Financial Services Bill

Baroness Shafik Excerpts

2nd reading & 2nd reading (Hansard) & 2nd reading (Hansard): House of Lords
Thursday 28th January 2021 Lords Chamber

[Baroness Shafik (CB) (Maiden Speech) [V]]

My Lords, it is a great honour to make my maiden speech today and I begin by thanking your Lordships and the staff of the House, who have been so welcoming. I am particularly grateful to my sponsors: the noble Lord, Lord O’Donnell—Gus O’Donnell—who was both my mentor and manager in the Civil Service, and the noble Lord, Lord Stern—Nick Stern—who was my teacher and is now my colleague at the London School of Economics and Political Science. It has been a strange time to join this great House, but my induction has proceeded very capably through digital means and I thank Black Rod, the Garter and the noble and learned Lord, Lord Judge, for their guidance.

I was born in Alexandria in Egypt, although my connection to the UK began with my grandfather, who came on a scholarship to do his undergraduate and doctorate degrees at Imperial College in the 1920s. My father was born and raised in Notting Hill, before it was fashionable, and the family eventually returned to Egypt, where my grandfather retained a love of croquet and lawn bowling well into his 90s. My maternal grandfather studied in France and my mother was sent to a French Catholic school by her forward-thinking Muslim mother, who believed that everyone should learn about other people’s religions. I wish that they could all be here today.

My family’s prospects changed radically with the nationalisations in Egypt in the 1960s, when we lost most of our property and went from being well-off to being immigrants in the United States, where my father had studied. For my father, who had a PhD in Chemistry and little else, education was the only path to success. His mantra was, “They can take everything away from you except your education.” Those experiences —seeing how people’s fortunes could rise and fall because of economic shocks and the importance of education for social mobility—instilled in me a deep curiosity about the architecture of opportunity in a society. That curiosity led me to a career in economics that spanned the World Bank, the UK Department for International Development, the International Monetary Fund, the Bank of England and the London School of Economics.

While I spent 18 years in universities, most of my career has been in the trenches of policy-making in some of the poorest countries in the world and some of the richest. I have worked with politicians from across the political spectrum. In the UK I was a permanent secretary under both the Labour Government and the coalition between the Conservatives and the Liberal Democrats. In my years at the World Bank, DfID and the IMF, I travelled to over 100 countries, working with politicians of every imaginable political stripe. I saw clearly the benefits of sharing experience across countries.

I have had jobs that are primarily about making good things happen—lifting people out of poverty at the World Bank and DfID and spreading education at LSE. I have also had jobs that are primarily about preventing bad things from happening—fighting international financial crises at the IMF and maintaining monetary and financial stability at the Bank of England. Making good things happen is often more fun and one’s colleagues tend to be more optimistic. Organisations that prevent bad things tend to be populated by people whose job is to worry and look for risks, but their work is vital because, as the pandemic has shown us, bad events can swiftly destroy decades of progress.

These experiences are why I have chosen the Financial Services Bill for my maiden speech. It is first and foremost intended to prevent bad things from happening, as well as to create opportunities for new good things. It is the first important step in defining a distinct UK regulatory framework after leaving the EU and restoring the regulatory philosophy embedded in the Financial Services and Markets Act 2000, with improvements based on the lessons from the 2008 financial crisis. That philosophy is based on legislation setting out the policy objectives and operationally independent expert regulators translating that into technical regulation and supervision.

It is reassuring that the Government remain committed to the highest standards of regulation to avoid future bad events. Robust standards are essential for the stability and fairness which make our financial markets attractive to global investors and ensure consumers are protected. Chasing competitive advantage through lower regulatory standards and financial services is a chimera.

At the IMF, we used to describe the UK’s financial sector as a global public good because of its systemic importance to the world economy. The success of the UK’s regulatory framework has far-reaching consequences, and maintaining active engagement in global standard-setting, such as through the Basel Committee and the Financial Stability Board, is the best way of remaining the most global financial centre in the world. For example, when I was at the Bank of England it worked with central banks around the world to shape the first global standard for the foreign exchange market—the largest financial market in the world with a turnover of $6.6 trillion every day, over 40% of which occurs in London.

There is a huge opportunity, as many noble Lords have said today, for the UK to set global standards on green finance, from mandatory disclosure and the development of green investment products to defining regulatory approaches to climate-related stress-testing, which will be done for the first time this year. The return of full independence in setting the regulatory framework for financial services to the UK also provides an opportunity to rethink the framework for accountability and scrutiny in a system that relies heavily on experts. I have to confess, I like experts. I know Members of this House fall comfortably into that category, and the expertise in this House adds enormous value to the legislative process. But as the noble Lord, Lord King, has said, experts must resist the pressure for an illusion of certainty. It is best to listen to many views and subject expert judgment to challenge.

I hope that I can add my voice to the well-informed and lively debates in this House and bring an especially global perspective to our deliberations. Hopefully, we can prevent many bad things happening as well as enable many good things to progress. I look forward to working with all of your Lordships in the future.