Bank Resolution (Recapitalisation) Bill [HL]

Debate between Baroness Vere of Norbiton and Baroness Bowles of Berkhamsted

3rd reading
Tuesday 12th November 2024 Lords Chamber

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I also thank the officials and other noble Lords, the Minister and, notable among those who did most of the heavy lifting, the noble Lord, Lord Vaux, and the noble Baronesses, Lady Vere and Lady Noakes. This Bill contains useful measures improved by amendments but is notable for diverting private bank money to addressing a matter of public interest in place of public funds. For that reason, I hope that the Government will reflect on the wisdom of keeping the amendment limiting the mechanism to small banks.

[Baroness Vere of Norbiton (Con)]

My Lords, I am pleased that this Bill leaves your Lordships’ House to wend its way to the House of Commons for further consideration. The Bill has widespread support and has been somewhat improved by the deliberations in your Lordships’ House over the last few months.

I am extremely grateful to the core crack team pulled together specifically for this Bill: my noble friend Lady Noakes, the noble Baroness, Lady Bowles, and the noble Lord, Lord Vaux, whose expertise—far greater than mine—ensured that the roughest edges were smoothed away. I am also grateful to my noble friend Lady Penn, who so skilfully stepped up for Second Reading, and to the new opposition research team for their support.

Last but certainly not least, I am enormously grateful to the Minister and his officials, who were as accommodating as they felt able to be in improving the Bill. All noble Lords will share my hope that this mechanism is never, ever used but if it is, the statutory framework is now there to support one or more small banks through the resolution process and ensure that the first port of call is not taxpayers’ funds.

Bank Resolution (Recapitalisation) Bill [HL]

Debate between Baroness Vere of Norbiton and Baroness Bowles of Berkhamsted

Report stage
Monday 4th November 2024 Lords Chamber

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I think that everything that needs to be said about these amendments has probably already been said. I have added my name where I could; one came in very late, so I could not. I congratulate the noble Baroness, Lady Noakes, on her diligence in getting the committee name in properly so that everybody knows where to go, with all these hundreds of people who are going to be reading this legislation. Nevertheless, we are an institution, as it were, so it is good to see our name there.

I also congratulate the noble Lord, Lord Vaux, on his diligence in hounding to a conclusion the final report, because it is, as he said, very important. In the meeting we had recently, those present from the Bank of England wondered why we might want this and suddenly nodded when I said, “Because otherwise Parliament may never find out what really happened”: that is what it is all about. They might think we do not want to know, many years on, if it is a long period. The sorts of people who sit on these committees do want to know, because we are the ones who have to learn and have to ask the questions, to make sure that it is not going wrong again. It is very important, and I hope the Minister will accept it. If votes are called, these Benches will be supporting the noble Lord, Lord Vaux.

[Baroness Vere of Norbiton (Con)]

I am enormously grateful to all noble Lords who have spoken today. I too add my thanks to the noble Lord, Lord Vaux, for tabling his amendment. This group epitomises what is so good about your Lordships’ House: a lot of movement has happened to date on these issues from the Minister, and we are grateful for his engagement and for the fact that we have been able to get a little further down the road. However, like terriers with very sharp teeth, noble Lords are not quite willing to let it go just yet, and I too support the amendments in the name of the noble Lord, Lord Vaux, and of course those of my noble friend Lady Noakes, who has also done a fantastic job in ensuring that the issues she raised, and which most noble Lords agreed with in Committee, come to the fore. Helpfully, the noble Lord, Lord Vaux, has tabled Amendment 9, which plugs a big gap, and I hope the Minister will accept that and the amendments in the name of my noble friend Lady Noakes.

Bank Resolution (Recapitalisation) Bill [HL]

Debate between Baroness Vere of Norbiton and Baroness Bowles of Berkhamsted

Committee stage
Tuesday 10th September 2024 Grand Committee

[Baroness Bowles of Berkhamsted (LD)]

My Lords, it falls to me to open proceedings again. This is very much a “what it says on the tin” amendment. If it were phrased as the question “Will the deposit guarantee always be honoured?”, I would expect the answer to be yes.

Last week, we discussed that there may be more than one recapitalisation dip. For a moment, let us imagine a worst-case scenario where there is more than one but things are worse than expected due to market circumstances—maybe contagion or other unforeseen circumstances—and the insolvency route has to be taken. Can we be certain that there would be no change to bank depositors’ entitlement—I do not think that is intended in any way, but I would like to hear the Minister say it—and that the system would have the capacity for whatever is thrown at it, if not cash capacity then some form of underwriting in addition to whatever borrowing is available? Does the overall capacity extend beyond the borrowing that is already set up or is it fundamentally underwritten by the Government? As they will get it back, I do not object to that; I am just inquiring as to what the mechanism is, although maybe one does not want to think about that until we get there, if we do.

Are the state of the Financial Services Compensation Scheme and the affordability of the levy, if there had already been recent large calls, for example, a factor in the analysis of whether to mount a recapitalisation rather than allowing the insolvency? There could be public interest factors that relate not merely to the bank under consideration per se. Does the public interest consideration also extend to the state of the compensation scheme? I beg to move.

[Baroness Vere of Norbiton (Con)]

My Lords, I rise to make a few comments about this, many of which have already been made by the noble Baroness, Lady Bowles. I am determined to make my comments none the less, so I shall use different words in a different order. The amendment does what it says on the tin—that is absolutely right—and I am confident that the Minister will state that there will be no diminution in the benefit of the deposit guarantee scheme, but is that in and of itself sufficient comfort? The framing of this Bill and the Minister’s exposition of it are shaped by a mindset that there will be a single resolution event; it will be an isolated occurrence; it will clearly be in the public interest, and it will be a single financial institution following specific issues relating only to that bank. That seems to be the vibe that I get when I read the information, particularly that which accompanies the Bill, and I remain concerned that there are insufficient checks and balances in place to enable Treasury input when the measures are used as envisaged, but also where there are multiple failures during a wider systemic event—a reasonable worst-case scenario.

A reasonable worst-case scenario can develop quickly, or it may become apparent only over time. In a slow burn and developing situation, decisions relating to banks facing challenges early on in a prolonged event will be made in a very different context from those whose challenges perhaps developed over a longer period. In essence, decisions will be made, but in very different environments, given what might have happened in the intervening period. It may well be that there is significantly less money left with which to play, so to speak, to ensure financial sustainability.

Whether a reasonable worst-case scenario is a one-off event or a slow burn, FSCS resources are going to come under significant pressure should two or more banks face insolvency or resolution, and choices will surely have to be made. Who makes those choices and based on what guidance? Will the FSCS prioritise DGI entitlements over the resolution of a bank or banks? What would happen in circumstances where the public interest test is at best marginal? There will be many circumstances when it is very clear, black and white, but there will be some when it is not quite so clear. On one hand, one might have a bank which needs to go through the insolvency procedure and therefore one set of obligations fall on the FSCS and, on another, a bank could go through resolution and it is a bit marginal whether the public interest test has been met. How are all those decisions going to be worked through, given the lack of direct oversight from the Treasury?

We have been told that the FSCS will be unfettered when it comes to decisions relating to the allocation of existing resources and borrowing from sources other than the Treasury for DGI or recapitalisation. Therefore, it seems that until the FSCS needs to go cap in hand to the Treasury to get more money over and above what it can already borrow, there is an obligation on the FSCS only to consult the Treasury and others and the decision-making essentially remains beyond the reach of Ministers. I will be interested in the Minister’s response.

--- Later in debate ---

[Baroness Bowles of Berkhamsted (LD)]

Not surprisingly, I too support this amendment. I congratulate the noble Baroness, Lady Noakes, on her exposition of the genesis of the terms of Section 38 of the 2023 Act. Of course, I am a member of the committee that came as a consequence of that. In her presentation, although not in the amendment—wisely so—she suggested that maybe there would be some hearings and questions, and the possibility that they would be in camera.

I urge the Minister, the Treasury and, indeed, the Bank not to shy away from such suggestions, because it would not be the first time that I have heard mutterings about things being confidential and not wanting to talk about them to parliamentary committees. In Germany, its parliamentary committees can look into the books of the banks and get all kinds of confidential information and—do you know?—it does not leak out. It is quite possible for committees of this House to behave just as well. I put that in as some impetus for how you can get better accountability, oversight and, I suggest, help from the committees, where everybody, ultimately, is pulling in the same direction.

[Baroness Vere of Norbiton (Con)]

My Lords, there is not an awful lot more to say. This is a very elegant amendment from my noble friend Lady Noakes, and it was very elegantly explained. I am the sole member of this Committee today who is not a member of the Financial Services Regulation Committee—no, neither is the Minister—and I am sorry about that. All noble Lords involved in getting the committee set up have an enormous amount of experience in the field of financial services regulation and, looking at the inquiries that it is already doing, I think it will be a very valuable part of our regulatory infrastructure. I look on this amendment with warmth and favourability and I should imagine that the Minister will do so, too.

Bank Resolution (Recapitalisation) Bill [HL]

Debate between Baroness Vere of Norbiton and Baroness Bowles of Berkhamsted

Committee stage
Thursday 5th September 2024 Grand Committee

[Baroness Bowles of Berkhamsted (LD)]

The noble Baroness, Lady Noakes, asked why I allowed my amendment to be grouped in this way. I was simply trying to expedite matters for us and I thought we did not need another whole group, which would get the Minister up and down again. I agree with the other amendments and everything that has been said on this group. They deal with issues around conflicts and so on, and transparency is one of the best weapons we have that presumably will be allowed or in scope.

My amendment is one of those that do not read as I originally wrote it, because again we came into scope issues. I could not get the exact amendment that I wanted, so this was the best that I could do. Obviously, it is a companion to the amendments in the first group, which were saying that the majority of us want to limit to a threshold equal to MREL. If you therefore want to resolve banks that are a little bigger, you would have to shift MREL. I am not going to cry over that; I will cheer.

That may be an improper tactic but we do not have any other tactics to try to focus the PRA on the damage being done to the growth of smaller banks by putting MREL where it was not intended to be. We are out of line internationally and we do not really have any good justification for that. If there is a division between those banks that can be resolved and those that cannot, I still think that it goes there and the Bank will therefore have to give its view as to why. Perhaps it wants an extension in some way, so that it can get at bigger banks. What do we get back from that? That is the thought process that lies behind my amendment.

I support all these amendments. If they are knocked into a format that is suitable for Report, they would be very good additions to the Bill.

[Baroness Vere of Norbiton (Con)]

My Lords, I am particularly grateful to the noble Lord, Lord Vaux, and to my noble friend Lady Noakes for thinking carefully about reporting and tabling amendments accordingly. I had to support one of these amendments and I am afraid that I picked the noble Lord’s on this occasion. This is not favouritism; I was purely trying to spread the love a little. But as we approach Report, we might want to go back and check that whatever we end up putting into the Bill is future-proofed.

Sometimes one can put in too much detail, then people can slide round the edges by saying, “Oh, you didn’t tell us to do that”. Alternatively, there is being too broad, when people slide round another edge by not putting in the detail that you want to see. There is a balance, but this is certainly worth taking forward and looking at. Obviously, the accountability element is key here.

Another thought I had around this was on timing. Again, sometimes one can go too far and have a report too far in the distance, so by the time it comes out no one remembers what the problem was in the first place. The amendment tabled by the noble Lord, Lord Vaux, says “three months”; I was thinking “as soon as practical” or, in any event, within six months. I do not know, but in very complicated and complex circumstances there might still be issues and context to resolve to produce a report that is relevant in timing terms, but also incorporates everything that stakeholders wish to see.

When I was a Minister, my heart would sink when an amendment was put down about producing a report. I would think, “Another report—are we really going to read it?” To me, the question is: we might produce a timely report in a good fashion and with the right amount of detail, et cetera, but how do we then ensure the scrutiny of that report? It goes back to the issue of expenses which, as we agreed, could be quite significant. But who is going to look at those expenses and suck their teeth? Will they look at the legal fees of firm XYZ and say, “Do you know what? That’s too much”. Who is going to do that? Is there any body at all—not anybody—which would be able to look at it and do that? It has been suggested to me that the National Audit Office might occasionally pay attention to this sort of thing. This is about trying to get us beyond “Just produce a report”. Well, just produce a report and then somebody can look at it. I am sure that these are going to be great reports, but even so it is a concern.

I am looking forward to the response of the Minister. I believe that this should be our last group today, fingers crossed, but I am not sure that many of us want to go outside, given the weather.

Alternative Investment Fund Designation Bill [HL]

Debate between Baroness Vere of Norbiton and Baroness Bowles of Berkhamsted

2nd reading
Friday 1st March 2024 Lords Chamber

[Baroness Vere of Norbiton (Con)]

I will come on to gold-plating. I am not entirely sure that everybody is in alignment on whether or not this regulation is implemented, but consultation is just good government. I do not see us making substantial changes to the regulatory scope on the basis of having not done it before we are not going to do it now. We need to get it right, but we absolutely support the investment company sector and want to get on with this. That is why I am so grateful to my noble friend Lady Altmann for bringing this forward, allowing us to have a conversation in the Treasury and beyond.

I turn to the second element: cost disclosures. My noble friend Lady Altmann has rightly identified that EU-derived legislation is not currently fit for purpose, as many other noble Lords, the Government and the Financial Conduct Authority would agree. The packaged retail and insurance-based investment products regulations, commonly and more easily known as PRIIPs, were originally meant to provide more transparent and standardised disclosure for retail investors across the European Union. Noble Lords are well aware that there are many problems with the EU PRIIPs regulation. It is prescriptive, misleading to retail investors and prioritises comparability over a wide range of financial products at the expense of consumer understanding.

That is why, as part of the Edinburgh reforms, the Chancellor announced that, as a priority, the Government would reform PRIIPs. We have already made significant progress on delivering this commitment. Most recently, at the Autumn Statement last year, the Government published a draft statutory instrument to replace PRIIPs with a new framework tailored to UK markets.

We understand industry’s concerns regarding broader legislation that prescribes firms to calculate their costs as they are required to do so now, and so the Government and the regulator have not stopped there. At the same Autumn Statement, the Government announced that they would bring forward the repeal of relevant cost disclosure provisions in the markets in financial instruments directive, or MiFID, alongside the replacement of PRIIPs.

Many noble Lords have mentioned that the FCA has published the forbearance statement, and some feel that it has not gone far enough. I will ensure that the FCA is made aware of the debates that noble Lords have had today. There has been significant criticism, which it will no doubt be interested in, and some suggestions of how it might be able to go forward.

I hope that this brief summary has provided sufficient reassurance to my noble friend Lady Altmann, and to all noble Lords, that the Government are treating this as a priority. We have a comprehensive plan to alleviate the harms faced by the investment company sector, but are committed to making sure that we get it right for the long term, to ensure that 150 years already gone by becomes another 150 years in the future.

I have mentioned consultation, so I will move on from that to cover some points raised in the debate on timelines. I accept that, for many noble Lords, and indeed Ministers, it is never fast enough. This was mentioned by my noble friend Lord Hannan and the noble Lord, Lord Macpherson. We are delivering a very ambitious programme to build the smarter regulatory framework for financial services. At Mansion House, the Government removed almost 100 pieces of unnecessary EU legislation from the statute book, and now we are looking at wider reforms—those mentioned in the debate today and others, including Solvency II—that will deliver the biggest potential benefits.

I note that my noble friend Lord Hannan would have liked us to go through things in a different way. The Treasury is very much focused on looking at where we can have the biggest and quickest potential benefits to economic growth. We are conducting a phased approach to bringing in this change of regulation because we must also ensure that the system and different financial sectors can cope with this change in legislation.

I note the invitation from the noble Lord, Lord Macpherson, to make commitments from the Dispatch Box on certain matters. I am not able to do so just yet—maybe soon.

There is debate around gold-plating. I hope that that will all be laid to rest as we are able to reform this and ensure that we have the right framework going forward.

My noble friend Lady Altmann mentioned investment companies being removed from platforms. We note and recognise the frustration that some investment companies feel at having been removed from investment platforms. I reassure her that, although this is a commercial decision, the Government and the FCA are well aware of this issue and are carefully considering what options are available. Ditto in the use of the EMT, the MiFID template. This is a voluntary template, but we understand that it may not be providing the best information to retail investors at the current time.

Many noble Lords have noted the competitiveness of the UK capital markets. That is what underpins the smarter regulatory framework. Despite recent challenges, the UK has many vibrant and dynamic capital markets, and they remain some of the deepest and strongest globally. However, we cannot rest on any laurels; we have to keep moving forward in this area. That is why the Government are delivering on my noble friend Lord Hill’s listings review, the wholesale markets review, and the Chancellor’s Edinburgh and Mansion House reforms.

The noble Lord, Lord Davies, mentioned the FCA’s activities and scrutiny of the regulator’s role. My noble friend Lord Reay mentioned the FCA’s D&I work, as did the noble Baroness, Lady Kramer. Parliament does have scrutiny over the FCA and many other regulators. Assimilated law is being replaced, in line with the UK’s domestic model of regulation. This means that the UK’s independent financial services regulators will generally set the detailed provisions in their rulebooks, instead of firms being required to follow EU law. This approach was following two consultations and it received broad support across the sector. Parliament debated this approach during the passage of the Financial Services and Markets Act 2023, and it secured parliamentary support then.

The Government recognise the importance of effective parliamentary scrutiny of the regulators, including their approach to rule-making and other activities that they may choose to undertake. That is why FiSMA 2023 introduced additional mechanisms to strengthen Parliament’s existing ability to scrutinise the regulators’ work, including requirements for the regulators to notify parliamentary committees, such as the new Financial Services Regulation Committee, of their consultations and to explain, when publishing final rules, how representations by parliamentary committees have been considered. I warmly welcome the formation of that committee. It will be hugely helpful, and it is quite right and proper that independent regulators are held to account by Parliament.

I will write with a few further comments on the investment in the UK capital markets by UK pension funds and on a few other issues which have arisen and need a fuller response. For the time being, I am very grateful to my noble friend Lady Altmann and many other noble Lords for their continued championing of the investment company sector.

[Baroness Bowles of Berkhamsted (LD)]

I am sure that my interruption is unwelcome, for which I apologise, but it is quite important. Further consultations have been measured and, as my noble friend Lady Kramer pointed out, the aspects of PRIIPs and MiFID where there has been gold-plating that is causing these problems were never consulted upon. It is within the gift of the FCA to make changes.

These cost disclosure issues have featured massively already in two consultations from the Treasury on PRIIPs and in evidence that was submitted to the Treasury last summer, after my own attempt to amend FiSMA 2023. On these discrete issues, legislation does not need to be amended; what the FCA is doing needs to be amended. Support has been heard from these Benches and the Labour Benches for the Government taking more intrusive action. Has that message been received or are we still bogged down in officialdom and consultations? That is what we want to know.

Companies (Miscellaneous Reporting) Regulations 2018

Debate between Baroness Vere of Norbiton and Baroness Bowles of Berkhamsted

Monday 9th July 2018 Lords Chamber

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I first apologise to the Minister for being caught out—

[Baroness Vere of Norbiton (Con)]

Is it really appropriate that the noble Baroness speaks, given that she was not here for any of the Minister’s introduction of the statutory instrument at all?

[Baroness Bowles of Berkhamsted]

I apologise: I got caught out because I was advised of a rather different timescale. With the permission of the House, may I speak?