Bank of England and Financial Services Bill [HL]

Lord Ashton of Hyde Excerpts

Tuesday 15th December 2015 Lords Chamber

13: Before Clause 18, insert the following new Clause—
“Financial Conduct Authority
In Chapter 1 of Part 1A of the Financial Services and Markets Act 2000 (the Financial Conduct Authority), after section 1J insert— “Recommendations1JA Recommendations by Treasury in connection with general duties
(1) The Treasury may at any time by notice in writing to the FCA make recommendations to the FCA about aspects of the economic policy of Her Majesty’s Government to which the FCA should have regard when considering—
(a) how to act in a way which is compatible with its strategic objective,(b) how to advance one or more of its operational objectives,(c) how to discharge the duty in section 1B(4) (duty to promote effective competition in the interests of consumers),(d) the application of the regulatory principles in section 3B, and(e) the matter mentioned in section 1B(5)(b) (importance of taking action to minimise the extent to which it is possible for a business to be used for a purpose connected with financial crime).(2) The Treasury must make recommendations under subsection (1) at least once in each Parliament.
(3) The Treasury must—
(a) publish in such manner as they think fit any notice given under subsection (1), and(b) lay a copy of it before Parliament.””

[Lord Ashton of Hyde (Con)]

My Lords, this amendment provides for the Treasury to issue remit letters to the FCA, a measure first announced in relation to both the PRA and FCA in the Government’s productivity plan in July. The Bill already makes provision for the Treasury to issue remit letters to the PRC and the amendment will enable Peers to consider provisions for the FCA and PRC remit letters together. As the House will know, the Bank of England and Financial Services Bill generally relates to the governance of the Bank, rather than the FCA. However, we have been considering the best legislative vehicle for the FCA remit letter provision and have decided that it would sit best alongside the PRC remit letter provision. As to the remit letter’s content, the productivity plan outlined that remit letters will provide information on the Government’s economic policy and will make recommendations about aspects of that policy to which the FCA should have regard. The recommendations in the letters will not be binding and will not compromise, modify, or override the FCA statutory objectives in any way; neither will they relate to individual firms or cases.

As to the timing and frequency of the publication of the letters, we are aiming to publish the first FCA remit letters following Royal Assent for the Bank of England and Financial Services Bill, after which they will be published at least once per Parliament. The letters will be used to provide a steer on the Government’s economic strategy over that period, but letters could be sent more frequently if particular issues arise.

Finally, the Treasury must publish its recommendations and lay a copy before Parliament. I beg to move.

[Baroness Kramer]

My Lords, our one concern with this amendment was that it could in some way compromise the statutory objectives of the FCA as laid down by Parliament. The Government wrote to us with an assurance that that was not their intention. Today, the Minister read into the record the text of the letter. He said that the recommendations would not compromise, modify or override the FCA’s statutory objectives in any way. Given that a Minister’s statement in Hansard is a weighty commitment, we are satisfied with the amendment.

[Lord Davies of Oldham]

My Lords, I was going to make almost exactly the same contribution and my question was exactly along those lines, so I am happy to endorse what the noble Baroness, Lady Kramer, said and look forward to the Minister’s response.

[Lord Ashton of Hyde]

My Lords, I am very grateful to both the noble Baroness and the noble Lord, Lord Davies. I can only repeat what I said before. I accept the weight and the implications of what I have said.

Amendment 13 agreed.

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[Lord Naseby (Con)]

My Lords, I shall speak to the new clause which stands in my name as Amendment 15. In doing so, I reflect the privilege of working with the mutual movement for 30 years. In creating this amendment, it was very clear that the Bill as it stood left some gaps of the one-size-fits-all kind. I gave some examples on Second Reading and further examples in Committee. Indeed, I can record this evening in your Lordships’ House that there is one new mutual insurer now trading, for the first time in 20 years. It is a new military mutual, serving our Armed Forces. I cannot think of a better new mutual to stand on the market than one which serves our Armed Forces.

I pay tribute to the Front Bench and in particular to the Minister. I understood that the examples I gave of misunderstandings, or of being left out or not fully understood, have been looked at by Her Majesty’s Treasury. I think that they were found to be quite genuine cases. I recognise that Her Majesty’s Government reserved the right, from the start, to look at the wording of the original new clause that I had tabled. I always had an open mind that those words might have to be amended, if necessary. They have been and are now before us.

There is still a problem in the world outside in understanding this. Half the population is being served by mutuals, yet very few people in authority really understand the driving force behind the mutual movement and why it is growing today. There is a need for all of us in society, particularly the regulators, to have a better understanding. I question whether the new regulator has anybody senior who has ever worked in a mutual. If not, then I hope there will be some appointments made hurriedly.

As far as the mutual movement is concerned—the building societies, the mutual insurers, the friendly societies and credit unions, and of course the Co-Op—tonight will be a special night if this new clause is accepted. It will recognise that their future needs will have to be considered and be better understood, so I say a huge thank you on their behalf to your Lordships’ House if this new clause is accepted.

[Lord Ashton of Hyde]

My Lords, I am grateful to both the noble Baroness, Lady Kramer, and my noble friend Lord Naseby for raising this important issue. I will take each of their amendments in turn.

The amendment in the name of the noble Baroness, Lady Kramer, would add diversity of provision, including diversity of ownership, geography, community and size, to the list of factors to which the Financial Conduct Authority may have regard as part of its competition objective. The Government agree that access to suitable and affordable banking services is important for communities across the UK. The Government want to see greater competition in our banking sector, with more banks challenging the large incumbents. If communities or entrepreneurs want to set up a bank, either to serve their local community or to compete nationally, and can do so responsibly, Government and regulators should not be an obstacle to this.

This is exactly why the FCA is already required to promote effective competition in the interests of consumers of regulated financial services. We would expect its consideration of competition already to involve not just the number of competitors but the diversity of approach, including geographical location and community. In advancing its competition objective, the FCA may take account of various factors including barriers to entry for new providers of financial services, the needs of different consumers and the differences of businesses.

[Baroness Kramer]

Can I just add one point for the Minister? The FCA has recently completed a review of its competition objective, and he may be surprised to find that the word “diverse” does not occur anywhere in that review.

[Lord Ashton of Hyde]

After this, it will be alert to the need to look at diversity. I will come to how we deal with mutuals in a minute. On the last point about the needs of consumers and the differences of businesses, the statute is also clear that the regulators should recognise the different features of a diverse range of business models when pursuing objectives. This is achieved by the principle of good regulation whereby the regulators must have regard to,

“the desirability where appropriate of each regulator exercising its functions in a way that recognises differences in the nature of, and objectives of, businesses carried on by different persons subject to requirements imposed … under this Act”.

As part of fulfilling the existing competition objective, the Government have worked with the regulators to lower barriers to entry. That is why the Government created the Payment Systems Regulator to ensure all banks can access the payments systems on fair and equal terms.

These reforms and others have already had a significant impact, which I hope answers, in part, the noble Lord, Lord Davies. Between May 2010 and May 2015, eight completely new UK banks, all of different sizes and locations, were authorised by the regulators, including two new banks during this Parliament, with several more in the pipeline. This compares to just one new authorisation of a UK bank in the preceding five-year period. The PRA and FCA will also launch their new bank start-up unit on 20 January next year.

Furthermore, to encourage banks to provide services across a broad range of geographical locations and improve access to finance for small businesses across the UK, a number of measures have been implemented, which I will briefly go through. There is now the SME appeals process and the Business Banking Insight survey. The Government have also established the British Business Bank. These improvements complement another initiative: the postcode lending policy, which has allowed for these alternative finance providers and challenger banks to target regional lending “black spots” through publishing lending data by geographical region. This makes the British banking industry the most transparent in the world.

Given all the activity already taking place in this field, it is the Government’s view that the amendment in the name of the noble Baroness, Lady Kramer, will not add to the existing work being conducted by the FCA. It is clear the regulators already take these factors into consideration when fulfilling their competition objective, so this amendment is unnecessary. I therefore respectfully ask the noble Baroness to withdraw it in due course.

Turning now to my noble friend Lord Naseby’s amendment, I indicated in Committee that the Government looked favourably on the intention behind his original amendment. I now welcome my noble friend’s current amendment, which we are delighted to accept. I am extremely grateful to him for raising this issue, and acknowledge the work he has undertaken in advancing the cause of mutuality. I hope that introducing the amendment, which puts consideration of mutuality and other types of business organisation into both regulators’ guiding principles, reassures noble Lords, including the noble Lord, Lord Davies, that the Government strongly support a diverse financial services sector and the part that mutuals play in achieving it.

Lastly, the noble Lord, Lord Davies, asked whether an amendment was needed to the FCA remit letter to reflect the amendment that we will accept. We do not agree, and I therefore cannot give that commitment, because the provision for the remit letter already allows the Government to make recommendations about aspects of their economic policy relevant to the application of the regulatory principles, which will apply to the principles as amended.

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Moved by

[Lord Ashton of Hyde]

21: Clause 26, page 22, line 6, at end insert—
“( ) Regulations under subsection (3) may make the provision mentioned in subsection (6)(c) only with the consent of the Council of Lloyd’s.”

[Lord Ashton of Hyde]

My Lords, this may not be quite so interesting. Clause 26 will introduce a power into the Financial Services and Markets Act 2000 for the Treasury to make regulations relating to transformer vehicles. Transformer vehicles are used for risk mitigation purposes, particularly in connection with insurance-linked securities business.

Lloyd’s is an important part of the London insurance market. The clause enables the regulatory arrangements of Lloyd’s to be updated, should that be needed to facilitate the Lloyd’s market adapting to insurance-linked securities business and the use of transformer vehicles. If this requires amendments to the Lloyd’s Acts, or makes other provision unique to Lloyd’s, new subsection (10) ensures that the regulations will not be treated as a hybrid instrument, so that amendments are not delayed in Parliament by the hybrid procedure.

During Committee stage, the Delegated Powers Committee considered this clause and reported that the power conferred was,

“adequately explained and justified in the memorandum”.

However, the committee raised a concern about the disapplication of the hybrid procedure, particularly in relation to regulations conferring functions on the Council of Lloyd’s. The committee pointed out that the purpose of the hybrid procedure is to protect private interests and recommended that the clause be amended,

“so that the power in subsection (6)(c) may not be exercised without the consent of the Council of Lloyd’s”.

The Government have considered this recommendation carefully and agree with the committee’s recommendation. Therefore, this amendment qualifies the power in new subsection (6)(c) to make regulations relating to Lloyd’s so that the power can be exercised only with the consent of the Council of Lloyd’s. I beg to move.

[Lord Davies of Oldham]

My Lords, the Government received good advice from the Delegated Powers Committee. I am surprised that they deliberated for a period before reaching the right conclusion—that is, agreeing with the committee.

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[Lord Ashton of Hyde]

I am grateful to the noble Lord for those comments.

Amendment 21 agreed.

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Moved by

[Lord Ashton of Hyde]

27: After Clause 28, insert the following new Clause—
“Financial Services and Markets Act 2000 (Consequential Amendments and Repeals) Order 2001
(1) The revocation of the Financial Services and Markets Act 2000 (Consequential Amendments and Repeals) Order 2001 (S.I. 2001/3649) by the National Savings Regulations 2015 (S.I. 2015/623) is to be treated as never having had effect.
(2) Accordingly, in the Schedule to those regulations, omit the entry for that order.”

[Lord Ashton of Hyde]

My Lords, the amendments in this group are being made to correct an error made in the National Savings Regulations 2015. Those regulations revoked a number of statutory instruments with effect from 6 April 2015. By mistake, these included the Financial Services and Markets Act 2000 (Consequential Amendments and Repeals) Order 2001, which I will refer to as the 2001 order.

The 2001 order, which was revoked, was used to make most of the consequential amendments and repeals that were required to give effect to the Financial Services and Markets Act 2000. It amended a range of primary and secondary legislation, including the Companies Acts, the Bank of England Act 1998, the Building Societies Act 1986, the Pensions Acts and other legislation related to financial services.

In some cases, the amendments made by the 2001 order have been superseded by subsequent legislative developments, but in many cases they are still necessary, and the repeal of the instrument making them has left the law in a state of considerable uncertainty.

The only way in which this regrettable uncertainty can be cured is for the revocation of the 2001 order to be cancelled out. That is what the amendments do. Amendment 27 provides that this revocation shall be taken as never having had effect. This amendment would have retrospective effect. We do not believe anyone would be adversely affected by the amendment. On the contrary, the law will be assumed to be as it was in force before the accidental revocation of the 2001 order. This amendment will restore the law to what it is presumed to be.

To sum up, the 2001 order was and still is necessary. It was accidentally revoked in the National Savings Regulations 2015. The amendment is cancelling that relocation ab initio so that the 2001 order will still be in force.

The second amendment, Amendment 30, will ensure that the first amendment is brought into force on Royal Assent. This ensures that we can restore legal certainty as soon as possible and limits the degree of retrospection involved.

I beg to move.

[Lord Davies of Oldham]

My Lords, I have seen some responses of a technical nature from Governments in the past which have brought some wry amusement, but I think the noble Lord has hit a new high on this occasion.

According to my notes, and I hope I am reflecting exactly what he said, to ensure legal certainty, the revocation is treated as never having had effect. We are getting to the end of this part of the Bill—and probably not before time.

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Moved by

[Lord Ashton of Hyde]

28: Clause 29, page 27, line 44, leave out “and published by the Treasury” and insert “by the Treasury and published by the Treasury before the designation date in the appropriate Gazettes.
( ) The appropriate Gazettes are the London Gazette and—
(a) if the part of the United Kingdom specified under subsection (1)(b) is Scotland, the Edinburgh Gazette;(b) if the part of the United Kingdom specified under subsection (1)(b) is Northern Ireland, the Belfast Gazette.”

[Lord Ashton of Hyde]

Finally, my Lords, this amendment implements a recommendation of the Delegated Powers Committee made in relation to Clause 29 in its 11th report.

The clause permits the Treasury to make regulations authorising a bank to issue banknotes in Scotland or Northern Ireland in place of an existing issuer in the same group. The designation date on which the authorisation of the new issuer takes effect and the authorisation of the existing issuer ceases must either be set out in the regulations or published by the Treasury in accordance with the regulations.

The Delegated Powers Committee noted:

“A similar arrangement is allowed for in the Bank of Ireland (UK) plc Act 2012, but that obliges the board of the Bank of Ireland (UK) to publish notice in the London Gazette and the Belfast Gazette of the day appointed, and to do so before that day”.

The Delegated Powers Committee recommended that an equivalent requirement as to publicity should apply under the Bill.

The amendment will ensure that wherever the regulations authorising a new issuer do not set out the designation date, they must require the Treasury to publish notice of the designation date in the relevant Gazettes. This will be in the London Gazette and Edinburgh Gazette where a bank is being authorised to issue Scottish banknotes, or the London Gazette and Belfast Gazette where the bank is being authorised to issue Northern Ireland banknotes. I beg to move.

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Moved by

[Lord Ashton of Hyde]

29: Clause 30, page 28, line 30, after “Treasury” insert “or the Secretary of State”

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Moved by

[Lord Ashton of Hyde]

30: Clause 32, page 29, line 22, at end insert—
“( ) section (Financial Services and Markets Act 2000 (Consequential Amendments and Repeals) Order 2001);”