Kalifa Review of UK Fintech

Lord Sharpe of Epsom Excerpts

Tuesday 27th April 2021 Lords Chamber

[Lord Sharpe of Epsom (Con)]

My Lords, I refer to my interests as set out in the register. Has the Treasury given any consideration to the specific recommendation to amend the EIS, SEIS and VCT rules to make it easier to attract investment into these start-ups and to retain the tax reliefs when the business models evolve into more regulated activities? This would cost the Treasury very little but unlock a potentially substantial amount of capital.

[Lord Agnew of Oulton (Con)]

My noble friend raises important points. These matters are always under discussion in the Treasury, although it is important to stress that there is a large amount of capital out there to support early-stage businesses. We see that in the valuations these businesses are achieving, even at an early stage. However, we will keep it under review.

Budget Statement

Lord Sharpe of Epsom Excerpts

Friday 12th March 2021 Lords Chamber

[Lord Sharpe of Epsom (Con)]

My Lords, I join in the general congratulation to all noble Lords who have made their maiden speeches today and welcome them to this House.

I also join many of my noble friends in congratulating and thanking the Chancellor of the Exchequer for the skill and sympathy with which he has handled the pandemic. Coming out of this pandemic was never going to be easy but, in broad terms, he has delivered a Budget that will fuel an investment-led recovery for the whole of the UK. It is good to see international and domestic commentators tweaking up their growth forecasts in its wake. This Budget displays a commitment to sound public finances in spite of the difficult circumstances.

Like many, I would have preferred not to see tax rises but I recognise their necessary expediency under current conditions. Corporation tax rises are delayed until after the recovery takes hold and it is very pleasing to see generous R&D exemptions; I hope that has the intended effect of stimulating productivity gains among SMEs. It is also worth reiterating that, even after these tax rises, Britain will still have the lowest corporation tax rate in the G7. We should remember that it is not only tax that makes us globally competitive. Meanwhile, I hope that the Minister can reassure me that the Treasury is in active discussions with those “new economy” corporations that score highly on ESG metrics but are adept at blurring their tax borders, which I believe is known in the jargon as base erosion and profit shifting. “Shifting” should not be the S in their ESG.

Time is short so I will confine the rest of my remarks to saying how welcome the free port decision is. I believe that these will make the case for more supply-side growth measures across the economy. Praise is also due to the Tees Valley Mayor, Ben Houchen. He and the Chancellor have been making the intellectual case for free ports for many years. Not only will these help us to level up; they are a manifestation of what global Britain can mean in practice.

With that in mind, it was particularly pleasing to see Wednesday’s news that GE Renewable is to open a new factory making wind turbine blades on Teesside, delivering 750 high-quality green jobs. It is probably too early to give the credit for that to the free port announcement, but it cannot have hurt. It is certainly not too early to say well done to Ben for being such a hands-on and excellent mayor who gets on with the job rather than jumping on every passing bandwagon.

Financial Services Bill

Lord Sharpe of Epsom Excerpts

2nd reading & 2nd reading (Hansard) & 2nd reading (Hansard): House of Lords
Thursday 28th January 2021 Lords Chamber

[Lord Sharpe of Epsom (Con)]

My Lords, I draw attention to my entries in the register of interests. I join in the congratulations to my noble friend Lord Hammond on an excellent maiden speech. I will focus on his remarks about the regulator’s promotion of financial industry competitiveness, a theme expanded on most eloquently by my noble friends Lord Bridges and Lord Hunt. In order to achieve that, the regulatory framework must be robust, but the regulator must be nimble, agile, appropriately resourced and with carefully defined powers. It also needs to be accountable, as many noble Lords have noted. I look forward to the results of the current consultation into the wider framework for regulation and note that it is due to close by the end of next month.

Much of the current Bill before us is welcome and I support it, but I wish to raise some questions ahead of the Financial Conduct Authority having yet more powers delegated to it. I note that in the debate in the other place, which has been referred to a number of times, this theme was explored with reference to parliamentary scrutiny. That is a valid concern, but my concern is also to do with the FCA’s enormous existing remit and whether that is now simply too big to manage.

I will cite a couple of examples of where I think that perhaps this is the case. First is MiFID II, the market in financial instruments directive. Part of this dealt with the unbundling of commissions paid for stock market research. The FCA was the architect of these rules, but the French regulator recently noted that they have “profoundly changed” the research landscape and that this has had a negative effect on the quality of research available on smaller companies and therefore, by implication, the capital allocated to those companies. In the UK, the independent and not-for-profit CFA Institute has made similar points. The FCA has said that there is no evidence of this, but both the French and Germans have now changed the rules to exempt smaller companies from this part of the directive. There is no equivalence there, and I cannot recall a previous incidence of a French regulator changing rules to allow less regulation than our own.

Another example is that, last week, two opposition Members of the other House published a letter criticising the FCA’s customer protection skills with regards to the handling of advice given to British Steel pension holders. They alleged that the FCA lacks “sufficient vision” to tackle issues facing consumers and urge the regulator to use the full strength of its powers of enforcement to tackle rogue advisers. I am not particularly familiar with this case, if I am honest, but a swift Google would suggest that they have a point.

However, on the subject of enforcement, the most famous insider trading case launched by the FCA took eight years, cost in the order of £20 million, involved at least 40 investigators who pored over vast amounts of data and in the end secured two of five convictions, confiscation orders of £1.7 million and the longest custodial sentence that was handed down was four and a half years. It has been argued that regulators are discouraged from starting this type of investigation, because of the difficulty of winning, but the FCA has publicly regarded this as a success. It was a partial success perhaps, but at what cost, particularly to those acquitted individuals whose lives were on hold for eight years?

Other investigations that the FCA has conducted into funds management firms suggest that poor product knowledge, excessively high staff turnover and poor handover continuity make relatively straightforward investigations, which are launched perfectly legitimately, run for much longer than they need to. This has a deleterious impact on staff morale and massively increases compliance costs. Large firms can bear those costs with relative ease, but what of the SMEs that the sector relies on for competition and innovation?

I am sure that the FCA will argue that I have cherry picked a few instances which show them in a less than optimal light—perhaps I have. But I could have drawn on a number of other examples, for example, the Gloster report published in December referred to by the noble Lord, Lord Sikka, or the Parker report, also published in December. They were much more complex cases, so I have not used them here. They did not require much effort to find. These examples illustrate only a small part of the FCA’s incredibly wide remit, but the skills and knowledge required to investigate and appropriately regulate each of these examples is discrete and detailed.

So it is hard to escape the conclusion that the FCA is trying to do too much with too little. Yet we are debating delegating additional powers—for example, handing over the power to manage the orderly wind-down of Libor, which, as the briefing documents note, is used to benchmark an eye-watering $400 trillion-worth of contracts. There is no room here at all for mistakes of any kind, although I should note that the FCA is consulting the industry widely on this.

Many in the City believe that the FCA has the appropriate powers but does not use them often enough. On 21 December last year, the Times noted:

“The Financial Conduct Authority has fined only ten wrongdoers this year, its lowest scalp rating since its creation in 2013. It has meted out only £183.6 million in penalties, its third lowest total fines tally.”


I am quite sure that Covid will be cited as one reason for this, but the police carried on policing. Can that be a valid excuse, or is this because of the vast complexity of its role? Here, on complexity, I cite a June 2019 IEA report that claimed:

“The amount of data being collected under MiFID II is now beyond the ability of the UK regulators to assess in any meaningful way.”


I do not believe that the nuts and bolts of regulation, including enforcement, should be subject to political interference, but I think we should ask whether the FCA’s current remit is too broad. Is there a case to be made for smaller and more specialist regulators, particularly as financial markets become ever more complex? I am also concerned that regulated firms lack effective rights of appeal against the FCA’s decisions. As the Government themselves have noted in the past, such rights—and I quote from a BEIS consultation—are

“central to ensuring robust decision-making and holding regulators to account in the interests of justice”.

We have seen the results of failed or inadequate regulation before and they are recent and raw, as the noble Lord, Lord Davies of Brixton, noted. Post Brexit we have an opportunity to design and implement a system that does all the things the Government want, all the things that the industry needs, and all the things that the country deserves. We should do it properly and urgently, not least because we know where the blame for failure will land.

EU-UK Trade and Cooperation Agreement

Lord Sharpe of Epsom Excerpts

Friday 8th January 2021 Lords Chamber

[Lord Sharpe of Epsom (Con)]

My Lords, first, I congratulate my noble friend Lord Wharton of Yarm on his excellent maiden speech; I also hope that we will work together for many decades. I was delighted to be able to support the European Union (Future Relationship) Bill last week, and I congratulate the negotiating team, led by my noble friend Lord Frost, and the Prime Minister on delivering on his promises.

I focus on a subject that has attracted much commentary from your Lordships—specifically, financial services and, in particular, equity markets. Here, I draw attention to my interests in the register. Many noble Lords observed that the agreement is thin on this subject, and that is true, but I respectfully remind your Lordships that that was also the case when we were still members of the single market. The regulation of equity markets remains largely at a national, not the EU, level, so I was quite surprised to hear some noble Lords arguing that we have somehow lost our negotiating leverage in this area. If we ever had such leverage, we rarely used it, and, although a recent arrival in your Lordships’ House, I cannot recall any fierce arguments, either here or in the other place, when various EU directives, aimed with great precision at the City by our ex-partners in the EU, came into effect over the past decade or so.

As the Minister said, section 6 of the agreement deals with financial services and, specifically,

“reaffirms the integrity of our respective, autonomous equivalence frameworks.”

The joint declaration explicitly sets out an agreement

“to establish structured regulatory cooperation ... with the aim of establishing a durable and stable relationship between autonomous jurisdictions.”

That is a very clear commitment and, by March, an MoU will be agreed on the framework for this co-operation. I agree with my noble friend Lord Hunt that we must think very hard about our own regulatory networks going forward.

Therefore, I conclude that your Lordships will have an opportunity to exhibit similar zeal in defending our interests in our future negotiations in the inevitable debates in this House. I also conclude by, perhaps mischievously, suggesting that debate, rather than directive, proves that we are indeed a sovereign nation again, not the rogue nation that some have claimed.

Taxation (Post-transition Period) Bill

Lord Sharpe of Epsom Excerpts

2nd reading & Committee negatived & 3rd reading & 2nd reading (Hansard) & 2nd reading (Hansard): House of Lords & 3rd reading (Hansard) & 3rd reading (Hansard): House of Lords & Committee negatived (Hansard) & Committee negatived (Hansard): House of Lords
Wednesday 16th December 2020 Lords Chamber

[Lord Sharpe of Epsom (Con) (Maiden Speech)]

My Lords, it is an honour and privilege to make my maiden speech in this important debate. I had rather hoped to be able to give my speech during the CHIS Bill’s passage through your Lordships’ House, as this is a subject on which I have some specialist knowledge, but my carefully laid plans were undone by contact with a gentleman who had tested positive for the dreaded virus so, in spite of a negative test, I was condemned to two weeks’ self-isolation. This was not much fun, although it left me with a refreshed appreciation for my family, who have to put up with me all the time. I found two weeks of my own company a most severe test. I am pleased to report that the gentleman in question has made a full recovery.

I arrived at your Lordships’ House at an odd time. I have watched, listened and attempted to learn, but the conditions are far from ideal for a new boy. Arriving during Covid is like trying to assemble a complex jigsaw puzzle, but without the picture on the box. At the outset, therefore, I give thanks to a number of people who have helped me paint the necessary picture. Noble Lords on all sides of the House have extended to me a very warm welcome. The doorkeepers and staff of the House carry out their responsibilities with such good cheer. I have to say how skilled the doorkeepers are at seeing through my cunning facial disguise every day. My noble friend Lady Seccombe has generously shared her many years of experience of your Lordships’ House, and last, but by no means least, I thank my two supporters at my introduction in October—my noble friends Lord Taylor of Holbeach and Lady Pidding.

I was particularly honoured that my two noble friends introduced me, as they are also predecessors of mine as chairmen of the National Conservative Convention, by which route I arrived at your Lordships’ House. For those of you who do not know, the national convention’s antecedents date back to 1867—to Disraeli’s time and that of the Second Reform Act. The National Union, as it then was, formed with the explicit intent of reaching out directly to the newly enfranchised voters created by that Act. Over the past 153 years, and no doubt to the regret of some of your Lordships opposite, it has been remarkably successful.

Joking aside, there is an important point to be made here, and more so in these troubling times, and that is that the foundations of our civil society and democracy require the active participation of many selfless volunteers from all walks of life and parts of our United Kingdom, and from every political persuasion. I am sure that your Lordships agree that, without them, many of the things that we take far too easily for granted would not happen and, whether we agree politically or not, we would be the poorer for that. So it has been a privilege and a pleasure to represent those from my side of the argument. I thank them and commit to continuing to represent them and all those who volunteer in your Lordships’ House.

My other life, the remunerated part, involved a lengthy career working in the stock markets of the world, which took me from Hong Kong to Tokyo, New York and back to London. I look forward to returning to the subject of financial markets and regulation in the new year, but I also look forward to contributing to the inevitable debates in this House on Hong Kong. I lived there for a decade and started life as an inspector in the Royal Hong Kong Police. That was a long time ago, and much has changed—not, I fear, for the better—but I have a great affinity for Hong Kong and its people and, having served in some of the more remote places in the New Territories, considerable experience of the pace and rhythms of life outside the glittering towers of Central and Kowloon. I owe these people a lot, this country owes them a lot, and I look forward to making the case that we must continue to demonstrate that.

In pursuing this career that has spanned much of the world, I have been lucky enough to gain a cultural understanding of a number of places, and that has shaped my views on our world and our place within it. As a consequence—and this is very relevant to the debate today—I am an optimist, bullish about our great nation’s future. It is perhaps a little hard to see the wood for the trees right now, but we should not forget the words of the second US President, John Adams:

“Every problem is an opportunity in disguise.”


We have the opportunity to demonstrate leadership in many different areas, and I hope to make the case that large parts of the world will respond favourably if we make the most of those opportunities. Having observed the proceedings in your Lordships’ House over the past month and, indeed, past half hour, I have reluctantly concluded that this may not be the majority attitude here, but I think that this Bill highlights the positive difference that your Lordships can and, I have no doubt, will continue to make.

We need this Bill: it ensures that we are legally prepared to leave the EU. It sets out a framework to prepare for all outcomes of the free trade agreement negotiations with the EU, and of the Joint Committee discussions on the implementation of the Northern Ireland protocol. It ensures the smooth continuation of business following the end of the transition period. The Government have made it very clear that they are committed to providing unfettered access for Northern Irish business to the rest of the UK’s single market, protecting progress made under the Belfast/Good Friday agreement. It is clear to me that this Bill will form a vital part of our preparations as we prepare to become a fully sovereign trading nation, and I have no hesitation in supporting it.

I thank noble Lords for indulging me with this speech and I look forward to taking my responsibilities seriously and contributing to the debate here on those subjects that I have outlined, and perhaps others where I have experience, perspective and knowledge.