Financial Services Bill

Debate between Lord Bruce of Bennachie and Lord McNicol of West Kilbride

Committee stage & Committee: 2nd sitting (Hansard) & Committee: 2nd sitting (Hansard): House of Lords
Wednesday 24th February 2021 Grand Committee

[Lord Bruce of Bennachie (LD) [V]]

My Lords, that was a powerful speech by the noble Lord, Lord Sikka, and clearly, a lot must be addressed. I served on the EU Financial Affairs Sub-Committee and the Treasury Select Committee, and currently serve on the EU Services Sub-Committee. Therefore, I am well aware of the contribution the sector makes across the UK.

The UK helped to shape the regulations and rules for the EU, but we have now left. The sector has consistently argued that a reputation for high standards and effective regulation is important to the confidence the world expresses in the UK’s financial institutions—notwithstanding the failures that have occurred. The combination of the European Parliament and the UK Parliament ensured that regulators have been accountable. I do not claim to be a technical expert on what is a complicated sector, but I recognise the dangers of regulation becoming an unaccountable closed book.

I support the case for a properly resourced specialist joint committee to ensure that regulators are held accountable, not so much on technical detail but in terms of a prudential framework and overall direction. That would be in the interests of the regulators and government Ministers as well as those who depend on a well-regulated and reliable sector. I share the concern that what the Government are trying to do will ultimately bite back if there has been no proper parliamentary oversight in a future scandal. The Government and the regulators will have nowhere to hide, but that will be very little comfort to people who may suffer from regulation failures.

Financial services are distributed throughout the economy. People often refer to the City of London, but we know that jobs and activities are distributed throughout the UK and have been growing in all the devolved Administrations. Edinburgh is the UK’s most important financial centre and one of the most important in Europe. According to TheCityUK, financial services contribute £13 billion, or 9.4% of GVA, to the Scottish economy. More than 160,000 people are employed in financial and related professional services, which is nearly 6% of Scotland’s national employment. The sector includes banking, fund management, insurance, life assurance and pensions, asset servicing and professional services.

Interestingly, Scotland accounts for 24% of all UK employment in life assurance and 13% of all banking employment. Given that Scotland has 8.5% of the population of the UK, this is clearly disproportionately important. According to Scottish Development International, there are more than 2,000 financial services businesses, supported by 3,650 professional services firms. Scotland’s financial and professional services exports account for 40% of all Scottish services exports.

Having said that about Scotland, tens of thousands are employed in the sector in Wales and thousands in Northern Ireland, and the number is growing in all the devolved areas. My Amendment 137 takes this into account and seeks to ensure that the devolved Administrations are consulted about any proposed changes in financial services regulations. It is clearly in the interest of the sector to have clear and common regulations across the United Kingdom, which is why this amendment looks for consultation only. It merely seeks to ensure that any factors of particular importance to a devolved Administration are, as far as possible, accommodated. I can see no conceivable advantage to financial services companies to diverge from UK regulation. After all, as the figures I cited show, a significant part of the financial services sector in Scotland is serving the whole UK market. The last thing it needs is a distracting push separating it from its customers, either by erecting barriers at the border or by promoting an alternative Scottish currency, which would undermine the raison d’être of serving the UK from Scotland, or a “sterlingisation” agenda that would put huge pressure on the public finances in Scotland.

My amendment seeks to avoid any unintended negative consequences. It is not intended to cause delay or to encourage special pleading. Given the particular importance of Scotland’s role in delivering life assurance and banking, it is surely right that any changes being considered to regulations affecting these sectors are not proceeded with until appropriate consultation has taken place.

That said, it is also important to recognise the role of professional support services, given Scotland’s distinctive legal system and, for example, accounting qualifications. The expertise that exists in Scotland should in any case surely be drawn on to inform regulations if and when changes are being considered. I share concerns that the Government are proceeding to build an architecture that lacks an adequate parliamentary dimension. It is perfectly reasonable to ask the legislatures of the devolved Administrations to be involved in contributing to the shaping of regulations, at least in their broad prudential thrust.

I look forward to hearing what the Minister has to say. I hope he will recognise the force of the arguments put by noble Lords about the need for a significant and effective parliamentary dimension and a recognition that the devolved Administrations, especially Scotland, should be able to contribute constructively and positively to that outcome.

[Lord McNicol of West Kilbride (Lab) [V]]

My Lords, one of the joys of being at the end of such a large group of amendments and a long speakers’ list is that very much of what needs to be said has already been said, so I will be brief.

The contributions from across your Lordships’ Committee, from the noble Baronesses, Lady Noakes and Lady Bowles, and my noble friend Lord Davies, outlined the importance of parliamentary and democratic oversight and the different levels and ways of delivering it. The contribution of the noble Lord, Lord Holmes, on the right levels of oversight also helped move the debate on.

The balance between regulatory authorities’ powers and those of Parliament is critical. My noble friend Lord Sikka clearly outlined in detail many of the failures of the regulators and of the FCA, so getting the levels right is critical. I add my support for those amendments that I am pushing forward. I look forward to the Minister’s response and to how we move this forward to Report and Third Reading.