Financial Services Bill

Debate between Lord Sharkey and Baroness Bowles of Berkhamsted

Committee stage & Committee: 1st sitting (Hansard) & Committee: 1st sitting (Hansard): House of Lords
Monday 22nd February 2021 Grand Committee

[Lord Sharkey (LD) [V]]

Amendment 1 would require the FCA to

“make rules introducing a duty of care … owed by authorised persons to consumers in carrying out regulated activities”

under FSMA 2000. The Government understand the value of a duty of care; they are about to introduce exactly that in the forthcoming online harms Bill. They understand the immense harm that can be done to consumers without this duty, especially in complex and asymmetric environments.

We have already seen too many examples of the immense harm inflicted by our financial services industry on ordinary consumers—I am thinking here of PPI, which was a product sold to consumers at an 87% commission rate. The scandal ended up costing £53.8 billion in redress and administration costs. I am also thinking of mis-sold interest-rate hedging products and the general and widespread unfair treatment of small businesses in financial difficulty. There was also the long-running saga of overcharging for overdrafts and of leaving loyal customers languishing in poor-value products.

The existing rules did not prevent any of these things, which is not a surprise. There is no explicit requirement in FSMA or in the FCA’s principles for business for firms to prevent harms to customers. The FCA’s “treating customers fairly” business principle is substantially weakened by the legal principle in FSMA that consumers should

“take responsibility for their decisions”.

This fails to take into account the imbalance in power and information between firms and their customers.

Things are not getting any better. Recent examples of misbehaviour include the banks’ response to the authorised push payment fraud, inadequate assessment of affordability by payday lenders, the scandal in Woodford Investment Management, sales of risky investment products on the boundary of the FCA’s perimeter and the outrageous behaviour of some insurers during the pandemic trying to welsh on their business interruption policies.

The Minister will be aware of the Banking Standards Board’s annual survey of 29 member banks’ behaviour and competence. There was some welcome improvement in these areas between 2016 and 2017 but none since. In 2019, 13% of employees of these banks said that they had seen instances of unethical behaviour being rewarded and 14% felt that it was difficult to make career progression without flexing their ethical standards.

The FCA knows all this, of course, and has occasionally acted. However, within the existing legal framework it often takes many years for the FCA to respond to firms’ harmful practices. An example of this is the treatment of loyal general insurance customers, which the FCA is only just beginning to tackle.

Then there is the question of the high-cost short-term credit sector. Wonga may have gone, thanks largely to pressure from this House, and after intense pressure from Parliament there is now a price cap on rent to own. But problems persist with, for example, doorstep lending, guarantor loans and new, automated overdraft products.

The FCA tackles unacceptable practices slowly and piecemeal, allowing harm to persist for many years. It was particularly late in spotting the rapid growth of buy now pay later and its potential for harm. I believe that the Government have said that they intend to address this problem and I hope that they will use this Bill as an opportunity to do that. I would be pleased if that were to be the case, but the slow and cumbersome engine of primary legislation would not have been necessary had a duty of care extended over the sector.

The FCA has published eight papers in the last five years dealing wholly or in part with the question of duty of care, but it still has not developed a clear view or a recommendation. In its consultation feedback paper of April 2019, the FCA noted:

“Most respondents consider that levels of harm to consumers are high and there needs to be change to better protect them.”


It then sat on the fence about what this change should be, reporting that none of the financial service providers favoured a duty of care. Mandy Rice-Davies would have known what to say to that.

In any case, as the FCA’s consumer panel noted,

“Much of the debate on a duty of care has centred on legalistic arguments about whether there is a ‘gap’ in protection. What matters is whether consumers get the treatment they want and expect from their financial services providers.”


The consumer panel commissioned Populus to ask individual and small business customers about their experiences. The research showed that the customer is not at the heart of business decisions and that 92% of respondents were in favour of a duty of care in financial services.

While sitting on the fence, the FCA has also managed to hit the ball into the long grass. It promised to initiate yet another consultation on the issue, initially due last year but now postponed. In the meantime, levels of financial vulnerability grow. The FCA’s latest Financial Lives survey, published 11 days ago, makes grim reading. It notes that Covid-19 has reversed the previous positive trend in vulnerability. Between March and October last year, the number of adults with characteristics of vulnerability increased by 3.7 million to 27.7 million. That means that over half of all adults are financially vulnerable—a truly alarming figure.

The same survey also notes that unsolicited approaches have increased during the pandemic, increasing the risk of fraud and scams. Over a third of adults say that they have received at least one such approach and 1.4 million say that they have paid out money as a result of a possible Covid scam. Unsurprisingly but regrettably, people with characteristics of vulnerability have been the more susceptible: 12% paid out money, compared with 1% of the non-vulnerable. None of this will get any better when the furlough and business support arrangements come to an end. Financial pressures and desperation will inevitably increase; vulnerable people will be disadvantaged, treated unfairly and scammed.

Dealing with all this would be made significantly easier if the FCA were to impose a duty of care on service providers. The idea has widespread support. In May 2019, the Treasury Select Committee published its report on the inquiry into consumers’ access to financial services. Paragraph 210 of the report says:

“All retail financial services, no matter which sector of the industry they operate in, should be acting in their customers’ best interests at all times. If the FCA is unable to enforce such behaviour in firms under its current rule book and principles, the Committee would support a legal duty of care, analogous to that in the legal industry, creating a legal obligation for firms to act in their customers’ best interests.”


The FCA’s own financial services consumer panel, responding to the FCA’s discussion paper, said:

“A new duty is required to improve the position of all consumers … including those who need more support.”


The Money and Pensions Service said:

“MaPS remains convinced that a formal ‘duty of care’ on financial firms could provide a better balance between firm and consumer responsibilities and help deliver extra protection and better treatment to vulnerable consumers.”


StepChange is in favour, as is Fair by Design, and so are many organisations with direct and in-depth experience of the financial catastrophes that can be visited on the poor and the vulnerable. I am grateful for the explicit support and encouragement in pressing for a duty of care from Age UK and the Alzheimer’s Society and I am especially grateful to Macmillan Cancer Support for its unfailing help and advice. I am also indebted to the former chair of the FCA’s consumer panel, Sue Lewis, for her support.

Despite all this support, the Government will no doubt resist the idea of introducing a formal duty of care. When this issue was raised at Report in the Commons, John Glen addressed it by saying simply:

“As the FCA is already taking steps to ensure that financial services firms exercise due care and regard when offering products, services and advice, a statutory duty of care, as proposed by new clause 21, is not necessary.”—[Official Report, Commons, 13/1/21; col. 366.]


He did not say what these steps were or make any assessment of their actual or likely effectiveness. Today the Government may add to John Glen’s reasons for rejecting a duty of care and may advance the argument that they need to wait to give the SMCR time to work. Surely five years is long enough—five years in which there has been just one successful conviction. The FCA’s consumer panel points out that this is essentially a category error and notes:

“The SMCR is primarily a supervision tool—it will be a valuable mechanism to ensure that firms are complying with a new duty.”


The Minister may also pray in aid the reinforced, better-resourced and more active FOS. It is true that FOS dealt with around 250,000 cases in 2019-20. In these cases overall, one-third of judgments were in the consumers’ favour. This is evidence enough of large-scale misbehaviour, but the figures are much worse for products aimed at the financially vulnerable: 89% for guarantor loans, 84% for doorstep loans and 78% for logbook loans.

This is not—absolutely not—evidence of successful regulation. Every one of these judgments is evidence of a failure to sell the right product to the right individual or small business, to explain it clearly or to handle a complaint properly. The FCA’s current rules and principles are failing to stop this tidal wave of mis-selling, malfeasance and malpractice. We need a new approach that focuses on prevention of harm and delivers extra protection and better treatment for vulnerable customers. We need a duty of care and I beg to move.

[Baroness Bowles of Berkhamsted (LD) [V]]

My Lords, I declare my interests as in the register. I support all the amendments in this group and what has already been expertly said by my noble friend Lord Sharkey. I will comment on the duty of care later, but first I will introduce my Amendment 72, which calls for warnings relating to non-regulated activity.

The issue here is one where firms that are authorised in respect of regulated activity also conduct unregulated activity, and customers are misled by the fact that the firm is authorised for some activity into thinking that the authorisation is some kind of guarantee of quality. It is what Dame Elizabeth Gloster called in her report “the halo effect”, and about which she said again to the Treasury Select Committee a couple of weeks ago that something should be done.

One thing that is done by the Bill is enabling unused authorisations to be more easily cancelled, but that does not solve the problem when there are still used authorisations. This is a problem that has long been known about and does not affect only unscrupulous businesses. Therefore, the amendment aims to make it quite clear to consumers what the situation is in three ways.

First, authorisation must not be referenced in any communication, including on letterheads or websites, as a reputational guarantee regarding non-regulated activity. In practice that should mean the ending of straplines. Secondly, when non-regulated activity is being conducted, that must be made clear, together with an explanation that it means that access to the Financial Ombudsman Service and/or Financial Services Compensation Scheme is not available. Thirdly, it would be an offence to imply that a non-regulated activity is covered by an authorisation.

The first two provisions relate to authorised firms aiming to stop the halo effect in as far as that is possible. I do not expect firms to write to clients saying, “This is the rogue side of our business”, but I hope that clients will be more aware that that might be so. The third point is a general point and would apply beyond regulated firms, but my aim is to catch passive implications, so that active steps to inform have to be taken.

The amendment has been drafted to make the point clear, rather than as a perfect draft to weave in among other regulatory provisions, and I hope that the Minister will take up the idea and recognise that reducing a problem by eliminating surplus authorisations does not reduce the problem to its smallest possibilities.

Turning now to the duty of care, I want to add that a duty of care should apply to the regulators as well. Of course, they say that they act in the public interest, but they are every bit as aggressive about protecting themselves—of all things from the public and from liability—as the firms that they supervise. My view of this is simple: “If you don’t live by it, you don’t really understand it”.

If one examines the responses to the FCA’s discussion paper in July 2019, the majority were in favour, two of the main reasons being that it was critical to triggering a fundamental culture change away from asking “Is this within the regulations?” and into “Is this right?” Secondly, it would give a duty to avoid harm that would incentivise firms to evaluate consumer risk at every stage.

What is not to like in that? It seems that just a handful of respondents did not want any more than was already in those principles about treating customers fairly. But they were very much in the minority and, sadly, it seems that some of those in favour of a duty of care are not in favour of it being actionable. I am in favour of a duty of care, I am in favour of it being actionable and I am in favour of it applying to regulators as well, because something is going wrong all round and, frankly, I find the FCA’s hesitancy a matter of serious concern.

Pension Schemes Bill [HL]

Debate between Lord Sharkey and Baroness Bowles of Berkhamsted

Committee stage & Committee: 3rd sitting (Hansard) & Committee: 3rd sitting (Hansard): House of Lords
Monday 2nd March 2020 Grand Committee

[Baroness Bowles of Berkhamsted]

My Lords, I am conscious that, in the two groups we have already discussed, we have touched quite thoroughly on the background that inspired my amendment. The Minister has explained several times that it is the intention that this legislation is flexible, that because of the ability to make regulations it can develop over time and that many of the things that noble Lords have already been pressing for are potentially in the mind of government. There was a similar discussion at an all-Peers meeting a couple of weeks ago, which several noble Lords—in particular, the noble Baroness, Lady Sherlock—were at and which inspired this probing omnibus amendment that puts together all the things we discussed in that meeting and a few more. I do not see that it in any way competes with the amendments about the content of regulations or the SCA being the dashboard regulator.

The purpose of this amendment is to discuss how to make certain that there will be joined-up, end-to-end coverage by the regulator and the regulations—or in supervision, as the noble Baroness, Lady Sherlock, expressed it. Again, I am sure that it is the intention for a lot of this to happen—there are certainly enough powers in the Bill to do it—but there is nothing yet in the Bill to make it certain. I acknowledge that things have been said but that is not the same as having something in the Bill.

It has been said that a lot of these things might develop as a result of consultations with industry groups. If industry groups decide that they do not want some of this, what happens? There needs to be a basic obligation that these things will be covered—in particular, as my amendment envisages, if we are getting to the point where we have commercial dashboards. If these things are not resolved by the time we get them—it looks as if we might be getting them anyway, not after a delay—I do not think that it is satisfactory to have nothing in the Bill.

To ensure end-to-end regulatory coverage for the process of loading information on to dashboards to the dashboard itself and for any consequential actions arising from the dashboard, my wish list, or probing list, covers: dashboard operation; information; data; advertising and revenue generation; redress mechanisms; fraud mitigation, which the Minister has already mentioned; content; presentation; assumptions; valuations; projections; risk; comparison; third-party revenue charges; and commissions and their effect on projections.

Noble Lords said on the previous group that it is difficult to have information about charges because they are done in different ways and are the be-all and end-all. That in particular is why I have said that the effect of the charges should be given because that is where you can assess them. If there are lots of different mechanisms and they can make things weaselly wordy or look wrong, they should not be able to disguise the cash effect of the charges that can be extracted. That is probably more important than saying what the charges are. I do not think that this is in conflict with anything else that has been said today.

However, what happens if there is a data breach? That might be a matter for the Information Commissioner. It might be automatic or a matter for redress by the financial ombudsman. These mechanisms are all out there. How will they join up? We want to know for certain that they will. Nothing in my amendment suggests how this must be done; it just says that it must be done.

While mentioning the FCA, we need to be clear that unless it is told categorically in legislation or regulations that something is regulated, it will not consider it as within the regulatory perimeter. As I have said previously, it regards that as a matter for government and Parliament to authorise. An example is that although the FCA covers conduct in banks—which, as we well know, are also heavily regulated by the Prudential Regulation Authority—banks can do quite a lot that, although they have that heavy regulation, falls outside the regulatory perimeter for conduct. Commercial lending is one example. People tend to trust regulated entities but then do not realise that things that do not have that supervisory and conduct backing can be done. It is necessary to dot the “i”s and cross the “t”s here.

For example, it might be that the phrase “Click here to transfer your pension” would be covered, but as the noble Baroness, Lady Altmann, hinted in her previous suggestions, would it be against the regulations to say, “Click here and buy a Maserati”? It was once suggested that that might happen with pensions freedoms. What about equity release for double glazing and conservatories, which feature heavily in the advertising about equity release? If we do not cover advertising and the FCA does not, who does? It must be covered. It cannot be left open. My amendment aims to draw attention to these matters through my list. I will obviously be interested to hear the reply.

However, when it comes to drafting regulations—again, this has relevance because the Minister has already mentioned it—there should not be too much left to the regulatory rules. They can create holes, especially after the regulator has consulted the people it is attempting to regulate. I touched on that in a debate last week, when I explained how regulators’ rules—FCA rules, to be precise—had watered down the generality of “fit and proper” as a test for behaviour. It is by no means the all-encompassing test that was originally intended; it was narrowed down by the rules of the regulator.

When it comes to pensions, I therefore want a belt-and -braces approach. As I said, I have attempted to draft something that sweeps together all the concerns in a probing, omnibus-type way; I will not go through the list because quite a lot of it has already featured in our debate today on previous amendments. I do not aim to say how it is to be done but I suggest that when there is to be a commercial dashboard, the regulations must be done for all these things. I believe that that is what the Government say they will do, but it is better to have it on a piece of paper inside the Bill. I beg to move.

[Lord Sharkey (LD)]

My Lords, my noble friend’s amendment, among other things, speaks about advertising. The underlying question about advertising, however, is surely why allow it at all? That was touched upon by the noble Lord, Lord Vaux, and the noble Baroness, Lady Altmann. You can see the benefit, obviously, to commercial dashboard providers: another revenue stream and/or the cross-selling of their products. However, it is hard to see why the customer would want yet another advertising channel while there are already thousands—perhaps tens of thousands—of advertising channels. What really is the benefit to the consumer; or perhaps more accurately, what really is the risk-benefit balance for the consumer created by the existence of advertising on commercial dashboards? What assessment have the Government made of this risk-benefit balance? If the answer is none, perhaps they should consider doing exactly that. I am curious about whether the Government have, in fact, indicated to potential commercial dashboard providers that they will be able to run ads on their dashboards. Is there some implicit quid pro quo going on here?

Pension Schemes Bill [HL]

Debate between Lord Sharkey and Baroness Bowles of Berkhamsted

Committee stage & Committee: 2nd sitting (Hansard) & Committee: 2nd sitting (Hansard): House of Lords
Wednesday 26th February 2020 Grand Committee

[Lord Sharkey]

My Lords, I shall be very brief. Amendments 29, 30 and 32 in my name are all probing. Their purpose is to allow discussion of the reasoning behind the choice of penalties written into Clauses 112 and 115. In each case, I would be interested to know two things: what comparisons, if any, did the Government make in deciding on the penalty amounts, and what was done to assess the likely effectiveness of these amounts? In other words, are the upper limits really large enough to influence behaviour, and what has convinced the Government that they are?

At Second Reading, I noted that the Government seem uncertain about the merit of the £1 million upper limit contained in new Section 88A, inserted into the Pensions Act 2004 by Clause 115. Subsection (2) of new Section 88A is where this £1 million is set, but the very next subsection allows for secondary legislation to change this upwards without limit. As far as I can tell, this power to adjust upwards by regulation does not apply to the penalty upper limits in Clause 112, and I think that that deserves an explanation. Why are the Government confident that they will not need to change upwards the lesser penalties in Clause 112 but feel that they might have to do so for the major penalty in Clause 115? Surely it is not wise to allow unlimited power to raise penalty levels by regulation.

The Government implicitly acknowledge that that is the case by setting limits on the face of the Bill. Then they do a reverse ferret by giving themselves unlimited discretion to revise upwards in one case. I can see why the Government might lack confidence in the proposed £1 million limit, given the resources of those upon whom the penalty might fall, but surely it would be better to have in the Bill a limit that we think might work, or at least a limit on how far the initial amount may be raised or a proportional system, as proposed by the amendment of my noble friend Lady Bowles.

In any event, it would be very helpful to know how the Government alighted on all these upper bounds, especially the £1 million limit, and especially as they all seem intuitively to be rather on the low side. I look forward to the Minister’s response. I beg to move.

[Baroness Bowles of Berkhamsted]

My Lords, I support all the amendments in this group—Amendment 31 is my own. The broad principle is not to let the fines simply be a cost of doing business for the wealthy and especially large companies. Inevitably, large fines give rise to concern among those who would be the bottom end of any range of fines, with respect both to the seriousness of their offence and their resources. It is clear that proportionality is key—proportionality both to the severity of the offence and the resources of the offender. The fine must also be a sufficient deterrent, not just a cost of doing business.

It does not seem to be customary to recite proportionality in legislation, as it is presumed. For my part, I would not see it as damaging to include wording on proportionality, and anyway it would always be part of any appeal. That is why, in Amendment 31, I changed the new Section 88A fine from “£1 million” to

“twice the employer’s pension deficit or 4% of the employer’s annual global turnover (whichever is greater)”.

The fines may not be these amounts; they are the maximums. These fines can be for egregious matters that put pension funds at risk—and, therefore, the livelihood and well-being of pensioners and future pensioners—and potentially impose on taxpayers. They are fines for being a social pestilence.

I thought that the size of the deficit was relevant—maybe I should have made it three times the size, because my inspiration was US-style triple damages that can apply for monstrous offences. I have made it clear that I think doing bad things to pensions is pretty monstrous.

Turnover-linked criteria are also not new. They are in use in the UK, having been recently introduced for the Information Commissioner; that is what I have copied. They have, of course, been in play for some time for competition offences. The Information Commissioner penalties also have a numerical option, although again that is not limited to the turnover side of the penalty. I left out the number in my amendment to emphasis the proportionality point, but I would have no problem adding in the amendment of my noble friend Lord Sharkey so that we have a numerical measure in there as well.

It would seem from something that was said to me—in one of the meetings, I think—that the £1 million fine level was inspired by “similar fine provisions” by the FCA. Well, I can suggest several responses to that. First, the FCA may be the one out of line with modern thinking, the fine having been set a while ago. Also, it has perhaps been undermined because it always has to do consultations and, strangely, has to consult those who might be fined. But, as a matter of consultation, I note that the ABI has supported my amendment.

Uncertificated Securities (Amendment and EU Exit) Regulations 2019

Debate between Lord Sharkey and Baroness Bowles of Berkhamsted

Monday 25th February 2019 Lords Chamber

[Lord Sharkey (LD)]

My Lords, I accept that the two regulations in this group are closely linked and I have only one question and one comment. The question relates to the waivers that the Treasury may issue under the terms of the investment exchanges, CCPs and CSDs SI. Paragraph 117 of the impact assessment to this SI explains that, if the Treasury makes an equivalence decision on a third country jurisdiction and the Bank has recognised a third country CSD, this will mean that the third country CSD will be subject to Part 18 of FSMA. As the Minister has said, this will give the Bank the power to make rules requiring information about events specified in those rules and to require the third country CSD to give written notice to a regulator of a change to its own rules or guidance.

The Bank could also require a third-country CSD to give reports on the CSD services it provides in the UK and related statistical information. As the Minister said, the Bank may also inspect any branch of a third country CSD in the UK. There is also the rather threatening addition, “enforceable by injunction”. All of this seems eminently sensible. However, the impact assessment includes a provision which qualifies the use of these powers. It means that, for instance,

“the Bank may waive the above rules in respect of a third country CSD where it is satisfied that compliance with those rules would be unduly burdensome and the waiver would not result in undue risk”.

I take it that this waiver power is intended primarily to help the continued co-operation of CSDs within the EEA. My question is whether, if the Bank does make such waivers, they be will in the public domain and whether the Bank will explain the reasons for supposing the rules to be unduly burdensome and for supposing that exercising the waiver will not result in undue risk—whatever “undue” may mean in this context.

My comment has to do with paragraph 10 of the EM to this instrument. The paragraph explains in some detail, and with the appropriate references, the outcome of the consultation on the implementation of the CSDR. This was extremely helpful, and it illustrates a key difference between consultation and engagement. Noble Lords will know that many of the Brexit SIs laid by the Treasury have not been consulted on. The Explanatory Memorandums say when this is the case, and frequently follow this by noting that there has instead been extensive engagement with stakeholders. But in no case that I can recall have the EMs given any detail about the questions that arose in these engagements, the no doubt various views expressed by stakeholders or any modifications that may have been made to the draft as a result of these engagements. By contrast, as the current EM demonstrates, consultation gives a clearer, well-defined, comprehensive outcome and even demonstrates how government thinking has been changed. In this case, the three respondents were obviously very persuasive.

Engagement with no detail is a very unsatisfactory substitute for consultation. I realise that it is now too late to conduct consultations on the no-deal Brexit SIs that are before us and on those that will come before us. I think that we have only one more Treasury SI to consider—or at least very few. I ask the Government in general to be much more informative about engagement. I ask them to consider providing in the Explanatory Memorandums at least a list of stakeholders engaged with and a summary of what issues were raised by the Government and the stakeholders, what opinions were expressed and what changes were made as a result of these engagements.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I declare my interest, as in the register, as a director of London Stock Exchange plc. I am glad that we are debating these two instruments together, because they seem to go together and to form a continuum. Indeed, in some ways it is rather strange. The first says that it would not be appropriate to give the Bank of England powers pre Brexit, but then in the second the powers are being given to the Bank of England. That arises largely because the uncertified securities regulations are largely about transposing EU legislation under the European Communities Act.

I too was interested in the consultation done in 2015 and noted that there seemed to be variably one, two or three comments on various sections. That certainly determined me to step up my rate of response to consultations. The report says that changes have been made, but it leaves you having to compare the before and after. All that was getting a bit too much on a sunny Sunday, as the noble Lord, Lord Tunnicliffe, said. What struck me particularly was the explanation on page 6 of the Explanatory Memorandum to the uncertified securities regulations, which said that,

“the Treasury is taking a proportionate approach to implementing Article 49(1)”.

Given that they are regulations, and you cannot change what is in the regulation done by the EU, I am curious as to what this more proportionate approach entails. Does it imply that the first draft had been gold-plated in some way? What was in and has been taken out? I did not find a great deal of guidance in the documents.

My next comment is a very general one. In both of these statutory instruments, and in particular in the second one dealing with exchanges and so forth, there is a large number of changes to the Financial Services and Markets Act. As we have discussed at some length before, that is not up to date on legislation.gov.uk— although, of course, it does give you a list of the things you might want to go and explore, to see if you can work out what an up-to-date version might be, or you may be thrust into the hands of one of the commercial organisations that will do that for you. However, by the time we have ploughed through all 60 statutory instruments that we are told we have to deal with, and then whatever other number we may get regarding corrections and re-workings—some of which are coming along now—FSMA will be even more incomprehensible on the legislation website, and so too will be any sensible comparison of how EU legislation has been retained with regard to the EU originals.

That might be relevant. If we are ever trying to argue for equivalence, the first thing we will be asked to do is to show it. Page 3 of the Explanatory Memorandum for the investment exchanges SI names six other SIs involved in the onshoring of the Securities Financing Transactions Regulation—so one regulation goes to seven SIs, each of which further redistributes powers and requirements over a range of other instruments. As I have said, we are also getting into second-order corrections and additions, with further SIs winging their way through the system.

It is not my idea of a lawful democracy for laws to be so obscure and inaccessible. It is actually quite a mockery to make a fuss about the accessibility and clarity of wording in individual documents while it remains impossible to find out their cumulative effect. I have long been shocked at this unwholesome situation, but Brexit is making it far worse. What is the Treasury going to do about it? Clearly, check tables have to be used in the Treasury. I am coming to the view that we are reaching a stage at which Parliament should refuse to amend law that is not available in an up-to-date format. At the very least, could the Treasury share the various schedules that point out what has been put where, so that those of us who are expected to scrutinise this do not have to spend an awful lot of time getting frustrated as we try to work out the true current state of the law? If we cannot do it, and we are responsible for it, how is the ordinary citizen supposed to know what is the law, when ignorance is no defence?

Financial Services (Implementation of Legislation) Bill [HL]

Debate between Lord Sharkey and Baroness Bowles of Berkhamsted

Committee: 1st sitting (Hansard): House of Lords
Tuesday 8th January 2019 Lords Chamber

[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.