Bank Recovery and Resolution and Miscellaneous Provisions (Amendment) (EU Exit) Regulations 2018

Baroness Fookes Excerpts

Wednesday 12th December 2018 Grand Committee

[The Minister of State, Department for International Development (Lord Bates) (Con)]

My Lords, Her Majesty’s Treasury is in the process of laying statutory instruments under the European Union (Withdrawal) Act in order to deliver a functioning legislative and regulatory regime for financial services in the event of a no-deal scenario. The two SIs being debated in this group are part of this programme and will fix deficiencies in UK law relating to the UK’s prudential regime, which ensures that financial institutions hold sufficient capital and appropriately measure and manage their risks, and also relating to the UK’s bank resolution regime, which ensures that the UK authorities have the necessary tools to manage the failure of a bank, investment firm or building society in an orderly way. The approach taken in these SIs aligns with that of other SIs being laid and debated under the withdrawal Act by maintaining existing legislation at the point of exit to provide continuity but amending it where necessary to ensure that it works effectively in a no-deal scenario.

The first statutory instrument being considered today concerns the capital requirements framework, which aims to prevent the failure of financial institutions by setting prudential rules that apply to banks, investment firms and building societies. These rules are currently set through the EU capital requirements regulation and the EU capital requirements directive. The second statutory instrument relates to the bank recovery and resolution directive, which sets out the requirements that ensure that firms’ failures can be managed in an orderly way, avoiding the need for costly public bailouts. In a no-deal scenario, the UK would be outside the European Economic Area and outside the EU financial services framework. To ensure that the legislation continues to operate effectively in the UK once the UK has left the EU, these SIs will make amendments to retained EU law in relation to the capital requirements regulation and the bank recovery and resolution directive so that the legislation will continue to function effectively in a no-deal scenario.

I note that, in line with the general approach taken to the onshoring of EU legislation, both statutory instruments will transfer a number of functions currently within the remit of EU authorities, particularly the European Banking Authority and the European Securities and Markets Authority, to relevant UK bodies. These functions, such as the development of detailed technical rules on certain provisions of the regulations, will now be carried out by appropriate UK bodies: the Financial Conduct Authority, the Prudential Regulation Authority or the Bank of England. For example, the responsibility for binding technical standards under the bank resolution and recovery regime is being transferred to the Bank of England, given that it is the UK’s resolution authority. The PRA and FCA have extensive experience in setting firm-specific rules for international firms, and are therefore the most appropriate domestic institutions to take on these functions from the European supervisory authorities. The regulators are undertaking public consultations on the changes that they propose to make to binding technical standards.

These statutory instruments further confer regulation-making powers on the Treasury to replace delegated powers that were previously conferred on the European Commission, in line with the approach taken in other Treasury legislation.

The draft capital requirements regulations 2018 make changes primarily to the retained EU capital requirements regulation but also to certain domestic secondary legislation implementing the EU capital requirements directive. First, they introduce changes to the group consolidation regime. When the UK leaves the EU, we will also leave the EU supervisory regime. This means that we will need to limit the geographical scope of the capital and liquidity consolidation rules to the UK, rather than on an EU-wide basis as currently. This will introduce a new layer of liquidity consolidation in the UK, though it will not affect the application of consolidated capital requirements, which are currently calculated at the member state level.

Secondly, the draft regulations remove preferential capital treatment currently available for exposures to certain EU institutions and assets, including sovereign debt. The EU capital requirements regulation currently applies a zero-risk weighting to certain categories of EU assets such as sovereign debt. This means that firms do not have to hold capital for their exposure to such assets and are therefore incentivised to invest in them. In line with our general cross-government approach, it is our policy not to grant the EU unilateral preferential treatment in the absence of an assessment of equivalence after exit day. We will therefore end the preferential capital treatment for EU assets currently subject to the zero-risk weighting.

Finally, the draft regulations introduce changes meaning that UK regulators will no longer have to obtain approval from EU institutions before using macroprudential tools to address systemic risks, including in a financial crisis. This is appropriate given the UK would be a third country and will need the UK regulators to be able exercise macroprudential functions effectively in times of financial stress.

I turn now to the bank recovery and resolution statutory instrument, which amends the Banking Act 2009 and related domestic and retained EU legislation by making the following principal amendments. First, the draft regulations amend the scope of the UK’s third-country resolution recognition framework to include EEA-led resolutions. This ensures that, in a no-deal scenario, the same approach will be followed for both EEA and third countries in recognising third-country resolution actions.

Secondly, this statutory instrument removes deficient references requiring UK regulators to follow the specific operational and procedural mechanisms set out in the BRRD to co-operate with the EEA authorities. The removal of these references will not, however, prevent UK regulators from co-operating with their EEA counterparts after exit. UK regulators will remain able to share information with EEA authorities in the same way as they currently do with authorities in third countries such as the United States. Additionally, the UK will continue to participate in international crisis management groups which enhance co-operation between home and host authorities of systemically important banks.

Finally, the draft regulations address deficient cross-references to the BRRD in UK legislation and ensure that delegated regulations retained by the European Union (Withdrawal) Act continue to be in a workable form following exit.

To summarise, the Government believe that these statutory instruments are needed to ensure that the regulatory regime applying to banks, building societies and investment firms works effectively if the UK leaves the EU without a deal or an implementation period. I commend the regulations to the Committee.

[The Deputy Chairman of Committees (Baroness Fookes) (Con)]

My Lords, before the debate begins, it may be helpful if I explain that the rather quaint little hats sitting on the ends of some of the microphones are an indication that they are not working.

[Baroness Drake (Lab)]

Thank you. On the assumption that I do not have a little hat on my microphone, I should say that when I read through these two sets of draft regulations and their Explanatory Memoranda, they were a depressing reminder of the consequences of leaving the EU with no Brexit deal in place.

The regulations allow the Treasury and relevant regulators to take steps to ensure that, in the event of no deal, the UK has a functioning financial services regulatory regime, can protect consumers and ensure financial stability. At the heart of that stability are the prudential standards developed in the aftermath of the 2008 financial crisis, measuring and mitigating risk through maintaining adequate capital reserves and establishing an effective recovery and resolution framework. No one who can recall the vivid fear of a financial meltdown in 2008 can fail to understand the importance of a robust system of prudential regulation. The capital adequacy and resolution regime for banks and other financial institutions was the subject of considerable debate and scrutiny post 2008.

These SIs make amendments to certain aspects of the capital requirements regulation, to ensure that it continues to operate effectively after Brexit day, and to certain other statutory instruments that implement the capital requirements directive. Key changes for when the UK leaves the EU include: amending the geographical scope of supervisory consolidation of capital and liquidity reporting processes to restrict it to the UK; transferring functions from the European supervisory authorities to the UK regulators; transferring responsibility for all binding technical standards from those European authorities to the UK regulators; and macroprudential measures that ensure that the tools available to national regulators in the event of systemic risk, for example an asset bubble, remain available to the UK regulators.

The draft SI which addresses the onshoring of the bank recovery and resolution framework post Brexit aims to ensure that the UK special resolution regime is,

“legally and practically workable on a standalone basis”,

when the UK leaves the EU. The draft regulations also make further provisions on contractual recognition of bail-in, with new Bank of England powers to make technical standards on requirements for recognition. The Bank of England, the Prudential Regulation Authority and the FCA are expected to consult on changes to their rules affected by these regulations, and the special resolution regime code of practice will be updated. These are matters of significance that will have to be addressed with urgency.

Obviously, if the UK were to crash out of the EU with no deal, I would certainly want the Treasury and regulators to take action to protect the UK’s financial stability. Any Government faced with a no-deal exit will have to firefight and move quickly to protect the national interest. Those would be exceptional times. However, it is 12 December 2018, and we are due to leave on 29 March 2019. Ignoring Christmas, that gives us about 12 weeks to introduce measures to ensure continuing confidence in the UK financial services regulatory regime. Delivering such a challenge in such a tight timetable requires a great deal of assurance.

I therefore want to ask the Minister four questions. Will the Treasury, the PRA and the FCA have sufficient staffing resources with the necessary level of skill and expertise to deliver what is needed by 29 March? The Bank of England, the FCA and the PRA will update their rules and relevant binding technical standards to mirror the changes introduced by these SIs and consult on their proposed changes. Is there sufficient time to identify and make all the necessary changes required by 29 March, as well as fit in the promised consultation? What happens if there is not sufficient time? Finally, under these regulations, to what extent will the PRA and the FCA have the authority to weaken the binding technical standards currently required to be met by firms to a standard below those currently applied?

Women: Contribution to Economic Life

Baroness Fookes Excerpts

Thursday 6th March 2014 Lords Chamber

[Baroness Fookes (Con)]

My Lords, in opening the debate today, my noble friend Lady Northover referred particularly to the role of women in the Great War—the First World War. That struck a particular chord with me because only last night I chaired a meeting where several distinguished academics—all women, happily—gave a lot of information about the role of women in that war. I had a general knowledge of that contribution but had no idea of its immensity—the numbers of women and different occupations that they undertook. For example, I had no idea that there were women war photographers, not very many but some. I had no idea that until things really got going, a lot of the food for the men, the catering, was provided largely by volunteer women. We know about the heavy industries in which women engaged, and all the other things.

Of course, that had a remarkable effect in helping forward the greater role for women in the workplace. I fell to thinking whether, 100 years later, a similar challenge faces us today. Obviously it is not cataclysmic, as in the First World War, but it strikes me that, looking at the whole economic future of our country, we face great challenges. We are a small country and there is no way that we can mass produce for the world in the way that we might have done years ago. We increasingly rely on high-quality goods and, above all, high-quality services, whether that is in financial services or the kind that the noble Baroness, Lady Bakewell, referred to in the arts, which also have an enormous economic impact.

Given that, and the fact that many countries in the world now are developing very fast—China and India, for example, apart from any of our older European neighbours, which we are both in competition with and sell to—it struck me that we need every ounce of flair, initiative and hard work that we can get to make our way in this new world. If we fail to utilise the full potential of women, not only are we wasting women’s talent, we are likely to find ourselves in difficulty as a country. That is my starting point for my contribution to this debate.

Clearly, we need to give encouragement to those who are already high flyers. In that context, like others before me, I was delighted to welcome the initiative of the woman Lord Mayor of London, Fiona Woolf, in trying to make a programme for her year of office that will help women, especially in practical ways.

Those who come to the top, such as the noble and learned Baroness, Lady Butler-Sloss, and others, do not come as a miracle, they come after a lifetime of career progression. It is very important that we look at the lower levels of careers to ensure that women are getting the support and encouragement that they need. In many cases, I fear that it goes back to our schools and our education system. That is particularly true in what is yet another horrid acronym, the STEMs—science, technology, engineering and mathematics—where I believe that the subjects are not taught well enough in schools and are probably not geared to the way that women look at things, and where girls, particularly in mixed classes, may find themselves overpowered by their male counterparts and do not see their role as being equally if not more important. We need to look very carefully at the education system in that respect.

Not everyone is going to be a high flyer and many people do a great deal in unpaid work. The noble Baroness, Lady Bakewell, mentioned carers specifically. I deeply resent the fact that if you do work unpaid it is not regarded as proper work. It is high time that we got rid of this old attitude of, “You’re not working; you’re not paid”. The work may be very important indeed. It is not simply carers, it is in the upbringing of children. A lot of voluntary work is undertaken by women—probably more than by men—which can also have great economic value. It is important to pay tribute to those people, and I do so as a career woman who has not had those family responsibilities, but I can see what value they have.

I turn for a moment to the political scene. I am wary of quotas and all-women shortlists. I realise this is controversial. I would like from my party, or any other, come to that, for women always to be on the shortlist. It is often important that they can make their comments in front of the people and are not dismissed on the basis of a written CV. There are problems with being a candidate which may put women off. In all the talk about the scandal of MPs’ expenses that we have had for years, nobody ever seems to mention the expenses that are incurred by being a candidate. Rail travel or car travel, making arrangements if you are married and have children, can be quite expensive. There are practical difficulties that women face before they ever get to a seat on the Green Benches down the Corridor. I hope that my noble friend Lady Jenkin, who will look at all this, will take those points into consideration, because I think they are far more important at that stage in our political career.

I turn briefly to political life for women abroad. I want to share an experience I had some years ago, when the east European countries came out of communism and were developing their democratic structures. It was clear that the women, in particular, had no idea how to use that freedom. A friend of mine, Lesley Abdela, who may be known to others, the founder of the 300 Group, which I also supported, involved me in schemes she ran very successfully. They were workshops, usually at a weekend, in those various countries where practical advice was given by those with experience. I might talk about being a candidate or about the chairmanship, somebody else might speak about how you deal with the press, the media—all the things where you need some knowledge. Of course it has to be adapted to the local circumstances, but at least it gave them some idea of what was involved and how to set about it. On the question of quotas, they were always equally divided, but many of them, interestingly, did not want them because they were afraid of being considered less equal—token, only there because they were women. However, opinion was divided, as I am sure that it is divided in this Chamber.

That came to an end because the funding came to an end. If we really want to help women in countries where they are trying to make their mark, we should have something like that again. I leave that thought with the Minister to see whether something can be done in that respect.

Turning back, as a final thought, to our House, someone suggested, I think truly, that women are disproportionately important in this House despite our much lower numbers. It occurred to me, perhaps quixotically, that there might be merit in someone undertaking to look at all the respective careers of the women in this House related not to this House but to their outside careers, either past or present, to see what contribution that would make. I suspect that it would make spectacular reading.

Animal Welfare: Methods of Slaughter

Baroness Fookes Excerpts

Thursday 16th January 2014 Grand Committee

[Baroness Fookes (Con)]

My Lords, I declare my animal welfare interest as set out in the register, and I thank the noble Lord for introducing this very important subject, which worried me considerably when I was a young MP in the other place. Certainly, given the opportunity at that time, I would have said, “Ban the slaughter of all animals that are not pre-stunned—no exceptions”. One gets a little more tolerant as years go by, but I still think that a great many measures could be taken that could help in the situation as so vividly described by the noble Lord.

I will put several propositions to the Minister. First, I hope that he—if his department does not do so already—will enter into constructive, friendly dialogues with the Muslim and Jewish communities to see if there is not some consensus or way of going forward as outlined by the noble Lord, Lord Trees. I realise that this may be a particular problem for the Jewish authorities. I must say at this point how much I commend the Muslim community for having so many of its animals slaughtered with pre-stunning. That is a great development and I am happy to pay public tribute to that community.

However, given that we may not get complete consensus, will my noble friend look at the possibility of stunning immediately after the cut is made, which would obviate some of the suffering? Finally, I take particular exception that a lot of meat that is not used for the religious communities comes on to the market without being labelled. If we are to have some rights, that is a right I should like for myself. I do not wish to eat meat that has not been pre-stunned, and I have the right to have the meat very clearly labelled.