Alternative Investment Fund Managers Regulations 2013

Debate between Baroness Bowles of Berkhamsted and Baroness Penn

Monday 13th November 2023 Lords Chamber

[Baroness Penn (Con)]

My Lords, I agree with my noble friend in recognising that investment trusts play a vital role in raising capital for infrastructure projects across the UK. The FCA is of course independent, but I understand that it is taking forward work to look at what can be done in this area while we take forward the wider programme of measures to repeal retained EU law and replace it with UK rules that will help to address the issue that she raises.

[Baroness Bowles of Berkhamsted (LD)]

Does the Minister recognise that the debate around aggregated cost disclosure and associated errors arising from misapplied legislation has highlighted difficulties of amending retained EU law rapidly and the absence of FCA powers to amend legislation or issue useful forbearance notices when needed, given concerns about FiSMA Section 138D on right of action? Can the Minister explain whether His Majesty’s Government are considering how emergency action or forbearance can safely be introduced to avoid being in a tighter static regulatory bind than when we were in the EU, where ESMA had more flexibility and power?

[Baroness Penn (Con)]

I reassure the noble Baroness that the FCA has the appropriate powers to implement regulatory forbearance where it considers it appropriate, but it must operate within the legal framework and it does not have the powers to amend legislation—that is for this House to do. It is right that forbearance can only be a temporary, short-term fix. That is why the Government are committed to repealing and replacing retained EU law, including legislation related to cost disclosure, under our smarter regulatory framework.

Financial Services and Markets Bill

Debate between Baroness Bowles of Berkhamsted and Baroness Penn

Report stage
Tuesday 6th June 2023 Lords Chamber

[The Parliamentary Secretary, HM Treasury (Baroness Penn) (Con)]

My Lords, the new secondary growth and competitiveness objectives in the Bill will ensure that the regulators can act to facilitate medium to long-term growth and competitiveness for the first time, but a focus on competitiveness and long-term growth is not new. When the UK was part of the European Union and financial services legislation was negotiated in Brussels, UK Ministers went to great efforts to ensure that EU regulations appropriately considered the impact that regulation could have on economic growth and on the competitiveness of our financial services sector.

Now that we have left the EU, and as the regulators take on responsibility for setting new rules as we repeal retained EU law, it is right that their objectives reflect the financial services sector’s critical role in supporting the wider economy. We must ensure that growth and competitiveness can continue to be properly considered within a robust regulatory framework. As the noble Lord opposite said, a secondary competitiveness objective strikes the right balance. It ensures that the regulators have due regard to growth and competitiveness while maintaining their primary focus on their existing objectives. That is why the Government strongly reject Amendment 10, tabled by the noble Baroness, Lady Bennett of Manor Castle, which seeks to remove the secondary objectives from the Bill.

Turning to Amendment 9 from the noble Baroness, Lady Bowles of Berkhamsted, the Government agree that the UK financial services sector is not just an industry in its own right but an engine of growth for the wider economy. The current drafting of the Bill seeks to reflect that but also recognises that the scope of the regulators’ responsibilities relates to the markets they regulate—the financial services sector—so it is growth of the wider economy and of the financial services sector, but not at the expense of the wider economy. I hope I can reassure her on that point.

On Amendment 115, also from the noble Baroness, Lady Bowles, as noble Lords know, the Bill repeals retained EU law in financial services, including the MiFID framework. Detailed firm-facing requirements, such as those that this amendment seeks to amend, are likely to become the responsibility of the FCA. As such, it will be for the FCA to determine whether such rules are appropriate. When doing so, the FCA will have to consider whether rules are in line with its statutory objectives, including the new secondary growth and competitiveness objective.

Parliament will be able to scrutinise any rules that the regulators make, including pressing them on the effectiveness of their rules, and how they deliver against their objectives. Industry will also be able to make representations to the regulators where they feel that their rules are not having their intended effect or are placing disproportionate burdens on firms. I hope the noble Baroness is therefore reassured that the appropriate mechanisms are in place for considering the issues that she has raised via that amendment.

[Baroness Bowles of Berkhamsted (LD)]

I understand that there are and will be mechanisms in place, but the point that I was trying to make—and the reason that I expounded at length on how we got into this mess—is that it is urgent action that is necessary. This is not something that waits for this great wheel of change that we are bringing in through this Bill to come along. This is something that should be on people’s desks tomorrow; it should have been on people’s desks a year ago. There will not be ongoing investments trusts if it is not fixed now.

[Baroness Penn (Con)]

I understand the case that the noble Baroness makes, but it is not for an amendment to this Bill but for regulator rules to address the issue that she raises.

I turn to Amendments 8A and 9A from my noble friend Lord Trenchard, which seek to remove the requirement for the FCA and the PRA to align with relevant international standards when facilitating the new secondary objectives and instead have regard to these standards. As we have heard, international standards are set by standard setting bodies, such as the Basel Committee on Banking Supervision. These standards are typically endorsed at political level through international fora such as the G7 and G20 but, given the need to enable implementation across multiple jurisdictions, they may not be specifically calibrated to the law or market of individual members. It is then for national Governments and regulators to decide how best to implement these standards in their jurisdictions. This includes considering which international standards are pertinent to the regulatory activity being undertaken and are therefore relevant.

Since we left the EU, the regulators have been generally responsible for making the judgment on how best to align with relevant standards when making detailed rules that apply to firms. This approach was taken in the Financial Services Act 2021, in relation to the UK’s approach to the implementation of Basel standards for bank regulation and the FCA’s implementation of the UK’s investment firms prudential regime. It was also reflected in the overarching approach set out in the two consultations as part of the future regulatory framework review.

Part of the regulators’ judgment involves considering how best to advance their statutory objectives. Following this Bill, this will include the new secondary competitiveness and growth objectives. The current drafting therefore provides sufficient flexibility for the regulators to tailor international standards appropriately to UK markets to facilitate growth and international competitiveness, while demonstrating the Government’s ongoing commitment for the UK to remain a global leader in promoting high international standards—which, as we have heard, the UK has often played a key part in developing. The Government consider that this drafting helps maintain the UK’s reputation as a global financial centre.

I turn finally to Amendment 112 from the noble Baroness, Lady Bennett. The Government consider the financial services sector to be of vital importance to the UK economy. The latest figures from industry reveal that financial and related professional services employ approximately 2.5 million people across the UK, with around two-thirds of those jobs being outside London. Together, these jobs account for an estimated 12% of the UK’s economy.

The financial services sector also makes a significant tax contribution, which amounted to more than £75 billion in 2019-20—more than a tenth of total UK tax receipts—and helps fund vital public services. It is not for the Government to determine the optimum size of the UK financial services sector, but in many of the areas that the noble Baroness calls for reporting on, the information would be largely duplicative of work already published by the Government, public sector bodies or other industry groups.

For example, the State of the Sector report, which was co-authored by the City of London Corporation and first published last year, covers talent, innovation, the wider financial services ecosystem, and international developments and comparisons. The Government will publish a second iteration of the report later this year. The Financial Stability Report—

British Banking Sector

Debate between Baroness Bowles of Berkhamsted and Baroness Penn

Tuesday 21st March 2023 Lords Chamber

[Baroness Penn (Con)]

My Lords, as with any major event, the Treasury will reflect on the lessons to be learned and how improvements can be made. I assure noble Lords that, each year, the Bank of England carries out a stress test of the major UK banks that incorporates a severe but plausible adverse economic scenario. The 2022 stress test scenario includes a rapid rise in interest rates, with the UK bank rate assumed to rise to 6% in early 2023. The results of that test are taken forward by the PRA in its supervision of the banks. The results will also be published this summer.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, an FT piece yesterday, headlined “How ‘competitive’ would you like your bank regulation now?”, says:

“The UK regulatory pendulum has been halted in mid-swing.”


Is that true? Credit Suisse had G-SIFI levels of capital and liquidity but was undone through bad culture. Are not the twin bastions of culture in the UK banks ring-fencing and the senior managers regime? Is it not also of massive cultural significance that it came from the Parliamentary Commission on Banking Standards? If the Government mess with those, where is the break on culture-based runs? What do they say when these practices come under lobbying pressures?

[Baroness Penn (Con)]

My Lords, I think the noble Baroness was asking about the Government’s proposed Edinburgh reforms package, which represents a move towards proportionate, simple regulation that works for the UK and will help to drive growth in the broader economy, supporting families and businesses across the country. In that approach, we recognise that the UK’s success as a financial services hub is built on agility, consistently high regulatory standards and openness. We will continue to take those principles forward in our reforms.

Financial Services and Markets Bill

Debate between Baroness Bowles of Berkhamsted and Baroness Penn

Committee stage
Monday 13th March 2023 Grand Committee

[Baroness Penn (Con)]

I absolutely take that point. It comes back to the appropriate and proportionate enforcement of these regulations. I know that that is something noble Lords have raised previously, but we need to continue to work to ensure that it takes place.

[Baroness Bowles of Berkhamsted (LD)]

This goes back to when the Minister mentioned the FATF provisions. I thought she mentioned the risks in business relationships. All the stuff we get as PEPs is our personal stuff; it is nothing to do with business relationships. I have not been interrogated about anything to do with the London Stock Exchange, of which I am a non-executive director; I am interrogated about my father’s will and that kind of stuff.

Again, I am happy—in fact I would almost prefer—for the Minister to write the replies because it is hard to put together quoted bits and pieces, even when we get them back in Hansard. It seems that the whole risk assessment business is being set aside at the behest of the security agencies, which just like the idea that they have another captive load of people and that they may be able to track something with money—which I doubt, because these forms go to an outsourced place, they are filed, and nobody ever looks at them. There is no “know your client” going on. They may look at one or two, but I do not see how it adds up at all, even taking that security aspect into account, because if anybody was really a security threat, there are other ways of vetting.

[Baroness Fox of Buckley (Non-Afl)]

I am confused. I always encourage people to find out what is happening in this House by telling them to look at the speeches and follow Hansard, but now I am dreading anyone watching this because we have a government Minister implying that the security services at looking at us, particularly our private financial affairs, because we are high risk. Why? I do not think that is true. I want to denounce the notion that because you are in the House of Lords you are more likely to be doing something such as that.

I do not think the Minister can answer my second point, but I think we would all feel that it is a generalised accusation rather than specifically going after individuals who might be doing things that are wrong based on evidence, which nobody here objects to. Never mind the families; I have got to the point now where it is not just the families. I am sitting here feeling embarrassed, thinking, “Oh god, somebody is basically saying that the security forces think that we are all up to no good”. If the public find that out, it is said by a Minister and it is the general atmosphere, that is not good, is it? I usually put my speeches up on social media; I am not putting this one on. I do not want anyone to know about this conversation, because it will discredit the reputation of this House far more than anything else.

[Baroness Penn (Con)]

My Lords, I have already set out for the Committee, and I repeat now, the reasons why UK domestic PEPs may be at greater risk of money laundering. For example, in the general sense, the positions of influence that we have can put us at greater risk. I have also tried to set out—and will set out in writing for noble Lords—the approach that we are taking to look at risk in this area. I will share any further details that I am able to.

[Baroness Bowles of Berkhamsted (LD)]

Following on from what has just been said, I would quite like the Minister to rephrase what she said: that we are at greater risk of money laundering. I cannot let that stand on the record.

[Baroness Bowles of Berkhamsted (LD)]

I can let stand that we might, in some instances, be at greater risk of being targeted for various things, and I hope that we also have a greater capacity for repelling such actions, given the experience of people in the House and having done the sorts of things that we have done throughout our lives. I am not prepared to accept that kind of statement with any acquiescence whatever on my behalf or, by the sound of it, on behalf of colleagues here.

[Baroness Penn (Con)]

I am very happy to clarify for the Committee and anyone who may be reading our proceedings, that we, due to our positions of influence, are at greater risk of being targeted by those who may seek to engage in money laundering.

Financial Services and Markets Bill

Debate between Baroness Bowles of Berkhamsted and Baroness Penn

Committee stage
Wednesday 1st March 2023 Grand Committee

[Baroness Penn (Con)]

My Lords, I would never want to speculate as to future parliamentary timetables. My noble friend Lord Naseby talked about the importance of listening to those who are impacted by the provisions of the Bill. He spoke about the City, and we have heard various points of view in that respect. I would add consumers into that mix, too. I say to noble Lords that the Government have consulted extensively on the approach we are taking in the Bill, and we have received a number of responses on this specific issue in both future regulatory framework review consultations that took place. Although I absolutely recognise that a small number of respondents were supportive of further consideration of such a body, the vast majority were focused on how existing mechanisms for accountability to Parliament and government and engagement with stakeholders could be strengthened. The Government therefore decided, in response to those consultations, against creating a new body, and focused on ensuring that the mechanisms for Parliament and government to scrutinise the regulators are effective.

[Baroness Bowles of Berkhamsted (LD)]

Will the Minister clarify what the questions were in the consultation? My recollection was that it was relatively open. Obviously, at that stage, industry was focused on its very important relationship with government—one cannot overestimate the importance of that—and it answered questions saying that it was happy with parliamentary scrutiny, but I have no recollection of there being a suggestion as to whether there should be another body that enabled any kind of regular review. Since that time, industry bodies have said that it would be a good idea, so it seems a bit inconsistent to claim that the consultation cleared the way to say that none was required.

[Baroness Penn (Con)]

My Lords, I was simply pointing out that this Bill is the result of two rounds of consultation. The Government are criticised for bringing forward proposals without sufficient consultation. I note the noble Baroness’s points but, even in the context of those questions, there were bodies that put forward the kinds of ideas that we are discussing today. However, in the balance of responses to that consultation, they were not the dominant voice or viewpoint from the range of different people who responded to us.

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[Baroness Penn (Con)]

That is not what I am saying. One of the things that I was referring to with regard to the powers in the Bill was an amendment tabled in the Commons stages to try to respond to further questions about how we can facilitate accountability. I think I have been clear to all noble Lords in this Committee that that is a question that the Government will continue to consider and to engage with noble Lords on, whether it is about strengthening parliamentary accountability or other measures that help to provide the information and resources that people need to do that work. The Government will continue to reflect on those points.

[Baroness Bowles of Berkhamsted (LD)]

I am sorry to interrupt, but I find it slightly strange that the Minister is saying the Government will continue to interact with us. All that that interaction has been so far is “No”.

[Baroness Penn (Con)]

In Committee, we are discussing the different proposals that have come from noble Lords to solve these problems. I am trying to set out where the Government have previously considered these questions and the thinking behind our approach in the Bill, demonstrating that where we have been able to, for example in the introduction of Clause 37, we have made amendments to the Bill further to take into account some of these issues. When it comes to the specific proposals we are talking about, it is right that I set out that this has been considered by the Government, including through public consultation.

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[Baroness Penn (Con)]

It would be best to set out in writing for noble Lords the specific areas of the consultation that sought to address the issues we are discussing today. As I have said, in response to those consultations, certain respondents put forward proposals in this area, so it is not right to say that it was not a topic for consultation. However, as my noble friend wants clarity on the record, I think that would be best delivered in writing.

[Baroness Bowles of Berkhamsted (LD)]

Perhaps I could intervene on this important point. In the first consultation, there were some respondents—I confess, I was one of them—who put forward notions of there being independent scrutiny. There were possibly some other organisations, I do not know, of the kind that come forward with policy ideas. But I suggest that the majority of respondents tended to be from the industry, and it is not usual for industry to invent new ideas in their responses to consultations. I asked some of the industry bodies about this at the time, and that was the response I got. They said that they thought that, as I had led the way, they might want to pick it up in later consultation—but by the time you get to round two, it is much more concentrated on what will be in the Bill and “Do you agree with this?” It does not say “And, by the way, what have we left out that might have been a good idea?” Industry does not spend its time and risk putting in responses about that kind of thing.

I should be very interested to hear the analysis of the type and numbers of people who responded. Frankly, we have to rely on what we are told. Once upon a time, you used to know who had responded and could judge, and if the weight of the responses came from industry, I am not surprised that there was nothing in there. If the weight of the responses from the non-industry part had some good ideas, perhaps the Minister could tell us.

[Baroness Penn (Con)]

As I have said, I will set out further detail on the consultation process in writing. It is worth just noting that this question was also considered by Parliament through the Treasury Select Committee in its report The Future Framework for Regulation of Financial Services, which said that

“The creation of a new independent body to assess whether regulators were fulfilling their statutory objectives would not remove the responsibility of this Committee to hold the regulators to account, and it would also add a further body to the financial services regulatory regime which we would need to scrutinise.”

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[Baroness Bowles of Berkhamsted (LD)]

I think the Minister has just said that she will engage but that the answer is still “no”.

[Baroness Penn (Con)]

I have set out why the Government have concerns and that we should have further conversations to explore the issues that have been raised. I believe that is neither a “yes” nor a “no”.

Financial Services and Markets Bill

Debate between Baroness Bowles of Berkhamsted and Baroness Penn

Committee stage
Monday 20th February 2023 Grand Committee

[Baroness Penn (Con)]

Perhaps I could finish my point; we will also come to this issue in the next group. In seeking to ensure that the relevant committees of Parliament have the information that they need to do their jobs, the Bill references the TSC, but I acknowledge that other committees in Parliament have done this role in the past or may wish to do it in future. That is something we will want to reflect on in our discussions of both this group of amendments and the next one. I recognise the point that has been made to me and will, I think, be made to me again in our debate on the next group. Although there is precedent for the TSC—indeed, it has set up its own sub-committee on this matter—I completely see the value of contributions of committees from this House or, if Parliament determined it, Joint Committees. We want to reflect carefully on how we can ensure that we are able to facilitate that also.

The noble Lord, Lord Vaux, invited me to reflect on this discussion and discuss with noble Lords between Committee and Report if and how we can take the thoughts and ideas further. That is something that I would be very happy to do. We will reflect on the points raised during this debate and consider them carefully before Report.

I wanted to make two points regarding this group. First, it is for Parliament to determine its committee structure and it has the ability to determine that, including the establishment of a Joint Committee, through existing procedure. Establishing a Joint Committee through statute is the exception rather than the rule and reflects the specific circumstances of the Intelligence and Security Committee. It is, I think, the only committee that has been established by statute in the last 100 years or so.

The other point, which we will discuss further, is that although we do not want to determine the correct committee structure, we do want to ensure that committees have the information they need to do their work. We have put clauses in the Bill to reflect that but, as I believe we will come on to, we will want to consider whether they fully reflect the work done in both Houses to scrutinise the regulators.

[Baroness Bowles of Berkhamsted (LD)]

I do not know whether the Minister is going to come on to this, but I hope she will also say something about what I called the consequences of scrutiny and what my noble friend called accountability. We can set up all the committees we like within the permissions of the parliamentary structure, but the point is what the Government then do and take notice of. There is no point in doing it otherwise. That is what we want to hear: how are they going to, as I would say, put wheels on it so that the reports are acknowledged? We are not saying that the Government or the regulators have to take everything but they at least need to comment and such things. Will the Minister say something about that, please?

[Baroness Penn (Con)]

On that point, the noble Baroness referred to the Government responding, but we are broadly discussing the committee’s scrutiny of the regulators and the Government’s role as well. The Bill provides a specific power to ensure that the regulators respond to representations made to them by parliamentary committees in response to their consultations. That clause is not limited to the Treasury Select Committee but applies to any parliamentary committee that makes a representation.

I look forward to debating the next group, which continues the theme, but for now, I hope that my noble friend will withdraw her amendment.

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[Baroness Penn (Con)]

My understanding is that that is what the FPC does. One of the mechanisms by which it does it is through its stress tests; it operates regular stress testing of the banking system and has also undertaken stress tests of the non-bank system. For example, in the latest Financial Stability Report in December 2022, it included a specific chapter on market-based finance. In 2023 it will run for the first time an exploratory exercise to test the resilience of the financial system against a scenario focused on the risks associated with market-based finance. This is one route by which it seeks to explore and seek out what those risks could be, to help inform understanding of those risks and future policy approaches that should be taken to mitigate them.

As I have said, much of the work needs to take place at an international level, but I accept the point made by the noble Baroness, Lady Bowles, that we also need to take unilateral action at home to reduce domestic vulnerabilities where it is effective and practical to do so. That work is ongoing.

I hope I have dealt with the noble Baroness’s amendments and reassured noble Lords that the Government are conscious of the risks—including systemic risks—that can be posed by the non-banking financial sector. With the FPC, we are undertaking further work to ensure that we can better understand and explore those risks, and take domestic action where possible to mitigate them, but also lead the work internationally to ensure a co-ordinated response.

[Baroness Bowles of Berkhamsted (LD)]

I thank all noble Lords who have spoken in this debate. I will reply to some of the points, but I will start with the Minister’s response. I am a little disappointed in two things. The main point of these amendments is to draw attention to the fact that, while the Bank of England and the FPC maybe had the powers to do things, they did not do them. As the noble Baroness, Lady Noakes, and I said, they did not do them after having spotted that the problems were there.

They did something pretty de minimis—some stress tests that basically followed what the industry was already doing—and left out the smaller end of the market. Had they put their thinking caps on, they might have realised that that is exactly where you would have problems with providing collateral. They did not do it because the Pensions Regulator said, “We can’t put this onus on the small schemes”. Maybe that was a comply or explain type of answer, but they just took it as given.

The fact is that, once again, they are shutting the stable door after the horse has bolted. I am saying that they need to be more proactive. They have to stop being scared. This was not an issue where, by doing something first, we would have put ourselves at a competitive disadvantage with industry in other countries; that is why you do “hug a mugger” or “let’s do international rules”. I understand it for insurance companies, where there is big competition and if we do something and they do not do it in Europe, there will be issues.

By the same token, if you think you are ever going to get something agreed about insurance companies globally, you will hear some rude expressions. For starters, in the United States it is state-based, and they do not do Solvency II, so it will be very difficult to get that agreement on non-bank financial institutions, which basically means insurance companies. There is absolutely no reason to prevaricate and hide behind NBFI when you are taking about our specific defined benefit pension schemes. It is just an excuse, and I do not buy it. I do not buy it from the Minister, the Chancellor, the regulators or the Bank of England.

Financial Services and Markets Bill

Debate between Baroness Bowles of Berkhamsted and Baroness Penn

Committee stage
Monday 6th February 2023 Grand Committee

[Baroness Penn (Con)]

I absolutely note the noble Baroness’s point. That same principle has informed our approach to proceeds under the Proceeds of Crime Act, so this has happened elsewhere in Government.

I was going to note that, previously, the FSA was able to keep all the income it took from penalties and use it to subsidise the levy it charged on the firms it regulated. That was changed because, when the regulators took a large amount of money from those they had fined, they reduced the charges they made on those firms. In thinking about these issues, we would want to avoid similar unintended consequences in the future.

I close by saying that I have heard noble Lords’ strength of feeling on this debate. As I said on the previous group, I am always open to meeting noble Lords to discuss issues further. We have different ways in which we think those issues can be tackled, but it is always right to see what more we can do. The noble Lord, Lord Hunt of Kings Heath, suggested perhaps having a co-ordinating meeting on fraud, particularly to cover the specific issues raised in the different Bills before your Lordships. I will endeavour to take that forward ahead of Report.

[Baroness Bowles of Berkhamsted (LD)]

Your Lordships will be pleased to know that I cannot possibly go through everything, yet again, that has been spoken about. I thank all noble Lords who have spoken in this debate. The Minister must have heard the concern from all sides of the Committee.

The only bit of good news that I can hang on to from what was said is that more work is being done on data sharing between banks. That is important. The list of roles of the FCA just proves that it does not have a great deal of power to do things within financial services in general. It can do things with regulated bodies, but that is very limited, as we discussed previously, so I will not go into it again. It can do things with bodies that are pretending to be regulated but are not, but we are for ever bashing up against this regulatory perimeter, one way or another. That just does not deal with fraud, because fraudsters are well aware of it and are going to use it.

We have tried to cover various different types of fraud. Fraud by and in financial services surely should be caught, even if it is by a regulated entity but in an unregulated area. The financial services regulator should still be able to prosecute the entity, not just through cases that deal with criminal matters which it can take; there should also be some regulatory approach. Then there is fraud in which financial services are the final vehicle. Financial services are in a special place because, ultimately, how can you monetise your fraud? You have to put it through a bank or somewhere else, no matter whether it was started or perhaps enabled by a telecoms company, online platform and so on. Ultimately, financial services firms have a special duty for extra vigilance, because that is where this all funnels down.

I agree that probably more has been done to capture these things in financial services than in some of the online platforms and telecoms companies. I will not go through the whole of the very thick fraud report, but there are issues in it that go across the piece. That is part of the problem. We have this complete alphabet soup of organisations that are supposed to be helping us address crime, and fraud in particular, in different ways. However, it is not well co-ordinated, and fraud falls between the gaps, and so it is with the financial services side of it.

One thing that was in the report from the Fraud Act committee was about engaging regulators more in the fight—that is, regulators in general—through having regulatory offences. Here, the imagination has to be used. We should not just pin down regulators to doing very small things within a tiny regulated bit, while everywhere else people can either get away with it or it has to go over to less specialised people to deal with. There are big holes, and we will have to come back to this.

At the bottom of it, there are issues around the funding. You will have to fund regulators more if they are to address fraud more. I do not see any harm in the recycling of fines. They should not be recycled so as to say “Right, now the levy is less”, but they could be recycled specifically for prosecutions. Given that you can turn a profit from them and that you are helping individuals who have had their money stolen, it is very bad if the Treasury does not look at that more favourably. Everybody is crying out for this, but we acknowledge that you have to have money to do it.

For now, I will obviously withdraw my amendment. However, we will have to come back on Report with one or two amendments aimed at furthering things, unless the Minister is able to persuade the rest of the Treasury that it needs to act in this area, as there would be ways in which it could ring-fence the financing and turn a net profit.

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[Baroness Penn (Con)]

The points that I gave in reply to the noble Baroness’s specific question on PPI and interest rate hedging products were in the context of the consumer duty as written, with the reasonable expectations provision in there. However, of course I take seriously the point raised by the noble Lord, Lord Sharkey, and I will write to the Committee to further expand on that.

[Baroness Bowles of Berkhamsted (LD)]

My recollection from the passage of the 2021 Act was that the final wording was government wording, put in as a concession to amendments from my noble friend Lord Sharkey. The government amendment said that a duty of care, or variations thereof, could be consulted on. Was it the Treasury’s, or the Minister’s, expectation at the time that it would be severely diluted? Was that the point of those extra bits?

[Baroness Penn (Con)]

I think I said directly what was required of the FCA, and the FCA has fulfilled its obligations under that Act. Furthermore, the FCA is not of the view that it has diluted the approach; it has taken a different approach from the duty of care. I have attempted to set out some of the reasoning and thinking behind the approach it has chosen to take versus the alternatives that were put to it. I am happy to write further.

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[Baroness Penn (Con)]

I do not have a breakdown of the different responses to the consultations. However, as I said, in its feedback statement on a previous consultation on the duty of care, the FCA noted that industry stakeholders did not support a statutory duty of care. It also noted that a number of consumer groups did not support a statutory duty of care. I can point back to when that was considered in 2019 as not being a single view from a single source of consultees.

[Baroness Bowles of Berkhamsted (LD)]

One is a number, as I was always taught when I was training as a patent attorney. It might mean that one consumer organisation did not agree, but the vast majority did.

[Baroness Penn (Con)]

The noble Baroness has made her point.

I was turning to the private right of action, which was also consulted on by the FCA. It has concluded that it will not be beneficial at this time to introduce a private right of action, as it sees benefit in giving firms time to implement the significant changes that the duty entails without the threat of private action.

However, the FCA has committed to keeping this matter under review. The FCA has the power to introduce a private right of action through its rules, without the need for legislative change, if it considers it appropriate to do so in future. In addition, as noble Lords know, consumers will remain able to seek redress via the Financial Ombudsman Service where they believe a financial services firm has breached the consumer duty.

Financial Services and Markets Bill

Debate between Baroness Bowles of Berkhamsted and Baroness Penn

Committee stage
Wednesday 1st February 2023 Grand Committee

[The Parliamentary Secretary, HM Treasury (Baroness Penn) (Con)]

My Lords, there is a large number of amendments to cover in this debate, so I aim to be succinct. While these amendments cover a range of issues, they all relate to reporting requirements on the regulators to enable effective scrutiny and oversight of their work.

First, on Amendments 45 and 63, in the name of the noble Earl, Lord Kinnoull, and Amendment 66, in the name of my noble friend Lord Holmes, the Government agree that it is vital to have appropriate public metrics to ensure that the operationally independent regulators can be held to account for all aspects of their performance, including against their new growth and competitiveness objectives. FSMA establishes multiple channels for this, including annual reports. The regulators also voluntarily publish a range of data—for example, on operating service metrics. Specifically, Clause 26 will require the FCA and the PRA to report on their performance against the new growth and competitiveness objective, as part of their annual reports. That sets out for my noble friend Lord Bridges the existing reporting done by the regulators—but the Government recognised the need to go further in requiring the regulators to publish information, which is why we added Clause 37. It provides an additional mechanism for the Treasury to require the regulators to publish information, including performance data, on a more regular basis, where the Treasury considers it necessary to support scrutiny of performance.

The broad approach is that FSMA requires the regulators to report on how they have discharged their functions and that the decisions on publishing operational metrics are appropriate for the operationally independent regulators to determine, working with government, where appropriate. It is impossible to predict how the power in Clause 37 requiring regulators to publish information on a more regular basis may be used, but I reassure noble Lords that the Treasury will work with stakeholders, industry, consumers and Parliament to understand the evidence base for whether it is in the public interest to exercise this power and the kinds of situations in which it would be desirable to do so. That power also includes a number of safeguards to ensure that it is exercised appropriately.

However, locking specific, detailed metrics into primary legislation would result in a static framework unable to adapt and respond to wider changes, and impose fixed requirements which may not be possible or appropriate for the regulators to report on. Clause 37 provides a more flexible—and therefore future-proofed—mechanism for ensuring appropriate scrutiny. Similarly, Amendment 121, tabled by the noble Baroness, Lady Bowles, seeks to impose a requirement to report against metrics determined by the National Audit Office, along with consumer representative bodies. Again, embedding this in primary legislation would not be the most effective approach. The NAO is already able to examine and report on the value for money of spending by public bodies, including the FCA and the PRA, and it reports its findings to Parliament. The Government consider that the setting of specific reporting requirements for these bodies goes beyond the scope of the NAO’s remit.

[Baroness Bowles of Berkhamsted (LD)]

May I interrupt the Minister? The whole point of my amendment—whether it be the NAO or otherwise—was specifically to address the fact that the criteria might need to be changed, so it would not be a fixed list but would develop depending on circumstances. Perhaps the Minister does not think that the NAO is the body, but the question I posed was about this in general. There is a difference between it being an independent body and it being the Government. Given all the other powers that the Government have to direct the regulators, it could look like a conflict of interest if it is not done with a greater degree of independence. The fact that the Minister said that Clause 37 needs to be used with discretion seemed to recognise that that potential tension and conflict might be wrong. Would it not be better to have an independent body involved?

[Baroness Penn (Con)]

I thank the noble Baroness for teeing me up to answer the question that she posed at the end of her remarks. I understand her point about trying to have a more flexible framework of criteria and the NAO being one idea for an independent organisation that can do that. She will know that the Government considered this as part of the future regulatory framework review and found that there are substantial practical costs and resourcing obstacles to overcome in making such a body operationally effective. Such a body would also duplicate existing accountability structures and potentially undermine the regulators’ operational independence.

In considering that question, the Government concluded that the existing avenues for stakeholders to provide input, feedback and challenge through public consultation are appropriate, supported by strengthening the statutory panels, independent challenge and cost-benefit analysis.

In addition, the Treasury and Parliament will continue to assess the work of the regulators in their oversight role, strengthened by a number of the measures in the Bill. That position was supported by the TSC report The Future Framework for Regulation of Financial Services, which said:

“The creation of a new … body … would not remove the responsibility of this Committee to hold”


the FCA and the PRA

“to account, and it would also add a further body to”

the regime that Parliament would need to scrutinise. The Government therefore concluded that the Treasury, as the department responsible for financial services policy, is best placed to assess whether, as a backstop, further reporting is required by the regulators and to direct them to publish this if necessary and appropriate.

I fully appreciate that the Committee will want to continue to explore this question in discussing these amendments and further amendments as we reach them, but I think it is helpful to set out that the Government considered this question as part of their consultation and work in the development of the Bill. Careful thought has been given to it. We have been open to making improvements: indeed, I believe Clause 37 was an improvement made when the Bill was in the House of Commons, so we are open to further thoughts, having already given this quite a lot of consideration.

Turning to Amendments 83 and 84, I hope I can reassure my noble friend Lady Noakes that Sections 138I and 138J of FSMA already require the FCA and the PRA to provide an explanation of how their draft rules advance their objectives as part of their public consultations. The Government’s policy intention is that this requirement extends to the new secondary objectives. However, I thank my noble friend for raising this issue. We will consider whether the legislation could be made clearer on this point before Report.

I move to Amendments 113 and 114, tabled by the noble Baroness, Lady Kramer. The Government recognise that the Bill represents significant reform, and it will be important to provide an assessment of its effects on the system. However, we think it would be inappropriate to task the regulator with this assessment. In line with Cabinet Office guidance, within three to five years of Royal Assent, the Government will submit a memorandum to the Treasury Select Committee with a preliminary assessment of the impact of the Act in practice, to allow the committee to decide whether it wishes to conduct further post-legislative scrutiny.

Turning to Amendments 115, 116 and 196, tabled by my noble friend Lord Holmes, I am aware that the speed and effectiveness with which the regulators process applications for authorisation and other regulatory approvals remains an area of concern for both Parliament and industry, and the Committee has reflected that to me again today. I welcome the report published by TheCityUK last week about this important issue and, just as importantly, the constructive way in which the regulators have engaged with that feedback from the sector.

The Government share these concerns. In December, the Economic Secretary wrote to the CEOs of the PRA and the FCA setting out the importance of ensuring that the UK has world-leading levels of regulatory operational effectiveness. In their replies, both CEOs committed to publishing more detailed performance data on authorisation processes on a quarterly basis going forward. The FCA, in particular, has an extensive programme of activity under way to improve the timeliness of its approvals. It recruited almost 100 new authorisation staff in the last financial year, streamlined its decision-making processes and is digitising its application forms to make the process smoother for firms. The power in Clause 37, which I mentioned earlier, for the Treasury to require additional reporting from the regulators could be used to hold the regulators to account on the important issue of authorisations raised by these amendments, but, as I say, there is a commitment by the regulators to publish more detailed quarterly information on this matter. However, the Government will continue to engage in discussions with the regulators on continuing to improve operational efficiency.

Financial Services and Markets Bill

Debate between Baroness Bowles of Berkhamsted and Baroness Penn

Committee stage
Monday 30th January 2023 Grand Committee

[Baroness Penn (Con)]

The noble Baroness touches on one possible difference in documentation needing to be provided where something is regulated versus where it is voluntary. That comes back to the question of SME lending having increased costs for banks and alternative finance providers. This can be passed on to businesses in the form of higher fees and interest rates, and it can affect the availability of credit for small businesses. The noble Baroness, Lady Kramer, mentioned start-up banks and challenger banks. When we have discussions elsewhere on other issues related to financial services regulation, we also discuss how we create a more competitive environment in the banking sector, as smaller banks can struggle to deal with regulations. This is a general point about balance.

[Baroness Bowles of Berkhamsted (LD)]

I am sorry to intervene again, but I am also intrigued about what the extra cost is of this coming into regulation. We are not suggesting that there should be great big oversight mechanisms which mean that the FCA would have to do a lot more—until problems occur, when there must be a route to justice. Is the Minister saying that banks will make less profit when they cannot cheat their customers, and that is where the cost comes from? I do not understand it. The suggestion was that it might be documentation, but the cost of that is the same wherever the documents go. What is this extra cost other than banks having to behave responsibly?

[Baroness Penn (Con)]

In relation to Amendment 40, there are benefits—which we have heard about—and costs to any activity being brought within the regulatory perimeter. I think that point is fairly well accepted. The noble Lord, Lord Tunnicliffe, asked me for further details on that, and I will write to the Committee.

On my noble friend’s Amendment 219, there are costs related to bringing disputes through the courts system as opposed to other dispute resolution mechanisms. There can also be benefits to that mechanism, but it is not enormously contentious to say that there are both costs and benefits to these solutions, which need to be weighed up when we consider them.

--- Later in debate ---

[Baroness Penn (Con)]

I understand my noble friend’s point, and of course the Government also consider that when we look at what to bring into the regulatory perimeter or the right of redress, both as a route of redress and as a point of deterrence. The Government take all those factors into account when considering this question.

[Baroness Bowles of Berkhamsted (LD)]

If I may ask one more question, one area that might be interesting for comparison, especially if we are looking at the Consumer Credit Act, is what the difference is between the loans of £25,000 to small businesses and bounce-back loans, where the conditions of the Consumer Credit Act were dispensed with. Can we have a comparison to see whether they have fared better or worse? That will perhaps show us where the true costs of regulation and lack of regulation lie.

[Baroness Penn (Con)]

The noble Baroness makes an interesting point. However, bounce-back loans were designed for a specific set of circumstances, and the aim of disapplying the Consumer Credit Act provisions was to do with the speed of being able to get bounce-back loans out to customers. The noble Baroness has indicated that there can then be some regulatory cost to having those protections in place. That is an interesting point, which I am sure people will want to think about in the consultation that is under way on the Consumer Credit Act and the direction of travel there.

[Baroness Bowles of Berkhamsted (LD)]

I must point out that I was fearing that the true cost was with the small businesses.

[Baroness Penn (Con)]

The true cost of the protections afforded under the Consumer Credit Act—

[Baroness Bowles of Berkhamsted (LD)]

It is about the lack of protection.

[Baroness Penn (Con)]

To be honest, I am not sure that I totally follow the noble Baroness’s point.

Financial Services and Markets Bill

Debate between Baroness Bowles of Berkhamsted and Baroness Penn

Committee stage
Wednesday 25th January 2023 Grand Committee

[Baroness Bowles of Berkhamsted (LD)]

If I may drag the Minister back to where she was just finishing off, in her response to me and the noble Baroness, Lady Worthington, she said that the UK would continue to observe its G20 commitments, which I do not doubt, and that various agricultural products and so on would definitely still be within scope. However, it says here in legislation that the FCA “may”. It does not say, “Apart from the fact that we are observing G20, and agriculture is still in”—it just says “may”. Where does it say in primary legislation that there will be guidance—or whatever the appropriate word is—as to how these things will be dealt with by the exchanges in the circumstances that give rise to concern? Otherwise, looking at our legislation—at least, our primary legislation —I see that we would not have that certainty, and it is proper that we have it.

[Baroness Penn (Con)]

It might be wise for me to write to the noble Baroness to address that specific point. Under the overall framework for the regulators, they need to make their rules in a way that is consistent with international standards, to which the noble Baroness referred. That would be the additional way in which one would have that reassurance, but it is worth writing to set out the point for her with more clarity.

The noble Baronesses, Lady Bowles and Lady Worthington, talked about whether the FCA, in acting to advance its objectives, would have sufficient grounds to intervene in these markets. The Treasury is confident that it would, and an example of humanitarian grounds for intervention was given. We are confident that the FCA could intervene on humanitarian grounds, acting in line with its objectives, but perhaps I will also write to the Committee to expand on that further.

The noble Lord, Lord Sikka, somewhat pre-empted me: I was just about to turn to Amendment 41. I am afraid that the Government will disagree with the noble Lord and the noble Baroness. Arguments were advanced by my noble friend on this point. Amendment 41 would require all listed companies to disclose how much revenue they make from trading commodity derivatives. However, listed companies are already required to publish comprehensive information about their operations and finances as part of their annual reports. The Government view that as sufficient.

It may be worth turning to the questions asked by the noble Baroness, Lady Kramer, on government Amendment 28, if the Committee is happy for them to be addressed here. Does the power in Clause 3 allow the Treasury to amend primary legislation to give us or the regulator new powers? The power in Clauses 3 and 4 to modify legislation, including to create new powers for the Treasury or regulators, is limited to retained EU law, as set out in Schedule 1. Clause 3 powers cannot amend primary legislation.

The powers in Clause 4 can be used to move provisions from retained EU law into primary legislation. The power in Amendment 28 applies where the Treasury is making transitional amendments to retained EU law or restating it. It is designed to allow, for example, the Treasury to give itself a power to update a definition or threshold in legislation. This mirrors delegated powers for the European Commission in retained EU law. While it would be possible to deliver the same outcome by reuse of the powers in Clauses 3 and 4, the Government consider it more appropriate to create a specific power to allow for such updates to be made, where they consider it appropriate. When creating such powers, His Majesty’s Treasury will have the ability to specify the procedure for any statutory instruments made using the new power. The Treasury will follow the same approach to determining the appropriate procedure as it has in the Bill. Where the Treasury exercises the power to create further powers, the instrument doing that will be subject to the procedure specified in Clause 3(9), which, in the vast majority of cases, will be the affirmative power.

Financial Markets: Stability

Debate between Baroness Bowles of Berkhamsted and Baroness Penn

Thursday 3rd November 2022 Lords Chamber

[Baroness Penn (Con)]

No, it is correct. The noble Lord seems to know how it is composed, so we are transparent in how that number is reached. I would like to make a little progress.

[Baroness Bowles of Berkhamsted (LD)]

I am sorry, I know that the Minister keeps being interrupted, but maybe it should all come at once. She mentioned that the Bank of England had powers to intervene. I would be very interested to know what preventive powers she thinks the Bank of England could have used to intervene on LDI and leverage. It put it in its Financial Stability Report, but genuinely, I do not know what powers it has to intervene over something that is not covered by FiSMA. It is DWP and there is another regulator, yet it is causing a systemic glitch that could happen again.

[Baroness Penn (Con)]

The noble Baroness is right that there is more than one regulator at play in this space. That point was also made by the noble Lord, Lord Davies of Brixton. If the noble Baroness will forgive me, I will come on to some actions taken after the 2018 stress test shortly.

The noble Lord, Lord Tunnicliffe, asked what the forthcoming Bill will do to promote financial stability. Allowing us to tailor our financial services regulation to the UK’s situation and needs will mean that we can create the best regulation for our circumstances. In a world where financial services are evolving all the time, with new developments and technologies requiring regular changes, the measures in the Bill will mean that UK regulations can remain up to date and effective.

It is also the role of the Government to ensure that their own decisions lead to trust and confidence in our national finances. Our responsible approach to managing the economy meant that we went into Covid and the current economic crisis with strong public finances, allowing us to intervene to support people’s lives and livelihoods. In that context it is important to acknowledge that, while well intended, the recent growth plan had unintended consequences for economic volatility.

Mistakes were made, and we have taken steps to fix them. Most of the tax measures in the growth plan have been reversed and the associated volatility dissipated. However, we are still faced with a profound economic crisis, with global inflationary pressures driven by increased demand post Covid, elevated energy prices after Putin’s invasion, widespread labour shortages and, in response, central banks across many major economies raising interest rates.

My right honourable friend the Chancellor of the Exchequer has been clear that we will take the measures needed to restore confidence and trust in the UK’s public finances and to deal effectively with the economic shocks that are being felt across the globe. In doing so there will be difficult decisions to take, but I hope that I can reassure the noble Lord, Lord Tunnicliffe, and others, that in taking them, this Government will protect the needs of the most vulnerable.

Specifically on recent events, the FPC noted in its July Financial Stability Report that the worsening global economic outlook had caused markets to be volatile in recent months. Since July, global inflationary pressures have intensified further. Specifically on the intervention by the Bank of England, all noble Lords will be aware that in late September there was elevated uncertainty in the UK bond market that resulted in gilt yields rising rapidly and significantly. LDI funds, many of which held leveraged positions in the gilt market, faced significant margin calls as a result. In some cases, these calls exceeded the cash buffers that they held, forcing them to raise cash by selling gilts into a falling market. Large sales of gilts into an already illiquid market led to yields increasing even further, in turn triggering further margin calls and forcing further gilt sales to try to maintain solvency.

This would have led to a spiral of falling prices but increasing pressure to sell gilts, so, within its remit, on Wednesday 28 September, the Bank of England started temporary purchases of long-dated UK government bonds, with the aim of restoring orderly market conditions. In line with the Bank’s statutory financial stability objective, the purpose of these operations was to act as a backstop to restore orderly market conditions and reduce any risks from contagion to credit conditions for UK households and businesses while the appropriate adjustment takes place. This operation was fully indemnified by the Treasury.

It is worth remembering that the Bank’s intervention served to keep the gilt market stable so that funds had time to adjust their positions in line with the changed market conditions. The speed and scale of repricing far exceeded historical moves, and therefore fell outside the expectations of risk management plans or regulatory stress tests. Throughout the intervention, the Bank worked with LDI funds and pension schemes as they built their financial resilience ahead of it coming to an end. Market conditions have since improved. The Bank’s usage of the scheme, at under £20 billion, was significantly below the maximum size permitted under its maximum daily auction size and below the increase in the indemnity provided by the Treasury. This stress in the LDI sector highlights the necessity of ensuring that the appropriate risk oversight and mitigation systems are in place for market-based finance.

I shall try to address the question asked by the noble Baroness, Lady Bowles, and the noble Lord, Lord Tunnicliffe, about what has happened since the 2018 exercise that looked at this. Since then, the Bank of England has worked with other domestic regulators, including the Pensions Regulator and the FCA, on enhancing monitoring of the risks. That included working with the Pensions Regulator on a survey of DB pension schemes in 2019 and prompting work to improve pension liquidity risk management. As the FCA noted in its letter to the noble Lord, Lord Hollick, and my noble friend Lord Bridges in March this year, the FCA contacted the largest LDI fund managers to ask them what plans they had in place to deal with increased volatility. It also probed large managers on the speed with which they could call money from underlying pension funds in the event of stress.

In response to many noble Lords, including the noble Lords, Lord Sharkey, Lord Sikka and Lord Davies of Brixton, and the right reverend Prelate, the Government recognise that there will be lessons that need to be learned from the market volatility seen in recent weeks. The regulators are working with the industry to improve their resilience to market shocks, and it remains a focus of the Government and regulators to ensure that we have a robust regulatory system.

In addition to the ongoing monitoring of systemic risks by the FPC, His Majesty’s Treasury and UK financial regulators have been working internationally as part of the Financial Stability Board, as I previously noted, to develop global approaches to identify and address vulnerabilities in market-based finance. The noble Lord, Lord Sikka, asked why we take a different approach to the regulation of banks versus non-banks in the financial system. Part of that is the international nature of the non-banking part of our financial system.

The Bank of England has also committed to working with the Pensions Regulator and the Financial Conduct Authority to ensure that appropriate levels of resilience are in place to mitigate risks to UK financial stability. As the Pensions Regulator chief executive emphasised earlier this month, DB pension schemes were not and are not at risk of collapse due to rapid movements in the price of gilts, and savers should not make any hasty decisions about their pension pots.

I turn to pensions. As I have just stressed, defined-benefit pensions remain strong, and members of those schemes that were invested in LDI funds are not at risk of losing out as a result of either the aforementioned volatility or interventions made by the Bank. Indeed, the independent Pensions Regulator issued a statement on 12 October for trustees of defined-benefit and defined-contribution schemes and their advisers, which communicated its expectations on matters for trustees to consider in relation to managing schemes and supporting savers.

The noble Lords, Lord Sharkey, Lord Best and Lord Campbell-Savours, and my noble friend Lord Young of Cookham, rightly mentioned the housing market, and I want to respond directly. The fact is that interest and mortgage rates have been rising since last autumn in response to global trends. This is not a UK phenomenon, with the US Federal Reserve having raised its base rate since March 2022 and the ECB taking similar steps. In the UK, around 75% of residential mortgages are on a fixed rate and therefore, in the short term, shielded from rate rises. However, I know that, for those on variable rights and those who are seeing their own fixed-rate deals coming to an end in forthcoming months, there will be significant concern. Where mortgage holders fall into financial difficulty, FCA guidance requires firms to offer tailored forbearance options. While it is important to note that the pricing of mortgages is a commercial decision for lenders in which the Government do not intervene, the Government do offer support through Support for Mortgage Interest loans for those in receipt of income-related benefits and protection in court through the pre-action protocol.

Similarly, the setting of rates is a commercial decision for private landlords in which the Government do not intervene. However, we understand that many people will be worried about the impact of rising prices. My noble friend Lord Young of Cookham spoke more broadly about the reform needed in the private rented sector in order to provide more security to tenants in that sector. I agreed with much of what he had to say. Indeed, the Government’s programme of work to reform the private rented sector continues through, for example, our commitment to ban Section 21 no-fault evictions. We heard ideas from my noble friend Lord Young and the noble Lords, Lord Best and Lord Campbell-Savours, for other changes that we could potentially make in housing. I will take those back to the department and ensure that they are looked at carefully.

The noble Lord, Lord Sharkey, asked whether the local housing allowance would be uprated. He will know that, as part of our response to Covid, the rates of local housing allowance were increased significantly to the 30th percentile of the market, with 1.5 million households gaining just over £600 a year. We have maintained those rates at an elevated level last year and this year in order to ensure that claimants can continue to benefit from this. This is reviewed annually, and I will not comment further on the uprating of benefits.

More specifically, many noble Lords spoke about the difficulties that vulnerable people are facing this year with the rising cost of living. The Government absolutely recognise that and are focusing our support most heavily on those households. People are facing a difficult time. We have put in place an energy price guarantee and further support for those on income-related benefits, pensioners and those with disabilities. There is also discretionary support for local authorities to provide help in their local areas.

I am conscious of the time so I will begin to wrap up. Many noble Lords used this debate as an opportunity to look ahead to the Chancellor’s Autumn Statement. I welcomed the constructive efforts by the noble Lord, Lord Liddle, to make suggestions not just about areas of spending that should be prioritised but about ideas for tax reform to help to fund them, which always needs to come alongside. I will only say to him, on his suggestion for equalised pension tax reform, that we have heard in this Chamber in recent weeks about the challenges of keeping GPs and others in their roles because of the tax treatment of their public sector pensions, and the idea might perhaps be a bit more complicated than it may look at first sight.

Defined Benefit Pension Funds

Debate between Baroness Bowles of Berkhamsted and Baroness Penn

Tuesday 1st November 2022 Lords Chamber

[Baroness Penn (Con)]

My Lords, LDI strategies can be used as a risk-management strategy for pension funds, and I would expect them to continue to do so. There were specific circumstances which the Bank stepped in to address. But my noble friend is right that it is important that we reflect on what happened to those particular funds in that period and make sure that the Bank of England and the Financial Policy Committee have the right oversight to ensure ongoing stability in these markets.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, a key focus of the IORP directive, which was transposed into the Pensions Act 2004, was to prohibit borrowing so that assets are retained for the payment of pensions and not put at risk of being drained away to third parties. With that prohibition on borrowing, how has that been circumvented, permitting repos and investing in funds that break both the principle and detail of that provision? Is it not dishonest to describe LDI as de-risking when it introduced leverage and derivative exposures of some £1.4 trillion, which is nearly the same as the total pension fund assets?

Financial Services Bill

Debate between Baroness Bowles of Berkhamsted and Baroness Penn

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

[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

Debate between Baroness Bowles of Berkhamsted and Baroness Penn

Committee stage & Committee: 1st sitting (Hansard) & Committee: 1st sitting (Hansard): House of Lords
Monday 22nd February 2021 Grand Committee

[Baroness Penn (Con)]

My Lords, clarity around all terms and conditions is, of course, to be welcomed. I agree with my noble friend that one challenge with these amendments is potentially introducing new concepts, which might need to be defined through regulation, where we think that there are existing protections in place and the effect could be duplicative.

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

My Lords, I thank all those who have taken part in this debate; it has been short but interesting, and I thank those who have supported the concept that I am trying to elaborate. What the noble Viscount, Lord Trenchard, has just said is probably true to some extent—why should we rely upon the FCA for this? It is true that this probably should be more of a general legal offence of unconscionable conduct, which is what they have in Australia. So there is no point trying to argue that, in a common law country with a similar kind of legal system, you cannot work out how it happens and whether it is effective: I can tell you that it is.

As the Minister elaborated, the problem with having a subjective measure—as the noble Viscount, Lord Trenchard, called it—is that you then have to put a whole load of rules around it. That is exactly the problem with the FCA. It has done it with the senior managers regime, something that I always understood Parliament wanted to be a subjective measure—that is, if you behaved badly and something happened on your watch, you were responsible. That has now been tied up with contracts approved between the regulator and the employees in the businesses. Instead of capturing the people at the top, it has pushed responsibility down the chain. The same has happened with “fit and proper”. The FCA has chosen to redefine what that means so it will catch only very extreme cases rather than bad behaviour.

New Businesses: Capital Gains Tax

Debate between Baroness Bowles of Berkhamsted and Baroness Penn

Wednesday 20th January 2021 Lords Chamber

[Baroness Penn (Con)]

My Lords, the noble Lord puts his point very well; I entirely agree.

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

Does the Minister consider that social impact, as well as behavioural impact, should be taken into account? Is there not a case for reducing the percentage of shares that must be sold to an employee ownership trust to qualify for capital gains tax relief or some partial relief?

[Baroness Penn (Con)]

My Lords, a number of factors are taken into account by the Treasury and the OBR when assessing tax policy. On the second point, the enterprise management incentive has been protected during the Covid-19 outbreak; the Treasury has prioritised urgent support measures for people, amending legislation so that the scheme can still be used by affected firms where employees are furloughed or where their working hours have been reduced as a result of Covid.

Covid-19: Levelling-up Agenda

Debate between Baroness Bowles of Berkhamsted and Baroness Penn

Thursday 12th November 2020 Lords Chamber

[Baroness Penn (Con)]

My Lords, the Kickstart Scheme is specifically designed to support young people at risk of long-term unemployment, but that is not the only support that the Government are putting in place for those who may have lost their jobs or are struggling to find work, having finished their studying or training. For example, we have put £1.2 billion in to significantly expand and enhance our work-search support, including doubling the number of work coaches. That kind of support, alongside support for skills and apprenticeships, is available to young people in advance of them being at risk of longer-term unemployment.

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

My Lords, Covid has accelerated modern trends such as remote working, and there is a great deal of education and training needed for that. Should levelling up not include a focus on digital trends, aiming to leap-frog post-industrial areas into the new era of work?

[Baroness Penn (Con)]

My Lords, the Government are absolutely committed to supporting digital trends and jobs. I just mentioned one of the training schemes that we have in place to support that.

Banks: Internet Transfers of Cash

Debate between Baroness Bowles of Berkhamsted and Baroness Penn

Thursday 9th July 2020 Lords Chamber

[Baroness Penn]

My Lords, in respect of CBILS loans and other payments, we are not aware of any delays in the payment systems causing problems for businesses. More broadly, we are looking at the rapid technology developments in this area and we are working with the Financial Policy Committee on a payment landscape review to look at the infrastructure and regulation, to ensure that this is keeping pace with the development of technology. We will be publishing a call for evidence on that matter shortly.

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

Barclays Bank now has adverts urging people to use card payments rather than internet transfers, presumably to avoid fraud, but does it not also mean that they profit from an interchange fee at the expense of retailers? Is there any way that the system is not biased against SMEs?

[Baroness Penn]

I am not aware of the adverts that the noble Baroness refers to. We expect all businesses to treat SMEs fairly and proportionately in their transactions.

Banks: Authorised Push Payment Fraud

Debate between Baroness Bowles of Berkhamsted and Baroness Penn

Thursday 11th June 2020 Lords Chamber

[Baroness Penn]

One of the steps being taken to protect consumers further from the risk of fraud is the introduction of confirmation of payee. That is a new service intended to reduce the number of APP scam attempts succeeding. That was due to be rolled out by the end of March. However, due to Covid, the timeframe was extended to the end of June, with the clear understanding that if any customers had been affected by that delay in rollout—should any fraud have taken place during that time—the banks would compensate them.

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

Articles 4 and 45 of the relevant directive and paragraph 8.298 of the FCA documentation make it clear that it is the payment service provider that will specify the unique identifier to the user in the first instance. Therefore, the point where this is all going wrong is when providers do not specify or check the identifier against the name and address. Is not the confirmation of payee being introduced for just the six largest banks doing only what was intended in the first place, and should it not be rolled out across all payment providers?

[Baroness Penn]

I am sure that once the confirmation-of-payee scheme has been rolled out across the six largest banks, the regulator will look at how that has worked and any further measures that need to be taken. One of the benefits of the code that is in place is that it ensures that, where victims have done everything that should be expected of them, they receive reimbursement and compensation from the bank.

Inheritance Tax

Debate between Baroness Bowles of Berkhamsted and Baroness Penn

Wednesday 20th May 2020 Lords Chamber

[Baroness Penn]

My Lords, I point out that in 2018-19, inheritance tax receipts were at a record high, and 70% of inheritance tax comes from estates valued at £1 million or more. I believe that the noble Lord is referring to certain exemptions that come under agricultural and business property. While we recognise that there are some concerns, the policy intention behind those exemptions is to allow family farms and businesses to be passed on without having to be broken up to pay inheritance tax. We think that that is an important aim.

[Baroness Bowles of Berkhamsted (LD)]

The APPG on Inheritance and Intergenerational Fairness has recommended replacing inheritance tax with a 10% flat rate gift tax payable on both lifetime and death transfers. Would that not be a good way of getting rid of this hated tax with its complex exemptions and avoidance, and potentially bring forward economic demand benefits?

[Baroness Penn]

My Lords, the Government keep the tax system under review and any changes made are taken in consideration of economic competitiveness, levelling up growth across the UK and their impact on individuals and businesses. However, I am not aware of any active consideration of the APPG’s proposals.