Critical Benchmarks (References and Administrators’ Liability) Bill [HL]

Lord Blackwell Excerpts

2nd reading
Wednesday 13th October 2021 Lords Chamber

[Lord Blackwell (Con)]

My Lords, I welcome my noble friend Lord Altrincham into the House. He brings huge expertise in financial services, which will be extraordinarily valuable.

Before I address the substance of the Bill, I should declare my interest, or at least my former interest, as the chairman of Lloyds Banking Group until the beginning of this year, and I confirm that I have no ongoing interests other than as a shareholder.

Like other noble Lords, I very much welcome the Bill. I add my thanks to the Minister and his honourable friend the Economic Secretary to the Treasury for their efforts in listening and responding to the concerns that industry and a number of us have raised. There has been widespread acceptance in the remarks made so far in this debate of the need to replace Libor, and of the importance of doing so in a way that both is fair and provides legal certainty. I will not go over those arguments again but, as the Minister recognised, despite the best efforts of banks and other institutions to migrate contracts, there are, I understand, currently some 55,000 sterling Libor contracts with a value of around £340 billion that are still unresolved. While I hope the Minister and the FCA are right that most of those will be resolved by the year end, there are likely still to be a number left on Libor. Many of those will be individual mortgages and small business loans where the individual businesses or consumers simply have not responded to the offers made to them. However, there may also be some where the counterparty has deliberately withheld consent in order to achieve a better outcome.

As my noble friend the Minister has said, all of these are contracts that, under Libor regulations’ Article 23C, can be designated by the FCA as tough legacy contracts. Where they can then be mandated by the FCA for these contracts, references to Libor can continue—but, with the way that Libor is determined, replaced by a synthetic substitute, using the methodology that the FCA defines under Article 23D.

This methodology has been widely consulted on, and I am comfortable that it appears to be a sensible approach that will reduce some of the volatility that there has previously been in the market and that should provide a sensible outcome. Could the Minister confirm that this methodology—which, as he pointed out, the FCA, rather than he, is responsible for—is consistent with the internationally accepted methodology for Libor replacement and with the methodology that has been used by most commercial contracts so far in reaching voluntary agreement?

The reality is that there is no perfect substitute for the interest rate that might have prevailed under Libor, with the resultant risk that some counterparties might claim that the change negates their contracts or causes them losses. I welcome fact that the Bill provides the legislative underpinning to provide legal certainty that synthetic Libor should be recognised as a valid substitute for Libor in these legacy contracts.

The key provision is that this applies to contracts designated by the FCA, as covered by the legislation. As other noble Lords have pointed out, it is not yet clear what those contracts are, but my understanding is that this is expected to cover all outstanding contracts for a period of 12 months. To avoid further uncertainty, could the Minister, although he is not responsible for this, confirm that that is his expectation and that there is no intention to have a hard cut-off at 12 months or to exclude certain contracts from ongoing cover under these provisions at the end of 12 months? It would also be helpful if he could reconsider whether it is necessary to have a 10-year time limit for the use of synthetic Libor, given the tenure of some of those contracts.

As my noble friend Lady Noakes pointed out, the Government have decided not to include the other provision that they consulted on of a safe harbour against litigation, as a belt-and-braces measure to reinforce the legal certainty. I understand the reluctance to make provisions that might hinder legitimate claims of mis-selling, but I share the reservations that potential claims that run against the intention of this legislation may still be pursued and can be costly, even if they do not ultimately succeed. If the Government choose not to legislate for the safe harbour following these debates, it would be helpful if the Minister could put on the record that it should not be grounds for mis-selling simply to claim that the provider did not communicate any potential weaknesses in Libor as a benchmark or did not envisage or provide for a replacement if Libor ceased.

In confirming the intent of this legislation, on which I acknowledge that my noble friend the Minister has said some very helpful words, it might also help if he could confirm on record the specific and very helpful wording set out in writing in paragraph 25 of the Explanatory Notes to the Bill, which do not form part of the legislation, as it stands. It says:

“The provisions … are … intended to ensure the application of a synthetic methodology … does not inadvertently give rise to breach of contract claims or provide a vehicle for one party to claim that the contract has been frustrated.”


I also ask Minister to consider whether, as another way to discourage vexatious claims, it would be helpful, as an exception to the normal rules, to publish the Government’s legal advice that has given them confidence that the legal certainty provided under this legislation is adequate to avoid potential unwarranted litigation risks.

I very much welcome this legislation. I will support it through the House, and I thank the Government for bringing it forward.

Financial Services Bill

Lord Blackwell Excerpts

Report stage
Wednesday 14th April 2021 Lords Chamber

[Lord Blackwell (Con) [V]]

My Lords, I should like to speak to Amendment 37A in my name and remind the House of my former interest as chairman of a regulated bank until the beginning of the year.

As the noble Baroness, Lady Bowles, set out, within the group there is a range of amendments that seek to serve the same purpose and there is a lot of common ground, as indeed there is in the letter of the Economic Secretary that was circulated today. All the amendments reflect a broad consensus, as expressed in previous stages of the Bill, that with the new rule-making powers post Brexit, there is a need to establish more formal parliamentary scrutiny. There has been consensus in the debate that scrutiny requires a committee charged with that role and appropriate technical support. I and others have made the case that that should involve a joint committee of both Houses, although that is not for this legislative stage.

There is also agreement in all these amendments that where regulators precede their regulation with a public consultation, the information should be provided to Parliament at the same time to allow time for it to comment and its views to be taken into account before the rules are finalised. There is also common ground that regulators should take note of Parliament’s views and respond in some form.

I therefore have some sympathy with the amendment, and Amendments 19 and 20, moved and spoken to by the noble Baroness, Lady Bowles, but I prefer mine because those amendments, particularly Amendment 20, are overly prescriptive on the nature of the information and the interaction between the regulator and a parliamentary committee. It should be up to the committee charged with this responsibility to set out exactly the information it wants and how it should interact, as a parliamentary, rather than legislative, matter.

My amendment also adds the requirement for Her Majesty’s Treasury to set the regulations through secondary legislation, to take note of the parliamentary scrutiny and to bring forward statutory instruments to change the secondary legislation that provides the legal framework for rule-making, which may be a necessary response to the comments made. That is also fully consistent with the Economic Secretary’s letter.

The big divide is between my amendment and Amendments 45 and 48, which introduce a requirement for parliamentary approval of rules before their introduction, other than in exceptional circumstances. Such a requirement would fundamentally change the relationship and role of regulators, originally established as independent, apolitical experts acting under parliamentary laws. Of course, regulators should be subject to scrutiny in their role but for Parliament to approve rules before they are enacted removes the independence of the regulators, effectively thereby making Parliament the operational rule-maker and those rules more subject to political views and intervention. We do not impose that ex-ante approval of rules on any other regulator in any other sector, so far as I know. I cannot imagine that our expert regulators in the financial services sector would be comfortable operating under those straits, whereby anything they did had to be pre-approved by Parliament.

The case for parliamentary oversight is unanswerable, but the proper regime is for Parliament to charge the regulators with independently operating the legal framework that it sets up, and then for Parliament to scrutinise how they operate those responsibilities and to change the legal framework if it wants to change the outcome, rather than Parliament seeking to supervise and approve the detailed rule-making on a day-to-day basis. Rather than wait for future legislation, I hope my noble friend the Minister will find it possible to support my amendment. Failing that, I hope the House will clearly reject Amendments 45 and 48 and the huge —and, in my view, undesirable—shift in the relationship between regulators and Parliament that they would represent. I look forward to my noble friend’s response.

[Baroness Noakes (Con)]

My Lords, I have added my name to Amendments 45 and 48 in the name of the noble Lord, Lord Eatwell. I also support the intent behind the amendments in the name of the noble Baroness, Lady Bowles of Berkhamsted, and I know that she too supports his amendments. As has been said, these amendments concern one of the key issues that emerged during scrutiny of the Bill: the parliamentary accountability of regulators and the scrutiny of their actions. As already noted, there was widespread agreement around the House at Second Reading and in Committee that Parliament should have a role in scrutinising the rules that the FCA and PRA may make under the new rule-making powers created by the Bill.

Of much greater importance will be what happens when the Government expand the rule-making powers of the FCA and the PRA, as they have outlined in their consultation document on the review of the financial regulation framework. What we do in the context of the Bill is clearly important in signalling what we expect in the context of a larger shift in rule-making powers, if that is what the Government decide to do following consultation. This is particularly important because the Government’s analysis of parliamentary scrutiny in their consultation document was not encouraging; it was largely a defence of the existing committee activities in each House, with no regard to the new circumstances created by the extensive new rule-making powers. The Government—somewhat surprisingly, given their excellent Brexit credentials—seem not to have taken on board that the scrutiny context has changed significantly with the repatriation of financial services regulatory powers from the EU. That context should drive how we see the way forward.

Since our debate in Committee, my noble friend Lord Howe has made available to us the texts of letters from the PRA and the FCA which broadly say that they will do whatever Parliament decides, which is only right and proper. I do not think the letters add much to the analysis of the issues we debated in Committee, but they nevertheless demonstrate a constructive willingness to co-operate with parliamentary scrutiny. When my noble friend responded to our debate in Committee, I was not filled with confidence that the Government really understand the dimensions of the issues around scrutiny and accountability in the context of these additional rule-making powers. I have seen the rather late-in-the-day letter from the Economic Secretary which landed in our email boxes this afternoon. I shall be kind and say that the direction of travel is positive, but we have not yet reached a satisfactory landing point for this debate. I expect we will continue to pursue this issue well beyond the passage of the Bill.

As my noble friend Lord Blackwell knows, I do not support his Amendment 37A because it is a rear-view mirror amendment. I strongly believe that Parliament should have the opportunity to get involved with the rules made by the FCA and the PRA in time to influence their final shape. It is not satisfactory to think that ex-post scrutiny is an effective mechanism for parliamentary involvement. I do not believe the independence of the PRA and the FCA is threatened by this intervention in how rules are made, given the context of the very significant new regulatory rule-making powers expected to be devolved to them. That is why I support the amendments in this group in the names of the noble Lord, Lord Eatwell, and the noble Baroness, Lady Bowles of Berkhamsted, which provide a much better basis for Parliament’s future involvement in additional rule-making powers.

Financial Services Bill

Lord Blackwell Excerpts

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

[Lord Blackwell (Con) [V]]

My Lords, as well as adding my congratulations on the two excellent maiden speeches, it is customary to start by declaring my interests. Since I retired as chairman of Lloyds Banking Group at the beginning of the year, I am pleased to say that, for the first time in many years, I can address the House with no active interests other than as an ordinary shareholder. With that freedom, I welcome all the measures in the Bill, but I will comment on two that are particularly important.

First, it is essential to help provide more certainty on Libor contracts at this stage. In his opening remarks, my noble friend gave mortgages as an example. While I welcome the measures in the Bill, do the Government believe that the measures that enable the FCA to replace Libor in benchmark contracts are sufficient to apply to mortgages and commercial loans? Might my noble friend also consider some kind of safe harbour for banks if they suffer litigation from clients as a result of FCA instructions?

Secondly, I welcome the enabling legislation for the Statutory Debt Repayment Plan scheme, but note that, in developing the regulations later this year, it will be important to ensure that all the customer’s debts can be looked at holistically, and that the proposed plan is offered to customers only where it is the right and best solution for their particular needs.

More broadly, as the Minister made clear, many of the measures in the Bill are to establish UK-based regulations to replace those previously enacted through the European Union. I welcome the principle the Bill establishes that, unlike EU regulations, the UK should keep the primary legislation limited to the overall framework for regulation, with the Treasury providing necessary secondary legislation, with the regulators then given freedom to apply that in proportionate and flexible rules.

As the noble Lord, Lord Butler, pointed out in respect of MiFID, experience has shown that attempting to legislate in detail on the regulation of financial services can create unintended anomalies that the regulators are then powerless to address. It also inhibits their freedom to shape rules to reflect varied industry circumstances, or to adapt to market innovation, and those companies that seek to innovate. So, I also welcome the Government’s ongoing review and consultation on the future regulatory framework, which is looking at going much further in transferring responsibility for detailed rule-making back to the PRA and FCA.

While there will be debate on the initial measures covered in the Bill, the point I want to focus on, like other noble Lords, is what is missing from it on the effective governance of the regulators in exercising those increased powers. I recognise these are matters that have been subject to consultation, but they are nevertheless germane to many of the delegated powers in this current legislation. As I said, I believe it is right to give the PRA and FCA the responsibility and powers to make, adapt and apply regulations to promote the stability of our financial markets and protect the interests of consumers within the framework of laws passed by Parliament. Between them they have the expertise to do that and, as with the Bank of England, we should expect them to undertake their role with an objective independence—independent, that is, of short-term political pressures.

I welcome the fact that this Bill also introduces, for the first time, the obligation on the FCA and PRA to consider the international standing of the UK investment and credit institutions in making their rules. Like my noble friends Lord Hunt and Lord Bridges, I believe that, post Brexit, it should be part of their formal objectives to promote a healthy UK industry that can compete successfully on the global stage. To do that, there may also need to be a greater requirement for them to ensure that the two regulators have complementary rule-making and supervision without, at this stage, seeking to recreate the single FCA.

In delegating those powers to the FCA and PRA, Parliament needs to ensure that there is an effective way to scrutinise their work and hold them to account for their actions. I do not believe that the Treasury Select Committee, while it has an important and critical role, is the right or adequate forum to provide that detailed and apolitical oversight. By contrast, having served in the past on a Joint Committee on rewriting tax laws, I believe that Joint Committees of both Houses can bring greater experience and expertise to bear in a more considered and less political environment.

So, I join the noble Baroness, Lady Falkner, in proposing, as a complement to this Bill, that Parliament establishes a new purpose-built Joint Committee that I would call the financial services regulatory oversight committee. It would be supported by appropriate technical experts whose role would be to provide detailed scrutiny of new regulations—I stress not to give ex ante approval, but simply to review them after the event. The committee could also take evidence from those in the industry on the implementation of financial regulations and any concerns that raised. If necessary, the committee could then have the power to propose statutory instruments to Parliament where amendments were required.

The Bill may or may not be the right place to introduce provision for this kind of oversight. I recognise that the Government’s consultation has only just closed, but I would welcome any early thoughts my noble friend can give on how the Government see this oversight issue being addressed and what their timetable is for doing so. I look forward to the Minister’s response.

European Union (Withdrawal) Bill

Lord Blackwell Excerpts

Tuesday 30th January 2018 Lords Chamber

[Lord Blackwell (Con)]

My Lords, while noting my business interests as set out in the register, I would like to make it clear that I will be speaking in this debate and at later stages of the Bill in a purely personal capacity as a Member of this House.

Listening to the debate, I note that many views have, of course, been expressed around the House on the merits of what we are embarked upon. Noble Lords will know that I was, and remain, a supporter of the argument that Britain had no option but to leave the European Union as it progressed towards political and economic union. Despite what the noble Lord, Lord Bilimoria, said, after the Lisbon treaty we were not signed out of that. However, those arguments are now behind us. Article 50 has been triggered and I urge all noble Lords, whatever their past views, to now come together to ensure that we make the best of the future that we will now have outside the European Union. I was pleased to hear that view echoed in many contributions from around the House.

I will make two points based on what I have heard. First, as we debate the Bill, it is important that we promote a positive and optimistic view that encourages the nation to seize the opportunities ahead of us. The decision to leave was not, for me—or for most people, I believe—primarily an economic equation. But while we of course hope that the European Union will agree to an arrangement that upholds its principles of free trade with our large, neighbouring but independent economy—for its benefit as well as ours—we should be confident and optimistic about our ability under any scenario to compete and prosper as an open, global trading nation in a world where growth will be driven increasingly by the faster-growing new economies around the world. I therefore ask those who are unhappy about our decision to leave to cast aside their pessimism and avoid overstating the negatives, for the greatest damage we can do to our UK economy is to undermine confidence by talking ourselves down, both domestically and in the view we project to overseas investors.

Much is made of economic forecasts, but economic forecasting is not a science, and the reality is that the output of economic models largely reflects the assumptions fed into them. The truth is that the UK economy has been and remains resilient. As my noble friend Lord Ridley pointed out, we did not plunge into a recession in 2016, and strong economic growth continues to defy the economic pessimists. Unemployment has not soared; instead we have 400,000 more people in work than a year ago and the lowest rate of unemployment since the 1970s.

As we look forward we should recognise that we will continue to have a huge competitive advantage as a nation in our culture of innovation, our legal and political systems, our language, our flexible labour market, our strong and high-value service sector and our global network—not least with the somewhat neglected but fast-growing Commonwealth countries. We should see those countries as our gateway to the future growth economies, not dismiss them as a relic of the past. All these factors will be increasingly important advantages for the UK as we move into a new era where the basis for economic success is transformed by the revolution in digital technology and artificial intelligence. These are areas where we in the UK are already building a strong entrepreneurial base. Our success in managing this economic transformation will have a far greater impact on our future employment and living standards than the margin of error on current economic forecasts. It is a much more important area to focus on.

As I said, our future as a nation is not just about economics; let us talk positively about the opportunities of our vision for Britain as an open, outward-looking global trading nation. If we view everything from the negative mindset that we are engaged just in damage limitation, we will never inspire people to seize those opportunities and will do our country down.

Secondly, we in this House can also do our bit to remove uncertainty and build confidence by giving the Bill, which the other place has approved, a fast and supportive passage through this House. I recognise that many noble Lords have expressed concerns about the provisions for secondary legislation that will enable EU law to be transcribed into our own legal base. While it is clearly right for these powers to be scrutinised, we need to be realistic about the scale and urgency of the task. The powers are rightly circumscribed by a two-year sunset clause.

I do not accept the argument that some make that it is somehow less democratic for a UK Minister in an elected Government to lay a statutory instrument for our Parliament to approve than it is for that law to be imposed by European institutions that can override the UK Government and Parliament. I have sat for periods on your Lordships’ committees looking at delegated powers and the merits of statutory instruments, and I have a high level of confidence that our process of scrutiny—with the additional procedures suggested by my noble friend Lady Evans—will be able to hold Ministers and civil servants to account.

I therefore strongly support the passage of the Bill through our House and I urge other noble Lords, whatever their past convictions, to join in building confidence in this country’s future success.

Public Services: Private Sector Companies

Lord Blackwell Excerpts

Monday 28th October 2013 Lords Chamber

[Lord Wallace of Saltaire]

My Lords, in the case of Serco, the noble Lord will have seen that a number of senior executives have resigned in recent weeks. We welcome that and see it as a positive first step in the process of corporate renewal. Across the board, however, I am not sure that I would wish to blacken every company providing services for the state in the way that the noble Lord has perhaps suggested.

[Lord Blackwell (Con)]

My Lords, I declare my interests as set out in the register. Does my noble friend the Minister accept that there are millions of privately employed workers delivering public services who go to work every day completely dedicated to the quality of services that they deliver to the public? Does he recognise that, in tribute to their efforts, we should be clear that you do not have to be a public sector employee in order to be a public sector servant?

[Lord Wallace of Saltaire]

My Lords, one of the reasons why the Government are attempting to encourage more mutuals in this area is that there is considerable evidence that people who work for mutuals have a much stronger sense of service, job satisfaction and co-operative working.