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

Lord Adonis Excerpts

Monday 18th February 2019 Lords Chamber

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[Lord Adonis]

Leave out from “that” to the end and insert “this House declines to approve the draft Regulations because no consultation has taken place on them despite Her Majesty’s Government’s economic assessment indicating that transition and associated costs will be significant”.

[Lord Adonis (Lab)]

My Lords, the same issues basically apply on this regulation as on the last and I am not going to repeat the arguments. However, I would like to ask the noble Lord a question about the impact assessment which is published alongside the instrument. The costs in respect of this benchmark regulation, although considerable for each individual firm at £520, are less considerable overall because it is a much smaller number of firms. However, the footnotes to the impact assessment say:

“This refers to the current number of approved benchmark administrators. Given the regime is not yet fully in force, we expect this number may increase”.


Can the Minister give some indication of what level the number is expected to increase to? Again, I am not familiar with this sector and I do not know whether we are talking about it increasing by dozens or hundreds. However, I would like to get some sense of whether the total burden which this regulation alone is going to impose on the sector is in the thousands of pounds or the millions of pounds. It would be useful to have the figures. I would be grateful if the noble Lord could tell us what the estimate is, as the new benchmarks regime comes into place, of how these numbers will increase, so that we can put on the record a more accurate sense of what the actual burden is going to be.

[Baroness Kramer (LD)]

My Lords, I have a really serious question that I want to put to the Minister. I am concerned that one of the effects of this SI—I am not going to oppose it because I think that we have no choice but to allow it through—is to separate ESMA from the UK regulators of benchmarks administered in the UK. In this House and elsewhere, and I am sure that I have said it myself, we frequently talk about the excellence of UK regulators, but I am afraid that the history of the UK regulation of benchmarks is one where we frankly have to hang our heads in shame. The Libor scandal, which was finally exposed six or seven years ago, had clearly been a scandal in play for at least a decade. It represented a prolonged period in which Libor particularly, but other benchmarks as well, was being manipulated by the banks to achieve particular outcomes.

The regulator did not identify the problem and, when the regulators decided that they must act after much of this was exposed—primarily by US regulators and in the US media—found that at the time it was not even illegal to manipulate a benchmark in the UK. Consequently, the regulators were pretty powerless. I think that a couple of people have been brought to account, but very few of those who were engaged in or knew about this process—and certainly not the raft of senior management that benefited from the exceptional profits that led to higher pay for chief executives and others, year after year. It was a huge scandal.

Immediately after the scandal was exposed, the United States took the view that the UK regulators were so weak and so essentially complicit in this area that the US itself, particular for any dollar-denominated transactions, should become the locus of benchmarks. Obviously the UK fought back, because it is an iconic role seen as significant to underpinning the UK’s status as a global player in financial services. While I do not know many of the details, I believe that the link to ESMA—the reassurance that there is more than one set of regulator eyes covering the way in which benchmarks have been administrated—has been important in keeping the primary benchmarks in play in London.

I understand that the role of this SI is to say that benchmarks administered in the EU can still be used in the UK—that is almost the sole purpose. But, as I say, I am concerned that the future standing of the UK as the locus of most of the benchmarks used across the globe in nearly every transaction, no matter where that transaction takes place, is potentially undermined by the kind of separation that the Minister has just described. Is he aware of any aggressive moves by the United States to say that the situation is changing? We now have the UK regulator standing alone once again. We certainly hear from the UK a great deal of language about how regulation needs to become lighter touch and should not be so heavy-handed, and how we should be much more inclined to allow greater risk taking and greater profit taking. Will this become the occasion where the United States acts to use its weight, its authority and its legislative force to try to undermine London as a locus? Should there be something in the whole language that surrounds this of an ongoing co-operation and element of supervision that continues to involve ESMA to provide a defence for London in this arena?

--- Later in debate ---

[Lord Adonis]

My Lords, I shall not press the amendment. I am extremely grateful to, and flattered by, the compliment paid by the noble and learned Lord, Lord Mackay. He said that he does not understand my opposition to these regulations, but he will appreciate that there is no way in which I could conceive of being a Minister proposing to put arrangements in place for a no-deal Brexit. I would regard that as a fundamental betrayal of the national interest. Therefore, if he accepts as a premise that the whole activity that the state is engaged in at the moment is, in my view, fundamentally illegitimate, he might accept that the course that I am pursuing is at least logical.

[Lord Mackay of Clashfern]

Perhaps I should respond by saying that I did understand that. Fundamentally, the noble Lord, Lord Adonis, believes that his wisdom is superior to that of the 17 million who voted the other way.

[Lord Adonis]

And I am very anxious that they should have an opportunity to cast their vote on the deal which they can now see but which they did not know about three years ago because it did not exist. I am fairly confident that if the electorate of this country had any idea that three years ago they might have been putting in place arrangements for a no-deal Brexit, they would not have gone anywhere remotely close to the situation that we have today. However, on that note, I beg leave to withdraw.

Amendment to the Motion withdrawn.