Economy: The Growth Plan 2022

Baroness Bowles of Berkhamsted Excerpts

Monday 10th October 2022 Lords Chamber

[Baroness Bowles of Berkhamsted (LD)]

My Lords, the Government have U-turned on some of their insensitive Reaganomics, giving tax cuts and perks to the wealthy during a cost of living crisis for the wider population, but a harsh right-wing agenda is an integral part of the Tory Brexit plan. It may not have headlined beyond the Singapore-on-Thames misnomer—thought just to mean light-touch financial regulation—but disruption and asset price adjustment are part of it, as the Prime Minister has revealed in various things that have been said.

Those kinds of adjustments are painful and require a long policy horizon, broad and deep support and good communication, as do any challenges to market orthodoxy. But done naively, two years before an election, with none of the accompanying platform—no wonder the markets took flight. The mini-Budget and growth plan set in train faster and further falls in sterling and gilt prices, and rises in interest and mortgage rates, than would otherwise have happened.

The gilt glitch triggered Bank of England intervention to save defined benefit pension funds that had tried to manage mark-to-market gilt valuations with derivatives and borrowing, collateralised by the gilts themselves: an incestuous systemic linkage, which sounds crazy anyway, inherently vulnerable to a doom loop, created and perpetrated by and around regulated entities, warned about to the Bank of England, and deemed acceptable or untouchable by regulators.

This was a systemic accident waiting to happen. Dodgy derivatives, shifting risk horizons, timelines and effective ownership change—has nothing been learned from 2007? The issue that has driven the invention of liability-driven investments and the recent gilt-sale doom loop is the mark-to-market requirement of accounting standards and applying it to hold-to-maturity gilts within pension fund assets. It has caused 20 years of instability in the pensions sector.

Gilts held to maturity are not volatile; the coupon and end return are either fixed or linked to inflation. As Terry Smith pointed out in his opinion piece in the FT last week, LDIs are not hedging risk—which is the total realised end return—but attempting to hedge the accounting valuation with all its short-term noise and volatility. The only gainers are the peddlers of exotic products; the losers are the public and pensioners who foot the cost of the rescue and the finagling.

Why is this done? Because of universal mark-to-market accounting standards dogma, also embedded in other regulation. Maybe it makes audit less work, requiring less judgment, but what good is that when the consequences and get-arounds open the door to extreme systemic events?

I know that the noble Lord, Lord Callanan, follows the infallibility of accounting standards mantra of BEIS—it is probably being scribbled down in the Box right now—but there are dangerous flaws and absurdities, and it is negligent if government, BEIS, the Treasury, regulators and the Bank will not get their heads around issues in accounting standards. It is no defence to say that accounting standards are independent; they are a closed shop defended by their acolytes. We are not all bamboozled, but those with power must take off their blinkers.

Bank of England Act 1998 (Macro-prudential Measures) (Amendment) Order 2021

Baroness Bowles of Berkhamsted Excerpts

Thursday 8th July 2021 Grand Committee

[Baroness Bowles of Berkhamsted (LD) [V]]

My Lords, I thank the Minister for introducing this regulation, which is consequential on the changes to powers laid out in the recent Financial Services Act—which we debated for many days earlier this year. As the Minister said, the matters covered today include the leverage ratio and the application of measures to holding companies.

I have no problem with the regulation but I want to say a few things about the policies which it will be used to put in place. As the Minister said, there are several significant FPC and PRA consultations concerning application of international Basel standards and the leverage ratio, which are made in consultation with HMT. I would like to spend my time on those underlying issues that will be given life through the powers in this instrument.

The leverage ratio presently is utilised essentially as a backstop in case the models used by banks to calculate their risk-weighted capital requirements become too light in their risk assessments. Currently, it is set at 3.5%, and it is the capital buffers that will tend to restrict the banks’ activities, essentially through cost, with the leverage ratio therefore seen as a sort of lower ultimate solvency test. Nevertheless, it effectively functions in a similar way to capital buffers rather than as a different economic tool.

I make that point because I thought that, with the Financial Policy Committee having a bigger role in relation to leverage, there might be an attempt to look at the outcome of the Macmillan committee report produced after the 1929 financial crisis, where it was suggested that, instead of controlling markets simply by interest rates and price, there should be a second leverage control that addressed total volume. So my question to the Minister is on what thought is being given to whether there needs to be a control on volume and money creation other than through price.

Returning to what is actually happening in conjunction with this instrument, and in line with new Basel standards, the leverage ratio framework is being applied to a wider scope of firms, at times to the consolidated or sub-consolidated level, and will extend to internationally active holding companies and firms with non-UK assets over £10 billion, which will cover larger, non-ring-fenced banks and broker dealers such as Goldman Sachs, JP Morgan and Morgan Stanley. I agree that these are all good moves for stability of the banking system in the UK.

Alongside that there is to be tweaking of, and some disapplication of, Basel standards. Schedule 3 of the Financial Services Act 2021, repeated again in this instrument, states that the PRA must have regard to, among other things:

“relevant standards recommended by the Basel Committee on Banking Supervision from time to time … the likely effect of the rules on the relative standing of the United Kingdom as a place for internationally active credit institutions and investment firms to be based or to carry on activities … the likely effect of the rules on the ability of CRR firms to continue to provide finance to businesses and consumers in the United Kingdom on a sustainable basis in the medium and long term … the target in section 1 of the Climate Change Act 2008”,

which is net zero,

“and … any other matter specified by the Treasury”.

As ever, it is “have regard”, so it promises nothing. In the proposed changes around leverage, there are areas where the second point, about the standing of the UK—effectively competitiveness—has prevailed over the first, and the Basel rules are not taken in full. The UK will not be Basel-compliant over its leverage buffer for globally systemically important banks, setting a lower-than-Basel level, and will also not be implementing the disciplinary measures, such as restriction of dividends on breach of a leverage ratio requirement. It is not hard to see the attractiveness of those measures to banks, but is not there a risk that it is saying, “We don’t care that you are getting close to dodgy solvency levels, just go ahead and pay dividends”? Which other jurisdictions are doing this, or is the UK leading the charge?

There are other departures, too, but the Economic Secretary to the Treasury said in the Commons on Monday that the FPC will argue that overall, on an outcomes basis, the UK is equivalent because a stronger measure of what qualifies as capital will be applied. That is a substantial attitudinal departure from international standards. I understand where it is coming from, but it is the UK back to its old tricks of saying it complies when in fact it picks and chooses and jiggles around? It can be the same on an outcomes basis to get to a destination going the wrong way along a one-way street, but it is not advisable and involves breaches of standards. Is not that what the UK is doing—saying that we were well under the speed limit on this road, so now we can take an illegal short-cut down the one-way street?

There is no great glory from being above Basel on capital standards. Basel rules are meant to be a minimum and already have aspects of lowest common agreement, which is in fact how some lower-grade capital gets in there. In my book, the lower standards look like breaches rather than outcomes compliance, and I worry that the UK has possibly started the undermining of Basel and a race to the bottom.

Can the Minister provide, if not now then by letter, calculations that show how the higher quality of capital compensates for lower buffers—for example through loss absorbency in the event of resolution? What was the basis, other than saying, “Come and headquarter here”, for removing the restrictions on dividends for a breach of the leverage ratio? I understand the importance of keeping investors, but what action will the regulator take for fast restoration of capital if dividends are still flowing out? Furthermore, are the differences from Basel in fact things that the UK argued for and lost—perhaps, if you like, giving a warning—or are they new approaches? Will it undermine the future effectiveness of the UK in negotiations if we have the reputation for just doing things our own way anyhow? Will not that remove the incentive for others to see things the same way as the UK?

The regulation will pass, as it is part of the new structure but, despite references in the documents to the “new accountability structure”, it is regrettable that these first, important decisions that I have commented on are happening without more prior reference to Parliament. As we said during the debates on the Financial Services Bill, everything is being front-run and front-loaded. The Government fixed their influence and have, unhappily, left Parliament behind.

Financial Services Bill

Baroness Bowles of Berkhamsted Excerpts

Report stage
Wednesday 14th April 2021 Lords Chamber

Moved by

[Baroness Bowles of Berkhamsted]

18: After Clause 40, insert the following new Clause—
“Undertakings from regulators
The FCA and the PRA must each give and publish the modes and timing of the provision of information and responses to Parliament concerning their activities and rule-making.”Member’s explanatory statement
This amendment would require the FCA and PRA to give undertakings about liaising with Parliament.

[Baroness Bowles of Berkhamsted (LD) [V]]

My Lords, I have tabled three similar amendments in this group, with increasing levels of requirements. Although they were drafted before we had the letters from the regulators, the correspondence from the Minister and today’s letter from the Economic Secretary, the amendments still have currency. Along with other amendments in this group, they allow us to explore current provisions and the adequacy of assurances regarding Parliament’s rights. I remain concerned that there is not even the slightest recognition on the face of the Bill that increased scrutiny must come with wider powers for the regulators. It requires very substantial on the record commitments to make up, even temporarily, for that absence.

In Grand Committee we debated amendments that covered wider aspects of Parliamentary scrutiny than just rule making, as we did on day one of Report, but the heavy focus on rule-making powers is because they are changing right now. EU democratic scrutiny is gone, and the middle statutory instrument layer and formal parliamentary scrutiny are being diminished or removed. Therefore, Parliament’s role needs shoring up. The Minister can be in no doubt about the consensus on that matter, not just in this House but in industry, from replies to the consultation. However, he and the Economic Secretary seem to be maintaining the fiction that, despite the front running in this Bill, change is not actually happening until the end of the consultation.

In the recent reply to the noble Lord, Lord Tunnicliffe, which Labour colleagues have shared with us, the Minister states the caveat that the primary purpose of consultations is to consult industry, practitioners and consumers. That caveat further demonstrates why it is very necessary to have Parliament’s role explicitly reserved.

My family of Amendments 18, 19 and 20 is aimed at finding whether there is something that the Government can accept or modify. Failing that, it is a progressive list around which I ask the Minister to specify whether Parliament, including relevant committees of this House, has these rights already, and whether the regulators must co-operate even if it takes more time, effort, appearances and resource than they are used to at present. That is needed because of the significant change that is already happening—and now, not at a future date.

It did occur to me that perhaps it was necessary for there to be at least a line in legislation giving authorisation for regulators to use more resources, or to remove excuses based on resources, and that the Minister might perhaps be tempted by what is the baby of my amendments, or something similar, which requires merely an undertaking from regulators about timing, provision of information and responses to Parliament concerning their activities and rule making. The resources point is not just my concern. A former regulator, albeit not of financial services, has also wondered, in conversation with me, whether there is authorisation to expend additional resource. That concern is further heightened by the Minister’s caveat on the primary purpose of consultation.

So my question to the Minister is: will he categorically say that there is no reason, including that of resources, for the regulators to ration their appearances before committees and other engagements with Parliament? Can he assure us that, even if there is a lot going on, busyness is not an excuse for regulators to delay appearances before committees or to delay provision of information? Indeed, does he agree that it may well be the opposite, and a lot going on can be a reason for additional engagement?

If we look at what is already being front-run, in terms of Basel and investment firms and then, starting in a week or so, an abbreviated consultation on matters relating to the Hill review, with plenty more to follow, it looks as if many, even most, important changes are going to happen well before we get to the end of the review on the future regulatory framework and that moment when it is suggested that legislation concerning Parliament may be appropriate to fit the anointed changes.

If I were a cynic, I would say the Government have conveniently timed all the front running so that the big work is all done before Parliament’s role has been modified to fit—and that is an insult to parliamentary democracy. Therefore, will the Minister confirm that the regulators must provide high-level witnesses and evidence when requested, and not just to committees but also to APPGs and other parliamentary activity that is all part of wider scrutiny? Speakers are provided to industry conferences: why not to parliamentary ones? Is not engagement with Parliament an important part of communication with the public, including in the context of consultations that the Minister has said are aimed primarily at the public, as well as industry?

The second of the amendments adds a list of documents that must be provided to Parliament no later than they are provided to the public. It might seem trivial, but this is saying that Parliament is not just another consultee. The Minister’s caveat says Parliament is not the primary purpose of the consultation: in that case, there is all the more reason why separate engagement must be assured. I am very disappointed that the Economic Secretary has taken a different view by saying that the response could just be in the general consultation response.

My second amendment would also add in that there must be

“due regard to recommendations made by … Parliament.”

This “due regard” is important. It is explicitly said in the letter from the PRA, but it is not explicit in the FCA letter and it is a key commitment sought in the cross-party Amendments 45 and 48. In this matter we all await confirmation from the Minister that the regulators must—I say “must” rather than a conditional “should”—have regard to Parliament’s views. The Economic Secretary seems to agree with this, even if not specifying a dedicated response.

I turn now to my third amendment. This is definitely daddy bear porridge and no doubt too hot for the Government, but it is based on real life and is just a small part of what is in the interinstitutional agreement that I negotiated between the European Parliament and the European Central Bank concerning eurozone bank supervision. Maybe the Minister can confirm whether most of what I suggest does or can already happen, but I want to run through the thinking and culture behind the additional elements.

First, there is

“a principle of openness and sincere co-operation.”

By that I mean not being defensive and saying the minimum that can be said. We all know that there is a great deal of coaching of officials, whether from departments or regulators, before appearing at committees about how to deal with awkward questions and not to say too much. We have all suffered the “talk long, say little and use up all the available time” strategy. That is not openness and sincere co-operation, and there is a culture issue here that needs to change. I am not so naive as to think that it can be changed by a legislative amendment, but I want to make the point for the record that it is an issue.

My third amendment would also add in “regular updates” on principles and the kinds of information and indicators used in developing rules and policies. This would, of course, include policy on supervision and enforcement, as well as rule-making. Here, I want to pick up on another point that the Minister put in his reply to the noble Lord, Lord Tunnicliffe. I will read it because not everyone has seen it. The Minister says:

“And we would be comfortable about agreeing that Parliament has the principal role in terms of the broader matter of scrutiny and oversight of the regulators’ activities”.


The Economic Secretary also states a unique and special role, but we can scrutinise only what we are allowed to access. It is necessary to see the ingredients, not just the baked cake.

During the years that I was immersed in EU legislation, one of the refrains that I constantly heard from HMT and regulators was how the EU Commission and the ESAs were so reliant on information from the UK in order to calibrate rules, and that was why the UK regulators could do a better job on their own for the UK. This information, so it was claimed, was fundamental to rules and therefore it should be sufficiently available to show how the case is made, and confidentially when appropriate. So, do we, Parliament and Parliament’s committees, have access to it?

Confidentiality of data is sometimes used by regulators as a reason to be very approximate in public answers in committee. It has been my experience that, once that excuse is removed because a private briefing can be requested, it tends to be used less as an excuse during the public stage. Will the Minister therefore confirm whether all this kind of information is within the rights of Select Committees in this House, as well as the Treasury Select Committee, to require, and if not, why not?

Finally, although it is not in the amendment, can the Minister confirm that Ministers must attend committees when requested? Much is made in the future regulatory framework consultation about regular accountability of Ministers; it is at the top of page 27, for example. My recent experience on the Economic Affairs Committee has been of difficulty in getting timely—sometimes any—attendance from Ministers.

Everyone is trying to do a good job; that is what these and other amendments in this group are trying to ensure. But if Parliament is restricted from doing a proper job on all the front-run legislation, responsibility for that from this Bill forward lies clearly at the feet of the Minister and the Government. I beg to move.

--- Later in debate ---

My noble friend Lady McIntosh of Pickering asked about procedures applicable at Third Reading which, with the agreement of the House, will be taking place next Monday. I can confirm that it will not be possible to return to these amendments at Third Reading. Having said that, I am very hopeful that we can resolve the issue to everyone’s satisfaction today as a result of the assurances that I have given. I hope that they have convinced your Lordships that the Government recognise and respect the unique and special role of Parliament regarding the scrutiny of the financial services regulators. Given this, I hope I have persuaded noble Lords that their amendments are not necessary and that they therefore should not press them.

[Baroness Bowles of Berkhamsted (LD) [V]]

My Lords, we have had a long and interesting debate, showing unanimous appetite for scrutiny by Parliament, recognising at least from Parliament’s side that there are changes happening now and that therefore this enhanced scrutiny also has to happen now. As the noble Baroness, Lady Noakes, has said—echoed by my noble friend Lady Kramer—this is still a work in progress and, yes, perhaps the direction of travel is going in the right direction.

I thank the noble Lord, Lord Eatwell, for giving us the new vocabulary of the “New Scrutiny”, which certainly makes it easier to identify what we are talking about. I agree with the noble Lord that it is up to Parliament to decide the mechanisms of its own scrutiny. To some extent, that is why I phrased my amendment as I did in the context of undertakings from the regulator. I think I gave the game away in the sense that I said it was to induce discussion about the points I had put in. That we have had.

Budget Statement

Baroness Bowles of Berkhamsted Excerpts

Friday 12th March 2021 Lords Chamber

[Baroness Bowles of Berkhamsted (LD) [V]]

My Lords, the Chancellor has put in place more support for the economy. Unfortunately, it still contains unfairness, especially to the self-employed, such as freelance musicians, which mars what are otherwise generous provisions. It is hard to see generosity going everywhere else, knowing that you will share in the payback. While continuing help through furlough schemes, rate support, stamp duty and VAT reductions is to be phased out, it looks like a cliff edge for universal credit—although I think the £20 should be made permanent and that spare money would be better spent on stimulating growth than on house prices.

Balancing longer-term public finances looks challenging to meet by 2025; there is plenty of time for corporate pressure before the 25% tax rate kicks in, and the public service savings plans look unrealistic, horrifying, or both. The autumn spending review already took £12 billion a year out of pre-pandemic plans, and the Budget claims another £4 billion. How can that be done with backlogs in spending needs everywhere—in school catch-up, cancelled operations, court hearings, broken public transport and failed social care?

We may have had honesty about some of the problems that lie ahead and when tax changes will take effect, but while the Chancellor has stuck to tax promises in the manifesto, he has not stuck with the pandemic manifesto of “Save the NHS”. There is no saving the NHS with a 1% pay rise for nurses or with the pre-Covid spending plans, when there is a year’s backlog of missed treatments, some, sadly, causing loss of life, but many creating greater need, and alongside that, long-term Covid requirements and vaccine top-ups.

Financial Services Bill

Baroness Bowles of Berkhamsted Excerpts

Committee stage & Lords Hansard
Wednesday 3rd March 2021 Grand Committee

When someone steals, cheats or commits bribery in the United Kingdom, there is no problem, assuming a sufficiency of evidence, in prosecuting them for that crime. When a company commissions or benefits from a crime committed by an employee, subcontractor or third party, our law is weak. These gaps in corporate criminal law have long yawned before us and urgently need to be addressed, so that companies can be encouraged to improve their behaviour or be prosecuted effectively. The burden is surely now on the Government to show why these amendments should not be made through this Bill.

[Baroness Bowles of Berkhamsted (LD) [V]]

My Lords, I remind the Committee of my interests as in the register. I have two amendments in this group, one on facilitation of financial crime, which is also signed by the noble Lords, Lord Hodgson of Astley Abbotts and Lord Rooker, and my noble friend Lord Thomas of Gresford, and a second amendment relating to whistleblowers.

There is much else of merit in this group. In particular I support the comments of the noble Lord, Lord Eatwell, concerning catching, and willing the means and money to catch, perpetrators of financial crime. While I have hounded the noble Lord, Lord Callanan, on this issue, I do see the point of pressing the Treasury on funding.

My amendment on the facilitation of financial crime is also about the Treasury willing the means. It is similar to the amendment tabled by the noble and learned Lord, Lord Garnier. We are not in competition; there are more noble Lords wishing to show interest in this topic than can fit on a single amendment. Unfortunately, we did not get to this amendment on Monday and my noble friend Lord Thomas of Gresford is unable to speak today. He was deeply engaged in the Bribery Act provisions, so his contribution will be missed.

In addition to the measures outlined by the noble and learned Lord, Lord Garnier, my amendment, Amendment 84, has a final paragraph that deals expressly with the conviction of a director or other manager who is proved to be responsible for the systems failure of the corporate body. A facilitation or failure to prevent amendment has a particular resonance in this Bill for two reasons: first, because the FCA has a specific remit to prevent the use of the financial system in financial crime; and secondly, because the Treasury, the sponsor of this Bill, has already availed itself of the mechanism with regard to tax evasion. As a believer in the mechanism, it seems appropriate for Treasury to avail itself of it again in relation to the financial system.

The tightening up of corporate systems against bribery following the Bribery Act is well documented, and what better way is there to enhance the reputation of the UK’s financial system at the point when it must protect and enhance its credibility than forcing similar tightening against financial crime? We already know well the reason for needing such offences. It is the old-fashioned way that criminal law works. Having to establish a directing mind is increasingly impossible given the complex board structures of large firms. Indeed, the principle of requiring a directing mind encourages what has been called “organised irresponsibility” by Pinto and Evans in Corporate Criminal Liability.

I know there is some reluctance in the Ministry of Justice, which sat on its hands for ages after its call for evidence on corporate liability, to which I made a submission, and then said there is no new evidence. That was really a bit rich, given that the call for evidence background document itself gave a good exposition of how bad matters are and of many of the reasons why evidence of failures in prosecutions is relatively scant. That is exactly why there is no new evidence—because prosecutors know they cannot succeed against large companies and give up.

Nevertheless, the issue has been sent off to the Law Commission, which has already said in its 2010 paper, Criminal Liability in Regulatory Contexts, that

“the identification doctrine can make it impossibly difficult for prosecutors to find companies guilty of some … crimes, especially large companies”.

In its 2019 paper on suspicious activity reports, it said:

“The identification doctrine can provide an incentive for companies to operate with devolved structures in order to protect directors and senior management from liability.”


The current common law “directing mind” principle is also unfairly discriminating to small businesses. The Crown Prosecution Service’s legal guidance, under “Further Evidential Considerations”, states:

“The smaller the corporation, the more likely it will be that guilty knowledge can be attributed to the controlling officer and therefore to the company itself.”


Given the general guidance for prosecution that there must be a “realistic prospect of conviction”, it is no wonder that prosecution evidence is scant and statistics show a preponderance of prosecutions against small companies. In its response to the MoJ call for evidence, the SFO said:

“In its current form, the law relating to corporate misconduct is both unjust and unfair and in need of urgent reform.”


Note the use of “urgent”, not “kick down the road”.

It is time for the Treasury to be less selfish and to help those other than the Revenue who are defrauded by expanding the use of this mechanism beyond tax collection, and to catch those threatening the integrity of the financial system by using it to commit financial crime.

My whilstleblower amendment suggests that regulators be obliged to give evidence when it is relevant to a whistleblower seeking redress in an employment tribunal. I have tabled it to probe the present state of play, which I understand is that they do not give evidence, indeed decline to do so, even when the whistleblowing has been important and valuable to them. This gives entirely the wrong message and looks like the regulators again being too cosy with the companies they regulate. If they are too frightened to be seen to disturb that cosiness, perhaps it should be made mandatory so that they cannot shy away.

The second part of the amendment suggests making it a behaviour that is not fit and proper for a person in authority to seek to identify, dismiss or penalise a whistleblower. We all know the case of Barclays CEO Jes Staley trying to identify a whistleblower and being let off with a fine that was insignificant for him, while the industry had thought it was an action bad enough to merit removal under the new senior managers regime. The net consequence is that the senior managers regime has been undermined and the regulator has again shown its fear of regulating behaviour in large banks. It would be interesting to know what special pleading went on to achieve that result. Was the PRA involved, rather like its special pleading to US regulators on HSBC? Was the Treasury involved? Whether it was or not, it was certainly a disaster. It is now time to make amends and show that the balance of protection lies with the whistleblower and not with bank executives.

[The Lord Bishop of St Albans [V]]

My Lords, I shall speak to Amendment 136, which is in my name. I tabled the amendment because of concerns about the lower levels of responsibility placed on appointed representatives and the increased risk of poor financial advice that this poses.

The objective of the senior managers and certification regime to influence an individual’s behaviour by making them personally accountable to the regulator is one that I agree with and it was the correct response to the culture that had arisen in the City of London prior to the financial crash in 2008. I know that some Members of this House have criticised the application of the senior managers and certification regime, or lack of it, by the FCA, and I agree that it is worrying. However, I do not want to comment on the effectiveness of the SMCR but to remedy an anomaly that exists within the current framework.

The SMCR currently applies to directly regulated financial advisers, yet it does not extend to those who are appointed representatives. This anomaly means that, while a directly regulated adviser carries a personal responsibility for the quality of the advice they provide to their customer, no such responsibility is incumbent upon the adviser who is an appointed representative. This is despite the reality that a customer seeking financial advice is unlikely to know the difference between the two types of adviser and the possible effects that this might have on the quality of the advice they receive.

The requirements of the SMCR mean that a directly regulated adviser faces higher costs and carries greater personal responsibility for their actions than they would if they were an appointed representative, despite doing the same job. I want to be clear that this is not to say that those advisers who are appointed fail to provide sound advice. As with most instances of malpractice within the financial advisory sector, the activity of a minority will, by virtue of their actions, tarnish the reputations of the majority of diligent advisers—whether directly regulated or appointed representatives. However, it is self-evident that lower levels of regulatory responsibility increase the risk of poor advice.

This amendment corrects that anomaly by giving the FCA the power to extend the SMCR requirements and responsibilities to appointed representatives. Currently, an appointed representative is regulated through a principal firm which carries the relevant responsibilities and is directly regulated by the FCA. Transferring responsibility from the principal firm to the appointed representative extends the current framework to this overlooked anomaly and places responsibility on the appointed representative. Rather than adding an additional regulatory burden on to the principal firms, this change would be to their benefit. Extending the SMCR to appointed representatives and making them personally responsible for their actions will significantly reduce the principal firm’s own regulatory risk.

Furthermore, it will reduce the risk of poor or reckless advice being given to consumers within the appointed representative regime and level the playing field between directly regulated advisers and those who are operating as appointed representatives. This amendment would remove the distinction—largely invisible to customers—in the regulations that oversee directly regulated advisers and appointed representatives and increase regulatory confidence in the diligence of financial advice given by all advisers.

From my conversations with individuals within the financial services, it is understood that the current regulator—the FCA—would welcome the ability to extend the SMCR to appointed representatives but currently lacks the power to do so. Although I obviously cannot speak for the FCA on this matter, or on the validity of the conversations I have had, similarly I have no reason to doubt the sincerity of its comments or concerns about the increased risk that the current anomaly poses.

This amendment would be a small but positive change to the Financial Services Bill by ensuring that robust and responsible regulation applies to all those who provide consumers with financial advice. Extending the SMCR to appointed representatives would directly benefit customers, by ensuring that all advisers have a personal responsibility for the advice provided, level the playing field between all financial advisers and reduce the risk to the customers and the relevant principal firms.

Finally—I have to confess that I am not quite sure of the proper process here—I had hoped to explore the possibility of tabling an amendment for this stage that would mandate the providers of deposit or credit accounts to provide voluntary debit card and credit gambling blockers. Unfortunately, I have simply not been able to get it ready for Committee, and I apologise for that, but I would be glad to speak with the authorities and the Minister on this amendment that I hope to bring later on.

--- Later in debate ---

[Baroness Penn (Con)]

My Lords, I would be happy to write to the noble Lord on his question. The debate focused on the role of these organisations in respect of their anti-money laundering supervisory functions. As I said to the noble Lord in my response, a review of the AML regulations will be published no later than 26 June 2022, with a call for evidence this summer. If he feels the need to input to that review, that would be very welcome.

[Baroness Bowles of Berkhamsted (LD) [V]]

I want only to point out to the Minister that I believe she said in her reply that the “failure to prevent” offences were targeting financial services firms. That is not the case. They were targeting use of financial services. The difference is quite important because it is much more generic, and I would not like anybody to think that I was targeting only financial services firms. The point is that it is quite difficult to do a lot of the things that are economic fraud without touching financial services. That is why it falls so full-square within what the Treasury is responsible for and why, as I said previously, it is particularly relevant to the Bill. I know the Minister has to have a “Hands off, do nothing and do not amend this Bill” attitude, but I hope that this issue will be taken to heart and that reasons to do something, rather than reasons not to, will be looked at. I was generic about the use of financial services, not financial services firms.

[Baroness Penn (Con)]

My Lords, I happily acknowledge that point. The point I was trying to make is that even with that slightly broader definition of the use of financial services, a “failure to prevent” offence for broader economic crime is one that people would want to apply in a broader context. I appreciate that the scope of the Bill defines how amendments may be written, and that takes me back to one of the reasons that my noble and learned friend Lord Garnier predicted I might give for resisting this amendment: that this is not the right Bill for it.

Financial Services Bill

Baroness Bowles of Berkhamsted Excerpts

2nd reading & 2nd reading (Hansard) & 2nd reading (Hansard): House of Lords
Thursday 28th January 2021 Lords Chamber

[Baroness Bowles of Berkhamsted (LD) [V]]

My Lords, I declare my interests as set out in the register.

I have been in this House for five years, wondering what happens about our most important industry. Diligently commenting on unamendable statutory instruments, or having yet another debate about regulators’ failure, does not really cut it for parliamentary scrutiny. In a similar length of time, I negotiated the 40 complex sets of post-financial crisis legislation in the EU. I do not expect to do that again, but it is good to see a Bill, and it is attracting two substantial maiden contributors. The problem is that to keep up on Basel 3.1 and separate out investment firm prudential regulation, it runs ahead of the consultation that is still open, implementing the division of powers in isolation from whatever comes from the consultation, deliberately fixing the path.

It did not have to be this way. The SIs revoking provisions when regulators’ replacements have been drafted could instead contain those changes, but the truth is that the Government have decided the future. Regulators are indulged, Parliament ignored. The excuse is made that the division of powers is just returning to the original FiSMA 2000, despite that being out to consultation. Apart from it not turning out well then, and the prioritisation of industry consultation over Parliament, financial services were not without EU involvement in 2000. There was already EU banking and insurance legislation. The Financial Services Action Plan was laid out in 1999 and broadly completed by 2004, with co-ordinating financial supervisory bodies well established.

It is true that the UK was on its own with the FSA’s supervisory mistakes, and cheer-led the Basel blundering, but since the financial crisis, there is so much more detailed and complex legislation than there was in 2000, so much more EU, public and parliamentary consultation and scrutiny. The FiSMA 2012 amendments were done in that setting. Now the light is switched off, and we fall back on arrogant, secretive policy-making, which is no way to be world-leading in the modern age.

It is not transparent what UK regulators and the Treasury get up to in the international standards bodies. Supervisory-led bodies have not always got it right. They got Basel II wrong. We do not know but just hope that they have got it right now. They suffer from groupthink, and then regulators implement and mark their own homework. That is why there must be big, public conversations involving Parliament.

Some legislatures, such as the EU and the US, get to scrutinise and confirm alignment with international standards once they have debated them. In the EU, regulators are regularly reviewed and peer-reviewed. In the US, the US Government Accountability Office conducts an independent annual study of financial regulations and the federal agencies. In this Bill, the Government tie our hands and legs before the scrutiny race starts.

The Explanatory Memorandum says that accountability measures have been included, meaning the scant “matters to consider” provisions for when the regulators are making rules. These “have regard” lists are too short—there are other matters of policy to consider—and there is no measure of how the regulators are accountable, other than by their own explanations and a bit of shouting by us if it has all gone wrong and still more Gloster, Connaught or GRG reports turn up. Heaven knows how anyone thinks that skeleton primary legislation can give certainty for other major jurisdictions to find us equivalent, when substantive policy can be changed in the blink of a regulator’s eye. No wonder they say that they do not know what is planned. They never will.

It is not easy being a regulator, but things have been missed too often, even when newspapers and Parliament have drawn it to attention, so we need regular independent reviews, rather like a Section 166 inquiry on regulators, with oversight on follow-through. Statutory regulator’s consultations are for industry, and there is nothing in the Bill that marks a position for Parliament. There is no access to data for industry or Parliament to independently check or challenge fair basis of the rules.

The Bill separates different types of financial institutions that have previously been swept together under banking legislation. The regulators should be given a specific direction to do more of that for small and non-systemic banks and for different categories of insurance, especially captives and reinsurance, as Ireland has. That would be useful for partial equivalences, too. The FCA’s financial system integrity objective needs backing with failure-to-prevent offences. We need duties of care, better treatment of small businesses in commercial contracts and to make the regulator’s statutory panels transparent, independent and able to consult, not secretive, selective and steered. I do not agree that FiSMA 2000 is the right model. It is arcane, it failed then and it is still secretive and shallow now, diminishing the UK. I will try to make it better.

SolarWinds Cyberattack

Baroness Bowles of Berkhamsted Excerpts

Monday 25th January 2021 Lords Chamber

[Lord True (Con)]

My Lords, the Government’s response is anything but complacent. I had hoped that I had made that clear, but I will say it again. The Government’s response is not complacent. The NCSC is working to mitigate any potential risk. Actionable guidance has been published through its website. We urge organisations to take immediate steps to protect their networks. We will continue to update as we learn more.

[Baroness Bowles of Berkhamsted (LD) [V]]

A congressional commission has given President Biden a 15-point list of priorities for reducing the probability of, and addressing recovery from, cyberattacks. Will the Government be referencing that plan as part of assessing UK preparedness, and discussing measures similarly with Parliament?

[Lord True (Con)]

The noble Baroness makes an important point about international co-operation. She is quite right to say that malicious activity knows no boundaries. We regularly discuss cybersecurity with a range of international partners, including the G7, sharing our analysis of threats and our experience. I can give an assurance that we will continue to do so.

EU-UK Trade and Cooperation Agreement

Baroness Bowles of Berkhamsted Excerpts

Friday 8th January 2021 Lords Chamber

[Baroness Bowles of Berkhamsted (LD) [V]]

My Lords, first, I thank the team of the noble Lord, Lord Callanan, for engaging with me on the patent attorney queries in the TCA.

That enables me to move on to financial services and the Governor of the Bank of England’s warning that we should not pursue equivalence if it means following the EU’s rule of software counting as bank capital—an idea that I quashed in my EU days. Equivalence is defined as having legislation at least as stringent, which should mean that it is free from maximum harmonisation and allows higher standards of capital. Has that been acknowledged as a starting point? If not, then I agree that it is a problem.

Turning to competition, I welcome potential co-operation between competition authorities, and I hope that it happens. Findings show that consumer harm resulting from cartels and dominance often leads to follow-on actions for damages, so is there an appetite to re-enable UK and EU follow-on actions relying on one another’s findings?

On state aid, I welcome the exemption for compensating damage caused by natural disasters or exceptional non-economic occurrences, and I note that it would restrict some of what the EU did in the financial crisis. However, subsidies financed at supra-national level are excluded from the independent subsidy control bodies and co-operation between such bodies, which seems to cover all EU aid. Does that mean that EU aid is excluded from remedial measures under this agreement, leaving it to WTO measures, or can action be taken under this agreement’s remedial measures?

Finally, does the UK have freedom to create state-owned investment and development banks, such as in Germany? These were grandfathered under EU law but not allowed to be newly created on similar terms.

United Kingdom Internal Market Bill

Baroness Bowles of Berkhamsted Excerpts

Consideration of Commons amendments
Monday 14th December 2020 Lords Chamber

[Baroness Finlay of Llandaff (CB) [V]]

My Lords, I shall speak to Motion G1 and move my Amendment 50E to Clause 50. At this stage I am minded to seek the opinion of the House, particularly because I wonder whether the House wants to have a conscience vote on some of these issues. I have found the Government’s response to our deliberations worrying. I remain concerned that the damage to the union that will come about as a result of their refusal to commit to a process of codesign of a future subsidy regime will come back to haunt us all.

We are of course a revising Chamber. We asked the Commons to think again, and after many hours of debate we gave clear messages through large majorities on key aspects of the Bill. We have seen some concessions and they were essential changes, but the huge problem of the current approach to the devolved Administrations remains unresolved. Given the Government’s current difficulties with the pandemic and unknowns over the end of the transition period, less than three weeks away, I fear that any stand-off with the devolved Administrations will compound and massively magnify them by fuelling the break-up of our union within only a few years. I say this because, as someone living in Wales and with family in Scotland, I see the Bill acting as a recruiting sergeant for separatist movements.

It is imperative to recognise the common frameworks, and we have signalled that clearly. As part of “taking back control”, the devolved institutions must have at least as much latitude—or call it “control”—as they felt they had within the EU to deal with the question of state aid. To establish durable intergovernmental working with the devolved Administrations, there must be clarity and certainty that the differing needs across the UK will be acknowledged and are seen as a joint responsibility that listens from the ground up and gives decision-making to the devolved Administrations.

As I understand it, neither Parliament nor the devolved Administrations had legislated on state aid in the past as these decisions were taken at EU level and regulations were directly applicable. Now that the EU mechanisms have been removed, it is still unclear where the decision-making now happens. State aid was not on the list of reserved powers and it has never been tested in the courts; indeed, such a test would do untold damage to relations between the constituent nations of the United Kingdom.

I hope I misheard the Minister, or that it was a slip of the tongue. If I heard him say “dissolved competence” instead of “devolved competence”, I am really worried.

My noble friends and I have listened to the objections that three years is too long to wait to put a framework in place, so we have reduced it to 18 months and I am currently minded to seek the opinion of the House on this. Eighteen months is scarcely longer than it would take the Government to consult on a framework and bring forward the legislation to enact it. This could be far speedier should the Government accept the offer from the Scottish and Welsh Governments to proceed rapidly on developing a clear process for them to be part of the codesign of state aid, establishing the consensus through a seat at the table from the outset of such deliberations.

Of course, I share the House’s clearly stated support, restated again today, for the common frameworks process. That is essential, and I do not wish to jeopardise that in any way, as we must move forward together. Yet I believe that the Government will try to say that state aid is already reserved—in fact, I believe that is what I have already heard—and that to include it in the common framework process might somehow jeopardise that position of constitutional principle.

I would be very happy to accept a clear assurance that the Government will make every effort to ensure that the consent of the devolved Governments to a subsidy regime will be secured and will make a statement to Parliament when introducing the necessary legislation if they should override that process. To summarise, I believe that this House will want to hear that the Government will seek to agree with the devolved Governments any new subsidy framework and will explain to Parliament whether they have succeeded or not and, if not, why not. I believe that that is the minimum we can expect. I beg to move.

[Baroness Bowles of Berkhamsted (LD) [V]]

My Lords, I will speak to my Amendment 50F and Motion G2, which I may wish to move. I also support Amendment 50E and Motion G1. Amendment 50F looks to the stage at which there may be changes to state aid provisions, whether that be changes in definitions, remedies, or the scope of exemptions, or introducing conditions or time limits on approval. I agree with the Minister that at the moment they are gone, but might not alternatives be introduced, or some aspects reintroduced? I think that would also constitute a change.

The EU state aid provisions were indeed the subject of a statutory instrument recently, and they end at the end of the transition period. But, as the Minister has informed us previously, the UK will follow WTO rules and consult and report on whether any wider scope is to be introduced. If the outcome is a recommendation for going wider—some kind of policy change—it begs the question of how it will be introduced.

My proposal is not made instead of consultations and approvals with the devolved Administrations, which we support; it is in recognition that the full range of public authorities and businesses are affected wherever they may be. Therefore, the detail of how any post-consultation policy change is implemented is of significant interest.

The withdrawal Act was used to make the changes that happen at the end of the transition period. But it would seem inappropriate for that to be used for any new policy. A new policy other than moving to the WTO default should surely have the scrutiny of primary legislation.

I know the Minister may say that how policy is to be implemented can be a point in consultation, but my submission is more constitutional than convenience. Parliament should be able to scrutinise and amend, and to spot those weaknesses and problems that this House in particular has the experience to iron out, especially at the first time around of making independent, post-Brexit state aid rules.

Therefore, my Amendment 50F seeks to put on the face of the Bill that changes to the test for harmful subsidy remedies, the scope for exemptions or the conditions or time limits on approvals may not be done by regulation. I do not seek to prevent policy change being made by the Secretary of State; I am just saying that, at least first time around, it should be made by primary legislation. It may be that the Minister can put my mind at rest, and I await his response with interest.

[Lord Thomas of Cwmgiedd (CB) [V]]

My Lords, I will speak briefly in support of the eloquent and persuasive speech of my noble friend Lady Finlay in moving the amendment in Motion G1. First, I thank the Minister for his letter of Friday, which makes clear the Government’s wish for a constructive and collaborative relationship with the devolved Governments on state aid control and that the clause does not cut across the power of the devolved Governments to provide state aid or to determine how it is provided; it seeks only to restrict the distortive effects. With those thanks comes one short observation and two questions.

My observation is this: the proposal is very modest and not to the devolved institutions’ liking because, at the end of the period put forward in this amendment, it would nevertheless reserve a matter that the devolved Governments are right in saying is devolved. Of the many strengths of the proposal, it would provide a means for agreeing the regime and ensuring that it does not go forward without any risk of unilateral attack by a devolved institution. Surely the prize of agreement and strengthening the union is worth having.

I now pose my two questions to the Minister. First, the devolution statutes are now all framed based on reserved powers. That means that, if the UK Government have not reserved something, it is devolved. The power to control state aid is not reserved. If it were, these amendments would be unnecessary. This amendment therefore plainly changes the devolved settlements by removing a power that the devolved Governments have and transferring it to the UK Government. In those circumstances, I ask why the UK Government would not work together with them, consult them before the Bill was produced and try to find a common solution to that which I have always accepted as an absolute necessity: a unified state aid control regime. I fear it is an example of Westminster saying that it knows best, rather than working with the devolved Administrations.

Secondly, if the desire was to work together but, at the same time, provide a means of subsidy control, why, when changing the scheme of devolution, was a commitment not made in the Bill to work together with the devolved Administrations to develop the new regime? These questions seek to show that much could have been done to proceed in a way that strengthens the union, for that is the point of these amendments: to ensure that the UK Government work together with the devolved Administrations.

It is therefore necessary to ask the Minister a general question: how serious are the UK Government in their claims that the devolved legislatures and Governments will be fully involved in developing the subsidy regime? There are many important questions, particularly the role of the CMA as an independent regulator and not an adviser to the UK Government. I am grateful to the Minister for his letter and the constructive conversations we have had, but I join the noble Baronesses in asking for these further assurances and hope we receive them.

--- Later in debate ---

Tabled by

[Baroness Bowles of Berkhamsted]

At end insert “but do propose Amendment 50F in lieu—

50F: After Clause 50, insert the following new Clause—


“State aid


The Secretary of State may not, by exercise of powers under this or any other enactment, make any changes to the test for a harmful subsidy, remedies, the scope of exemptions and conditions or time limits on approvals.””

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I have put down my marker on this point. It is not going away, and nor am I. I thank the noble Lords who spoke in favour of the principle which I laid out but, for now, this Motion is not moved.

Motion G2 (as an amendment to Motion G) not moved.

Customs Safety and Security Procedures (EU Exit) Regulations 2020

Baroness Bowles of Berkhamsted Excerpts

Thursday 10th December 2020 Grand Committee

[Baroness Bowles of Berkhamsted (LD) [V]]

My Lords, as the noble Lord, Lord Moynihan, has already reminded us, the news yesterday and today has highlighted fullness at our ports due to Covid, Christmas and Brexit stockpiling and a build-up of empty containers here while Asian exporters have a shortage. It is a useful reminder that logistics must be thought out well ahead—they are only going to get more complicated from January.

This SI is about outgoing not incoming goods, but I have a few questions about how it works and what can be taken into consideration. On the face of it, it looks simple enough: if there is disruption, flow rate can be made simpler by waiving pre-departure notices or modifying the time limits for submissions; it can be done on specific sectors and types of goods or at specific places to allow targeted mitigation; and the power lasts only six months.

Paragraph 2.2 of the Explanatory Memorandum says that the powers can be used only for border disruption, and paragraph 2.6 narrows that to:

“in the event that requirements for pre-departure declarations cause border disruption”.

However, I cannot find an exactly corresponding provision in the regulations. Regulation 2(2) states that it is

“to relieve disruption at or near places from which goods are directly removed from Great Britain”,

but it makes no mention as to cause. I presume that the legislation is correct and, therefore, that wider causes of disruption could trigger the use of the power even if that is not the current intention. Perhaps the Minister can confirm that. If the Explanatory Memorandum reflects the intent in practice, why does it not make that clear? Is it intended to have a wider contingency, or is it that it is difficult to assert causality in legislation? I understand that but, if so, why not draft the Explanatory Memorandum accordingly and give the causes more as practical examples of intention?

Looking at the legislation rather than the Explanatory Memorandum, and given the present circumstance that I just mentioned about congestion caused by imports, would a similar event, maybe through knock-on effects, qualify as a disruption near a place where goods are removed from Great Britain, because the ports have both incoming and outgoing goods? Do queues in Kent, incomplete or full Farage lorry parks count as a disruption near a place where goods are removed from Great Britain? Could, and would, this provision be used because of events that have no relation to the export of goods, such as civil protest or industrial action? If a major cause is congestion, what steps are being taken to distribute both exports and imports to other ports with capacity, to minimise the need for these powers and congestion in general? Can that be done at short notice?

A previous statutory instrument on no-deal planning made it clear that the waiver would be exercised only in relation to exports to countries where previously there was no need for documentation—basically the EU—but there is no similar mention or emphasis here. Presumably this means that waivers can be in respect of any and all countries. If that is the case, are there some countries for which there would never be a waiver because of greater security concerns? What international provisions are there about disruption? Is there anything in SAFE to enable this kind of suspension for disruption and are there examples of when and why it been done elsewhere?

I turn to a more general point: alongside requiring pre-departure declarations, there is a provision for risk assessment time, which is in Article 264 of EU Regulation 952/2013. The SI makes provision for that to be stipulated in connection with notices relating to the time limit for lodging pre-departure declarations. What is the usual current risk assessment time? Obviously it does not apply at the moment for EU goods, but it applies elsewhere, so there must be some available information. Is there a uniform target time? What is the time relationship between when the pre-departure declaration must be lodged and the risk assessment time?

Finally, what is the timescale for changing or bringing out a notice? How quickly would it be disseminated and expected to have an effect, and for what duration would it typically be expected to run? What happens to the live animal aspects, which the Minister mentioned, saying that they would use the same documentation? If the documentation is suspended, what happens to checks on live animals: are they abandoned, or will they run separately?

I do not really have any fundamental objection to the SI but, as the Minister will be able to tell from my questions, more surrounding information is really needed to put it in proper operational context. Brexit is an extraordinary event, but it is of some comfort to know whether international norms cater for extraordinary events or whether contingency measures that we have to take cause strain to those norms and, therefore, to other international relationships.