Queen’s Speech

Baroness Falkner of Margravine Excerpts

Thursday 9th January 2020 Lords Chamber

[Baroness Falkner of Margravine (Non-Afl)]

My Lords, I will limit my remarks to just one aspect of the gracious Speech that has not been covered—as the 70th speaker in this debate I say that with some reticence. I will keep my remarks brief, as I am sure noble Lords would like to move on. I speak from the perspective of having chaired the EU Financial Affairs Sub-Committee for four years, until last summer. I also declare in the context of my remarks that I am a member of the Bank of England’s Enforcement Decision Making Committee, which I should say has no policy function.

The most frequently asked question that I faced in EU capitals during that period was about the UK aspiring to become a sort of “Singapore-on-sea”, sometimes more boldly put as “Singapore-on-steroids”. The fear in the EU was amplified by the fact that the then UK Government seemed to be concerned only about trade in goods—quite perversely—so the thinking was that there must be some design afoot to give the UK’s financial services sector an advantage greater than single market access and loss of passporting. According to my EU interlocutors, this indicated a plan for a sort of bonfire of regulations to steal competitive advantage rather than sticking with the level playing field, which the EU regulators wanted us to do. Singapore-on-sea is a myth, as anyone who knows Singapore will tell you: it is actually a heavily state-controlled and regulated market. The most potent conversation I had about this was in France. It is interesting that France has benefited most from Brexit-related financial business, particularly banking, yet it has been the most reluctant adopter of EU regulations, so that was a paradox.

Where does London stand in comparison, and where will it go? The note on financial services legislation in the Queen’s Speech speaks of two complementary aims: retaining high regulatory standards and making financial services more competitive. The challenge will be to do these, while at the same time seeing lucrative EU-facing business move away. The briefing documents speak in broad terms but make no mention of how the competitiveness objectives will be met. One way to do this would be for Her Majesty’s Treasury and the UK regulators to develop a more coherent strategy, working with the Cabinet Office and the FCO on the UK’s economic diplomacy priorities more effectively. Two other noble Lords from these Benches and I are working on a London School of Economics commission to see how the UK can undertake economic diplomacy to add real value in a post-Brexit world.

In financial services, most regulation as agreed globally through the G20, the Financial Stability Board, Basel and related bodies, where the UK has effectively led. It was chair of the FSB until 2018, and steered through most of the post-crisis global regulation, which is tribute to the outgoing Governor of the Bank of England, Mark Carney, and his team.

Another area where we have innovated is green finance. I am delighted that the PRA is now moving to stress testing all financial assets held by large banks and insurance companies, to build resilience across a range of these classes. That is another first, I believe. The new governor of the Bank, Andrew Bailey, has also innovated in the fintech sector, which is now being replicated in several other jurisdictions.

On the other hand, the enormous area of digital competition continues to be a low priority in terms of the forthcoming Bill. The previous Chancellor commissioned the Furman review into competitiveness in digital markets, which was published in March 2019, yet we have no indication of when the Government intend to act on its significant recommendations. Its main proposal for a digital markets unit languishes with the Competition and Markets Authority. I wonder whether the Minister, in winding up, can tell us what is holding back progress on the Furman recommendations.

To conclude, the UK’s financial services sector will have its work cut out if it is to deliver for the economy in a post-Brexit environment. I urge the Government to use the financial services Bill to give the sector the tools it needs to continue being successful in serving the whole of the United Kingdom’s economy.