Financial Services and Markets Bill

Debate between Earl of Kinnoull and Baroness Kramer

Committee stage
Wednesday 1st February 2023 Grand Committee

[Baroness Kramer (LD)]

My Lords, I take serious note of the comments of the noble Viscount, Lord Trenchard, because they reflect my fear that the amendments in the names of the noble Earl, Lord Kinnoull, and the noble Baroness, Lady Noakes, and the first amendment in the name of the noble Lord, Lord Holmes, could easily be interpreted as pressure to raise the international competitiveness objective and the growth objective very close, if not equal to the financial stability objective. Frankly, that should be a major concern to us all. I do not want to put the regulators on the back foot when they prioritise financial stability.

In many ways, that is how it was in the 1980s and the 1990s, and we saw how the industry responded to that set of priorities and arrangements. The industry was blithe about risk as long as it generated short-term profit. In discussing the new international competitiveness and economic growth objectives, I have heard from many in the industry that they want them not only to be given greater weight but even to be primary objectives and to stand entirely equal with financial stability. That is such dangerous territory.

At Second Reading, I quoted Paul Tucker, a former deputy governor of the Bank of England, who lived through all that turmoil of 2007-08 and after, who urged Parliament not to give the regulators—particularly the PRA—an international competitiveness objective, praying in aid former governors of the Bank of England, who knew the very soul of the industry and knew that that would be dangerous and unadvisable. Those were not his exact words—his were more excoriating.

Risk in the financial sector is asymmetric, as we saw in 2007. The profits of risky behaviour go to the leading figures in the industry, and they typically keep those proceeds, despite the failure of the sector and the organisation and, in many cases, despite the fact that if you were to go back and unpick it, one could say that such proceeds were based on false profits.

The taxpayer then had to come in and rescue the sector with £137 billion in 2007-09. Much of that has been recouped, but what has not, even to this day—and which we and the country live with—is the damage to the wider economy. We had more than a decade of austerity, and it is a price we are still paying to this day. At our peril do we put ourselves in a position where there is increased likelihood of a repeat of that cycle.

I remember from his memoirs that Alistair Darling was shocked that banking chiefs uniformly showed no gratitude for the massive rescue package that kept their businesses afloat after the 2007-08 crisis. I sat on the Parliamentary Commission on Banking Standards, but have yet to find one to take any significant responsibility, not only for their institution but for the broader sector.

On competitiveness, let me quote from the report of the Parliamentary Commission on Banking Standards, because this was central to its findings of why the industry had become so out of control and behaved as it did:

“There is nothing inherently optimal about an international level playing field in regulation. There may be significant benefits to the UK as a financial centre from demonstrating that it can establish and adhere to standards significantly above the … minimum. A stable legal and regulatory environment, supporting a more secure financial system, is likely to attract new business.”


That was the consequence of nearly two years of taking evidence.

I turn to other amendments. Those in the name of the noble Lord, Lord Tunnicliffe, in this group focus the need for mutual and co-operative financial services. I wholly support that. I very much support the proposals of the noble Lord, Lord Holmes, on the establishment of regional banks. Local services focused on geography or a specific group are often treated as an afterthought or a Cinderella part of the sector today in the UK, but they can be the best way to deliver opportunity to ordinary people, including those presently excluded, and to help small businesses, especially in difficult times. We shall return to some of these issues in later amendments that we will discuss today.

I also support the amendments of the noble Lord, Lord Holmes, which, in essence, are on efficiency. They seem to mesh very well with the amendments of my noble friend Lady Bowles, which are about transparency and mechanisms to evaluate the performance of regulators.

I return to my additional theme: I introduced a discussion on financial stability, almost out of shock that we now have such an intense focus on enhancing international competitiveness and economic growth—as if, somehow, financial stability were not the absolutely fundamental delivery that we expect from our regulators. Without that, frankly, everything else is worth nothing.

[The Earl of Kinnoull (CB)]

Before the noble Baroness sits down, I would just like to ask her a question about her very interesting speech. This also allows me to say that, in Amendment 45, the first “PRA” should read “FCA”—a good spot by the noble Viscount, Lord Trenchard. But I do not quite understand how financial stability is threatened by a regulator being responsive, consistent and proportional. Could the noble Baroness explain that again?

[Baroness Kramer (LD)]

The noble Earl may find that this is already a requirement of the regulator, but this is not about that. If the amendment were taken in the way that I suspect the noble Earl reads it, I might feel reasonably comfortable with it. However, as we listened to the discussion, we saw where this was going. The noble Viscount, Lord Trenchard, captured that: the industry is looking at these kinds of amendments as a mechanism by which it can find leverage to enhance the status of the international competitiveness and economic growth objectives. If we could find a balance, in asking for the kind of language that the noble Earl, Lord Kinnoull, is after, but making sure that that does not become weaponised and potentially raises those objectives to an equal status to financial stability, I would feel much more comforted.

Official Listing of Securities, Prospectus and Transparency (Amendment etc.) (EU Exit) Regulations 2019

Debate between Earl of Kinnoull and Baroness Kramer

Monday 18th February 2019 Lords Chamber

[Baroness Kramer (LD)]

Distinguished lawyers.

[The Earl of Kinnoull]

Yes, I am sorry, we have now decided that they are distinguished lawyers—and others of the huge number of advisory people in London who help people get access to capital. There were a lot of notes in November and more in December, and what is interesting is that they have all been positive on this SI. So I am not sure what a full consultation would have produced in excess of the current SI. Anyway, that is what we have, and I very much hope that it too will sail through shortly.

Benchmarks (Amendment and Transitional Provision) (EU Exit) Regulations 2019

Debate between Earl of Kinnoull and Baroness Kramer

Monday 18th February 2019 Lords Chamber

[The Earl of Kinnoull (CB)]

It is a pleasure to follow that stream of logic, with which I agree entirely.

I wish to say two things. The Explanatory Memorandum was published initially on 23 November, so we are now in the 87th day after that. It generated a great deal of comment, which was widely circulated to people who were interested. Again I rang round various people in the course of the past few days and no one has raised any objection to this. In fact, everyone has said how important it is.

In answer partly to what the noble Baroness, Lady Kramer, said, I notice that paragraph 2.6 of the Explanatory Memorandum states:

“Without these provisions, the FCA would not have an effective framework designed to prevent benchmark manipulation in the UK, affecting the integrity and attractiveness of the UK’s financial markets”.


The Explanatory Memorandum is right behind the noble Baroness in her point about the necessity of having the benchmarks properly looked after.

I have looked at a list of all the benchmarks and it is worth saying that many of them have been invented here in London—they are British—and so it is unsurprising that the naughty behaviour took place here and that the skills lie with our own regulators to prevent misbehaviour.

[Baroness Kramer]

Part of the problem is that it was not our regulators that identified years of benchmark manipulation but the US regulator and the US media. We need to be clear about that. Our regulators came in late in the day and only after a huge amount of pressure and exposure.

Secondly, while banks were manipulating Libor and some of the foreign currency exchange rates in order to increase their profits to suit certain circumstances, they were doing it, they thought, quite openly. People were shouting at each other across various trading floors that X would like the benchmark set here and Y bank would prefer it to be set there and whether they could do them a favour. The Bank of England was then implicated in instructing various banks to manipulate the rate at the time of the financial crisis in order to disguise from the wider market how difficult banks were finding it to raise financing. So, rather than reporting the actual rate they were being offered in the market, they were reporting a lower rate to suggest that they were being looked at more favourably; and because the Bank of England saw this as necessary for financial stability, it is itself implicated in some of the manipulation.

One of the concerns that I have that underlies this is that the FCA will be in a position with this SI to be the administrator, but it now becomes the sole administrator rather than one working in partnership with other EU administrators. That could lead to a vulnerability, with the challenge coming not from the EU but from the United States.

[The Earl of Kinnoull]

Thank you for that. I do not want to be the defence attorney for the regulators but the FCA would argue that it did not have the relevant powers beforehand. However, I shall not go there.

Again, this will be the effective framework to enable the FCA to do that work. Without this SI there is no framework.

At the end of the paragraph in the Explanatory Memorandum headed “Why is it being changed?” it states:

“If this instrument were not made, there would be significant market uncertainty among UK and third country providers over whether they would still need to be compliant by 2020, and among users over which benchmark they could lawfully use”.


In other words, it is a complete mess. The size of the markets that are affected by these benchmarks is vast. I am not sure that I quite understand the reasoning behind the amendment moved by the noble Lord, Lord Adonis, to decline these regulations. It seems he is trying to take aim at a government process and is actually clobbering the City. I feel that is wrong and I very much hope he will not press his amendment.

Financial Guidance and Claims Bill [HL]

Debate between Earl of Kinnoull and Baroness Kramer

Committee: 4th sitting (Hansard): House of Lords
Wednesday 13th September 2017 Lords Chamber

[Baroness Kramer (LD)]

My Lords, this is not an area that I knew about before the noble Lord, Lord Hunt of Wirral, got to his feet, but he has thoroughly persuaded me and I hope that he has thoroughly persuaded the Government.

[The Earl of Kinnoull (CB)]

My Lords, as usual, the noble Lord, Lord Hunt, is right on the money and I do not disagree with a word that he said. I would add one tiny little thing: the net effect of the MROs and the CHCs is that they add to the cost of motor insurance in this country so that poorer people who struggle to pay their motor insurance will find it further away from them. For that solid reason, I strongly support the noble Lord’s two amendments.