Financial Services and Markets Bill

Debate between Baroness Penn and Lord Tyrie

Report stage
Tuesday 6th June 2023 Lords Chamber

[Baroness Penn (Con)]

My Lords, I am also grateful to the noble Lord, Lord Tyrie, for raising this important issue through Amendment 8. The Regulatory Decisions Committee, or RDC, takes contested enforcement decisions on behalf of the FCA where the FCA has not been able to settle a case with the relevant firm. The Government recognise that the RDC performs a critical function within the regulatory framework. FSMA requires that decision-makers are independent, and the design of the RDC reflects this.

It is important that the RDC makes decisions fairly and transparently. To ensure this, the members of the RDC are wholly independent of the FCA’s executive. The RDC also has its own team of support staff and legal advisers. This structure ensures that FCA personnel involved in the investigation of the enforcement case are not involved in supporting the RDC in its final decision-making.

As noble Lords noted, the FCA has recently made a number of operational changes to transfer decision-making responsibilities in certain cases from the RDC to the FCA executive, which will increase the speed of decision-making. However, decisions in contested enforcement cases continue to be made by the RDC.

In addition, should a firm or senior manager disagree with the final enforcement decision taken against them by the RDC, they generally have the right to refer the case to the Upper Tribunal. Where decisions fall to FCA executives, the relevant parties retain the right to make representations in writing. The FCA will also consider taking oral representations in exceptional circumstances, when not doing so would be detrimental to the fairness of decision-making. As set out above, the decisions made by FCA executives can also be referred to the Upper Tribunal should a firm disagree with them.

Any proposed legislative changes to the structure of the FCA’s supervision and enforcement framework should be subject to appropriate public consultation. As we have discussed previously during the passage of the Bill, the Government sought views from stakeholders on the operation of the future regulatory framework through a review. However, we concluded during that review that the case had not been made for changes to the FCA’s enforcement and supervision functions given that these responsibilities were not increasing as a result of the UK’s departure from the EU, unlike the significant increase in its rule-making responsibilities, which was the focus of the review and the subsequent enhancements made by the Bill.

Nevertheless, I am grateful to the noble Lord for bringing the importance of the FCA’s supervisory and enforcement framework to the Government’s attention. The Government do not see the need for legislative change in this area at this time. However, we support the noble Lord’s aim to ensure greater independent scrutiny of and accountability within the regulatory framework. The Economic Secretary and I will look at this issue further, outside the passage of this Bill, to ensure that the FCA’s supervisory and enforcement framework remains appropriate as it takes on new powers. We will continue to listen to the views of the noble Lord and other stakeholders as we do so.

I have also raised the issue with the FCA, and will pass on the response with further detail on the decisions and changes made to the operation of the RDC to this House. Therefore, I hope, for the reasons I have set out, that at this stage the noble Lord is content to withdraw his amendment and continue this conversation further outside the passage of the Bill.

[Lord Tyrie (Non-Afl)]

I would be grateful for an opportunity to respond to a few of the points made there. Before I say anything more, I should say I have discussed this amendment on a couple of occasions with the Minister. If she does not mind my saying so, she makes a first-rate fist of doing an impossible job. I also hope she does not mind my saying that from time to time—and this was one of them—I had the impression that people in other places are pulling a number of the strings. That does give me cause for concern.

I will just make a few brief points. The Government have set great store by the Edinburgh reforms. They are designed to bolster business confidence and investment, and make sure that regulation and the threat of enforcement do not end up damaging the UK’s pre-eminence in financial services, among other things. But if the Edinburgh reforms mean anything, they must mean that measures such as this—which would give businesses, particularly smaller businesses, greater confidence that they would be protected from arbitrary enforcement—should be seriously considered. I regret that they are being dismissed somewhat peremptorily.

The Minister said that oral representation is still possible before the RDC. I will not read out the FCA’s response to the consultation, to which I referred earlier, in full, but if she were to go back and look at it, she will see that it has been effectively closed down for all but exceptional cases. It is that opportunity to have a private conversation with the RDC that is so greatly valued—I see the noble Lord who served on the RDC is agreeing—on both sides: on the RDC side and by firms. The RDC dose a very difficult job and does it very well, but it needs more empowerment. I regret that the Government are getting in the way of that.

My last substantive point takes us right back to where we started. Frankly, we have not heard a substantive argument against this proposal from the Front Bench just now, for the simple reason, I think, that there are not any. We have heard the suggestion that firms can still go to the Upper Tribunal, but there was no response to the points made that the Upper Tribunal is not a practical option for a very large proportion of the regulated community, both on grounds of cost and on reputational risk grounds, because it is held in public. I find the arguments adduced for not doing it to be frankly incomprehensible.

The only real opponent of this left is the FCA itself. I would like to end just by drawing one conclusion from that point. It is very concerning that, when a regulator has a vested interest in an issue such as this, it can succeed in knocking down a sensible proposal with scarcely any explanation, and can persuade the Treasury that it should be knocked down and that the advice of that regulator should be taken without challenge. At that point, we are into a self-reinforcing spiral of ever more powerful regulation. That is exactly why, in so many different ways, Members on all sides of the House have come to the conclusion that we must have better accountability of the regulators, particularly the financial regulators, if we are to carry on handing them more powers, as is intended in the Bill.

Having said all that, seeing as I do not have the troops just now, I will withdraw my amendment.

Financial Services and Markets Bill

Debate between Baroness Penn and Lord Tyrie

Committee stage
Wednesday 1st March 2023 Grand Committee

[Baroness Penn (Con)]

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

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

[Lord Tyrie (Non-Afl)]

Can the Minister explain whether that constitutes opposition? I had a cup of tea with the chairman of the Treasury Select Committee only the day before yesterday to try to establish exactly that. She is fully supportive of the idea—we ought to get that on the record—although I should also say that she had not specifically consulted her committee on it.

The Minister must see that the Government are probably going to lose a vote on this at Report. Would she be prepared to sit down with a group of us to see whether we can work up some sort of proposal that she might be prepared to accept? To make that meeting effective, in the meantime, would she be prepared to ask her officials, on a contingency basis and without any commitment at all on her part, to write down on the back of an envelope—a long envelope, I admit—what it is that might conceivably, in certain circumstances, be acceptable to the Government?

Financial Services and Markets Bill

Debate between Baroness Penn and Lord Tyrie

Committee stage
Wednesday 25th January 2023 Grand Committee

[Baroness Penn (Con)]

No, that is not what I am saying; I am saying that we will have procedures in place to allow Parliament to scrutinise legislation. We will also have procedures in place to ensure that, as part of that, relevant parliamentary committees can be notified of work by the regulators. That is just one aspect of how Parliament will conduct its role in the scrutiny of financial services, legislation and regulation. While the notification of consultations is one aspect, there are many others, such as the procedures for secondary legislation, the other procedures that Select Committees have to scrutinise the regulators’ work, the procedures for the provision of annual reports laid before Parliament, and others. So Parliament will be notified of consultations, but that does not imply that the Government view Parliament simply as a consultee in the process.

[Lord Tyrie (Non-Afl)]

The Minister has said that the use of Treasury powers under this Clause will normally be subject to affirmative resolution by Parliament. In the Minister’s experience—she could offer her personal view if she feels unable to offer a government view—does she think that that scrutiny is usually relatively effective or ineffective?

[Baroness Penn (Con)]

My Lords, standing here at this Dispatch Box, I would offer only a government view. I view it as entirely appropriate for the model we have set out today. I acknowledged the wider debate being had within the House of Lords on different mechanisms of scrutiny and lawmaking. As I have noted, the approach we have taken in this Bill has not been drawn to the House’s attention by the Delegated Powers and Regulatory Reform Committee.

In the model of financial services regulation that we seek to put in place, a large number of the rule-making powers flow to the regulators. We are delegating that further to the independent regulators that have the expertise to make rules in this area. This is the right model for the UK. We have consulted on it carefully and extensively, and we received broad support in that consultation. It reflects the careful approach we have taken and the choice we have made as to the model for the regulation of our financial services.

--- Later in debate ---

[Baroness Penn (Con)]

My understanding is that Amendment 28 contains powers to provide for amending secondary legislation, not primary legislation. I will seek a fuller explanation and I suggest that we briefly degroup that amendment, if we reach it today, to provide that explanation for the noble Baroness, so that she has further clarity. I do not think I will provide it for her at this point.

[Lord Tyrie (Non-Afl)]

That would be very helpful. Before the Minister leaves Amendment 28, can she say whether she discussed with officials whether to add a sunset clause to what otherwise will be a very open and extensive power in the hands of the Treasury?

[Baroness Penn (Con)]

No, that discussion was not had. The powers are constrained in that they relate to the provisions in place to transition away from and replace retained EU law, rather than going beyond that.

Amendments 242 and 243, put together, enable provisions subject to the negative procedure under an Act other than this Bill to be included in affirmative regulations made under the Bill. This is a procedural change with well-established precedent. Where any element of a statutory instrument is subject to the affirmative procedure, the combined instrument would also be subject to the affirmative procedure, so there will be no reduction in parliamentary scrutiny.

To conclude, the Bill will repeal retained EU law to establish a model of regulation based on FSMA. It will do so in a way that prioritises growth while moving in a sequenced and measured way, and through scrutiny, engagement and consultation. At this stage, I hope the noble Lord, Lord Sharkey, will feel able to withdraw his amendment and that other noble Lords will not move theirs when they are reached. Subject to providing that extra clarification to the noble Baroness, Lady Kramer, I intend to move the government amendments when they are reached.

Financial Conduct Authority: Financial Inclusion

Debate between Baroness Penn and Lord Tyrie

Tuesday 22nd March 2022 Lords Chamber

[Baroness Penn (Con)]

My Lords, we are taking action in a number of areas. As we have committed to previously, we will ensure that we legislate to ensure access to cash. There are also some industry led-solutions under way, with five new bank hubs set up this year that allow different banks to pool their services together to ensure that communities still have access to those important services.

[Lord Tyrie (Non-Afl)]

Does the Minister agree that one means of improving financial inclusion would be to add financial literacy to the core curriculum in schools, and will she now consider it?

[Baroness Penn (Con)]

My Lords, financial education is covered within both the citizenship and mathematics curricula, and primary schools are strongly encouraged to teach citizenship, including financial education. In addition, the Money and Pensions Service published financial education guidance for primary and secondary schools last year to support school leaders in enhancing the financial education that is currently delivered in their schools to make it memorable and impactful.