Official Listing of Securities, Prospectus and Transparency (Amendment etc.) (EU Exit) Regulations 2019
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Lord Davies of Stamford (Lab)
My Lords, the noble Lord, Lord Bridges, has told the House, quite correctly, that at present he has a role with Banco Santander. Although in my case there is no possible financial interest and the relationship occurred 30 years ago, I ought, in order to be completely transparent, to reveal that when Banco Santander initially installed itself in this country in the 1980s, I was its financial adviser. I am very pleased that at that time I was connected with a transaction that has proved to be extremely fruitful for Banco Santander and the British economy. Therefore, I genuinely wish the noble Lord every success in the role that he is currently playing for this distinguished financial institution. It has expanded over the decades in this country and I hope that that happy position will continue, although all of us—at least, on this side of the House—have some fears about that at present.
There is no doubt about the importance of this issue. We are talking about financial transparency and disclosure. Anyone who knows anything about the financial markets knows that, together with the avoidance of conflicts of interest, those are the most important foundations of a successful financial marketplace. When either of those two foundations have been weak, the human race has invariably ended up substantially regretting it. People have been ruined and even economies have, sadly, been seriously affected.
The European Union now has a good system. Together with the United States, the European Union has the longest experience of successful financial regulation in this area. People come from all over the world to discuss with us how we do things here and very often they follow our example. That is very sensible and desirable for things such as the prospectus directive, which has been imitated around the world. The whole business of regular financial disclosure—annual reports, interim reports and so forth—have, again, been very widely imitated around the world. Everyone knows that if you want to have a financial market where companies can raise serious sums of money, these things are essential.
I have always had a strong feeling that the scrutiny of secondary legislation, both in the Commons and in the Lords, is the most dubious and problematic area of parliamentary activity and the one most in need of reform. Like everybody else in the two major parties, when we were on the Back Benches in the Commons we were regularly press-ganged—I do not think that is too strong a word—by the Whips to sit on statutory instrument committees. They were absolutely deplorable occasions. They were a real travesty of good parliamentary scrutiny. I used to hope that the public would never come into the sessions because they would be horrified at what we were doing. In fact, I never saw a member of the public there, although occasionally one would see lobbyists of some kind. However, the fact is that we had no opportunity to brief ourselves, no opportunity to question Ministers—although of course in the Lords we do have that opportunity, which is a great improvement—and we had the system that we have here, which was that we could not modify these instruments if we thought it necessary to do so.
How can Parliament possibly do its job, or make a contribution, if it cannot modify a proposition for a statute or Bill by amendment? This is quite extraordinary—complete rubbish—and we should do something about it. It results in an enormous amount of legislation going through that is not properly scrutinised. In this series of statutory instruments, we see literally hundreds of important statutes supposedly being renewed—although whether they are renewed or modified is something one can never be quite sure about—and going through at a rate of knots. No one can judge the pace at which this is happening other than negatively; it is quite frightening, and a very bad moment for Parliament.
The situation is made much worse by the absence on these occasions of proper consultation or, in most cases, of impact assessments—as it happens, there is an impact assessment on the statutory instrument before us but, mostly, there are not. I want to clear up the controversy that exists between my noble friend Lord Adonis and the noble Lord, Lord Bridges. Consultation is an important term; it implies a set and standard process for consulting those likely to be impacted by legislation, and passing on to Parliament before it legislates—that is, before it is too late—the results of the interchange that has taken place with the stakeholders or parties who have an interest in the sectors of activity being regulated. This should be a standardised practice; we ought not to have to ask in each case, “What kind of consultation did you have? How many banks did you speak to? Who did you speak to: the directors, compliance officers, researchers, parliamentary affairs departments—a lot of companies have these kinds of things—or PR people?”
We should not need to ask these sorts of questions because we should know exactly what a consultation exercise involves. There should be—I am sure there is—a template in the Treasury and other serious departments, which indicates what you need to do to meet your obligation for a proper consultation when proposing legislation. A proper consultation has not been done here. What has happened here is engagement. The noble Lord, Lord Bridges, is proud of the distinction he has made but, frankly, engagement can mean what you want it to mean. No one knows, unless they have specifically asked the question, what it has actually involved, or indeed whom it has involved and not involved—who has been left out, perhaps deliberately, because the Government or department concerned did not want to hear some people’s negative views.
All these things are possible if you do not have a standardised system of consultation. It should be a permanent part of parliamentary procedure that you expect that consultation has been carried out and that everybody knows the principles under which it has been conducted. That does not happen here, and so we face this situation where we are being asked to vote through a whole lot of legislation at great speed. We do not know whether the impact will be what the Government say it will be; we do not know whether other people have been asked their opinion, or who has been asked. That is a very unsatisfactory situation. Has there been no consultation in the way that there normally would be? Let us be honest about it.
I come to my final point. The reason why there has been no consultation in the way that ordinarily there would be is, we are told, that we are under tremendous pressure. I say to the noble Lord, Lord Bridges, and others on that side of the House that that is a form of blackmail. I would not dream of listening to blackmail, whether about my business life, my past, my private life, or my political or governmental responsibilities. Anybody who attempted to blackmail me would be thrown out of the door; there is no question about it—I would not be interested. The Government are saying, “You have to pass these things or there will be terrible consequences for British industry and all these different sectors. You will be at fault if you haven’t done what we have told you to do”. That is no good; we should not listen to such nonsense. This is the responsibility of the Government. They got us into this mess and they should be expected to do their best to get us out of it, or at least to minimise the damage that there certainly will be.
As my noble friend Lord Adonis has said, it is entirely the Government’s fault that we find ourselves in this position. Any day they like, the Government could withdraw their notice to quit under Article 50. They could negotiate. We have been told by the continentals that any such request would be positively considered—that we could, if we wished, negotiate an extension to that date. More than that, the Government could have conducted these negotiations very differently. Unless I am very much mistaken, the Prime Minister accepted in December 2017 the idea that we would be permanently part of a customs union with the Republic of Ireland and therefore with the rest of the European Union. Then when she returned to the UK, she was rapped over the knuckles, or worse, by both the ERG and the DUP—two groups of extremists who have an unfortunate hold over British politics at the present time. She had to go back to the EU pathetically and say, “I am sorry, I thought I could agree that but actually I can’t”.
That is the whole history of this negotiation. It is deplorable. It has made us look idiotic across the world and, of course, has created a climate of uncertainty that is doing palpable, concrete economic damage to this country. This is a very important matter. We should show that we mean seriously what we say on the subject of consultation. It should be a standard provision—a right, if you like—which is respected, and always expected, in the case of new legislation put forward on a statutory instrument basis. Such is the importance of this matter and of recording our feelings on it that, if my noble friend feels moved to put his amendment to a vote, I will certainly support him.
Lord Sharkey (LD)
My Lords, I can be very brief. I declare an interest as chair of the Hansard Society, which is almost as obsessed with the effective scrutiny of secondary legislation as the noble Lord, Lord Adonis, is. I agree with everything that the noble Lord, Lord Davies of Stamford, has said about scrutiny, but I also have no objection to this SI per se. After listening to the exchanges, I understand the difference between consultation and engagement, and I support the view of the noble Lord, Lord Adonis, that there should have been consultation as well as engagement on this SI and the other SIs that we are considering today.
The Earl of Kinnoull (CB)
My Lords, I rise to put the case for poor old business because once again it is the Government who are being blamed. This SI is about access to capital. Without good access to capital, business is constrained and we do not have the means to create the wealth that we need in our country. I have a lot of experience with prospectuses relating to both equity and debt and I am old enough to remember, and have produced prospectuses for, the 2003 prospectus directive. I have been invited, although I have not actually been, to many conferences to discuss the prospectus directive, the transparency directive and CARD—the consolidated admissions and reporting directive. This is very much in UK capital-raising mode. It is the devil that everyone knows, and these SIs grandfather through for British business a very important route to capital. It is not the only route but it is the listed route to capital here.
Here I want to say something very complimentary about the UK Listing Authority, which many noble Lords probably do not know. I have dealt with listing authorities in other countries as well, and the UK listing authority is exceptionally good. It is good at giving clear guidance and responding swiftly when it needs to give comments on a draft prospectus, and that is certainly not the case in some of the landlocked European places that are trying to snaffle our business. Again, it is of absolute importance that this SI goes through.
Turning briefly to the amendment of the noble Lord, Lord Adonis, I think that of the various amendments that he has tabled today, this is very much the back marker, in that I do not think the case for it is nearly as strong. I note that the original policy note for this came out on 21 November last year and the draft SI surfaced on 12 December and was laid on 21 January. So this is the 89th day that this has been around, because the policy note was spot on that there have not been any changes. In fact, the appearance of the policy note produced a tremendous number of emails into my inbox from all sorts of the expensive lawyers that the noble Lord, Lord McNally, was talking about earlier—
Equivalence Determinations for Financial Services and Miscellaneous Provisions (Amendment etc) (EU Exit) Regulations 2019
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The Minister of State, Department for International Development (Lord Bates) (Con)
My Lords, this SI is an important part of the Treasury’s programme of legislation under the European Union (Withdrawal) Act 2018. It will address deficiencies related to the EU’s equivalence framework for financial services, and will make provisions for elements of the UK’s stand-alone equivalence framework for financial services, in a scenario where the UK leaves the EU without an agreement.
Many noble Lords will be familiar with the EU’s framework for equivalence. EU legislation allows the European Commission to determine that a country outside the EU—often termed a third country—has a regulatory and supervisory regime in a particular area of financial services that is equivalent to the corresponding EU regime. Granting equivalence is a key component of financial services regulation and supports cross-border activity. Equivalence decisions can reduce or eliminate overlaps in regulatory and supervisory requirements, thus decreasing regulatory burdens on firms. Some equivalence decisions provide improved prudential treatment, or facilitate the exchange of services. This can lead to increased competition, which benefits firms and consumers, while protecting financial stability.
Before making equivalence decisions, the Commission will undertake an assessment and may ask the European supervisory authorities for technical advice to support it. As an EU member state, any equivalence decisions made by the Commission currently have effect in the UK. In a no-deal scenario, the UK would be outside the EU’s equivalence framework. The Government place significant importance on having a functioning, stand-alone equivalence regime which will support our future relationship with the EU and other financial centres with which we want to build stronger partnerships.
Noble Lords will be aware that other Treasury statutory instruments which have completed their passage in Parliament have already transferred some equivalence responsibilities from the Commission to the Treasury, and functions from the ESAs to the UK financial regulators. Through these SIs, the Treasury has maintained the same substantive criteria that the EU uses to judge equivalence.
The SI does three main things to support a stand-alone UK equivalence framework in the event of a no-deal exit. First, it replaces the functions given to the ESAs with functions for the UK financial services regulators and creates an obligation for the Treasury and the UK regulators to enter into a memorandum of understanding that sets out how they will support equivalence assessments.
Secondly, the SI corrects deficiencies in existing equivalence decisions made by the Commission—for example, replacing references to the “Union” with references to the “United Kingdom”. Fixing these decisions is important to minimise disruption for some UK firms with businesses in equivalent third countries, and for some overseas firms which currently rely on these decisions.
Thirdly, the SI creates a temporary power for Ministers to make equivalence and exemption decisions for EU and EEA member states by direction for specified equivalence regimes listed in the SI. This is separate from the permanent arrangements for making equivalence decisions, which will become available only after exit and will require regulations subject to the negative resolution procedure. This temporary power is needed to prepare for the particular circumstances we would face if we left the EU without a deal.
As an EU member state, the UK has not previously needed powers to determine whether the EU is equivalent. However, in a no-deal scenario it will be important for the Treasury to have powers to make such decisions in time for exit day, to respond quickly and effectively to any risks to the financial system and to avoid disruption for firms and markets. To illustrate why these powers are required, I point the House to the European Commission, which has published several draft legal Acts granting certain technical exemptions to UK public bodies in a no-deal scenario. The Government would grant similar exemptions for relevant EU bodies in such a scenario, and this SI contains the powers to allow such exemptions to be put in place by exit day.
To ensure transparent use of the temporary power, this SI will oblige Ministers to lay directions before Parliament and to publish them. Noble Lords may have seen that the Treasury Select Committee wrote to the Economic Secretary to the Treasury on 7 February asking if 12 months was long enough for this power, given that other transitional regimes in financial services have been passed with longer periods. The Treasury’s response to the committee, published last week, emphasised that this power was needed only to mitigate the risks around exit. The Treasury expects that the permanent mechanism for taking equivalence decisions by regulations, subject to the negative resolution procedure, will be ready soon after exit day. As a result, the Treasury judges that 12 months is sufficient for this power.
The Treasury has worked closely with the Bank of England, the Prudential Regulation Authority and the Financial Conduct Authority in drafting this instrument. The Treasury and the regulators have also ensured that the resources are in place to take on these functions. The Treasury has engaged the financial services industry and will continue to do so. The regulators and key industry stakeholders have expressed support for the provisions in this SI as necessary to mitigate disruption and to provide legal certainty about the UK’s equivalence system.
This Government believe that the proposed legislation is needed to ensure that the UK has an operable equivalence framework in a no-deal scenario. The powers it contains are needed to ensure that the Treasury and UK regulators are properly equipped to respond if the UK leaves the EU without a deal or an implementation period. I hope noble Lords will join me in supporting these regulations and I commend them to the House.
Lord Sharkey (LD)
My Lords, the equivalence SI shares the same consolidated impact assessment with the next three SIs. I am grateful that this was published in advance of today’s debate and was available in good time in the Printed Paper Office. That is a significant and welcome improvement on last week’s lamentable performance. I would have preferred individual impact assessments, rather than this consolidated one. However, consolidation has the merit of making absolutely clear the unsatisfactory vagueness about the costs and benefits of these SIs and that this arises chiefly from the lack of consultation.
The summary sheet in the IA for this package of SIs notes that the likely cost for all of them is “Unknown: likely significant” in all three defined categories. The benefits are also unquantified, but are said to be “significant”. This rather dramatically illustrates the point made by the noble Lord, Lord Adonis, in his later amendments. There has been no real consultation on any of these instruments. This is unsatisfactory and is entirely the Government’s fault. Had the Treasury started preparing these entirely predictable SIs earlier, consultation would have been possible. Why has the Treasury left things until the last moment? Although I sympathise strongly with the spirit of the amendments in the name of the noble Lord, Lord Adonis, I hope he will not press the fatal ones to a vote as we would not support him in a Division. It is critical to the functioning of our financial services that we make the changes—no matter how unhappily—set out in these SIs.
I turn to the detail of the consolidated impact assessment. The first 40 paragraphs are clear, but some questions arise in subsequent paragraphs and apply generally to all the SIs. Paragraph 44 explains that,
“it has not been possible to discuss the impact of the full package of changes with firms as this impact assessment was being produced, and has therefore not been possible to produce a monetised estimate of their full impact at this stage”.
This is more than a pity: it is tantamount to a dereliction of duty. It would not be the case if the Treasury had started the process earlier. It has had plenty of time to do this: the deadline can hardly have come as a surprise.
Paragraph 50 acknowledges explicitly that the impact assessment,
“is not able to fully quantify the potential impact of these SIs on industry”.
It undertakes, as a result of this self-generated inability, that if these no-deal SIs come into effect in March,
“it will at the appropriate time complete further analysis considering all of the relevant SIs as a package”.
The word “appropriate” is very vague; what does it really mean? Does it mean, for example, in less than three months after a no-deal Brexit?
I do realise that the promised analysis is shutting the stable door long after the horse has bolted, and even longer after the horse gave notice that it would bolt. Nevertheless, Parliament should still have a chance to review the real impact of these SIs on industry. Could the Minister help the House with an explanation of the limits implied by “appropriate” and confirm that Parliament will be given an opportunity to debate the subsequent analysis?
Lord Deben (Con)
I wonder whether the noble Lord is being a little too kind to the Government. Is not the reason we have not had these figures—and we have not had them because we did not start to do the figuring early enough—that when you actually add up the figures you discover that the cost of Brexit is enormously greater than anybody has pretended, and therefore it is to the convenience of the Government and of those who want Brexit not to provide the figures? Does he know of any other occasion when the Government have proposed huge changes and not provided at least some estimate of the bill?
Lord Sharkey
I am grateful for that intervention. The short answer to the final question is: no, I do not. I shall try to be slightly less kind as I move on.
Paragraph 52 of the consolidated impact assessment notes that each of the SIs covered,
“contains provisions with indefinite effect and this is the majority of the content. For this reason, we have concluded that the standard 10 year appraisal period is appropriate”.
This seems to me an entirely perverse conclusion. Ten years is far too long for an appraisal of the effects of instruments containing such wide powers in a complex and critical field, which were produced in very great haste and which lack proper consultation or impact assessment. It would make more sense, and reduce any inadvertent harm, if we were to appraise after, say, two years. I am sure that if the industry were eventually consulted, it would agree with this timing. I would be grateful if the Minister would say why he is proposing 10 years for appraisal and what is wrong with two. Will he reassure the House that he will reconsider the timing of the appraisals? Perhaps he will write to us with his conclusions.
Finally, paragraph 73 of the consolidated impact assessment deals with the impact on the public sector:
“Where changes to the regulators’ rulebooks, or to EU technical standards, are required as a result of leaving the EU, the regulators intend to consult on these changes wherever possible”.
This “wherever possible” is alarming, especially in view of the Treasury’s failure to consult in the preparation of these SIs in the first place. Can the Minister give examples of situations in which it would not be possible to consult on the changes to the rulebooks or the technical standards?
Lord Deben
My Lords, I declare my interest as chairman of the organisation that represents financial advisers and those who manage other people’s money. I come back to the point that the noble Lord has raised. It is very difficult for the industry to understand why the Government have not found it possible to talk in a lot more detail about the costs that are going to be placed upon the industry. After all, the industry pays these costs.
I am a great believer in regulation: I think good regulation is very important. I do not like the way that people sometimes mix bad regulation with the need to have no regulation, but if we are to have good regulation, there are two very important elements. First, it must be clearly understood, and, secondly, the cost must be clearly adumbrated so that people can make proper provision. I agree with the noble Lord who spoke last that it is unacceptable that, first, we do not know in advance; secondly, we will not know until after we have passed these things; and, thirdly, we will have to wait 10 years until we know whether or not we got it right. I have enormous respect for my noble friend, as well as enormous concern, given the difficulties he faces.
Public Record, Disclosure of Information and Co-operation (Financial Services) (Amendment) (EU Exit) Regulations 2019
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Lord Adonis (Lab)
I do not have anything to add on consultation or assessment, but the Minister just said that discussions with the EU about a new regime are in progress. He was speaking extremely quickly, but I think he said that good progress was being made. Could he tell the House whether he expects that an agreement will be reached by 29 March? I beg to move.
Lord Sharkey (LD)
We support this statutory instrument, but I have a couple of quick questions. In paragraph 2.7, the EM notes that:
“In certain exceptional instances, a similar requirement to seek consent from the originating regulator applies where the confidential information originated from a third-country regulatory authority”.
That seems a little opaque. I could not find anywhere in the SI what these exceptional circumstances might be. That may well be my fault but I would be grateful if the Minister could point me at the relevant parts of it or, even better, explain what these circumstances are.
Finally, I was puzzled as to why the SI’s introduction of transitional provision, described in paragraph 2.16 of the Explanatory Memorandum, was necessary. That paragraph says:
“In addition, this instrument introduces a transitional provision so that any confidential information that was received on or before exit day will continue to be treated in line with the relevant provisions in EU regulations and directives as they had effect before exit day”.
That raised two questions for me. The first is one of necessity. Would this eventuality not be covered by the general transposition of EU law into UK retained EU law? The second is to do with the wording of the paragraph in the EM, which refers to information received on exit day. But we are scheduled to leave the EU at 11 pm on exit day, so what happens to confidential information received between 11 pm and midnight on exit day?
Lord Tunnicliffe (Lab)
My Lords, looking through this statutory instrument to see whether there were any policy shifts, as far as I can understand it, the EEA countries have better protection for their confidential information than third countries do. This statutory instrument takes that special protection away and then requires agreements to be concluded. That would seem to be the wrong way around. I would have thought that the protection which the EEA states have—that before the information can be passed on, permission must be sought from the originating country—would be better extended to other third countries. This would be a better position for the management of confidential information than what is referred to in the Explanatory Memorandum as a series of agreements, followed by instructions to staff. It is a bit late to have a debate on such an obscure point but if the Minister were to read Hansard tomorrow and send me a letter on this point, I would value that.
Financial Services (Implementation of Legislation) Bill [HL]
Lord Sharkey ExcerptsWednesday 6th February 2019
(5 years, 9 months ago)
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Lord Sharkey (LD)
My Lords, very briefly, I should like to ask the Minister a question to do with the in-flight EU prospectus regulation, which has passed all its legislative stages but has not yet been gazetted, as I understand it, and so cannot be treated as settled legislation and is therefore treated in the Bill under the amendment provisions in Clause 1(2)(b). If the legislation is gazetted while the Bill is in the Commons, do the Government intend to move it into the category of settled legislation, governed by Clause 1(2)(a)? What happens if the legislation is gazetted after the Bill has left the Commons but before 29 March? How will the Government make sure that the power to make adjustments is not applied to the now settled piece of legislation?
The Minister of State, Department for International Development (Lord Bates) (Con)
My Lords, that is a good question. We had hoped that it would be gazetted before then, in which case we could then have made the amendment that we talked about. I was grateful for the noble Lord’s suggestion on that. I cannot say that we have had an explicit conversation about this aspect, but it is going to arrive. Providing that it passes your Lordships’ House, it will be heard in the Commons I think on Monday next week. The same principle would apply—that if it is gazetted we will put it in there. That was certainly the spirit of what we agreed. I will make absolutely sure that the Economic Secretary and the Financial Secretary, who are dealing with this in the other place, are apprised of the commitment that I gave and which we will seek to honour.
Financial Services (Implementation of Legislation) Bill [HL]
Lord Sharkey ExcerptsTuesday 29th January 2019
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Lord Davies of Oldham (Lab)
My Lords, the Minister is to be congratulated on the way in which he has handled this Bill. In Committee, we raised several significant issues and pressed him to consider our arguments carefully. He has certainly done that and has brought back to the House Amendment 1, a position with which we are in agreement.
We are mindful of the background that all these efforts are being conducted against. This very afternoon, the House of Commons is struggling to achieve a position, and the Prime Minister hopes to achieve a position in which this Bill will be utterly redundant because we will have left the European Community with an agreement. But it is obviously right that, in an area of such importance to our economy as the services industry, we have legislation in place that takes account of the extremely serious situation that would arise if we left the European Community without a deal.
The Bill would, however, play its part in fulfilling the regulatory machinery necessary for the services industry, but without doubt additional work would have to be done at that stage. Given that we have done a great deal to help create European law in this area, it would be remiss if we left the services industry without effective regulation and less equipped than it was while we were part of the European Union, if in fact we leave without a deal.
As he would expect, I join the Minister in paying tribute to my noble friend Lord Tunnicliffe, who has played a significant part in examining the Bill and producing insights into what could be done, upon which the Minister has been able to build quite successfully. I also pay tribute the noble Lord, Lord Sharkey. He has stayed involved with the Bill and has offered the best possible advice on a number of occasions. His persistence and insights on these issues have been invaluable, together with those of the noble Baronesses, Lady Kramer and Lady Bowles, both of whom have played a significant part in these discussions.
We are grateful to the Minister for the way he has handled this Bill. He appreciated the anxieties that we articulated as best we could both at Second Reading and in Committee. He has met the most crucial point of all: that the Government were initially seeking powers for the Treasury that could not be justified. Subsequently, the Delegated Powers and Regulatory Reform Committee came to share that position, as it made fairly clear in a detailed submission to the House. That obviously informed our contribution to the debate. However, the Minister has gone a considerable way to allaying the anxieties that we have expressed about the Bill and I am therefore very much in favour of his amendment.
I turn to Amendment 2, to which I am meant primarily to speak. I have only a short comment because there is not a great deal at issue. It again gives me the opportunity to appreciate the efforts of the Minister. We had a useful meeting with him that ironed out all but the narrowest of differences. There is not much in the difference between “significant” and “major” but I am strengthened by some help from the other place. Apparently, in her speech to the House of Commons this afternoon, the Prime Minister said that she would return to Brussels to seek a significant change to the Brexit withdrawal agreement. She did not use the word “major” but “significant”, a word that we are seeking to enjoin the Minister to appreciate. However, I will not press that rather minute point.
Lord Sharkey (LD)
My Lords, we welcome all the government amendments to the Bill. We particularly welcome Amendment 1, which greatly improves the Bill’s structure and clarity. As we pointed out in Committee, it was not helpful to try to deal with two different categories of legislation via one mechanism. Amendment 1 puts that right.
Proposed new subsection (lA)(a) deals with settled EU legislation now in force in the same way in which Section 8 of the European Union (Withdrawal) Act does and narrowly restricts the adjustments that can be made. Proposed new subsection (lA)(b) deals with legislation not yet in force in the EU but under current discussion—legislation that is in flight. Here the adjustments are less constrained. I note the Minister’s comment that the legislation contained in subsection l(2)(e) dealing with the prospectus regulation may come into force before Third Reading and could therefore be moved at that stage into the proposed new subsection (lA)(a), leaving only the in-flight legislation in the schedule to be covered by proposed new subsection (lA)(b).
In their amendment, the Government have significantly tightened the meaning of the previously rather controversial word “adjustments”, as it applies to the in-flight legislation in the schedule. Their amendment sets down what in this context adjustments may and may not do. When it comes to what adjustments may do, the new wording has it right. The changes are,
“to reflect, or facilitate the transition to, the United Kingdom’s new position outside the EU”.
I think this is close enough to the restrictions in Section 8 of the European Union (Withdrawal) Act. When it comes to what adjustments may not do, the new text states that they may,
“not include changes that result in a provision whose effect is different in a major way from that of the legislation”.
I am pleased that this is a much tighter restriction than that contained in the original text but I have some concerns about the use of “major”, which is why I have added my name to the amendment in the name of the noble Lord, Lord Davies, which proposes the word significant in place of major. In the ordinary use of those words, “significant” imposes more constraint than does “major”. It seems to be entirely possible for some difference in effect to be significant without in itself being major. An OED definition of “significant” is:
“Sufficiently great or important to be worthy of attention; noteworthy”,
and seems to support this view. Unfortunately the OED also defines “major” as “important, serious or significant”.
The real issue is how the word “major” will be interpreted in practice by the Treasury, and probing that is the purpose of Amendment 2. What will it mean when applied in this context? In particular, what tests will the Treasury apply to the differences contemplated in proposed new Section (1A)(b) of the Government’s amendment to determine whether they are major? I would be very grateful if the Minister could set out explicitly what those tests will be.
Financial Services (Implementation of Legislation) Bill [HL]
Lord Sharkey ExcerptsTuesday 8th January 2019
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Baroness Bowles of Berkhamsted (LD)
My Lords, for the purposes of the Committee stage of this Bill, I declare my interest as in the register as a director of the London Stock Exchange plc.
This Bill, as was elaborated at Second Reading, is intended to provide a way to land so-called in-flight legislation. However, as many noble Lords also observed during Second Reading, the scope for amendment of that legislation is wide and not limited to the type of onshoring provisions of the withdrawal Act. Indeed, there is no promise of onshoring at all. This point is noted by the Delegated Powers Committee in paragraph 17 of its report on this Bill. The fact is that there is just a wide power to make legislation related to any of the provisions in any of the legislation in subsection (2) or specified in the list in the Schedule. There are no provisions defining how close it must be to that legislation, and the power is not anchored only to withdrawal from the EU.
We should not lose sight of the fact that the mechanism is an alternative to primary legislation. Although the power is time-limited, I do not consider that that is sufficient control to replace primary legislation entirely. It cannot be left open for the Government to cherry pick, to diminish, to add or to do things that depart from expectation, in terms both of the policy in the EU instruments that the power covers and the policy that has been laid out by government with regard to relations with the EU after Brexit.
The doubt starts right at the opening words, which state:
“The Treasury may by regulations make provision … corresponding, or similar, to … any of the provisions, of any specified EU financial services legislation”.
The use of “or” clearly implies that the regulation may make provisions that are corresponding but not similar. A simple suggestion may be to make a penalty for a failure in a corresponding position, but not the same penalty. So, too, could it be the other way round: a provision may be similar but not corresponding. A penalty may be moved to somewhere else or attached to a different provision. We often talk in particular about criminal penalties, when we are equalising them out between different types of provisions.
Amendment 1 would replace “or” with “and” so that it said “corresponding and similar”, thus making the objective clear: it corresponds to a particular EU provision and it is in similar terms. That seems to be a good and clear start to the Bill rather than the imprecise start that it currently has.
On its own, the amendment would not solve all the problems, including the Government’s plea for some flexibility. In other amendments in later groups, I probe how that might be done. Other noble Lords have amendments in this group which suggest further limitations on power. As it has fallen to me to speak first, I shall briefly comment on them
Amendment 3, tabled by my noble friend Lord Sharkey, makes a good point about not changing the primary purpose of the EU legislation, and it could sit alongside my Amendment 1 as well as standing alone. Amendment 5, tabled by the noble Lord, Lord Davies of Oldham, and others, would limit the provisions to the circumstances of withdrawal from the EU. I am interested in the debate around that point. How far would the Government intend to stretch the term,
“adjustments in connection with the withdrawal”?
What other form of amendment not connected to withdrawal might they be contemplating?
Amendment 7, by the noble Lord, Lord Tunnicliffe, progresses the limitation to reflecting the UK position outside the EU. In later groups, I have put forward some probing amendments that would limit the scope of amendment in other ways but which are a little more permissive, so, for now, I reserve my own position on Amendments 5 and 7 save to say that, if it is not feasible to construct suitably restrained flexibility, limitations of the kind set out in Amendments 5 and 7 would have to become the default position. I beg to move.
Lord Sharkey (LD)
My Lords, I shall speak to Amendment 3. At Second Reading, there was much discussion of the wide powers that the Bill gives to the Treasury via secondary legislation. All the amendments in this group deal with that issue.
Clause 1 contains clear Henry VIII powers. It allows the Treasury to make policy and new laws entirely by means of statutory instrument. It even allows such new laws to be wholly unrelated to the UK’s exit from the EU. Unusually, it allows these new laws on to the statute book without any parent primary legislation. There will be no parent Acts for these new laws: no context, no detailed parliamentary discussion and no effective parliamentary scrutiny.
Lord Bates
We will have the debate under the future group of amendments on equivalence. We are not setting here the test or the bar as one of equivalence. We are simply talking about the specific directives and regulations before us and mentioned in the Bill: the 15 here; the four already agreed, which are mentioned on page 1 of the Bill; and the further 11 mentioned in the Schedule accompanying it, which have not yet been agreed. Because they have not been agreed and may be under debate or amendment without the UK at the negotiating table, we are simply adding in that greater level of power to say that the UK, in the event of leaving without a deal, would need to look after the interests of the UK financial and industry sector and could not give a blank cheque in the opposite direction to the EU to pass whatever regulation that we would automatically implement because of adherence to a notion of equivalence. That cannot be right for UK financial services. We need to look at what comes to us, then act within the interests of the UK financial services sector at that time.
I will deal with some of the specific points raised. The noble Lord, Lord Sharkey, talked about the recommendation of the Delegated Powers and Regulatory Reform Committee. I pay tribute to the work it did on this and the quick turnaround and punchy conclusions it arrived at. We are considering its recommendations, which the noble Baroness, Lady Liddell, asked us to look at. I will be happy to meet with noble Lords ahead of Report to discuss where we stand. I thank the Delegated Powers and Regulatory Reform Committee for its work and recognise that it raised some very pertinent issues. We want to look at them in greater detail, and I would be happy to discuss that with noble Lords ahead of Report.
I hope I have gone some way to addressing noble Lords’ points at this stage. We will come to a number of the other points in future debates and groups.
Lord Sharkey
It seems the Minister has relied heavily in his responses on Clause 1(1)(a) by using this to demonstrate that there is really a tight restriction on what kind of things can be done by Clause 1. But he has not at all mentioned Clause 1(1)(b), which in many ways is the root of the problem because it contains the word “adjustments” and the phrase “consider appropriate”. To many of us, that seems to extend without limit the reach of the Treasury’s powers. That was the underlying purpose behind almost all the amendments in the first group. Could the Minister speak to Clause 1(1)(b)?
Lord Bates
I am happy to do that. As the negotiations on these files continue, further amendments may be agreed, proposed or dropped that the Government will wish to domesticate or remove using the powers under this Bill. As the final outcome on many of these files is still unclear, we need to make sure that we can bring them into UK law in a way that works best for UK markets. This might, for example, include areas where the final parts of legislation could, if unchanged in a no-deal scenario, present inconsistencies with the UK regulatory framework, with global standards or with the UK’s position as an open global financial market. It is important therefore that we have the power to adjust these inconsistencies when bringing them into UK law. I acknowledge that this is a—
Lord Sharkey
“Expiration of regulations
Any regulations made under section 1 expire after the period of four years beginning with exit day.”
Lord Sharkey
My Lords, given the debate so far I can be very brief. If the Bill proceeds as currently drafted, it will enable the Treasury to create a new set of laws and policies for our financial services industry, all via secondary legislation. These new laws and policies will not have been exposed to proper parliamentary scrutiny and will not have been amendable. This stands in extreme contrast to the careful, detailed and very lengthy scrutiny given to all previous changes in the laws and policies for our financial services industry—scrutiny which has frequently resulted in very significant amendments. This is an entirely unsatisfactory state of affairs, and I know we will come back to this on Report.
But if we are to have legal and policy changes introduced by SI, then we should at the very least have the opportunity to review them after the fact. That is what my amendment proposes. The Bill as it stands contains a sunset provision for the powers in Clause 1. My amendment proposes a sunset provision for the regulations created by the powers in Clause 1. The sunset provision for the powers extends for two years after we leave the EU. My amendment proposes that the new regulations expire two years after that.
This would have two effects. It would give time to assess how the new regulations were working in practice. It would also mean introducing primary legislation to reinstate and/or modify or add to new regulations. This would guarantee what we do not have in this Bill: a means of proper, full parliamentary scrutiny of new laws governing a critical part of our national and economic life. My amendment would restore to Parliament the ability to debate and amend these new laws in the proper context of primary legislation. I beg to move.
Baroness Kramer
I want to make one very quick comment to add to those of the noble Lord, Lord Sharkey. There is a real danger that the pattern within this Bill becomes a precedent, and that for future financial legislation we in effect see this process of Treasury decision enacted through statutory instrument. This sunset clause would make that impossible. It would make sure that this was, in effect, a one-off, and that there was a return to normal practice following the end of four years.
Lord Bates
There speaks the voice of experience. From his time speaking from this side of the Chamber, the noble Lord has perhaps pre-empted some of the concerns that we would have about this proposal, but let me put them on the record.
I am grateful to the noble Lord for giving us an opportunity to debate this important area. In implementing files under the Bill, it will be necessary to amend existing legislation to reflect updates to the regime. Should all powers under the Bill lapse at a stroke, without replacement, the legal effect on amended legislation would be unclear.
At a time when we should be seeking to provide industry with clarity and certainty, I am afraid that the amendment would have the unfortunate and unintended effect of providing just the opposite. Rather than minimising the cliff-edge risks, it would create a new series of cliff-edge challenges to be faced in the coming years. The potential for this legislation to lapse without replacement does not provide certainty to firms. Compliance with new regulatory regimes can be costly, and it would have a negative effect on firms’ confidence in the Government’s ability to set effective and proportionate regulation should we implement vital legislative reform only for it to drop away after a given period.
I appreciate the noble Lord’s concern that regulations made using this power will have a lasting effect on the structure of the UK’s financial services regulatory framework. This is why the power can apply only to a limited set of important files, which have been set out on the face of the Bill. In a no-deal scenario, implementing those files could be crucial to avoid conceding a competitive advantage to businesses operating in EU-based markets or to remain compliant with the Basel rules and meet our G20 commitment to international standards.
The noble Lord is clearly right, however, in pointing out that this cannot be a long-term model for a regulatory framework. Beyond this temporary solution, once we have left the EU in a no-deal scenario, the Government recognise the clear need for an approach that balances parliamentary oversight of financial services legislation with maintaining the flexibility and competitiveness of our regime. To that end, we will take forward proposals for a sustainable, long-term model in due course.
It is perhaps worth pointing out also that the Small Business, Enterprise and Employment Act 2015 requires the inclusion of a statutory review clause in secondary legislation that regulates business if the legislation continues to have effect five years after its entry into force. When taking forward SIs under the Bill, the Government will therefore be under a duty to make provision to undertake a post-implementation review after five years or to publish a statement that it is not appropriate in the circumstances to do so. In this light, I hope that the noble Lord will feel able to withdraw this amendment.
Lord Sharkey
In the light of the Minister’s very informative response, for which I am very grateful, I am delighted to be able to withdraw the amendment.
Lord Sharkey
“14A The European Commission’s proposal of 24 May 2018 for a Regulation of the European Parliament and of the Council on the establishment of a framework to facilitate sustainable investment.14B The European Commission’s proposal of 24 May 2018 for a Regulation of the European Parliament and of the Council on disclosures relating to sustainable investments and sustainability risks and amending Directive (EU) 2016/2341.”
Lord Sharkey
My Lords, at Second Reading, I asked the Minister how the specified in-flight files contained in the Schedule were chosen. He replied:
“Those are the files that we believe will be the most important for market functioning and UK competitiveness in a no-deal scenario. Those in-flight files not listed on the face of the Bill include those that apply only to eurozone members, which we would never have implemented as a member state, those that the UK has opted out of, and those where there is not a critical need to implement the legislation in the narrow window of time covered in the Bill”.
I asked the question because I was curious about the Government’s thinking and because of the exclusion from the Schedule of two particular in-flight files.
Those files, which the amendment would add to the Schedule, were drawn to my attention by the UK Sustainable Investment and Finance Association. Both of them have their origin in the work of the European Commission’s high-level working group on sustainable finance and its January 2018 report on the matter. The UK was heavily involved in that. We had seven of the 20 members of the expert group; France had four and Germany had two. The files are the Commission’s proposal of 24 May 2018 for a regulation of the European Parliament and the Council on the establishment of a framework to facilitate sustainable investment and the Commission’s proposal of the same date for a regulation on disclosures relating to sustainable investments and sustainability risks.
Lord Bates
My Lords, I hope I can oblige the noble Lord, Lord Davies, with a constructive response to end Committee. I thank all noble Lords who have taken part. I understand that several Members have received representations from the sustainable finance industry. This amendment seeks to add to the Bill’s Schedule two EU files that complete the European Union sustainable finance package.
As I have mentioned already, the Government acknowledge that the power being sought in this Bill is broad. That is why it has been designed with a number of safeguards and limitations in place. One of these is for the power to be limited to a specified set of EU legislative proposals, named on the face of the Bill. In order to focus the power as narrowly as possible, the list of files in the Schedule to the Bill was determined through an assessment of the importance of files to the stability and competitiveness of the UK’s financial services sector. The noble Lord, Lord Sharkey, highlighted this as one of his concerns when moving his amendment. In short, these are the files that we believe will be the most important for market functioning and UK competitiveness in a no-deal scenario.
I will, of course, be very happy to meet the noble Lord, and the noble Lord, Lord Davies, on this issue. I think we are already going to be meeting quite a bit between now and next week. I have listened carefully to the arguments in favour of the merits of adding these files to the Schedule, and I undertake to reflect on the matter ahead of returning to it on Report. In the light of this, and of the discussions that will take place, I invite the noble Lord to consider withdrawing his amendment at this stage.
Lord Sharkey
My Lords, I am very grateful for the Minister’s answer and look forward to what may be several meetings between now and Report. As the last speaker tonight, I hope that the Committee will allow me to make a very quick, general observation. As I listened to the debates today, it seemed to me that there was a real, structural problem with the Bill. It sets out to do two things: first, to onshore approved, but not applied, EU legislation; and, secondly, to make possible the onshoring of specified in-flight legislation. The problems we are discussing tonight are largely because we are trying to do both of those things using the same mechanism. That is going to be very difficult.
It might be better to consider simply applying the strict rules of Section 8 of the European Union (Withdrawal) Act—or Amendment 7—to all those approved, but not applied, pieces of legislation listed in Clause 1(2)(a) and (b); and, separately, to require primary legislation to deal with the in-flight legislation coming our way, as suggested by the noble Lord, Lord Adonis.
I thank the Minister again for his observations on Amendment 18 and beg leave to withdraw.
Financial Services (Implementation of Legislation) Bill [HL]
Lord Sharkey ExcerptsTuesday 4th December 2018
(5 years, 11 months ago)
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Lord Sharkey (LD)
My Lords, this very brief Bill has a perfectly reasonable objective, which we support. It makes obvious sense to deal with the in-flight files relating to financial services against the possibility that we crash out of the EU on 29 March. I entirely accept that we need to ensure the functioning of our statute book against the possibility of a chaotic exit from the EU. I entirely accept that we need a certain flexibility in the way we do this. We need to have the ability to incorporate pending EU legislation to which we have contributed significantly and which will bring clear benefits to the UK, but will not be incorporated, as the Minister said, by the EU withdrawal Act.
This need is not confined to the financial sector. I expect that the Government will want to bring forward similar legislation to cover other sectors. In particular, I would welcome equivalent legislation to cover the clinical trials regulation, which has been adopted but not yet applied. I realise that this is outside the Minister’s brief, but might he have a quick word with his colleagues in the Department of Health and Social Care about the Bill’s in-flight mechanism?
The Bill before us may be short but it raises a number of substantive questions. The first concerns policy change. It seems clear that the proposed in-flight mechanism will allow the Government to make policy changes by delegated legislation, as section 2 of the de minimis impact assessment makes explicit. That is specifically prohibited in the EU withdrawal Act because it would significantly reduce parliamentary scrutiny. The same objection applies here. Making or changing policy via SIs will equally diminish parliamentary scrutiny. If doing this was wrong for the EU withdrawal Act, why is it okay for this Bill? Is it right to change policy, perhaps significantly, without substantive parliamentary debate? The affirmative procedure certainly does not count as substantive parliamentary debate. I would be grateful for the Minister’s thoughts on the matter.
The second question relates to the schedule. The provisions in it are not the only in-flight financial services proposed legislation. For example, the UK Sustainable Investment and Finance Association points out two other provisions. The first is the European Commission’s proposal of May 2018 for a regulation establishing a framework to facilitate sustainable investment. The second is a proposal for a regulation on disclosure relating to sustainable investments and sustainability risks. Why were those two in-flight proposals not included in the schedule list? More generally, on what basis were the items in the list chosen and on what basis were they excluded?
I can easily see that some items in the schedule are critical. The Capital Requirements Regulation II and the Capital Requirements Directive V will allow us to update the rules on minimum capital requirements derived from the international Basel standards. The Central Counterparty Recovery and Resolution Regulation will ensure that CCPs and the Bank have mechanisms for acting defensively in a crisis to ensure financial stability and the continued functioning of CCPs. I probably do not need to remind your Lordships that the Bank of England’s chief economist, Andy Haldane, has pointed out that if CCPs were to fail chaotically or be unable to continue to function, it would be 2008 on steroids.
My real difficulty with the Bill lies with Clause 1. “Similar” in subsection (1)(a) seems to give very wide discretion. Who is to decide what is similar, and on what basis? Subsection (1)(b) appears to give the Treasury extreme latitude. What is the force of the word “adjustments”? Does it imply any limitation on the changes that may be made? If it does, what are they and should they not be in the Bill? There is then even wider latitude: these adjustments can be made as the Treasury considers “appropriate”. Would it not be better to limit what currently seems an absolute and unfettered discretion for the Treasury to decide what is appropriate? Should not “appropriate” be qualified? Would it not be better to specify a purpose and to know “appropriate” for what purpose or objective? In any case, we need some indication of what tests will be applied in deciding when an adjustment is appropriate.
The wording of subsection (1) makes it clear, given the wide powers, that policy change can be brought about by SIs, limiting parliamentary scrutiny. This becomes evident when we consider the wording in parentheses, which makes it plain that the Treasury adjustments do not even have to have anything to do with our withdrawal from the EU.
A further question arises from Clause 1(9). It is not clear to me—I know that this may be entirely my fault—what this subsection actually does. In particular, I am unclear about the phrase, “in that following year”. I am not sure what that refers to or what it means and I would be very grateful if the Minister would explain.
The policy note issued by the ministry has been very helpful in working through the Bill, but it raises one additional question. On page 3, paragraph 1.8 talks about the safeguards contained in the Bill. The final bullet point states that the power,
“cannot be used to impose taxation; make retrospective provision; create some criminal offences; establish a public authority; implement a withdrawal agreement; or amend the Human Rights Act 1998 or the devolution settlements”.
It follows from this that the power can create some criminal offences. It would be very helpful if the Minister would spell out for us just what criminal offences may not be created and, by extension, under what circumstances the Treasury would want to create new offences and what these might encompass.
Overall, the Bill effectively allows the introduction of fundamental new law by SI. There is no natural, native parent for these SIs. There will have been no primary legislation to allow thorough parliamentary scrutiny. We will be relying, if that is the right word, for proper scrutiny on the EU institutions, which we will have left and whose interests may not be aligned with ours. Perhaps we need a sunset clause for the effects of these SIs, and not just for the powers within the SIs themselves, so that there will be an opportunity for proper scrutiny as they are incorporated in new primary legislation. I am sure that we will come back to this in Committee.
As I started by saying, we support the objectives of the Bill but have some serious concerns about the unfettered nature of the powers it contains and the implications for parliamentary scrutiny. I hope that the Minister will be able to put our minds at rest, at least somewhat.
Mortgages: Cerberus
Lord Sharkey Excerpts(5 years, 11 months ago)
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Lord Sharkey
To ask Her Majesty’s Government what action they intend to take to ensure that those holding mortgages sold by UK Asset Resolution to Cerberus receive a fair deal, and are able to access good value fixed rate mortgages.
The Minister of State, Department for International Development (Lord Bates) (Con)
My Lords, the Government believe that better deals should not be beyond the reach of customers who continue to pay their mortgage. The Treasury is working closely with the Financial Conduct Authority and industry to explore what options are available to help customers with inactive lenders. In the meantime, Landmark Mortgages Ltd, which manages mortgages and was sold by UKAR to Cerberus in 2015, is an FCA-regulated organisation and is bound by the FCA principle of treating customers fairly.
Lord Sharkey (LD)
My Lords, after Northern Rock went bust, many of its mortgages were sold by UK Asset Resolution to Cerberus, an American hedge fund not authorised by the FCA. At the time, UK Asset Resolution said that returning those borrowers to the private sector would mean that they would be offered new deals, extra lending and fixed rates. This was completely untrue. Instead, about 100,000 borrowers were trapped. They continue to pay very high interest and are not allowed by Cerberus to have a fixed-rate mortgage. Many are now in deep financial difficulty. Can the Minister tell those mortgage prisoners when they may be rescued from Cerberus and what lessons UK Asset Resolution has learned from this sorry episode?
Lord Bates
The noble Lord is right to highlight that this traces back to 2008 and the financial crisis, when we had immense irresponsibility in the mortgage lending system. Some mortgages were offered at 120% of the value of the mortgage, allowing people to self-certify their income. Those mortgages, banks and institutions were then rescued. As a result of state aid rules, they were then unable to offer new mortgages. The mortgage prisoners, to use the noble Lord’s term, were then doubly blighted by the fact that in the intervening time, the European Union mortgage credit directive came into effect, which introduced an affordability test which meant that they could not apply to transfer to another lender to achieve a mortgage at a lower rate—they were indeed trapped.
We have tried to find how we can help that situation. We are working with the FCA—we are aware of the representations being made—and will continue to do so. My honourable friend the Economic Secretary to the Treasury will be writing further on this important issue.
Poverty Premium
Lord Sharkey Excerpts(6 years, 2 months ago)
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Lord Sharkey (LD)
My Lords, I too congratulate the noble Lord, Lord Hodgson of Astley Abbotts, on securing this debate and on his eloquent and forceful opening speech.
The poverty premium—the poor paying more—is a very serious problem, and it is highly likely to be made worse as the use of cash continues to decline. But there are other factors that will make the poverty premium worse. There is the widening gap between household income and household expenditure—on average £900 last year, and likely to get worse. Figures due to be released this week will show wage increases to be once again lower than inflation, intensifying the squeeze on just-about-managing families. This comes at a time when there is a huge lack of financial resilience.
The FCA’s excellent report on the financial lives of UK adults, published in October last year, makes for worrying reading. The survey shows that around 15 million people have no or low financial resilience. The survey also shows that 4 million of these people are already in financial difficulty: they have not paid domestic bills or met credit commitments in three or more of the last six months. In addition, 4 million of these financially vulnerable people have never used the internet. All these figures are worrying. They remind us of the existence of real poverty, of the huge numbers in or on the edge of real financial difficulty, and, importantly for this evening’s debate, they remind us about the lack of digital access in a society that is becoming increasingly digital. I will return to that theme in a moment.
The 2016 University of Bristol study, already referred to by the noble Baroness, set out its views about what constituted the poverty premium. It saw it as the poor paying more for energy, telecoms, insurance, food and grocery shopping, access to money and use of credit, and it estimated the poverty premium at £490 per household per year, but with a huge variation within that average—for some households, as much as nearly £800 a year. These are all lower than the £1,300 per annum estimate made by Save the Children in 2010, but Bristol cites methodological differences for the different outcomes, which raises the question of the need for reliable data if we are to advance this kind of discussion.
The Social Market Foundation, in its paper of March this year, acknowledges the need for better measurement and puts forward its own proposals for a reliable set of metrics. I commend this approach. If we are to measure the effect of the decline in the use of cash or, indeed, of any factor on the poverty premium, it is vital that we have an agreed set of metrics. Do the Government agree with that? If they do, what can they do to help establish proper tools for assessment?
The Government are in fact, slightly indirectly, already engaged in this area. The big society may have all but disappeared with its inventor, but its legacy lives on in Big Society Capital. The fund is developing what it describes as,
“a targeted holistic programme designed to eliminate the poverty premium by 2027”.
HMG are the majority shareholder in Big Society Capital. Can the Minister say what part they are playing in this project, and how advanced the project is? Is it, for example, considering tonight’s question on the impact of the decline in the use of cash? On this issue, I note that the Treasury has just concluded a consultation on cash and digital payments in the new economy. Perhaps the Minister can tell us when we are likely to see the report.
In the call for evidence to that inquiry, the Government recognise the use of cash as an entirely legitimate choice. It is certainly that, but it is also often an entirely rational choice or a matter of necessity for people in poverty. There is, furthermore, no justification for those with least money paying more by using cash than by using other means to buy the same services. This has special force when what people are buying with cash are vital and basic necessities. There is no real justification for the premium. It should not exist, and it certainly should not be allowed to get worse as cash usage declines. The premium is either exploitative—it frequently is—or the consequence of poor market practices: neither situation is desirable or fair.
The Government will need to take action as cash usage declines. In particular, the Government will have to take urgent steps to remove or ameliorate the digital disadvantages of the poor. It is the lack of digital access and/or digital savvy that is most likely to preserve, or worsen, the premium as cash usage declines.
Critically, free access to cash must be maintained, especially for those living in financially deprived areas. This is a current concern. The recent disputes over the transfer fees in the ATM system between banks and the operators involved raise the prospect of the removal of ATMs and the introduction of more pay-to-use machines. This problem is likely to become more acute as cash usage declines. What is at risk is both free access to cash and the creation of areas in which there is effectively no access, free or paid.
I am aware that the LINK organisation has promised to maintain free access ATMs where needed and to replace any machines withdrawn by operators from disadvantaged areas. I worry, however, about what this promise is worth if LINK’s shareholders can override it at will, as they can. This will present a key test for the Government. Removal of free-to-use ATMs from financially deprived areas will lead to a decline in the use of cash and will certainly worsen the poverty premium. It would be good to hear the Minister say that he will not allow that to happen.
Prudential Regulation Authority: Equity Release Sector
Lord Sharkey Excerpts(6 years, 2 months ago)
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Lord Sharkey
To ask Her Majesty's Government what assessment they have made of the report by the Adam Smith Institute, Asleep at the Wheel: The Prudential Regulation Authority and the Equity Release Sector, published on 7 August.
The Minister of State, Department for International Development (Lord Bates)
My Lords, the Government take the issues raised in this report very seriously. Equity release offers an effective way for home owners to enhance their standard of living in later life, but must not threaten their financial stability or place consumers at risk. The Prudential Regulation Authority is alert to the issue. It is acting to set a clear and more precise prudential expectation for insurance companies’ risk management of equity release mortgages.
Lord Sharkey (LD)
The equity release mortgage market has trebled over the last five years and continues to grow strongly. Many of these mortgages have no negative equity guarantees—in other words, the loan value is capped at the price of the house when sold. The Adam Smith report says that insurance companies selling these mortgages have so misjudged the risk that another and bigger Equitable Life scandal is in prospect. Will the Minister say what action is being taken to prevent that?
Lord Bates
The responsibility for that lies directly with the PRA, the responsible regulator. It is in regular contact with the industry on setting new guidelines. That was already done in 2016. Just before the report, to which the noble Lord referred, was published, a new consultation was published by the PRA on this issue—the effective value test, which was used to calculate an appropriate amount that must be held in capital on the balance sheet to reflect the risks being entered into. That consultation is open until 30 September. There are some proposals, which, if they find support, will be implemented by the end of the year.