Financial Services Bill

Debate between Baroness Kramer and Baroness Shafik

Report stage
Wednesday 14th April 2021 Lords Chamber

[Baroness Shafik (CB) [V]]

My Lords, it is a great pleasure to follow the noble Baroness, Lady McIntosh, and all the previous speakers, who have added a great deal of expertise and judgment to the debate so far. I am grateful for the opportunity to speak on this important group of amendments, which would make sure that there is sufficient parliamentary scrutiny of the regulators, who are the ultimate referees in determining whether financial markets are fair, effective and serve the public interest.

The key question is how to make sure the referees are doing a good job, and there were many excellent proposals put forward today on how to enhance scrutiny, including Amendments 18, 19 and 20 from the noble Baronesses, Lady Bowles and Lady Kramer, Amendment 37A from the noble Lord, Lord Blackwell, and Amendments 45 and 48 from the noble Baronesses, Lady Bowles, Lady Noakes and Lady McIntosh, and the noble Lord, Lord Eatwell. Those amendments all focus on putting in place reporting requirements to Parliament. I want to focus on who is best placed to receive this reporting, given its highly specialised nature.

I realise that this is an issue not of legislation but of how Parliament chooses to organise its affairs. But what we put in legislation also depends on the institutional structures that are in place, and meaningful scrutiny needs to be adequately supported. I support the recommendations of the All-Party Group on Financial Markets and Services, which argues that to enable effective scrutiny of regulators there needs to be a new Joint Committee of parliamentarians from both Houses with a specific remit for financial services, supported by expert advice—something to which the noble Lords, Lord Blackwell and Lord Bruce, have also referred, as well as the noble Baroness, Lady McIntosh.

I know from my time as Deputy Governor of the Bank of England how technical some of these regulatory issues are. A dedicated joint committee would be able to draw on independent advice and respond flexibly to issues that arise to ensure the public interest is well served. Such an institutional structure would be in the spirit of a principles-based regulatory regime, rather than relying on more detailed legislative approaches. It would also be consistent with the welcome letter sent today by the Economic Secretary to the Treasury to the chief executives of both the FCA and the PRA seeking to have proper parliamentary oversight of financial services regulation in future.

One area where potential parliamentary scrutiny of the FCA and the PRA could be useful is around how their work supports UK competitiveness. I know this is an issue that has already been covered at some length and with great expertise by this House, and I know that many have argued for strengthening the competitiveness objectives for the FCA and the PRA.

I would prefer to stick to the current language for four reasons. First, in my many years of doing surveys of investors at the World Bank, I have never seen easier regulatory standards featuring as a factor that makes a country more competitive. Instead, macroeconomic and financial stability, a skilled workforce and good infrastructure were what mattered most across the world. Secondly, just as you do not want a weak referee in order to have a good game, markets operate best when they are fair to all players. Thirdly, we have been able to support innovation in areas such as fintech through the use of things such as regulatory sandboxes, which allow experimentation while containing risk. Finally, there are many others who do a very good job of promoting financial services in the UK, including Her Majesty’s Treasury, the lord mayor and the many industry associations.

I also suggest that, for the moment, climate change is an area where parliamentary scrutiny, rather than legislation, might be useful. Central banks and regulators around the world are moving quickly to address climate risks. We are in a moment of great innovation, with climate stress testing, improved disclosure requirements, scenario planning, looking at climate exposures on both sides of the balance sheet and enhancing accountability for senior managers. All of this is wonderful, and I especially welcome the move to setting regulatory requirements for all market participants based on agreed definitions and rules, rather than relying on voluntary approaches and inconsistent criteria.

For now, I am comfortable with requiring regulators to have regard to climate issues—the recent remit letters are a good example of this—with appropriate parliamentary scrutiny of how that is happening. However, we should definitely return to this issue as part of the future financial framework once we have more evidence and experience from current innovations, so that we can codify in legislation the best possible approaches to addressing climate risks. Here as well, having a Joint Committee with access to relevant expertise would only enhance the quality of scrutiny around issues of climate change.

In conclusion, I very much hope that the Minister will be able to further reassure the House of how expert parliamentary scrutiny will enable Parliament to play a key role in future oversight of the regulators.

[Baroness Kramer (LD)]

My Lords, I will pick up some of the comments that have been made during the course of this absolutely outstanding debate on this series of amendments.

The noble Baroness, Lady McIntosh, said that she had never heard of Ministers not attending or coming before committees. I was on the Finance Bill Sub-Committee of the Economic Affairs Committee when we dealt with the loan charge, and, on several occasions, the Economic Secretary, Mel Stride, refused point blank to come and speak to the committee. We were then informed that committees have absolutely no power to summon Ministers; they come only at their own discretion. Mel Stride’s successor, John Glen, took a very different view and came before a combined committee of the Economic Affairs Committee and the Finance Bill Sub-Committee. I make it clear that there certainly are Ministers who very strongly take the view that they can be asked to come before the House but are not required in any way to say yes.

I also pick up a concern that the noble Baroness raised about whether we have to make an absolute decision today. If she looks at the Marshalled List, she may notice Amendment 37F, in my name and that of my noble friend Lady Bowles, which will come up on Monday. In fact, it is deliberately placed to give us the opportunity to listen in full to the Minister and consider this issue but still have an opportunity to make a decision on it if we decide that the Minister’s contribution does not meet the needs of the House. As such, there is an opportunity, should we decide to do so; some may wish to act today, and others may decide that they are satisfied by what the Minister says.

I also pick up the comments of the noble Lord, Lord Blackwell, and the noble Viscount, Lord Trenchard, on the advance parliamentary scrutiny of rules. I very much challenge what they said because, for many years, in the European Parliament and the European Council, parliamentarians had the opportunity to scrutinise both directives and the rules that would flow from them in a very thorough and extensive manner and with the support of a great deal of specialised expertise in the form of specialised and experienced staff.