think that increasing the limit from £25 billion to just £35 billion is timid, especially given recent inflation. Like the noble Baroness, Lady Kramer, I would like the Minister to remind the Grand Committee which of our banks will need to be ring-fenced going forward and to name some of those that will escape and be able to grow and diversify, both here and overseas, more easily.

In other respects, I say to the Minister and his officials that the Explanatory Memorandum and de minimis assessment on this instrument were very thorough and helpful.

As Conservatives, we understand the critical importance of maintaining the UK’s status as a global financial hub. This requires not only robust regulatory frameworks but a willingness to adapt and innovate in response to new challenges and opportunities, such as AI. I urge the Government to continue the processes of dealing with retained EU law and of engaging with industry stakeholders in order to ensure that domestic measures are implemented effectively and without unnecessary burdens or delays. In doing so, it should be possible to foster a competitive financial services sector that drives economic growth and innovation, creates jobs and enhances our nation’s global standing.

[Lord Livermore (Lab)]

My Lords, I am extremely grateful to all noble Lords who have spoken—specifically, the noble Baronesses, Lady Bowles, Lady Kramer and Lady Neville-Rolfe—for their comments and questions and for, as others have observed, the extraordinary level of expertise that they bring to this debate and, as a result, the level of scrutiny that they are able to provide. I apologise for speaking to the instruments in an order other than that on the Order Paper.

The noble Baroness, Lady Bowles, began by focusing on the designated activities SI. She asked about the direction power. The designated activities regime provides a power of direction to the Financial Conduct Authority. The Treasury can, by regulations, switch on that direction power for the Financial Conduct Authority’s supervision of any given designated activity. This statutory instrument sets out additional procedure for how that power may be exercised, but it does not create or switch on the direction power itself.

The noble Baroness, Lady Bowles, also asked for some statistics on the frequency of tribunals. I will write to her on that, as she requested. If she does not mind, I will also write to her on her second question, which was about the differences in the power of direction between CCIs and short selling.

The noble Baroness then went on to focus on the short selling SI. She asked how the views of consumers were considered. These reforms were informed by extensive industry engagement, taking into account views from a wide range of market participants, including consumers. The new UK regime will ensure that the regulation works effectively to protect against the risks of short selling while improving UK competitiveness.

17:00

The noble Baroness, Lady Kramer, asked about the Government’s view on uncovered short selling. The ability to settle is an essential aspect of any financial transaction. The Government are of the view that restrictions on uncovered short selling must continue to be a core part of the regulation of short selling; they also form part of international standards for short selling. This statutory instrument gives the FCA a broad rule-making power in relation to this; this includes the ability to maintain the current prohibition on uncovered short selling. On the noble Baroness’s question on designated activities, I will write to her with more detail on the authorisation of specific people.

She also asked about transparency. Public disclosure of short selling is important to provide investors with information and transparency on how it affects the price of shares. This, in turn, provides certainty and confidence to the market. Feedback to the call for evidence on the Short Selling Regulations highlighted significant issues with the current public disclosure regime. This new aggregated net short position disclosure regime will continue to provide transparency on short selling activity, while avoiding the potential distortive impacts of the current public disclosure regime. The Financial Conduct Authority will continue to have access to data on individual net short positions to monitor short selling activity effectively. I will also write to the noble Baroness on why the Treasury has control of the disclosure threshold.

[Baroness Kramer (LD)]

Can I ask the Minister for clarification? It would seem that, if individual entities are disclosing their net short position, it is possible for an investor to understand whether the price is being affected by one institution that is making a very big play or by a series of institutions that are making a similar play. That is important information, and I have no idea how you can get it once everything is aggregated —unless I have misunderstood all of this completely, which is perfectly possible.

[Lord Livermore (Lab)]

Since I am going to write to the noble Baroness on those other two points, it is probably best that I write to her on that one, so that we can be absolutely clear.

In the meantime, I move on to the questions on the ring-fence from the noble Baroness, Lady Kramer. She spoke about a return to casino banking, but she will understand that I disagree with her on that point. These are sensible, technical reforms on which the Treasury has undertaken detailed work with the PRA. The PRA is satisfied that they maintain the appropriate financial stability safeguards. The Treasury has considered the combined overall risk of reforms to the sector, alongside detailed cost-benefit analysis through an impact assessment. That impact assessment concluded that the reforms will improve outcomes for banks and their customers by making the ring-fencing regime more flexible and proportionate, while maintaining appropriate financial stability safeguards and minimising risks to public funds.

The noble Baronesses, Lady Kramer and Lady Neville- Rolfe, asked which specific banks will be removed from the ring-fence as a result of these measures. The reforms create significant new optionality for banks, with the eventual benefits depending on their commercial decisions. It is for the banks to announce how they will utilise the new flexibilities created in the regime and the Government do not comment on specific firms.

The noble Baroness, Lady Kramer, also asked about firms being taken out of the ring-fence as a result of the primary threshold. No firms will leave the regime as a result of increasing the core deposit threshold.

The noble Baroness, Lady Neville-Rolfe, in contrast to other noble Lords, spoke of these reforms being too slow and modest. She also asked what assessment the Government had done on the impact of these SIs. We published impact assessments alongside both the ring-fencing and short selling statutory instruments, which set out their estimated impacts on firms. Both these statutory instruments are estimated to result in a net cost saving for industry.

The noble Baroness also asked how these SIs will deliver growth. There are several measures in the ring-fencing SI that have an impact on growth. We are increasing the core deposit threshold at which banks become subject to the regime, allowing them to grow, as well as exempting retail-focused banks from the regime. We have also introduced new flexibilities for ring-fenced banks to invest in UK small and medium enterprises. The Short Selling Regulations introduce a streamlined short selling regime, which reduces costs for firms and improves UK competitiveness, while still effectively protecting against the risks of short selling.

The noble Baroness also asked about the powers that the supervision and enforcement statutory instrument provides. Those regulations extend the normal powers that the Financial Conduct Authority already has over designated activities. They will allow the Financial Conduct Authority to supervise designated activities even where those carrying on the activities are not authorised persons. They mean that it will be able to gather information on and launch investigations into persons carrying on designated activities, and to enforce its designated activity rules, by publicly censuring or imposing financial penalties on persons who breach them. The Financial Conduct Authority will also be able to restrict or prohibit persons from carrying on the activity if necessary. I will write to the noble Baroness, Lady Neville-Rolfe, on the broader FCA enforcement approach.

[Baroness Neville-Rolfe (Con)]

Before the Minister goes on, I want to ask about naming and shaming. Is it to be done at the stage when enforcement becomes public? Can we be clear when the naming and shaming will take place? The Government are still considering exactly what they are going to do on naming and shaming, I think. It would be good to have confirmation on that because this area is of particular concern to the industry, for an obvious reason: the reputational hit of naming and shaming is substantial.

[Lord Livermore (Lab)]

If there is anything more that I can usefully add, I will include it in the letter that I will write to the noble Baroness.

A final question was asked about why we have increased the limit by just £10 billion. It was recognised when the ring-fencing regime was originally designed that the threshold would need to be adjusted over time to reflect the evolution of banking practices and growth in the deposit base. The Treasury considered several metrics, as well as financial stability and competition considerations, in proposing the £10 billion increase.

Increasing the deposit threshold will provide smaller banks with more headroom to grow before being subject to the requirements and costs of ring-fencing. This will support domestic competition in the retail banking market. A competitive and dynamic market improves outcomes for depositors. The reforms may also encourage inward investment in the UK, as new entrants to the UK banking market will have more room to grow and develop economies of scale before becoming subject to the regime.

I hope that I have covered all noble Lords’ questions. As I say, I will write on the points that I indicated.

Motion agreed.