Financial Services and Markets Bill

Debate between Baroness Kramer and Viscount Trenchard

Report stage
Tuesday 13th June 2023 Lords Chamber

[Viscount Trenchard (Con)]

My Lords, I declare an additional interest as stated in the register as a provider of geostrategic advice to Safe Security (SSL) Ltd. I will not repeat the arguments so well put by my noble friend Lord Attlee, who has given much voluntary military service over the years. I have added my name to my noble friend’s Amendment 98, but I also support both Amendments 99 and 100.

The Export Control Organisation at the former Department for International Trade grants export licences for controlled goods for military purposes. Its online export licensing system is called SPIRE. The organisation’s website states:

“We advise that you register your company on SPIRE, benefits include: More Control … Time Saving”.


I understand that it takes much time to obtain a SPIRE licence, but I am not convinced that it saves any time in carrying out this control business. It is of course right that companies wishing to receive licences to conduct this kind of business should be properly vetted and undergo the most stringent checks. However, once they have done that and been granted SPIRE accounts, why do they then find that the money laundering regulations prevent banks opening accounts in order to execute this kind of business under any circumstances?

In Committee, my noble friend the Minister acknowledged that

“the government process for the granting of export control licences focuses on the end use of goods rather than the source of funds paying for them”.

She told the Committee that the Treasury has

“engaged with the Export Control Joint Unit, the Financial Conduct Authority and other partners on this issue”.

She said that she was

“not aware of a systemic issue”,—[Official Report, 21/3/23; col. GC 297.]

but would “act to address it” if the Government identified one. I rather think there is a systemic issue here, because banks run a mile when anyone, particularly an SME, tries to open a bank account to do this kind of business. Banks are not aware of the SPIRE system and give absolutely no recognition to any licence granted under it to a prospective customer. The result of this, at least in some cases, is that the business is being carried out in other jurisdictions, such as Finland, that do not apply these regulations in such a stringent manner. This obviously deprives the Exchequer of corporation tax revenues and results in the official statistics understating the extent of British support for Ukraine.

This does not apply only to military equipment but includes the provision of vehicles to be used as field ambulances. I want to ask the same question of my noble friend the Minister as that asked by my noble friend Lord Attlee: do the Government think that absolute observation of the money laundering regulations is more important than permitting those who are licensed to do this business to do so?

[Baroness Kramer (LD)]

My Lords, we should thank the noble Earl, Lord Attlee, for raising a set of significant issues. I have no specialist knowledge in this area, but I am very well aware that SMEs generally are disadvantaged under our current framework arrangements. As the Minister will know, individuals and micro businesses—usually a small sole trader or somebody of that ilk—fall within the FCA’s regulatory perimeter, but the SMEs that have just been described fall outside of it.

Therefore, where there are gaps or where their treatment is completely inappropriate, they have nowhere to turn. In those circumstances, they face significant disadvantage compared to their competitors across the globe. So I hope the Minister will understand that this is a reflection—I think “tip of an iceberg” was the correct term—of something that is quite systemic in many different ways, and an area where the Treasury, and the regulators, need to focus attention.

Financial Services and Markets Bill

Debate between Baroness Kramer and Viscount Trenchard

Committee stage
Wednesday 25th January 2023 Grand Committee

[Baroness Kramer (LD)]

My Lords, I fear that if we were to follow the amendment from the noble Viscount, Lord Trenchard, we would indeed permit naked short selling. Like most people, I have no problem with short selling in highly liquid markets.

[Viscount Trenchard (Con)]

I am a little surprised that the noble Baroness is taking my name in vain here. My amendment is not about short selling; it is about listing.

[Baroness Kramer (LD)]

I apologise; it was the noble Baroness, Lady Noakes. I have attacked the wrong conspirator, as it were. I say to her that my concern, from listening to various people argue for changes in the rules that govern short selling, is that that is exactly what they have in mind, the argument being that if we allow short selling then illiquid markets will suddenly become much more liquid because many more players will be attracted into that particular end of the market. There is a great deal of risk at play, so I am quite nervous about making that kind of change. We always assume that the investors who would engage in these products would be highly sophisticated and understand fully the risks they are involved in, but the practical reality that we see in everyday life is that many people get involved who, frankly, have insufficient understanding and find themselves very much at risk.

It is for a similar reason that I say to the noble Viscount —I think accurately this time—on ending regulatory criteria for listing, that the listing issue is quite complex. I was one of the people who agreed with the IoD—I do not agree with the IoD all that often—on the changes that the London Stock Exchange made to enable a secondary listing for Aramco. It did not end up with the business, but the IoD was very concerned that the LSE compromised its approach to corporate governance to get that listing, which would obviously have been a highly profitable activity. That issue made the IoD very irate. It described it as

“an opportunistic attempt at boosting short-term primary issuance which ignores the longer-term implications for the overall UK corporate governance regime.”

This is actually quite a contentious area, so removing it completely from the regulatory sphere strikes me as rather dangerous.

I will bring my comments to a halt, except to say to the noble Lord, Lord Stevenson, and to the Government that the noble Lord should not have to fight such a difficult battle to try to deal with such a potential abuse. I wonder whether the Minister might, on a very personal basis, take up the cudgels here, because Ministers sometimes are in a position to get the relevant action that has been sitting many pages back on the back burner. I remember the battles we had to get rid of payday lenders. In the end, the noble Lord, Lord Sassoon, working very closely with all parts of the House on a very personal basis, was able to bring in the legislation that brought an end to that kind of abuse of consumers. The Minister has a very good precedent in the noble Lord, Lord Sassoon, and his capacity to use financial services legislation to deal with an aberration that puts people at risk.

Financial Services Bill

Debate between Baroness Kramer and Viscount Trenchard

3rd reading & Report stage
Monday 19th April 2021 Lords Chamber

[Viscount Trenchard (Con) [V]]

My Lords, I declare my interests in financial services businesses, as stated in the register. I would also like to record my sadness and offer my sincere condolences at the passing of both the noble Lord, Lord Dubs, and the noble Baroness, Lady Williams. Both made an enormous contribution to your Lordships’ House over very many years and will be much missed on all sides of the House.

It is a great pleasure to follow the right reverend Prelate the Bishop of St Albans. We agree on so much, but on this question and this amendment I have to take a slightly different view from his. The noble Lord, Lord Sikka, has brought back Amendment 34, substantially in the same form as his Amendment 120 in Committee.

The drafting of the amendment suggests that it is intended that there should be a single supervisory board of both regulators, the FCA and PRA. The Member’s explanatory statement on the other hand states:

“The new Clause will create a Supervisory Body for each of the FCA and the PRA.”


This implies one supervisory board for each of two regulators. That at least makes more sense than a single supervisory board for the two separate regulators, which is an impossible concept, as I pointed out on 10 March.

As the FCA and PRA are not the same organisation—although I sometimes wish they were—each has its own executive board. In the case of the FCA, this is the FCA board. However, the PRA board was replaced four years ago on 1 March 2017 by the Prudential Regulation Committee and the PRA was absorbed into the single legal entity of the Bank of England. I pointed this out to the noble Lord on 10 March, but he has not altered his approach. My noble friend Lady Noakes has also explained these fundamental errors clearly. A supervisory board such as he proposes, charged with exercising oversight over the board of the FCA and the Prudential Regulation Committee of the Bank of England, could not be a single entity. It would have to have two distinct personae, one within the FCA and one within the Bank of England.

My noble friend Lord Howe explained to the noble Lord that both the FCA and PRA must already

“attend … hearings before parliamentary committees, and those committees may also hear evidence from stakeholders about the performance of the regulators.”

He said:

“Parliamentary committees of both Houses are also able to summon the regulators to give evidence whenever they may choose.”


He added,

“the Treasury already has the capacity to order independent reviews into the regulators’ economy, efficiency and effectiveness. Therefore, all told, the amendment would result in a duplication of existing opportunities for scrutiny and oversight of the regulators’ resourcing.”

As I said on 10 March:

“I do not think that such a supervisory board would replace the need for parliamentary scrutiny of the regulators, which will in itself provide appropriate transparency and accountability, rather than the completely crushing, destructive oversight that I believe the noble Lord’s new board would cause.”


The noble Lord said that his new board would

“not duplicate in any way whatever what any parliamentary committee or review board might do. The supervisory board would simply be engaged in day-to-day strategic oversight. Those people would be in the organisation on a permanent basis, observing, requiring reports, making recommendations”.—[Official Report, 10/3/21; cols. GC 723-26.]

Such an advisory board would seriously and negatively impact the operation of the regulators.

The noble Lord has said that he will not press his amendment, which I think is a wise decision because I believe your Lordships would have rejected it as unworkable, impractical and likely to have a negative impact on the attractiveness of our financial markets which provide so many jobs and a large slice of the country’s tax revenues.

[Baroness Kramer (LD)]

I suspect that the noble Viscount, Lord Trenchard, was referring to the loss of the noble Lord, Lord Judd, which was just announced, rather than the noble Lord, Lord Dubs. I join with him; I am still feeling slightly in shock, frankly, at the news. We have all lost too many people of significance to this House over this last year. I think we all want to pay tribute to all of them, but we are all struggling a little with some of the very significant people who will not be here for future debates.

On this amendment, I will speak briefly. I understand where some of the thinking of the noble Lord, Lord Sikka, is coming from, but I cannot say that I see a supervisory board as the answer to the issue he raises. I am much more taken with the proposal made by my noble friend Lady Bowles in Committee, for an expert body—it takes experts to really understand how the regulator functions—regularly to follow the Australian model and review the regulators. This could be every three years; the number of years is not exactly the key issue. It would not second-guess the decisions the regulators have made but look at operations, resources and effectiveness. With the regulator now so detached in many ways, that is essential.

I would want the Treasury to be a good distance from anything like this because, like it or not, the Treasury will always be seen as an influencer of decision-making. An expert view is needed to help us ensure that our regulators are functioning in the way that they need to, given the enormous challenges and responsibilities that they have. With that, I have to say that I cannot support this amendment.

Financial Services Bill

Debate between Baroness Kramer and Viscount Trenchard

Committee stage
Monday 8th March 2021 Grand Committee

[Viscount Trenchard (Con) [V]]

My Lords, these amendments, which are technical in nature, require banks that prepare their accounts in accordance with international accounting standards to apply prudential filters discounting capital to the banks’ statutory accounts. Having read the amendment, I am not clear which is the tail and which is the dog. Amendment 74 in the name of the noble Baroness, Lady Bowles of Berkhamsted, requires a bank to align its accounts with its regulatory capital or prudential capital, and at the same time requires the bank to align its regulatory capital with its accounting capital, for three separate purposes.

I agree with my noble friend Lady Noakes’s forensic criticism of the amendment. I am not a chartered accountant, but I have worked in corporate finance and mergers and acquisitions for many years, and I find the amendment confusing. Does

“then the accounting numbers must have an adjustment to the … profit and loss account”

mean that the bank concerned must alter its accounting principles and adjust its accounts to use the prescriptive and conservative accounting principles used by the PRA for the monitoring of banks? If so, would a bank be required to restate past years’ published accounts for consistency’s sake? Proposed new paragraph (a) suggests that the PRA’s measurement of capital must be carried through to the bank’s accounts, but proposed new paragraphs (b) to (d) suggest that the bank’s regulatory accounts should be adjusted to conform with the PRA’s measurements. I am not clear how that can be done and what the PRA would have to say about it.

The amendment refers to international accounting standards, which were standards issued by the International Accounting Standards Board, based in London. EU legislation has continued to use the term “international accounting standards”, but they were replaced in 2001 by international financial reporting standards—IFRS. The noble Baroness confirmed that she meant IFRS rather than IAS in her amendment, but how does she intend that her amendment should affect banks that apply other accounting standards, such as American banks, which still prepare their accounts according to GAAP? Concepts in the amendment such as accounting numbers and regulatory capital need proper definition.

I have rather more sympathy with Amendment 77. The International Accounting Standards Board develops and issues IFRS for use internationally. In the EU, things are then at the discretion of the European Financial Reporting Advisory Group—EFRAG—which advises the European Commission on whether and how the IFRS should be adopted for businesses in the EU. EFRAG will consult the relevant national bodies as part of that process; for example, if a new or revised IFRS is issued by the IASB that impacts the banking industry, EFRAG will consult the European Central Bank on the impact of that standard before making a decision on its adoption.

Now that the UK is able to establish an independent endorsement process, it seems sensible that that process should similarly involve the Bank of England in matters relating to IFRS that may impact the institutions over which the PRA has regulatory authority. I am not sure whether the amendment as drafted is satisfactory, but I would support the introduction here of an endorsement role for the Bank. I look forward to hearing my noble friend the Minister’s views on that.

[Baroness Kramer (LD)]

My Lords, in this area I cannot pretend to have the scope of knowledge or the expertise of my noble friend Lady Bowles or the noble Lord, Lord Sikka, but I have a great deal of sympathy with their amendments which comes from long frustration with trying to deal with banking standards. I probably had some small part to play in the focus that the Parliamentary Commission on Banking Standards applied to looking at IFRS and other banking frameworks. I would defy almost anybody looking at the published accounts of Northern Rock, HBOS or RBS to have identified how fragile those institutions were and how easily they would crack the moment any pressure was applied to the very fragile arrangements they had in place. It is no wonder that it was missed by the regulators if they were looking at the disclosures that came from those institutions. They were not falsified; it is just that working your way through the disclosures very often discloses very little.

I spent a good part of my banking career trying to extract real and consistent information from accounting statements. That was largely in the States, so we were using GAAP, which I think many people will acknowledge tells one a lot more than IRFS ever does, but a bank has the resource to do that kind of deconstruction for a potential or existing credit client. Investment firms have the resources to do that kind of deconstruction, and so do regulators, but for any normal investor, and certainly for any smaller creditor such as a trade creditor, it is impossible to have those resources, as it is for any normal politician, even if in the end we carry the buck, in a sense, for whether or not we have a system that works. Over many years, the only clients who ever handed me a straightforward deconstructed set of accounts were Warren Buffett and Charlie Munger, who headed up the GEICO insurance subsidiary. They did it simply because they felt that bankers should know what was going on. That is a good enough recommendation for any company or regulator.

--- Later in debate ---

[Viscount Trenchard (Con) [V]]

My Lords, Amendment 78, in the names of my noble friends Lady McIntosh of Pickering and Lord Holmes of Richmond, seeks to commission a review of legislation relating to short selling. It is a pleasure to follow my noble friends Lady Noakes and Lord Sharpe of Epsom; I must say, I agree with everything they said.

From time to time in the UK and in other countries, financial regulators have sought to restrict short selling, as the British Government did to stabilise the market after the bursting of the South Sea bubble in 1720. While short selling has been blamed for market crashes and is considered unethical by some as it is a bet against positive growth, many economists and financial practitioners now recognise short selling as a key component of a well-functioning and efficient market, providing liquidity to buyers and promoting a greater degree of price discovery.

I note that, under the statutory instrument transposing the European regulation into UK law, the minimum threshold for the notification of short positions has been set permanently at 0.1% of the issued share capital of a listed company, whereas in the EU, the threshold will revert to the less onerous 0.2% of issued share capital on 19 March. I consider both thresholds unnecessarily restrictive and wonder why the Government have adopted a rule that will be even more cumbersome and bureaucratic than the EU’s, when the Prime Minister and the Governor of the Bank of England have said that we will get rid of red tape. The EU will relax its red tape on short selling reporting on 19 March but we will not. That is disappointing, is it not? What does my noble friend the Minister have to say about that?

In any case, the competitiveness of the market would be best served by removing the current restrictions on short selling. However, I do not think it would be helpful to place in the Bill this kind of requirement, which will add to uncertainty over the freedom to sell short in future and send the wrong message about the kind of regulatory framework the Government intend to adopt.

[Baroness Kramer (LD)]

My Lords, once again, I am moving outside of any area where I can claim expertise. Essentially, I have no problem with short selling in the right place and time and under the right regulations, but I am concerned that, in the current environment, any move to look at the regulations again would listen more closely to the noble Lord, Lord Sharpe, the noble Viscount, Lord Trenchard, and the noble Baroness, Lady Noakes—in other words, look for opportunities to reduce the restrictions on short selling.

We have had a number of exchanges on short selling in the Chamber. The noble Lord, Lord Leigh of Hurley, is particularly vocal, and I do not think that I represent him unfairly by saying that he believes that the restrictions on short selling that were set in place in 2012, which severely limited naked short selling on AIM, are too onerous and that relaxation would be a good thing. He would argue for bringing more liquidity into AIM. I remember that campaign, which was strong and led by companies that were either listed on AIM or wished to be so but that were concerned about becoming the target of speculators who were not interested in supporting sustainable growth but were very interested in bubbles. Of course, this is a risk that goes alongside naked short selling in particular.

I suspect that this issue will be reviewed; I am sure my noble friend Lady Bowles is right that it should be done in a much wider context—I think the noble Lord, Lord Holmes, agreed with that. But I would not work on the assumption that this comes from a concern that rules need to be tightened and safeguards increased; this will very quickly become a process of trying to see whether we can return to the old animal spirits and largely casino-like speculation that once fired London so powerfully and which many of us think largely contributed to the financial crash in 2007-8. While I understand the concerns of the City of London that it needs to make itself more of an exception in order to gather increasing amounts of business, I am rather disturbed if that mode of exception is to allow a great deal more risk to be taken in ways that then impact on the real economy.

--- Later in debate ---

[Viscount Trenchard (Con) [V]]

My Lords, my noble friend Lord Blackwell’s amendment is an interesting idea and deserves serious consideration. It requires the establishment of a new joint co-ordination committee, comprising delegates of both regulators under the chairmanship of the Governor of the Bank of England. As long as we retain a “twin peaks” regulatory structure, it is clearly right that both regulators carry out their duties in a co-ordinated manner, ensuring that their activities are consistent and proportionate in meeting their respective general duties and objectives.

At the time of the introduction of the “twin peaks” system, we were told that it was necessary because there was a conflict between the interests of the consumer and those of the Government in maintaining financial stability. However, the FCA is responsible for both consumer protection and the prudential regulation of all regulated companies except very large ones that are considered systemically important. Might not the best way to be sure that the regulators’ actions are consistent and proportionate be to merge them into a single regulator—the FSA—but leave the Bank responsible for macroprudential regulation?

As I failed to add my name to the speakers’ list for the group of amendments beginning with Amendment 2, debated on 22 February, I was able to speak only briefly after the Minister. My noble friend’s amendment deals with much the same ground, which gives me an opportunity, with the Committee’s leave, to make some of the points that I had wanted to make on the first day.

My noble friend’s amendment seeks to ensure consistent priorities between the two regulators. This is hard to do if the objectives confer conflicting priorities on the two regulators. Indeed, it can be argued that being dual regulated at all is time-consuming, expensive and unattractive. However, I strongly believe that we must move quickly to maximise the attractiveness of London’s markets in order to be assured that the City, including our wider financial services industry, will remain one of the two truly leading global financial centres, with all that that means for our prosperity as a nation.

In 1999, I was privileged to serve on the Joint Committee on Financial Services and Markets under the chairmanship of the noble Lord, Lord Burns, during my first incarnation in your Lordships’ House. At that time, we considered arguments that the FSA should be given a competition objective as a fifth objective. This was supported by the BBA and the ABI, but the Government argued, and the committee ultimately decided, to put competition and competitiveness among the principles rather than the statutory objectives. Two arguments that led us so to decide were that ensuring competition was the primary task of the OFT, not the FSA, and that making competitiveness of UK financial services an objective could damage the FSA’s relations with overseas regulators. Our report at that time noted that some members of the committee would have preferred competition and competitiveness to feature among the FSA’s statutory objectives.

Much water has flowed under the bridge since 1999. Following the financial crisis of 2008, the FSA was split into two regulators, and we adopted the “twin peaks” model that had first been introduced by Australia. On 22 February, my noble friend Lord Howe said that discussions about the balance of the regulator’s objectives

“are not arguments for today. The Government’s future regulatory framework review is considering how the UK’s financial services regulatory framework must adapt to reflect our future outside of the EU. That has to be the right place to consider issues such as the regulators’ objectives”.—[Official Report, 22/2/21; col. GC 142.]

The Minister’s response was disappointing. Does he not agree that our departure from the EU and freedom to adopt an entirely different, principles-based, outcomes-oriented regulatory model suggests that the Government should look seriously at this question as soon as possible?

Some encouraging proposals are included in the phase 2 framework consultation, such as the introduction of “activity-specific regulatory principles”, described in section 2.38. However, it seems that the Government do not plan wholesale changes. They conclude in section 2.46 that these regulatory principles could bring about

“enhanced regulator focus on … competitiveness, without needing to change the regulators’ overarching objectives”.

Such an approach is dangerously complacent. Can the Minister confirm that the Government agree with Andrew Bailey that it would be unrealistic and dangerous to stick to EU banking rules in the future? Surely, in financial services, where we enjoy the advantages of scale and can influence the emergence of global consensus around principles-based regulations that support innovation, we should move quickly to establish the right regulatory framework to do that.

Co-ordination between our two regulators has served us fairly well to date, but it is likely that the regulators will continue to face difficulties inherent in a multi-agency regulatory structure where the performance of one regulator is often dependent on that of the other. There is also a challenge in establishing the borders of financial regulation for allocating functions between the FCA and the PRA. In particular, the increased focus on systemic stability and macroprudential regulations has resulted in overlap between the two regulators. The FCA has responsibility for the prudential regulation of more than 24,000 firms in the UK, whereas the PRA is responsible only for the prudential regulation of some 1,500 systemically important banks and investment firms. Further, the “twin peaks” system is inherently anti-competitive for dual-regulated banks and investment companies, which have to report a large amount of monthly data in two different formats to two different regulators.

The PRA’s secondary competition objective is, by definition, subordinate to its other two objectives. In effect, it is simply a principle to which the PRA should have regard. Many countries have financial regulators that incorporate some kind of competition objective among their statutory objectives, and I do not think that there is any evidence that this has damaged their relationships with either the PRA or the FCA.

Furthermore, in his recent report on competition and markets, John Penrose found that

“our independent competition and consumer regulation regime currently has a good reputation, but not a great one. International rankings put our major competition institutions behind USA, France, Germany, EU and Australia. We have stopped making progress on cutting the costs of red tape and, in recent years, have gone backwards”.

This is largely as a result of a constantly increasing number of sectors, including many in financial services, being caught by the tentacles of the very cumbersome, expensive and complicated system of regulation that has been increasingly pushed by the Commission in the interests of harmonisation.

We have prospered and succeeded as a global financial centre not because of our EU regulatory framework but in spite of it. We may have devised much of the financial regulation ourselves and may even have gold-plated some of it, but we did not choose to work within the codified structures on which European law is based. Besides, our regulators are not that different from anyone else’s: they like to make rules, and gold-plating has been the only way that they could do that in recent years.

As Barnabas Reynolds explains well in his recent paper, published by Politeia and entitled Restoring UK Law: Freeing the UK’s Global Financial Market, common law is

“pivotal to the success of a global financial centre … A key element of London's attractiveness to investors is its legal framework, which underpins a flourishing commercial environment with the rule of law”.

I worry that the Government do not yet recognise that we have to replace the entire directives-based, cumbersome, EU-derived financial services rulebook and go back to something more like how we used to regulate: based on common law principles and outcomes. There is huge resistance to change among trade associations and larger financial services groups because the present system helps the strong incumbent against the innovator and the challenger—and is, in fact, a form of protectionism.

I look forward to hearing what my noble friend the Minister intends to do to move in the direction in which we need to go. I believe that my noble friend’s amendment may provide a first step on that journey.

[Baroness Kramer (LD)]

My Lords, I will respond to the noble Viscount, Lord Trenchard. I for one would be very reluctant to go back to the pre-2008 principles-based approach to regulation that led us into a long, slow crash that, frankly, seriously undermined the financial stability of the UK and caused years of austerity. I do not think that is a good example to hold up of the world that we want to return to.

When the FCA and PRA were created—at that point the latter had a degree of independence from the Bank of England, although I think the Governor was always going to be its chair—one of the reasons that it was important to keep some distinct separation was to prevent the groupthink that had been fundamental to the failures that led to 2007-08. Those were failures to identify systemic risk, to ask questions, to create challenge and to recognise that conduct and prudential regulation are equally important in keeping a system as complex and difficult to regulate as the financial services industry on some kind of transparent and rational platform.

Financial Services Bill

Debate between Baroness Kramer and Viscount Trenchard

Committee stage & Committee: 2nd sitting (Hansard) & Committee: 2nd sitting (Hansard): House of Lords
Wednesday 24th February 2021 Grand Committee

[Viscount Trenchard (Con)]

My Lords, I understand the purpose of Amendments 24 and 25, in the name of the noble Lord, Lord Tunnicliffe, but do they suggest that he would like to stick with the enormously detailed and prescriptive provisions of the CRR as they are in retained EU law? The Government’s intention to transfer most of the provisions of the CRR into more flexible rules is right. The PRA will be able to react more quickly if it needs to change particular rules, and this should reduce the risk of failure of banks in the future.

The Government have been clear that the UK’s regulators are the right people to set the detailed, firm-level rules to implement the remaining Basel standards. Of course, as discussed in previous debates, and supported by noble Lords on all sides of the Committee, we need proper parliamentary oversight of the PRA before it starts to use its new powers. The wording in the noble Lord’s amendments suggests that he wishes to reduce the degree of flexibility that the Treasury will grant the PRA, but I think that that might be counterproductive. Does he not accept that, as we move to a simpler, more flexible, outcomes-based regulatory framework, there should be less detailed prescriptive rules?

The noble Baroness, Lady Bennett of Manor Castle, wants to retain all the CRR rules in legislation. I cannot agree with her approach, which might damage the attractiveness of the City as a financial centre. She referred to Singapore-on-Thames, which is becoming a fashionable way to describe a light-touch regulatory regime, but is she not aware that Singapore is one of the best and most strictly regulated centres in the world? It is strict, yes, but much simpler and less cumbersome and bureaucratic. Does the Minister agree that we need to return to a simpler, different, more flexible and agile regulatory style?

[Baroness Kramer (LD)]

My Lords, I do not have a great deal to say but there are a couple of points that I would like to make. First, the two probing amendments from the noble Lords, Lord Tunnicliffe and Lord Eatwell, make a great deal of sense to me, so I hope that the Government will pay attention to them and provide some substantial answers.

However, what struck me more than anything else was that this was an opportunity to comment on Clause 3. That suddenly dawned on me as I looked at the language both in the Bill and in two amendments which appear in later groups. One I have added my name to and the other is in my name only at this point in time. The first, in the name of my noble friend Lord Oates, looks at capital adequacy ratios for investments in fossil fuel relating to exploitation and exploration. The other amendment, which stands in my name and is in what could loosely be called a regulatory group, deals with MREL thresholds for medium-sized banks.

It occurred to me that this is the last time that we will be able to raise issues such as these in government time in this House if the Bill passes with Clause 3 in it. All the rules issues detailed in Clause 3, which are in effect fundamental to policy, will be transferred to the book of the regulator. Were I to look for an opportunity to raise these issues, which I shall follow up on in later debates on the Bill, the Government would say to me either, “You’re out of scope”, or, “Those are dealt with by the regulator, so wait a year or two and the regulator might do a consultation on one of these issues, then you can make your opinions heard.” They might say to me, “Write a letter to the Treasury Select Committee and see whether it considers the issue important enough to take up its very precious time, in dealing with its very heavy workload, by picking up your issue as part of one of its broader consultations.”

If ever we needed a graphic illustration of the loss of authority of Parliament and the loss of accountability to it, this is the time to illustrate and say it. I am really curious to hear from the Minister how he feels that that is justified and why he will explain to me that the amendments we have tabled are such an irritant to him that he is quite determined that never again will they fall into the scope of a debate on government time.

Trade Bill

Debate between Baroness Kramer and Viscount Trenchard

Committee: 3rd sitting (Hansard - continued): House of Lords
Wednesday 30th January 2019 Lords Chamber

[Viscount Trenchard (Con)]

My Lords, the hour is late and a large number of amendments are being debated. I shall not touch on more than one or two. I was impressed by the mention by my noble friends Lady McIntosh and Lord Risby of Amendment 48, on the tripartite agreement. I declare an interest because my brother-in-law is a racehorse trainer near Newbury and he is worried that he will not be able to move his staff and horses round Ireland and France as is necessary for his business. I see no reason why this agreement should not be grandfathered through because it existed before the European Union was founded. I fear, as my noble friend Lord Risby also intimated, that the tentacles of the European state have already embraced Ireland and France to such an extent that they will not have the freedom unilaterally to decide to continue the agreement. I hope, though, that our United Kingdom will have such freedom after Brexit but perhaps we can find a way to preserve this tripartite agreement for the future.

It is clear that all of us would like as little disruption to current arrangements as possible, but most of these amendments should not be in this Bill. They have nothing whatever to do with its purpose. I simply wish to comment on Amendment 55, tabled by the noble Baroness, Lady Kramer, who has not, I believe, spoken to it. Does she not realise that the City of London has suffered from the imposition of several barriers to trade in financial services as a result of having been forced to implement some new European regulations in recent years, such as parts of MiFID II, AIFMD and others? One of the benefits of Brexit is that the City will be free to adopt proportionate and sensible regulation that will enhance its business in years to come.

Brexit also provides an opportunity for the UK to play an enhanced role in the development of proportionate regulation at the global level, balancing the need to protect the consumer and the environment against the requirement to provide an innovation-friendly environment that will enable us to abandon some of the more cumbersome and restrictive parts of the European regulatory regime to which we have become progressively shackled and which is, in places, more about harmonisation and protectionism than about the genuine protection of consumers.

I shall give one example. I have known the chief executive of a Japanese pharmaceutical company for more than 30 years. He told me that when Brexit came along he was not happy, but he has spent more than $8 million upgrading his European network and is now confident that he will be able to research, manufacture and distribute medicines in both the UK and EU27 after Brexit, just as he does now, on whatever basis we leave. He told me that now that he has spent the money, he would like to see the upside of Brexit. He says that the upside is that he expects us to return to what I believe is a more natural state for this country, in which we will have a less cumbersome regulatory regime that will be more helpful for a life sciences company such as his to innovate in new therapies, new drugs and new medicines. What worries me is that, although we are about to leave the European Union, we will, through this type of amendment, promise to continue to align entirely with EU regulation, which in places relies too much on the precautionary principle, and in that case there will be absolutely no upside to leaving. Therefore, we must have a balance here.

[Baroness Kramer (LD)]

My Lords, perhaps it is sensible to come in right after the noble Viscount, Lord Trenchard, following that invitation. I will try to be brief.

Amendment 55 stands in my name. In the past two and a half years I have been shocked by how little attention has been paid to financial services and to what would happen to our access to the EU 27 in the field of financial services after any Brexit. I do not suppose that I have to rehearse for this Committee the significance of this industry. It accounts for something like 80% of GDP; it pays £76 billion a year in taxes, which support our National Health Service; and it has created 2 million jobs spread over the country. It is absolutely critical but has been very largely ignored. I make a plea to the Government that they should begin to get serious about financial services and understand their significance.

If I were to describe the industry in the UK, it basically breaks into thirds. Financial services range all the way from the smallest fintech companies, through insurance, asset management and banks, right up to the global sector of the London Stock Exchange and the London Clearing House. It is huge and varied, but roughly a third is domestic-facing and relatively untouched by Brexit.

About a third is intensely based on the industry’s EU 27 clientele. About half of that business has already gone or is in the process of leaving, and if anyone speaks to government on a day when they are being honest, basically they do not think that we have much chance of keeping much of that one-third in the UK over the medium term and certainly not over the long term.

We come to the final third, which is absolutely critical and where the decisions made in the coming weeks and months will have a great impact. I refer to the global piece, which one could think of in a way as being bigger than but represented by the London Stock Exchange and the London Clearing House. The future of that final global third has a real question mark hanging over it.

I say to the noble Viscount, Lord Trenchard, that London is a global centre partly due to its long-standing experience and partly due to good regulation, but critical to it is that it is the global financial centre for the euro—the second most significant global currency. That is what underpins London and its global role. Unfortunately, in all finance, where we know that risk exists, the ultimate protection and backstop in a time of risk is liquidity, and for all euro-denominated transactions that source of final liquidity is the European Central Bank. Therefore, from a European perspective, to be exposed to that level of risk, which is in euro trillions, with no ability to control the regulation, monitoring or supervision of a major global financial centre is really serious and significant.

I believe that fundamentally the Government have never looked at this issue from a European perspective and that they completely underestimate the medium and long-term interest in the European Union in pulling back much of that activity to an area where it can regulate, monitor and supervise because it carries the ultimate risk. Suggestions that have come from the City, which have been kicked around in government and in this House, have come largely from a very small Brexiteer think tank. I know the people well and have been to many of their meetings.

[Viscount Trenchard]

I totally agree that the bulk of the settlement of euro-denominated transactions takes place in London but, in a similar way, London is the most important centre for the settlement of offshore dollar-denominated securities—or even renminbi, or yen. That is because London is the leading global financial market in the world. I have not seen any moves by the United States Fed or Japan’s FSA to try to repatriate London’s role in their currency securities.

European Union (Withdrawal) Bill

Debate between Baroness Kramer and Viscount Trenchard

Committee: 6th sitting (Hansard - continued): House of Lords
Monday 12th March 2018 Lords Chamber

[Viscount Trenchard (Con)]

My Lords, I listened with interest to the amendment proposed by my noble friend Lord Carrington of Fulham and supported by the noble Baroness, Lady Falkner. I accept that my noble friend is trying to be helpful to the Government, but for various reasons I nevertheless feel unable to fully support his amendment. I understand well that the amendment reflects the proposals put forward by the IRSG in its paper published last September, prepared in collaboration with Hogan Lovells. That report has been endorsed by TheCityUK and the City of London Corporation, which support IRSG.

The reasons why I cannot support the amendment are, first, that it is not appropriate or helpful to put into legislation, at this stage, the detail of any future regulatory collaboration with the EU, let alone on financial services. Secondly, the report which the amendment would require the Government to prepare, like other reports which other amendments discussed today have called for, would be quite onerous and time-consuming. Thirdly, it is not helpful for our negotiators if we argue against ourselves, and especially unhelpful to incorporate amendments into law which appear to accept that it is desirable, even necessary, to treat continuing alignment with EU regulations as being a greater priority than aligning our regulations with those of the SEC in the United States, the FSA in Japan, or other regulators in other countries with significant financial markets. Fourthly, the Government have already stated their intention to negotiate an implementation period following exit day when things would be largely the same, including, as I understand it, for the financial services sector. This amendment appears to assume that everything changes on exit day.

In his excellent recent speech at the Mansion House, the Chancellor referred to a framework to supervise,

“separate evolution of rules to deliver the same results”,

and to resolve disputes. I believe there is a danger that this would place too much pressure on UK regulators to continue to align completely the UK’s rule book with that of the EU 27. This would make it more difficult to agree any kind of mutual recognition of standards with other financial regulatory regimes around the world. For example, the City Corporation and Tokyo Metropolitan Government have recently entered into a memorandum of understanding to collaborate more closely on financial services, and this could be developed in future to include some kind of mutual regulatory recognition of standards.

Of course, the City will survive if there is not a deal which covers financial services. The EU regulators have forced upon us Solvency II, AIFMD and MiFID II, to name but three directives which have cost the City dear in terms of higher costs, fewer jobs and fewer revenues than would otherwise have been the case. We should not agree to align more closely to EU rules than to US rules, Japanese rules or the rules of any other major financial centre in the world. Once our regulators recover their independence from the EU regulators, their influence in shaping best practice rules at the global level will be enhanced, not diminished. Of course, while the inclusion of financial services in our FTA would be better than its exclusion, our negotiators need to be very aware of the significant upside for the City in recovering our regulatory independence.

The amendment, in proposed new subsection (2)(a), refers to the degree of alignment “necessary” between the regulatory provisions of the EU and UK. I submit that this is a rather subjective concept. What is important is that our regulators will establish the best regulatory regime for our markets, retaining the highest standards for which London is rightly held in high regard and participating fully in discussions with regulators of the other major financial markets, within IOSCO and other bodies, with a voice commensurate with the size and scope of our markets.

As my noble friend Lord Hill of Oareford said in his interesting speech at Second Reading, our withdrawal from the EU is allowing Europe already to move in directions that we have traditionally resisted, whether that is a financial transactions tax, more screening of overseas investment or more centralisation of supervision of financial services. As we now have to choose between effectively remaining in the single market and being free to make our own rules where we want to, we must surely place a greater priority on being able to shape our own future than on preserving the status quo.

Mark Hoban, chairman of IRSG, has proposed a forum for regulatory alignment, referred to by my noble friend, whereby the UK and the EU can work together to implement new global and international standards. That is fair enough, although I do not think it is in the City’s interests to do this with the EU exclusively. Furthermore, my noble friend’s amendment is silent on the proposed forum’s relevance to new global and international standards and relates only to a perceived need to maintain regulatory alignment with the EU alone. If I were a banker in the EU 27 or the finance director of a major EU 27 company wishing to raise money in the capital markets, I would certainly not want the EU to impede my access to the UK’s financial markets, but I have not yet heard of any proposed EU regulation or directive requiring the Commission to continue to align closely to UK regulations.

My noble friend’s amendment indicates a frame of mind which I believe casts us too much in the role of supplicant, where we do not need to be. Does the Minister recognise that the City would worry less about the downside and show more confidence in the upside of Brexit if the Government showed more leadership and enthusiasm for the City’s role as the leading international financial centre, unfettered by the EU’s cumbersome and somewhat dirigiste regulatory framework, while maintaining the high standards and proportionate regulations that provide the necessary protections and financial stability for investors and borrowers, but without burdening market participants with unnecessary costs or with measures that inhibit the innovation that has helped to make London the great success it is?

[Baroness Kramer]

My Lords, the noble Viscount, Lord Trenchard, speaks a commonly held Brexiteer view. I take a very different view—that if we were to follow the course he just recommended, in 10 years’ time the UK would no longer be the premier centre for financial services in Europe, and certainly not for those generated within the EU, which is one of the largest economic and trading blocs in the world, and perhaps the most important as regards feeding financial services.

I understand the amendment in the name of the noble Lord, Lord Carrington, but I cannot support it because, as I think he would say, it is quite limited. Financial services depend not just on passporting: for the asset managers it is delegation, for the fintechs it is the e-commerce directive, and for the insurance and trading world it is the mutual recognition of contracts. There are so many complex features at so many different levels that create the ecosystem that has enabled London to thrive, essentially on the basis that it has sitting behind it the resource of a 28-country 510 million population who turn to it as their primary financial centre. However, the way in which the Government respond to Lord Carrington will be critical. It is a matter of timing.

The industry, as the Minister well knows, has been in some despair to try to persuade the Government that how they structure the relationship, should Brexit take place, is absolutely critical. The large companies in the industry have been going ahead with contingency planning that, so far, has been in a relatively preliminary phase. They have identified new real estate, taken out leases, and negotiated licences and other authorisations that they need to be able to expand either their field of business or to be able to expand business. However, almost every one of them has said, I think to many noble Lords in this House, that by the end of March—we are now talking about a matter of days—they will have to push the button on the next phase. That is the fitting out and purchasing of the very extensive and expensive equipment that has to go in, and the setting up of the recruitment process to staff out those new operations. From that there is no return. We therefore reach a point of no return for a significant portion of financial services which will be transferred to continental Europe with, frankly, no possibility of reversal, in a very brief period of time.

The industry has coalesced around the idea of mutual recognition as the one possible route. If we leave the single market—that is key; if we stay in the single market, it is not an issue, although the Government say that we will not—mutual recognition is the only possible route to limit the damage. It is nowhere near equivalent to the access that we have today, but it could perhaps be negotiated so that the damage is to some degree limited. Every major company I have talked to says that it does not understand how this new form of mutual recognition will work. It seems highly problematic. I have said in this House before that when the EU first began to bring together and create aspects of the single market in financial services, it began by using mutual recognition. However, it turned out to be completely inadequate to deal with the complexity of so many different kinds of issues, so much competition, so much size and so much depth.

So mutual recognition is seen not as a successful strategy but as the failed strategy for these arrangements that is now being revived in a new form. Because the industry is listening, it is important that we get from the Government something that provides some meat and bone on how this mutual recognition could function. If we do not hear that today, we will in many ways be accepting that we will not have any kind of significant arrangement around financial services, and the consequences for this country, which is essentially a service economy in which financial services are the most significant part and the largest exporter, will be highly significant. We need to understand today whether we are looking at something that is real and has the prospect of achieving success or whether we are simply tossing around an idea that has PR attractions but, frankly, offers no meaningful route to keeping access to the European market for our financial services industry.

Financial Guidance and Claims Bill [HL]

Debate between Baroness Kramer and Viscount Trenchard

Report: 1st sitting: House of Lords
Tuesday 24th October 2017 Lords Chamber

[Viscount Trenchard (Con)]

My Lords, I understand the motives of the noble Lord, Lord Sharkey, and other noble Lords in seeking to introduce a consumer protection function to the Bill. However, I believe that it places too broad and onerous a responsibility on the single financial guidance body. If noble Lords look at the functions already included in the Bill, the first three are specific. The fourth, the strategic function, seeks to improve the financial capability of members of the public by supporting the provision of financial education to children and young people—although I think that should perhaps be widened. I believe that the strategic function enables consumers to protect themselves better than they would be able to do without it.

Proposed new subsection (3E) would define cold calling as,

“unsolicited real-time direct approaches to members of the public carried out by whatever means, digital or otherwise”.

This is too all-encompassing. I would be delighted if cold calling by direct telephone and text were banned, but I am not sure that banning all unsolicited approaches is a good idea. If all unsolicited approaches were made illegal, including those by letter or email, how would a business market its services to new potential customers? Would such a draconian measure not result in severe restriction of choice for consumers? How would they know what products and services were available in the marketplace?

I suspect that the 2.6 million nuisance calls made every week—or 9 million a month; I am not sure what the figure referred to in the debate was—is a serious underestimation. What do the Government intend to do to protect the consumer from unsolicited telephone and text approaches?

[Baroness Kramer (LD)]

My Lords, perhaps I can be helpful on a couple of the points just raised by the noble Viscount, Lord Trenchard. These amendments ban solicitations in real time, as he will have noticed. That obviously excludes letters. It means that you can send information through the post; no one would wish to prohibit proper kinds of marketing. It is the nuisance and intrusion and the element of pressure that comes from that real-time activity that is the pernicious side of solicitation. That, essentially, is cold calling and is exactly what this is intended to deal with.

The noble Viscount suggested that financial education and capability are the way to go; indeed, many in the Government feel that that is the route to deal with cold calling, so that people know to hang up. However, the noble Viscount, Lord Brookeborough, was very clear in illustrating that, while we all get cold calls, we are merely the tip of an iceberg. For those who pursue this, the real focus is on people who are absolutely the most vulnerable. Being realistic, financial education and capability, even on the most extraordinary scale, would be very unlikely to provide adequate protection to that group of people who are now constantly being abused.

On the point made by the noble Lord, Lord Faulks, if this body is not associated with consumer protection, quite frankly I wonder what this body is for. That is the underlying premise that sits behind both the predecessor groups that are now being put into the single financial guidance and advice body. It is essential to bring this on to the face of the Bill in a very clear way, as it is the underlying motivation and characterisation of this body, and certainly it is a responsibility.

The noble Lord, Lord Faulks, also suggested that the Government do intend to move in this area. We have been hearing that for an incredibly long period of time and, with constant pressure, perhaps one day the Government will move. The problem is that we need protection now. We need protection in the near term because, as my noble friend Lord Sharkey, the noble Earl, Lord Kinnoull, and others have illustrated, this has grown in such scale and momentum that there are daily victims. Every day that we wait there are more victims. Since it is completely unnecessary to wait because the language in this Bill serves the purpose, then in a sense it would be extraordinary to say we will sit back and wait 18 months or two years or whatever else, allowing people to be abused. We can bring a stop to it now in a very simple and straightforward way.

If I understand the Government correctly, they are willing to look at certain targeted areas in which to stop cold calling but not to provide a stop to cold calling in each area where there is clear detriment, which is what the amendment allows through use of this new single body to identify and communicate that detriment. These organisations are so slick and quick they can move from one topic to another very rapidly—you close one door and another door gets opened. For example, we stopped cold calling on mortgages. That is an excellent example that tells you we can do it. It is straightforward. The dimensions are understood. The complexities are well-considered and we have plenty of track record to look back at to make sure that it is done well. We have all of that in place. However when cold calling on mortgages was banned, it shifted on to the next issue—currently, it is pensions, claims management and holiday sickness. Everybody can be absolutely sure there will be something new, provided loopholes are left, by simply attacking one issue here and one issue there. That is the beauty of this particular amendment: it gives us the power to deal with this whole industry, the same people and the same players.

I shall make one last remark and then sit down. I want particularly to congratulate the four noble Lords whose names are on this amendment, all of whom have been working so hard in this area. Three of them are here today, able to speak for themselves, but one of them cannot. The noble Baroness, Lady Altmann, as we know, has been a real mover and shaker on these issues, not just over cold calling for pensions—pensions are her area of real expertise and we have heard her on that—but we have also heard her in this House speaking around the much broader issue as well, which is why she has put her name to the amendment. She had a speaking engagement at lunchtime in the Midlands which she felt she could not cancel. She has not eaten lunch but run to the train station. She is on the train which pulls in to the station at 4.30 and had been greatly hoping there would be a Statement today that would delay this long enough that she could be here to join in with this particular section of the debate. I am sure she will speak in later parts of this Report.

The noble Baroness should not be left out when we recognise that the movers and shakers on this are from every side of the House. This is not a partisan or party-political set of amendments. This is a set of amendments by Members of this House who recognise their responsibility to protect those who are most vulnerable now, before more damage is done, and I hope the Government will see it that way.

--- Later in debate ---

[Baroness Kramer]

My Lords, I was glad to add my name to Amendment 8, moved by the noble Lord, Lord McKenzie of Luton. Amendment 17 is almost the other side of the coin.

I think that most Members of this House, including those in the Government, feel that financial inclusion is sufficiently important that it should be expressed through most of the financial bodies that we create. The noble Lord laid out very well the depth of the problem; others on the committee may speak to that in a moment.

It would be helpful to have clarification under the Bill, in part because we have genuine confusion. I am pretty sure that Ministers have all been under the impression that this matter is wrapped up and dealt with in the context of the powers, responsibilities and objectives of the FCA but, having talked to the FCA, they will now be aware that it has a very constrained role in this area and does not provide capacity to deal with the problem—for example, filling in gaps—that most people assume that it has.

Part of our problem, of course, is that we never consolidate financial legislation, so there is genuine confusion over who does what and assumptions that particular issues are taken care of when they are not. Financial inclusion is one of those that has fallen right through the holes, due to the mismatch of a whole variety of different pieces of legislation. This is an opportunity to provide for a body to consider these issues centrally to everything that it does. What it does is very relevant to that process. That is obviously not a complete answer to the problem of financial inclusion—that involves many others—but we have to make a start somewhere. It should now become a regular habit for financial inclusion to be addressed in each piece of financial legislation.

[Viscount Trenchard]

My Lords, nobody in this House would disagree with the idea that we must do as much as possible to reduce financial exclusion and promote financial inclusion, but, again, I am not sure that the amendments are practical. Normally, anything proposed by the noble Lord, Lord McKenzie, and the noble Baroness, Lady Kramer, is of the very greatest sense; I know that from experience going back many years.

However, I worry that to amend the strategic function as proposed to strengthen further the obligation on the new body may be just a bit too much of a burden, too onerous, too open-ended and not properly defined. It is very hard to define exactly what is financial inclusion and what is financial exclusion. Obviously, the former is a good thing and the latter a bad thing, but if the strategic function is already there to support improvement in financial capability, the ability of the public to manage debt and the provision of financial education to children and young people—although I think that should probably be to everybody—the amendment duplicates that, makes it too vague, too hard to define and, potentially, too onerous.

Furthermore, I also worry about enshrining in statute the terms,

“vulnerable individuals, families and communities”,

because there is nobody in your Lordships’ House who does not recognise that vulnerable individuals need more help and support than those who are not so vulnerable. Nevertheless, it is very hard to define, and to create a different obligation for an ill-defined set of individuals and communities from the general obligation to all members of the public may be confusing and make the legislation less clear and less effective. For those reasons, although I understand the noble Lords’ objectives, I cannot support their amendments.