Financial Services and Markets Bill

Debate between Lord Sharkey and Lord Bridges of Headley

Committee stage
Monday 20th February 2023 Grand Committee

[Lord Bridges of Headley (Con)]

My Lords, I will make a couple of points quickly. In so doing, I once again declare my interests as an adviser to and shareholder in Santander and, more appositely, as current chairman of the Economic Affairs Committee.

I want to pick up on the noble and learned Lord’s excellent points. If I may be very frank, I was disappointed that in the Minister’s response to the previous group he consistently referred to accountability to the Treasury. We are talking here about accountability to Parliament. This is what matters; it is what concerns so many noble Lords who take a great interest in this debate. There is just nowhere near enough of that in the Bill. I am very disappointed by the tone and approach that the Government seem to be taking, so far, to what I see as a highly constructive set of amendments, especially my noble friend Lady Noakes’s amendment, which I entirely support. I have two brief points to make about the committee structures of this House and of the other place.

As we have seen and are already seeing, the remit of committees here and in the other place is not set up to handle and scrutinise the avalanche of regulation coming out from all the regulators. It is nowhere near adequate to handle the consultations, let alone everything else. They do not have the resources either. It is imperative that the Bill is amended to reflect this. I very much hope that when my noble friend responds she will give this amendment some warm words of support, go away and think of ways in which she might support it. I will be speaking again in support of my noble friend’s other amendments.

[Lord Sharkey (LD)]

My Lords, I strongly support the amendment in the name of the noble Baroness, Lady Noakes, and observe that the Government have said, more or less consistently, that it is for Parliament to decide what form of scrutiny it requires. This acknowledges the importance of the issue. This is Parliament, and the amendment sets out a clear way ahead to establish parliamentary oversight. If the Government mean what they say, they will not oppose these amendments. They might join in a constructive discussion of how to make them better, but they will not oppose these amendments if they are to be at all consistent.

It is worth noting, though, that accountability and scrutiny are not quite the same. Even if we were to pass the amendments in the name of the noble Baroness, Lady Noakes, we would need to take a closer look at the delegated powers mechanisms that the Bill contains. As things stand, Parliament will have no meaningful say in whatever the new rules may be. Unless I have misunderstood, the proposed financial services regulators review committee will not be able to intervene as the new rules become law. We will need to think about that carefully as we make progress with the Bill.

Bank of England and Financial Services Bill [HL]

Debate between Lord Sharkey and Lord Bridges of Headley

Tuesday 3rd May 2016 Lords Chamber

[The Parliamentary Secretary, Cabinet Office (Lord Bridges of Headley) (Con)]

My Lords, I beg to move that this House do agree with the Commons in their Amendment 7—and on this, too, we have been in listening mode.

This amendment recognises the important role played by the Treasury Select Committee in its scrutiny of the Financial Conduct Authority and appointments to its top job. Through the committee’s programme of pre-commencement hearings it questions appointees to several posts before they start work. After appointees have started, as your Lordships will know, they appear regularly before the committee. The Government welcome this scrutiny of appointees.

Our amendment therefore ensures that the committee always has the chance to scrutinise a newly appointed chief executive of the Financial Conduct Authority before they start work. It provides that no one who is appointed as CEO of the FCA can start work until they have appeared before the TSC or three months have passed. This gives the TSC time to call them in, and once it has questioned the appointee in relation to the appointment, he or she can get to work. There is an exception to this if the appointment of a chief executive is made on an acting basis pending a further appointment; for example, where an appointment must be made urgently in response to a sudden vacancy. However, to appoint a permanent CEO, the Government must give the TSC the chance to hold a hearing.

As your Lordships will be aware, my right honourable friend the Chancellor and the chair of the Treasury Select Committee have reached an agreement that further reinforces the committee’s scrutiny role. This is set out in a letter from the Chancellor to the chair of the TSC, which has been published on the TSC’s website. It reads as follows:

“During the passage of the Bank of England and Financial Services Bill, we have considered the role of the Treasury Select Committee … in scrutinising the appointment of the Chief Executive of the Financial Conduct Authority … This scrutiny is important and welcome. I will therefore ensure that appointments to the Chief Executive of the FCA are made in such a way to ensure the TSC is able to hold a hearing, after the appointment is announced but before it is formalised. Should the TSC recommend in its report that the appointment be put as a motion to the whole House, the government will make time for this motion and respect the decision of the House. Additionally, I will seek, in a future Bill, to make a change to the legislation governing appointments to the FCA CEO to make the appointee subject to a fixed, renewable 5-year term. This would not apply to Andrew Bailey, who I recently announced as the new head of the FCA, but would first apply to his successor. I believe that these changes will reinforce the Treasury Committee’s important scrutiny role”.

This commitment, combined with this amendment, which ensures that the Treasury Committee always has the opportunity to hold a hearing with an appointee, serves as a strong recognition of the committee’s vital role in scrutinising the FCA and its CEO. I beg to move.

[Lord Sharkey (LD)]

My Lords, we support this amendment, but more precisely, we support this amendment with the commitments made in the Chancellor’s letter to the chair of the Treasury Select Committee. We are glad to see moves to buttress the independence of the FCA, and we think the amendment and the commitments will help do that. It is true that the FCA does need some help. In particular, it needs help in ending what is, or appears to be, interference by the Executive.

Recent times have not been happy. There was the early announcement of the non-renewal of Martin Wheatley’s contract; the Chancellor’s public announcement that Tracey McDermott was withdrawing her CEO application, before she had had a chance to tell her own people; and, then, the appointment of Andrew Bailey as CEO without benefit of a proper interview panel. I will not even mention that the search for the hard-to-find Mr Bailey cost £280,000.

To restore belief in its independence and its self-confidence and morale, the FCA needs to have a robustly and operationally independent CEO. We hope that this amendment and the Chancellor’s commitments will make that happen. This amendment and those commitments are of course the result—as the Minister has explained—of negotiations with Mr Tyrie, the chair of the Commons Treasury Select Committee. We would have preferred Mr Tyrie’s original amendment, which simply gave the Treasury Select Committee the power to approve, or not to approve, the appointment of the CEO of the FCA.

The government amendment, of course, does not go nearly that far. It simply says that the already appointed—although, I hope, not contractually bound—CEO must appear before the TSC before taking up his office. By itself, this is pretty feeble stuff. In fact, the important changes are not in this Bill at all; they are contained in the letter from the Chancellor to the chair of the TSC. The letter makes two commitments, as the Minister has explained. The first is that the Chancellor will,

“ensure that appointments to the Chief Executive of the FCA are made in such a way to ensure the TSC is able to hold a hearing, after the appointment is announced but before it is formalised. Should the TSC”,

as the Minister has said,

“recommend in its report that the appointment be put as a motion to the whole House, the government will make time for this motion and respect the decision of the House”.

Secondly, the Chancellor,

“will seek, in a future Bill, to make a change to the legislation governing appointments to the FCA CEO to make the appointee subject to a fixed, renewable 5-year term”.

This is all very cumbersome, and one must hope that the prospect of having your merits gently and tactfully debated in the Commons will not put applicants off. However, it is an improvement on the current situation.

There are some questions, though, and I would be grateful if the Minister could respond. Why are these two commitments not on the face of the Bill? Can the Minister confirm that the Chancellor’s commitment to ensure government time for a Treasury Select Committee Motion in the Commons is not binding on him or, more importantly, on his successors? Can the Minister say why the Chancellor will put the fixed term for the CEO into a future Bill but not the Commons vote on a Treasury Select Committee Motion? Will the Minister agree to consider incorporating both these elements into a future Bill? Finally, can the Minister assure us that any future selection process for the CEO of the FCA will involve the proper panel interviews, or at least something more closely resembling due process?

We believe that we need the protections and safeguards in this amendment and in the Chancellor’s letter. We believe that Andrew Bailey is a good choice as CEO and we wish him every success. We believe that both Mr Bailey and the FCA will benefit from less interference from the Executive and we support the amendment.

Banking: Financial Crime

Debate between Lord Sharkey and Lord Bridges of Headley

Wednesday 2nd December 2015 Lords Chamber

[Lord Sharkey]

To ask Her Majesty’s Government whether they expect senior managers to be held to account following the imposition of a £72 million fine on Barclays Bank for failing to minimise the risk that funds might be used to facilitate financial crime.

[The Parliamentary Secretary, Cabinet Office (Lord Bridges of Headley) (Con)]

My Lords, the Financial Services and Markets Act 2000 prescribes the regulatory framework under which action can be taken by the regulators against firms and individuals. Under this framework, decisions on whether to take enforcement action are for the regulators, and it is entirely right that they should be independent of government.

[Lord Sharkey (LD)]

The fact is that so far we have not managed to hold any senior managers to account. That is because the regulatory regime does not work, and it is precisely why we were due to replace it next April with a tougher regime. However, the Government are about to scrap the new regime before it starts and to go back to a lighter-touch regime. Can the Minister explain how the lighter-touch regime can do what the current regime cannot?

Bank of England and Financial Services Bill [HL]

Debate between Lord Sharkey and Lord Bridges of Headley

Wednesday 11th November 2015 Lords Chamber

[The Parliamentary Secretary, Cabinet Office (Lord Bridges of Headley) (Con)]

My Lords, I thank the noble Lord, Lord Sharkey, for provoking this debate. Unlike the noble Lord, Lord Tunnicliffe, I have not had the enjoyment of spending my morning looking at FSMA consolidated Acts, but I have been looking into this matter. I do not want to go on at length and repeat ad nauseam what I was saying on Monday. As the noble Lord, Lord Tunnicliffe, said, this comes down to a matter of independence. He is absolutely right to pinpoint that. Despite hearing the cases that he and the noble Lord, Lord Sharkey, mentioned, I remain in no doubt that the FCA CEO should be counted as an external member. She is not an executive of the Bank and the FCA is an independent body entirely separate from the Bank.

Noble Lords should also be aware that the legislation further reinforces external representation on the new Prudential Regulation Committee, as compared with the PRA. The majority of external members, as has been said, is increased compared with the PRA board with at least seven external members, at least six appointed by the Chancellor in addition to the FCA CEO, compared with only five internal members: four officers of the Bank and one appointed by the governor. So, for the PRC, external members will be in the majority by at least two. This compares with a requirement for a majority of one on the PRA board.

It could be argued that if you use the power to add an extra deputy governor to the PRC, that majority of externals is lost. I would argue that the power to add an extra deputy governor to court and to the committee requires secondary legislation, so Parliament will have its say. Furthermore, Clause 1 provides that if secondary legislation is used to add a deputy governor to the PRC, it may also provide for an equal increase in the minimum number of members appointed by the Chancellor of the Exchequer to ensure a continued balance of internal and external members.

I shall leave it at that. I hope that the explanation I have provided satisfies the noble Lord and that he will withdraw his amendment.

[Lord Sharkey]

I start by thanking the noble Lord, Lord Tunnicliffe, for his support, and for reminding us that if the Government get their way in Clause 12, we will need to revisit the provisions governing the number and the definition of external directors of the new arrangements. I remain unconvinced that the CEO of the FCA can in any reasonable way be described as independent. The Government seem to be relying on the force of simple assertion rather than evidence, but I am sure we will come back to this on Report. In the mean time I beg leave to withdraw the amendment.

Bank of England and Financial Services Bill [HL]

Debate between Lord Sharkey and Lord Bridges of Headley

Wednesday 11th November 2015 Lords Chamber

[Lord Bridges of Headley]

I am not saying that. I am saying that the process as a whole is potentially too onerous. I heed what the noble Baroness says, and of course whistleblowing is important. I shall continue, and we can continue to have this debate.

Finally, firms would need systems to ensure that the information is captured and transmitted to regulators, but it does not stop there. Having been notified of a suspicion, the regulators would have to decide whether to investigate and then, if appropriate, to consider what action to take. No doubt there would be many cases where there was only suspicion and nothing more and no action would be taken, but all cases would have to be investigated to some extent, and it would be difficult for regulators to do nothing at all once they had been notified.

Noble Lords should also note that, although the Government believe that an inflexible requirement to report all known and suspected breaches of conduct rules by all employees subject to them is inappropriate, the regulators can impose more targeted proportionate rules in this area if it supports the pursuit of their objectives.

The noble Lord, Lord Sharkey, raised costs. The costs in the impact assessment are based on the detailed cost-benefit analysis published by the regulators when they set out how they would implement the regime. I understand it is available on the FCA website, but I will write to the noble Lord and all interested Peers on this point. On that basis, I ask the noble Lord to withdraw the amendment.

[Lord Sharkey]

I thank the Minister for that answer and those clarifications. I cannot help feeling that removing the statutory obligation and replacing it with something that is still not yet entirely clear is perhaps not the best way of proceeding. However, under the circumstances, I beg leave to withdraw the amendment.

Bank of England and Financial Services Bill [HL]

Debate between Lord Sharkey and Lord Bridges of Headley

Monday 9th November 2015 Lords Chamber

[Lord Bridges of Headley]

My Lords, I thank all the noble Lords who have made very powerful contributions and thoughtful points.

I will not detain your Lordships with lots of history; you know it much better than I do. However, to remind the Committee how this came about, I will repeat something that has already been said. The Financial Services Act 2012 gave rise to the Oversight Committee, largely in response to recommendations made in the report Accountability and the Bank of England from the Treasury Select Committee in the other place. That report recommended that the court should be reformed into a board, with powers to conduct ex-post reviews of the performance of the Bank; that board members should be authorised to see all the papers submitted to the MPC and FPC; and that the board should be responsible for reviewing the processes of the Bank’s policy committees.

The Treasury Select Committee argued that the new board should be called the Supervisory Board of the Bank of England but, despite this name, the structure that was proposed was in fact a unitary board. As has been said, the Financial Services Act 2012 took steps to implement these recommendations, by creating a set of statutory oversight functions. However, instead of conferring powers on the court itself, the powers were conferred upon a new statutory Oversight Committee, made up exclusively of the non-executive directors.

[Lord Sharkey]

Would the Minister agree that it was the Bank itself that suggested that?

[Lord Bridges of Headley]

That is my understanding. If I am wrong, I will correct myself.

The noble Lord, Lord Sharkey, made his points very forcefully and I fear we may still have to have further discussions—if he can bear it—but let me restate the Government’s position. The problem now faced by the Oversight Committee is simple. As the noble Lord said, for the non-executives to hold the executive to account effectively, they need to meet together, not separately. There needs to be full and frank discussion between the governors and the non-executives on how best to exercise the court’s oversight functions. I am sure the noble Lord would agree that the challenge and recommendations of the non-executives need to be informed by in-depth knowledge of the Bank’s operations. Effective oversight needs to be carried out by the executive and non-executives in partnership, not in silos.

It bears repeating that the key powers of oversight, which are necessary and working, are not lost as a result of their transfer to the whole court. The court will continue to be able to commission reviews as it sees fit. Moreover, the non-executives will continue to be a majority on the court and will also continue to meet together as a group after each meeting of court, in line with best practice. As was discussed earlier today, court contains a high quality non-executive majority and is therefore well placed to oversee the work of the Bank.

It is entirely appropriate that court, as the governing body of the Bank, should be responsible for exercising these oversight functions.

Bank of England and Financial Services Bill [HL]

Debate between Lord Sharkey and Lord Bridges of Headley

Monday 26th October 2015 Lords Chamber

[Lord Bridges of Headley]

I certainly will do so, my Lords. Communication between us all will be very fruitful as we proceed. There are many technical issues here that we cannot perhaps do justice to on the floor of the House. It would be good to meet beforehand. I should also extend my apologies to the noble Lord, Lord Davies, because I believe he was unable to come to the briefing we had on this Bill, but that is my fault, not his. I am entirely in favour of good communication.

[Lord Sharkey]

Can I simply ask whether the Minister agrees that we will see the new impact assessment, promised in the current impact assessment, prior to Committee?

[Lord Bridges of Headley]

My Lords, I can agree that it is certainly being worked on. We will continue to work on it, and share and discuss the issues of the impact of these measures with the noble Lord. I absolutely agree that we need to make sure that the measures on the extension of the SM&CR, which is what I presume the noble Lord is referring to, are done in a proportionate and careful way. We must heed previous cases where that has not been properly, so I entirely agree on that.

Let me end by thanking your Lordships for your contributions today. I ask the House to give the Bill a Second Reading.