Financial Services and Markets Bill

Debate between Baroness Bowles of Berkhamsted and Baroness Bennett of Manor Castle

Committee stage
Tuesday 21st March 2023 Grand Committee

[Baroness Bennett of Manor Castle (GP)]

My Lords, in rising to follow the noble Viscount, Lord Trenchard, I have to comment on a couple of the points that he made. When he referred to Amendment 216 and suggested that we could rely on the discretion of the regulators, I regretted that the noble Lord, Lord Sikka, was not here, because I am sure that he could have given some extensive account on that basis. We have cause for concern about the actions of the regulators. The noble Viscount also suggested that the relaxation of the ring-fence in the case of SVB, allowing its purchase by HSBC, was not important or significant. Of course, relaxation of rules under emergency weekend conditions is reminiscent of stopping contagion—rather like the kind of emergency steps we took in the face of the Covid-19 pandemic, where lots of things were done that would not be seen as viable under normal conditions.

On Amendment 216, I confess that I can see the arguments for why this should be considered too technical. However, the points made by the noble Lord, Lord Eatwell, about the fact that we do not have sufficient controls otherwise make the case for it.

On the points made by the noble Baroness, Lady Kramer, we have a problem where the primary purpose of insurance companies and pension managers has been chasing after massive profits, not looking to long-term security. While we are in that situation, we need find rules to manage it.

Responding to the comments of the noble Baroness, Lady Noakes, again suggesting that what has happened in recent weeks suggests that the ring-fence is not working, I think that a military analogy might be quite useful here. If you are in a city under attack and your walls are very nearly overtopped by the enemy, you do not at that point pull the walls down and start reconstructing them. You reinforce those walls. The events of the past couple of weeks have demonstrated that what we have now is not enough of a security system—that is patently obvious—but the answer is reinforcement rather than pulling everything down and starting again, because we saw fit to take actions after 2007-08 which we are hoping will make those defensive walls hold this time.

I would have attached my name to Amendments 241C and 241D had I been able to keep up with the flood of legislation we have before us. In reflecting on them, I want to quote an economist on the New York Times, Ezra Klein:

“Banking is a critical form of public infrastructure that we pretend is a private act of risk management.”


That is the context in which I hope the Minister can today reassure us that, as we come towards the end of Committee and in the new environment in which we find ourselves, the Government will seriously rethink this Bill, particularly key elements of it such as competition and ring-fencing, before we get to Report. I have to borrow from a letter in the Financial Times this weekend —I am relying on this as a source—the fact that apparently the correct name for a group of black swans gathered on the ground is a bank.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I did not prepare a speech on this, but recent events and the speeches have moved round to what a fundamental issue we are approaching here. One important issue, which underlines the Government’s changes on Solvency II, is how to get investment into our economy. That is a fundamental need that we have. It is possibly intertwined with how much national risk we are prepared to take. I do not intend to try to solve that now.

If we look at recent events and the responses to them, we see that we have different risk appetites in different countries, in how they will accept failure and what, in essence, they are prepared to bail out. As my noble friend Lady Kramer said, it appears to be the assumption that the Canadians would bail out the pension fund. Maybe they think that is a decent quid pro quo for getting a large amount of infrastructure investment and other investments. That is a balance that it is legitimate for a country to make, but I do not think it is one that we have made here in the UK. We have said “No more bailouts”. That may be something that can never be absolutely held to, as we know, but we do not operate on a principle that it is going to be the case.

Let us look at what happened with Silicon Valley Bank in the UK, where there was not really a great deal wrong other than it suffering the repercussions of what happened in the US and a bank run through co-ordination and a loss of confidence. What does that say about our challenger banks, if people are not prepared to rely on the amount of the deposit guarantees that we have? For industry, we have next to nothing. The Americans are talking about raising their amounts of guaranteed deposits because they realise that businesses will not trust smaller banks with large deposits if there are not higher guarantees. That worries people in the United States, because they do not want to lose their regional banks and to have everything go into large systemic banks. It should worry us that we have lost a challenger bank and that it has gone into a large systemic bank.

We may have to re-examine what our risk appetite is around things such as deposit guarantees. It is not pertinent to these amendments, but we have the same kind of risk issues when we expand and try to get insurance money into more risky investments. The same can be applied to what we want to do with pension funds. I suppose I had better declare my financial services interests as in the register again, just for the record. The recent history is that our institutions are not very good at investing in UK assets. Of the fallout from LDI, one of the things that is already under way is that pension funds will invest less in gilts. They will want to invest in something else—something that they can repo. They will therefore invest in corporate bonds but, to get the liquidity to be able to repo, they will be US corporate bonds. We will have yet another shift from investing in something in the UK. Even if that was the systemic risk concentrations of gilts, nevertheless it is a shift away from investment in UK assets, or not taking an opportunity for a switch in assets to be able to invest in those in the UK. Some of this is to do with our size. Maybe the Canadians have thought about that; I do not know. I am just sort of tossing these thoughts in. They are not hugely relevant to these amendments, but they are hugely relevant to the big issue that underlies the change on the matching adjustment —that is, how do we get investment into the UK economy? I should think absolutely every person in this Room wants that. It is hard to do it in a piecemeal way by changing the eligibility to the matching adjustment.

I do not fully trust the consultation process that we have in this country, because the pre-consultation process is dominated by an industrial lobby which knows what it wants. The consultation responses are weighed, and they are inevitably heavy with what the industry wants and why, and there is much less that comes in to counteract that. Therefore, we go down the track of accepting the proposals of the Government and getting what the industry says—but where is the backstop? This is where we come to the backstop that my noble friend has put in. The backstop is that it is for Parliament, through primary legislation. She does not say in her amendment, “Thou shalt never amend ring-fencing” or, “Thou shalt never amend the things that the Parliamentary Commission on Banking Standards did”. It says that it requires primary legislation. It says that this should go back to the body—albeit different people at a different time—and that there should be that analysis. This is the same sort of thing that the noble Lord, Lord Eatwell, was saying. Maybe you could get legitimacy from Parliament through a better accountability mechanism but, absent that, the only one we have is that it has to come back to primary legislation. With a Whip system and a government majority, that does not necessarily guarantee anything, but it will get at least a thorough airing and, in normal circumstances, you would get some toing and froing and some reasonable amendments if necessary.

Financial Services Bill

Debate between Baroness Bowles of Berkhamsted and Baroness Bennett of Manor Castle

Committee stage
Wednesday 10th March 2021 Grand Committee

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

My Lords, as the amendment suggests, I think it is necessary to know when there have been interventions and why. I do not say that from a wish to create political opportunity to complain—in fact, rather the opposite. When matters are transparent, there is generally less to complain about and more understanding. If there is a wish to keep everything private, that in itself is a problem. The amendment does not ask for chapter and verse on everything, just the nature of the intervention.

I recall the instances of HSBC and Standard Chartered. I was aware of them at the time, not from any information from the Government but because the size of US fines and the impact that it had on European banks were spoken about in Brussels. It is fair to say that there were concerns from other European countries. I do not think that the UK was the first to write. The financial stability point on fines for things that we also thought were pretty shocking was openly discussed in Brussels, including in my committee. Indeed, I recall having conversations around financial stability implications with the president of the ECB and with the Fed and US Treasury, although I do not think that one needs to advise people like Ben Bernanke about the relative sizes of UK banks and the UK economy and the problems that that will create; you would get pretty short shrift in return.

It is actually quite humiliating either to make or know about such interventions or to sit there while people say to you, “I’ve had a letter from your Minister.” I certainly felt humiliated about the need for such information by my country and humiliated by the behaviour of important financial institutions from my country. A normal response would be to try to make sure that it does not happen again, and I fear that progress has not been as good as it should have been. Maybe one reason for that, I now realise, was that there was no such discussion about these occurrences in the UK in the same way as there was in Brussels, which I find quite shocking. But too big to fail should not mean too big to jail. We have been around that debate already, in the sense of needing fairly to prevent offences, the construction of large companies, which create organised irresponsibility, and the FCA failing us at a critical moment in the SMCR, so it has been undermined.

To get back to the point about disclosure—yes, it should be shared, and any humiliation should be shared, so that those responsible at the time get more heat and there is greater resolve to make corrections. Everything is all so much more diluted and dismissible when it is looked at only as history.

[Baroness Bennett of Manor Castle (GP) [V]]

My Lords, I thank the noble Lord, Lord Sikka, for tabling the amendment, to which I was delighted to attach my name. It is a great pleasure to follow the noble Baroness, Lady Bowles of Berkhamsted, and I welcome her support.

I do not think I need to add to the noble Lord’s detailed, forensic presentation of the clear, obvious and systemic problem: that Ministers intervene to end or direct investigations into fraud, corruption and malpractice. As he clearly documented, they do that on what appears to be a semi-regular basis. This amendment seeks to stop that, or at least make it illegal. Noble Lords might argue that it should not be; I certainly look forward to examining any contributions that seek to do that.

We have an institutional culture of cover-up, as the noble Lord said. We cannot be sure that every case has been exposed—indeed, it would be very surprising if they had been—despite the often extraordinary efforts of investigative journalists and academics such as the noble Lord. We are most likely seeing the tip of an iceberg. That what has been done emerges only later, dragged into the light of day despite considerable resistance, is of considerable detriment to public and international trust in both the financial sector and the British Government, as the noble Baroness, Lady Bowles, just highlighted.

The most useful contribution that I can make to this debate is to the politics and the sociology—and I mean politics with a small “p” for, as the noble Lord demonstrated, this behaviour is not contained to Governments of any particular political hue. He said that ministerial cover­ups had emboldened banks. Behaviour that tolerates, supports and enables dishonest and corrupt practices encourages the spread of those practices. If there are indeed only a few rotten apples, which I am sure many from the financial sector will claim, the rot will spread if they remain in the barrel. Those people will still be in place in institutions—in many cases, in very senior places within those institutions —and be sharing, passing down and directing others to continue their practices, approaches and morals. I have an agricultural sciences degree; I can promise you that the rot will spread through the barrel.

We are now without the protective umbrella of EU regulation and what was once seen as a force independent of one particular financial centre that enforced some degree of cleanliness among all of them—albeit that the UK had an inordinate, often baleful influence on attempts to tighten regulation and prevent fraud and corruption. With the UK making its own rules, the behaviour of both the UK Government and the UK financial sector will come under greater scrutiny.

The EU is—not coincidentally after the UK’s departure—looking in the coming years to significantly tighten regulations on tackling fraud and corruption, on stopping tax dodging, on preventing greenwashing and on reining in the inordinate economic power of the internet giants. What happens in the UK will be weighed against that, which is why tightening up this Bill with this measure and others is crucial. What we need is not a more “competitive” financial sector but an upgraded one, one that is honest, straightforward and trustworthy.

There is also the politics in the broadest sense: the issue of how the Government are regarded, which is a long-running, serious issue for the UK. The place of politicians at the bottom of trustworthiness rankings is a source of jokes and bitterness but a serious and significant problem for our body politic. It has to be tackled. This amendment, a legal commitment to honesty and transparency, would be a significant step.

We are seen, from many sides of politics, to have a Government of the few, a Government for the money, a Government for the City of London, to the detriment of the country. This has to change if we are as a country to go forward.

I shall finish with a quote. The

“trend toward globalized corruption has been enabled in crucial part by regulatory asymmetries among key international economic actors and a lack of resources and political will in law enforcement.”

That comes not from the Tax Justice Network or Transparency International. It comes from a foreword to a report from the Center for American Progress entitled Turning the Tide on Dirty Money, signed by Senator Robert Menendez, chairman of the US Senate Foreign Relations Committee, Tom Tugendhat MP, chairman of the UK Foreign Affairs Committee and David McAllister MEP, chairman of the EU Parliamentary Committee on Foreign Affairs. The authors say that corruption

“threatens the resilience and cohesion of democratic governments around the globe and undermines the relationship between the state and its citizens.”

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

My Lords, I have signed these amendments from the noble Lord, Lord Hodgson, and I agree with what he and the noble Lord, Lord Knight, have said. I am aware that the noble Lord, Lord Hodgson, has a long record of engagement in these matters, because from time to time I discover that I am following in his footsteps. The “good work” amendments recognise that we need structural changes in how companies operate to ensure that they provide good work in the face of technological and societal changes. With the financial services sector both supporting all businesses and being our largest industry, it has a special, strategic leadership role to play, and ways that this can be brought about are contained in Amendments 108, 109 and 110. This would be in line with the principles of Section 3B(1)(c) of FSMA, which states that there is role for ensuring

“the desirability of sustainable growth in the economy of the United Kingdom in the medium or long term”.

In my book, sustainable growth must encompass technological and societal changes as well as the environment, but I fear there is a long way to go to live up to that.

In the interests of time, I shall concentrate on Amendment 122. There has been all-party support for employee share ownership in all its forms for a long time. Such schemes provide rewards and motivations in ways that wages cannot. At its best, an employee share plan will also give employees a say in how a business is run and can help to achieve many of the aims of the Good Work Charter, such as dignity, fair rewards, participation and learning.

Employee share ownership and employee ownership have many positive effects, and I want to highlight research on how well employee-owned companies deal with financial adversity.

Research published by the Cass Business School after the 2008 financial crisis established that employee-owned companies create jobs faster than non-employee-owned counterparts and withstood the recession better as it deepened. They recruited when non-employee-owned companies were laying off staff, and had motivation where others found it hard to motivate staff.

More recently, I chaired an inquiry into the effects of employee ownership and the report, entitled Ownership Dividend, found evidence that showed that employee-owned businesses performed better, were more resilient and more rooted in local economies—hence why the term “ownership dividend” was coined. Therefore, as has been said, such companies have a strong part to play in the UK’s plans to build back better and restart the economy.

Amendment 122 suggests an emphasis on analysing impact of sustainable growth provided by employees share schemes. As I mentioned previously, it should already be covered in the principles, but the urgency around “sustainable” in all its forms does not seem to be present. Therefore, I commend Amendment 122, as well as the good work amendment.

[Baroness Bennett of Manor Castle (GP) [V]]

My Lords, I will speak briefly to Amendments 108, 109 and 110 in the names of the noble Lords, Lord Hodgson Ashley Abbotts and Lord Knight of Weymouth. I broadly agree with everything they said.

The noble Lord, Lord Hodgson, in his introduction, referred to the level of dissatisfaction in our society: the threats from poverty, inequality and insecurity. I would say that these amendments are digging here into some of the depth of the problems that I referred to in my speech on a previous group and seek to provide some remedies. As he was speaking, I thought of meeting an USDAW representative in Sheffield referring to one of her members who had just come to her to seek a voucher for a food bank. The member was not, as you would expect as an USDAW member, unemployed; in fact, that member had seven jobs, but they were all zero-hours contract jobs and that particular week they had not delivered enough money for that person to feed themselves and their family.

However, it is important that we do not just focus—the noble Lord, Lord Hodgson, did not—on those who are in desperate poverty and inequality, as awful as that is. As he was speaking, I could not help but think of what the late, great David Graeber called—here I may be about to use what is unparliamentary language here, but it is a direct quote—“bullshit jobs”. The noble Lord referred to people’s desire to get meaning, to feel that what they are doing, how they are using their time and talents, is worthwhile and contributing to society. Indeed, a failure to acknowledge and understand that—a focus purely on the pounds, shillings and pence—is at the root of a lot of our problems: the financialisation, to which the noble Lord, Lord Knight, referred, of our entire economy—not just the financial parts but the real economy, the care economy, the public service economy.

The noble Lord, Lord Knight, referred to managing things in a different way. I point again to New Zealand’s living standards framework, that guides its Treasury—based on a system not that dissimilar to our own—where they judge the quality of work, people’s security, the quality of the environment and the economy all together and seek to manage them to a stable, secure, decent whole.

These are important amendments and crucial principles, so I wanted to speak briefly in favour of them.

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

My Lords, this amendment was not intended newly to introduce country-by-country reporting but to maintain the country-by-country reporting requirements that exist through CRD IV and retained EU law. In retrospect, looking at my amendment now, perhaps that is not quite clear.

Once again, as the statutory instrument layer is removed, it is within the purview of our financial regulators to decide that some things are inconvenient or not part of their main remit and to dispense with them. Article 89 of CRD IV requires institutions to report annually, specifying by country in which they have an establishment, information on a consolidated basis including: name, nature of activity and geographical location; turnover; number of employees on a full-time basis; profit or loss before tax; tax on profit or loss; and public subsidies received. Since then, there has been a little more general progress in country-by-country reporting, but I wanted to ensure there were no backward steps as the PRA and FCA start to write the rules.

There was much coverage at the time about the late insertion by the European Parliament of country-by-country reporting that nobody expected, but I can tell the story—which can actually be seen if we look at whole article in the directive. As was the way in trialogues that I chaired in the European Parliament, we shared out speaking. I am sure that the noble Baroness, Lady Bennett, will be pleased to hear that the Greens were leading on country-by-country reporting, but all that had been conceded to the Parliament in the trialogue was an assessment, maybe followed by legislation if appropriate.

I got a note from the Greens’ adviser saying that they were out of arguments and asking whether I could help. Maybe I should have framed that, because a Green being out of arguments is quite an astonishing thing. They knew that at that stage we had nothing to trade in return to get country-by-country reporting in. So I asked the Council and Commission to confirm that the only reason why they objected was that industry was saying that economic damage would be caused by country-by-country reporting. They both swore that that was the only reason why they were objecting to the insertion of such a clause: that they were afraid of what might happen if these really rather mild provisions were introduced.

I then proposed that the information be submitted in confidence to the Commission and that, in consultation with the regulators, there be then a general assessment of potential negative economic consequences of public disclosure, including the impact on competitiveness, investment, credit availability and the stability of the financial system. It sounds incredible, but those were the scare stories that the other institutions had bought into.

In the event that the report, including analysis based on actual data, identified significant effects, then the provision of public disclosures could be deferred or removed, but otherwise the provision would come into force in 2015. Having sworn that the only nervousness was about all these effects, they then had to concede that proposal. All that explains the content that you can clearly see in article 89 and the report in its paragraph 3. Of course, no damage was found, and the article is in force and transposed into UK law. I quote from a 2014 PWC document on compliance:

“HMT sought to adopt a pragmatic approach to provide rules that are practical and which provide some options designed to ease the compliance burden faced by businesses. This optionality has allowed HMT to implement rules that comply with CRD IV, but which, in line with broader Government policy, do not mandate reporting beyond the requirements of CRD IV.”


There are some activities that would trigger investment firms falling within scope, so it therefore seems relevant to raise this matter in the Bill, as the investment firm provisions are about to be rewritten. Of course, small and UK-only investment firms may not fall within the definitions, because I am proposing carry-over of the existing ones, but where they are larger organisations then they should continue to comply. Against that background, I hope that the Government will not say that they want to allow closing down of transparency and that the Minister will understand why I do not believe any of the scare stories about damage. I beg to move.

[Baroness Bennett of Manor Castle (GP) [V]]

My Lords, it is a great pleasure to follow the noble Baroness, Lady Bowles, not just because she highlighted the role of the Greens in pushing country-by-country reporting at the European level, and the value of having a Green in the room. A great way of bringing people on board and into the debate is to ask them for help. I will briefly quote the chair of European Parliament’s sub-committee on taxation, MEP Paul Tang:

“I think transparency is a powerful tool for change because many of the current tax policies can’t stand the light of day. Just shine the light on it.”


That was from an interview with Forbes, showing how so many of the defenders of the status quo are increasingly isolated and clearly out of touch, not just with the public but with much of the establishment who realise that things cannot go on as they are.

I have been asked at public meetings over many years how we get multinationals, rich individuals and the financial sector to pay their taxes. My first answer is simple: you need a Government who want to make them pay their taxes. My second, more detailed and technical, answer is, simply, country-by-country reporting. This is something that the UK can impose without needing international agreements. I back the noble Baroness’s amendment to the hilt.

Pension Schemes Bill [HL]

Debate between Baroness Bowles of Berkhamsted and Baroness Bennett of Manor Castle

Report stage & Report stage (Hansard) & Report stage (Hansard): House of Lords
Tuesday 30th June 2020 Lords Chamber

[Baroness Bennett of Manor Castle [V]]

I thank your Lordships’ House for allowing me to speak. I apologise for the earlier confusion. I also apologise in particular to the noble Lord, Lord Balfe, for upsetting the rhythm of his speech. I thank him and other noble Lords for providing an introduction to Amendment 33. I must pay tribute to the campaign group ShareAction, which has done a lot of work on the amendment. I know that it has informed other noble Lords about it.

I moved the amendment in Committee. In response, the Minister pointed to the consultation on the future of trusteeship, which concluded that, due to a lack of consensus on how to address the issue, it would look at setting up, and is setting up, an industry working group to look at the diversity of pension boards. While this is welcome, we need the data to inform that work. I ask the Minister to consider incorporating this into future versions of the Bill.

A further development has happened since we last debated the Bill. There has of course been a great upswelling of frustration and understandable anger, represented by the Black Lives Matters movement. The issue of ensuring that all voices in our society are heard and have decision-making powers is particularly pressing. I urge Members of your Lordships’ House to consider it.

In response to the amendment in Committee, the Minister stressed that she wanted the pensions dashboard to focus on the provision of basic information. That is why the amendment has been amended so that it does not refer to this information being on the pensions dashboard, but rather that it would simply be reported. Information on diversity could be published elsewhere. That might be on the Pensions Regulator’s website, or as an annexe to its planned SIP repository.

Other noble Lords have referred to the level of inequality in our society and the lack of diversity. I will finish by reflecting on what the noble Baroness, Lady McIntosh, said, and the fact that a 2016 survey showed that on average 83% of pension boards are male and that a quarter are all male. That reflects another crucial disparity: we all know that there is a very large pay gap between men and women, but the pensions pay gap, at 40%, is double the pay gap. These inequalities have to be tackled in our society along with levels of inequality and poverty. We have had a lot of discussions about intergenerational fairness, but we must not forget that there are already a lot of people at pension age now who really are struggling to get by in this difficult world.

I thank your Lordships’ House for the debate that we have had thus far and I look forward to further debates.

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

My Lords, like other noble Lords, I appreciate the government amendments to make regulations by the affirmative procedure. Having thanked the Minister for that, I will move on to speak on noble Lords’ amendments.

Amendment 2, in the name of my noble friend Lord Sharkey, would delete reference to negative procedure regulations being used to change the rules around fit and proper persons. It has been laid out how that might change who becomes a fit and proper person. My question is: would it also affect who might not become a fit and proper person and potentially elaborate further if it is found that people are doing things that should disqualify them? I sense that that might be a possibility. Although, under Clause 11(3)(b), regulators can take into account other such matters as they consider appropriate—I presume that that can be in the negative sense as well as the positive—it would be useful to know whether such powers in other areas as well as this are, in general, used. I detect that regulators are often reluctant to go beyond things that they can specifically point to in regulations. If that is the case, maybe the Minister has an excuse to have these powers. That is the area that I am interested in, but it would certainly be a much more significant move for this to be made by the affirmative, rather than the negative, procedure.

The noble Baroness, Lady Altmann, has tabled an amendment about data that I support, but like her I think that it is probably best to have just one debate on data. I will make my intervention on that later.

I also support the intention of Amendment 33 on diversity. I recognise, as the noble Lord, Lord Balfe, did, that it links to the wider issue of how trustees are appointed and where from. Many trustee appointments will link back to present or former workforces and therefore carry through any historical lack of diversity for quite a long time. Despite the fact that there might be costs to professional trustees, I still think that there should be scope to ensure that there are more additional independent external trustees, without necessarily going to people who are so embroiled in the making of regulations. It should be possible to find objective people who are not necessarily charging the equivalent of full professional rates.

Finally, my Amendment 45 is a simple one that says that regulations may not create a regulator. That might not be the intention, but Clause 51(3)(a) says that regulations may

“confer a discretion on a person”.

A discretion to do what: to allow, not allow or approve certain things? What kind of things and what kind of person? That could be wide enough to allow or disallow the doing of things regarded as being a regulator, yet there are none of the constraints in the Bill that would normally appear in such circumstances. I therefore seek some clarification about what “discretion” means and what powers it might conceal or cover.