Securitisation (Amendment) Regulations 2024

Debate between Lord Livermore and Lord Sharkey

Monday 20th May 2024 Grand Committee

[Lord Sharkey (LD)]

My Lords, we welcome this SI and will support it today. Its provisions are clearly necessary and are mostly explained clearly in the accompanying documentation. I would be grateful, however, if the Minister could say a few words about commencement and address a few questions.

Two provisions seem to come into force when the instrument is made, and the rest on 1 November later this year. As I read it, this arrangement aims, in essence, to correct a mistake in January’s SI and to give the regulators time to introduce the envisaged new rules on the repeal of existing EU law on 1 November. Is that correct? I would be happy to wait for an answer.

We have a few questions arising from HMT’s policy note of July last year, dealing with this SI. In paragraph 4.8, HMT says that

“the FCA will be provided with a specific rulemaking power to make due diligence requirements for small, registered UK AIFMs who are institutional investors”.

What progress is being made in this area? When can we expect to see the necessary draft SI?

I turn to paragraph 4.13, which explains that,

“where an OPS delegates its investment management decisions and due diligence obligations for investing in a securitisation to another institutional investor (whether they are another OPS, an FCA firm, or a PRA firm), sanctions for failure to comply would be imposed on the managing party, and not the delegating party”.

This does not appear to work the other way round. Paragraph 4.14 says:

“Where an institutional investor who is an FCA firm or a PRA firm delegates its investment management and due diligence obligations to an OPS, sanctions for failure to comply would not be imposed on the OPS as the managing party”.


Does this not let the OPS off rather lightly? Why should it not operate to the same standards of due diligence as FCA and PRA firms?

Paragraphs 4.16 and 4.17 deal with matters to which the FCA and the PRA must have regard. Paragraph 4.16 says that

“the Sec Reg contains a requirement for the originator, sponsor, or original lender of a securitisation to maintain a material net economic interest in the securitisation of at least 5% … Once the Sec Reg is repealed, the FCA and the PRA are expected to make rules covering some of the same areas, such as risk retention, for different sets of firms”.

It explicitly acknowledges:

“This risks fracturing the regime which currently exists and increasing complexity”.


The next paragraph, paragraph 4.17, proposes what seems to be intended as a remedy. It acknowledges the importance of the regime being “clear and coherent” and says that

“this SI requires the FCA and the PRA to have regard to the coherence of the overall framework for the regulation of securitisation when making rules relating to securitisation”.

It is not immediately obvious that this rather loose and third-order requirement will prevent the risk of fracturing the current regime and increasing complexity. Replacing a simple, generally applicable risk retention scheme by a layered and necessarily more complicated scheme seems a retrograde step. Can the Minister say what the current thinking is and, if we remain committed to this approach, why?

I acknowledge that I have asked some rather detailed questions. Of course, I would be happy if the Minister were to write to us in response.

[Lord Livermore (Lab)]

My Lords, I am grateful to the noble Lord for introducing this SI and setting out its purpose. I welcome him to his place.

As the noble Lord noted in his opening remarks, this statutory instrument forms part of a wider programme to deliver a smarter regulatory framework for financial services. We support this SI as it closes a potential gap in regulation. We believe that it is part of an important package of reform aimed at developing in our country a securitisation market that contributes to growth in the real economy.

I have just two questions. First, I understand that the FCA and the PRA expect to consult on further changes to their securitisation rules in Q4 2024 and Q1 2025. Is the Minister confident that those timelines will be met? Secondly, in the event of a Dissolution of Parliament, will the regulators be under any rule-making restrictions during the regulated period? Does the Treasury have a clear schedule of SIs that require consideration by Parliament in the remainder of the current Session? I thank the noble Lord in advance for his answers.

Bank of England Levy (Amount of Levy Payable) Regulations 2024

Debate between Lord Livermore and Lord Sharkey

Tuesday 27th February 2024 Grand Committee

[Lord Sharkey (LD)]

My Lords, it is obviously unacceptable that the Bank of England should be making a loss on its supervisory activities regarding the banking sector. We are happy to support this SI’s correction of that situation.

Before we allow the Bank to charge companies more, should we not ask ourselves whether there are any efficiencies that could or should be made in the Bank’s supervisory routines and systems? Could the Minister say whether the Bank has asked itself that question? If it has, perhaps the Minister could tell us what the answer was and how it was arrived at. If it has not asked the question, why not?

We note that the consultation on the levy produced only one relevant response—from, we assume, UK Finance. This response made five points; the Bank addressed four. The first was the rate of selldown of the Bank’s gilt portfolio. The concern appeared to be that this selldown would significantly increase the Bank’s costs and therefore the levy required. The Bank seemed to think that this was not an issue, but its explanation seemed very complex. May I ask the Minister for a “beginner’s guide” explanation? Is the industry right to worry about the levy increases potentially arising from a gilts selldown and, if not, why not?

The second point raised in the consultation response seemed the most important. The respondent suggested that the non-bank financial institutions, NBFIs, could in future be added as eligible levy-paying institutions in Schedule 2ZA to the Bank of England Act 1998. These NBFIs certainly seem large enough to be added. At the Managed Funds Association Global Summit in Paris in May last year, it was estimated that NBFIs now represent about 50% of global financial assets.

Addressing this point, the Bank simply says that the formal review referred to in paragraph 14.1 of the EM

“is expected to include assessment of which institutions are regarded as eligible to pay the Levy”.

I note the words “is expected to”. I also note that this review is five years away. Is not the growing size of the NBFI sector a reason for the Bank’s supervisory oversight to be much more extensive? Is it not simply unfair that NBFIs should get a free supervisory ride?

The third issue raised in the consultation and addressed by the Bank was the desirability, for planning purposes, of a five-year budget plan to help institutions plan their own budgets. The Bank has agreed to consider what is a perfectly reasonable request, but can the Minister say when it will have a substantive response to that comment from the consultation?

The fourth issue concerned the reference period; the Minister has mentioned this. The Bank concluded that the proposed reference period—the same period used for the PRA levy—is the appropriate one. Speaking of the PRA, can the Minister explain to us how the Bank of England levy and the PRA levy work together, as well as how double-charging is avoided?

Finally, why does this SI contain no coming-into-force date or commencement provisions?

[Lord Livermore (Lab)]

My Lords, we fully support the replacement of the current cash ratio deposit and the proposed mechanics of the levy. We therefore support this statutory instrument.

I have only one question, related to the timing of this measure. As I am sure the Minister would agree, providing the banking sector with certainty is essential to securing the confidence needed to incentivise investment in the real economy. Can she therefore provide clarity on when this SI will come into force?

Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2024

Debate between Lord Livermore and Lord Sharkey

Tuesday 13th February 2024 Grand Committee

[Lord Sharkey (LD)]

My Lords, we support this pensions dashboard SI, just as we supported the pensions dashboards project during the passage through the House of what became the Pension Schemes Act 2021. We continue to believe that the dashboards should deliver more information to the consumer in a comprehensive and easily understood way, and that this will make it easier to make better choices.

We understand that providing these dashboards, both for MaPS and for commercial suppliers, is a very complex undertaking. We were not terribly surprised by the delays the project has suffered but we would like some reassurance about progress from the Minister. The new connection date is set for 31 October 2026, but some services may be available before then. Could the Minister tell us when we may now expect the MaPS dashboard to be available to consumers, when we may expect commercial variants to be available and what services short of a full dashboard may be available sooner?

It would also be very helpful if the Minister could tell us when she expects the FCA rules that she mentioned, which were previously consulted on, to be published. It is hard to see commercial enterprises being able to finalise their own dashboards without sight of and understanding of the new FCA rules.

During the debates in the House on what is now the Pension Schemes Act 2021, many of us thought that the MaPS version of the dashboard should be allowed at least a year of operation before commercial versions were allowed to enter the market. Can the Minister tell us whether there is likely to be a period when the MaPS version runs alone?

We also debated the issue of allowing consumers to make transactions via commercial dashboards. Can the Minister say what the current position is? Will transactions be allowed?

The mechanics of the SI before us seem entirely straightforward and are clearly vital to consumer protection. We have no issues with either its purpose or its mechanism. We do have a couple of very minor and tangential questions. First, we are curious about the date of the SI coming into force. Why is it 11 March? Does that date have any particular significance?

The second question relates to the final sentence of paragraph 7.4 of the Explanatory Memorandum, which reads:

“Operating a dashboard may include taking regulatory responsibility for any third parties involved in connecting to MaPS digital architecture on their behalf”.


I would be very grateful if the Minister could unpack that a little. Perhaps she could give an example of such an arrangement. What circumstances would trigger the assumption of responsibility?

[Lord Livermore (Lab)]

My Lords, this SI makes good on a commitment given during the passage of what became the Financial Services Act 2021 to ensure that entities running a pensions dashboard will have to be authorised and regulated by the FCA. This is an important safeguard for pension holders and we welcome the SI, even if it has taken longer than expected to arrive and is not quite the final piece of the pensions dashboard puzzle.

In an age of scams, uncertainty about AI and increasing consumer concern about online safety, perhaps I might ask the Minister about technical safeguards that providers are expected to put in place. I understand that dashboards themselves will not store data, so there is no risk of mass collection. But if an app is not secure and someone is using a device infected with malware, for example, could bad actors still be able to view and therefore exploit data such as account names, numbers and balances? It would be helpful to know what specifications private providers will have to meet—or, indeed, whether the Government or the FCA will be setting any technology specifications at all.

Paragraph 7.1 of the Explanatory Memorandum to this SI states that the regulated entity will be responsible for the actions of third parties connecting to the Money and Pensions Service digital architecture on their behalf. In recent years, there has been a number of examples of websites or apps using plug-ins to process logins which it then turned out had been infiltrated and customer data breached. Are the Government satisfied that the FCA and dashboard providers will be on top of these issues and that they will go to the Information Commissioner if needed?

Although more guidance is being issued about pensions dashboards, it is still not clear when the Government expect the first products to be operational. Does the Minister have a specific target date in mind?

Finally, when this SI was debated in the Commons, the shadow Economic Secretary asked the Minister whether he could confirm whether pensions dashboards would be using the Government’s OneLogin service. The Economic Secretary said he would write on the matter but, as far as I am aware, has not yet done so. Does the noble Baroness have an answer to that point in her brief and, if not, whether she will commit to copying the Economic Secretary’s reply, when it comes, to the participants in this debate today?

Data Reporting Services Regulations 2023

Debate between Lord Livermore and Lord Sharkey

Wednesday 10th January 2024 Grand Committee

[Lord Sharkey (LD)]

My Lords, I will speak first to the data reporting services SI. The Explanatory Memorandum for this instrument helpfully reduces its 28 pages to a succinct six pages. It makes plain what the scrutiny situation with regard to the SI will be. Paragraph 7.4 says:

“Before FSMA 2023, the FCA did not have any rule-making powers over DRSPs, except for some limited powers in respect of technical standards, as well as limited powers of direction enabling them to establish the current authorisation process. These were not sufficient to replace the detailed provisions currently in retained EU law”.


Paragraph 6.6 goes on to remind us:

“Separately, Section 11 of FSMA 2023 inserts new section 300H into FSMA 2000 which establishes a general rule-making power for the FCA in relation to DRSPs. Going forward, it will be the responsibility of the FCA to make firm-facing rules in relation to DRSPs within the powers established by FSMA 2023”.


These new FCA rules will not be subject to parliamentary scrutiny—unlike the retained EU law provisions, which were. We should be clear that Parliament will be bypassed by these new FCA rules.

In this SI, we are simply being asked to consider a set of framework proposals for these new FCA rules, not the rules themselves. The helpful de minimis assessment makes this point very clearly in its opening paragraph when it says:

“Retained EU law will be replaced with rules set by our independent and expert regulators, operating within a framework set by government and Parliament”.


We regret that Parliament is being excluded from effective scrutiny here.

There are some questions relating to this framework; I would be grateful if the Minister could address them. In paragraph 7.10 of the Government’s response to the consultation on the WMR, there is a note on the issue of removing the requirement for CTPs to provide data streams free after 15 minutes. The report notes that most respondents favoured removing this requirement but others argued that

“retail and non-professional investors currently benefit from this obligation and removing it, even for CTPs, could risk disadvantaging them”.

Have the Government discussed this with the FCA? Which approach is currently favoured? Are we going to leave the 15 minutes in or take it out?

In paragraph 7.11 of the WMR response, it is noted that some respondents suggested that

“the current requirement in legislation for market participants, operators and data reporting services providers to make data available on a ‘reasonable commercial basis’ (RCB) is not working”.

These respondents argued that this is because the FCA

“does not have sufficient enforcement powers and asked for the FCA to be given appropriate enforcement powers to control the cost of market data”.

Can the Minister say whether this framework SI will allow the FCA to take on these obviously necessary enforcement powers?

I turn now to the 44 pages of the second SI before us, the Securitisation Regulations 2023. We acknowledge the need for action in this area but, as with the previous SI, we strongly regret that Parliament is in effect excluded from scrutiny of the rules to be set by the FCA and PRA. There are several areas in the instrument where it would be helpful to hear more detailed explanations from the Minister.

Paragraph 7.12 of the EM notes:

“This SI makes some changes to the regulatory perimeter, including scoping out”—


I take that to mean “ruling out of scope” rather than “investigating”—

“non-UK AIFMs from the definition of institutional investor”,

and transferring

“the responsibility for the supervision of providing securitisations by occupational pension schemes”

from TPR to the FCA. Can the Minister explain on what basis these two changes are thought to be beneficial and to whom?

I am also puzzled by this comment in paragraph 7.14 of the EM:

“Due diligence requirements for occupational pension schemes will remain in legislation and be supervised by TPR”.


It goes on to say:

“These requirements will be restated as part of a further SI in 2024”.


Why is there a need for restatement? What deficiencies are there in the current legislation?

Paragraph 7.20 of the EM says that

“this instrument exercises sections 71N(3) and 71N(4) FSMA to allow the FCA to disapply or modify their rules in relation to securitisation activity”.

Are there any limitations here to what the FCA may do or does it have carte blanche to do as it sees fit, absent any scrutiny from HMT or Parliament? If there are any limitations, where are they set out?

I close by referring to paragraph 10.4 of the EM and the Q2 2024 date for the publication of the outcomes of the FCA and PRA consultations and, therefore, of their new rules. This is a long wait. It is extremely unfortunate that these outcomes and the final new rules are not available to Parliament to inform our debate on this SI. No doubt we will have many more financial services SIs in this Session. Will the Minister ensure that the relevant consultation outcomes and proposed new rules are available to Parliament before we debate future SIs?

[Lord Livermore (Lab)]

My Lords, I am grateful to the Minister for introducing these two grouped SIs, both of which we support.

The Explanatory Memoranda accompanying these regulations note that the repeal of retained EU law remains subject to the entry into force of commencement regulations in order to ensure that there is no overlap or gap between the two different regimes. How soon is commencement expected once this package of SIs has been debated and passed?

I note that the consultations and reviews underpinning these regulations were held in 2021. Although the industry has commented on drafts of the SIs, not all feedback was incorporated and, in some specific areas, the regulators’ rules are still being finalised. Is the Minister satisfied that the changes in timelines have been communicated adequately to the relevant entities? Does she believe that any further communication needs to take place before commencement?

The Explanatory Memorandum for the first of these SIs notes, as did the Minister in her introduction, that

“there is no consolidated tape provider in the UK”.

Apparently, the MiFID II framework “attempted” to bring one about but the requirements for running a tape were thought to have made it “commercially unattractive”. The EM goes on to outline new measures contained in the SI aimed at facilitating a UK consolidated tape, including giving the FCA the power to run a tender exercise based on revised governance arrangements.

I wish to ask the Minister three related questions. First, what practical impact is the lack of a UK tape having and what alternative data sources are being used? Secondly, what is the timescale for the tender process? Thirdly, what will the Government do should there be no suitable bids or if concerns around the governance of a tape remain?

The Explanatory Memorandum for the second of these SIs notes that the FCA will have the power to review and modify its securitisation rules for specific purposes. When is the next overall review of securitisation expected?

Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) (No. 2) Order 2023

Debate between Lord Livermore and Lord Sharkey

Wednesday 13th December 2023 Grand Committee

[Lord Sharkey (LD)]

My Lords, let me say at the outset that we support this statutory instrument and the two that are to follow—but we do have some questions and comments. I note that, last week, the Commons debated all three instruments together, as one group. Why have the Government chosen to take a different approach in this House by splitting the debate into two sections? What does this signify, if anything?

Dealing with the instrument before us, we believe that it contains relatively uncontroversial and appropriate updates to existing legislation, following on from the TSC’s recommendations as made in its report on the collapse of London Capital & Finance in June 2021, as the Minister noted. The committee said that the FPO

“would benefit from reform due to the increasing risks associated with the exemptions that allow customers to self-certify as high net worth or sophisticated”.

It continued:

“The Treasury should—as a matter of priority—re-evaluate the Financial Promotion Order exemptions to determine their appropriateness and consider what changes need to be made to protect consumers”.


That was two and a half years ago. Perhaps the Minister could explain why it has taken so long to address the TSC’s recommendation. It is obvious that the risks addressed by the TSC continue to increase, as even a cursory glance at the inviting investment ads on any Tube train will show.

Some questions arise directly out of the consultation carried out by the Treasury in preparation for the SI. Angel investors had some doubts about raising the high net worth thresholds. They noted that raising the thresholds

“could reduce the potential for broadening angel network participation, including among less represented groups such as women and ethnic minorities. They also raised concerns that lower angel investor participation in the future could reduce SME investment, particularly for younger start-ups”.

I would be grateful if the Minister could tell us why these worries were discounted, particularly for the SMEs.

The consultation report also noted that

“many responses provided suggestions for improvements to the investor statements to ensure greater investor engagement. These included adding additional risk warnings and positive frictions, to encourage investors to engage meaningfully”.

These suggestions appear not to have been taken up by HMT. Can the Minister tell us why that is?

We also note that, in its third report, the SLSC encourages HMT to reassess the thresholds contained in this instrument on a more timely basis, as the Minister has mentioned. It is 18 years since the thresholds were last updated. Why cannot the Government agree to a regular—say, quinquennial—change to smooth out the boundary changes? In closing, I confirm again our support for the clearly necessary updates proposed by this SI.

[Lord Livermore (Lab)]

My Lords, we agree with these regulations, but I will ask the Minister just one question, which follows on from the final question of the noble Lord, Lord Sharkey. As the Minister said in her opening remarks, the exemptions to the financial promotions regime were last substantively updated in 2005, nearly 20 years ago. Given current high inflation rates, and the fact that prices have already risen nearly 5% since the January 2023 data used to reset the thresholds in this instrument, these new figures could arguably be said to be already out of date. I note what the Minister said in her opening remarks, but can I push her to provide at least an approximate timeframe for when the thresholds are likely to be reviewed again?

Financial Services and Markets Act 2023 (Consequential Amendments) Regulations 2023

Debate between Lord Livermore and Lord Sharkey

Wednesday 13th December 2023 Grand Committee

[Lord Sharkey (LD)]

My Lords, we have no comment to make on the second statutory instrument in this group, except to say that we agree with what the Minister said during the debate in the Commons that for the entirely consequential changes brought about by this instrument “consequential” means “necessarily following on from” not “of consequence”.

We support this instrument, but we have a little more to say about the first. As a mathematician by education, I should start by saying how pleased I was to see e—Euler’s number, the base of natural logarithms —make an important appearance on page 2 of the instrument, albeit without any explanation at all for the reader of what it might mean. I think that may be rather odd.

The EM explains that the discount factor—a means of reducing the amount of capital that small and medium-sized firms hold for their trading and derivative activities—was removed in error from the capital requirements regulation, both here and in the EU. Reinstating it via this SI will help ensure that the UK remains competitive with other jurisdictions. We entirely support this remedial measure but note the SLSC’s comments about the matter. The Minister has already mentioned some of them.

The question really is: how is it that the mistake, and it was a mistake, was introduced into the UK after it had already been corrected in the EU? Does this not suggest incompetence or, at the very least, insufficient awareness of relevant activity in key trading partners? What steps has the Treasury taken to eliminate this kind of error?

We also support the extension of the transitional period for third-country benchmark regimes for five years to 31 December 2030. As the Minister said, if we were to lose access to these third-country benchmarks, it could weaken our position as a centre for global FE and derivatives. This SI gives us six years to sort out a new regime, as I believe the EU is also contemplating.

How, when and with what do we intend to replace these transitional arrangements? What steps are currently being taken to make sure that we do indeed replace them, or are we content to extend this supposedly transitional arrangement indefinitely? Are we engaged in discussion with our EU counterparts over the matter? The Treasury told the SLSC that the risks arising from the extension of the transition period were “small, manageable and temporary”. The Minister mentioned and addressed that issue, but I would be grateful if she could expand on exactly what the risks are, how they are manageable and why they are temporary. Having said all that, I close by saying that we support this SI.

[Lord Livermore (Lab)]

My Lords, overall, we agree with these regulations. When the first of these two grouped SIs was debated in the House of Commons, my honourable friend Tulip Siddiq, the shadow Economic Secretary, posed two questions to the Minister. Unfortunately, he did not address either of them in his response, so I will ask them again today. Of course, the noble Baroness is welcome to write with an answer, if that is preferable.

The two questions are on changes to capital requirements. First, given that the Prudential Regulation Authority is proposing to remove the SME supporting factor when it confirms its final rule, are the Government not reintroducing a measure that the PRA plans subsequently to abolish? Secondly, if the PRA goes ahead with its plan, what reassurance can the Government provide that the UK’s SME lending market will not be left at a significant competitive disadvantage against its European counterparts due to the increased cost of capital?

The noble Lord, Lord Sharkey, asked about the reintroduction of a discount factor, which was mentioned by the Minister in her opening remarks. I note that the discount factor was previously “unintentionally” removed from the relevant regulation in both the UK and the EU. I also note that the discount factor was removed from UK law in January 2022, and that this was identified as an issue only 18 months later, in July 2023. However, apparently, the factor was reinstated by the EU into its own laws four months prior to it being unintentionally removed from UK law back in September 2021. As the noble Lord, Lord Sharkey, observed, it is odd that a mistake was introduced in the UK after it had already been corrected in the EU. The Minister is clearly correct to note that the UK does not mirror changes to EU law post Brexit, but does she think that keeping up to date with developments in the EU, where parallel measures remain part of UK legislation, could help to ensure that avoidable errors such as this do not occur?