Afghanistan

Lord Sikka Excerpts

Wednesday 18th August 2021 Lords Chamber

[Lord Sikka (Lab) [V]]

My Lords, the tragedy of Afghanistan has been exacerbated by power games played by major nations. In the 1970s, western powers were not willing to accept a communist Government in Afghanistan and sought to undermine them by arming and funding the insurgents. The Soviet Union responded by invading in 1979 to prop up its client state. The US and western state powers responded by creating and funding al-Qaeda, yet still there is no reflection on the funding of terrorist organisations to further political objectives—the UK Government have continued to suppress documents relating to their support for al-Qaeda.

The Taliban itself came out of the counter-revolutionary insurgency organised by the CIA in the 1970s and 1980s. The objective was to overthrow the country’s Government. Eventually, the Soviet Union was driven out, but rogue elements gained power. As the noble Lord, Lord Suri, reminded us, during the 1996-2001 brutal rule of the Taliban regime, minorities, including Hindus and Sikhs, were forced to wear yellow badges reminiscent of the yellow Star of David that Jews were forced to wear in Nazi Germany—yet there was only muted protest from western powers.

The 9/11 tragedy changed that. The US-led war on terrorism somehow became an expensive occupation. The attempts to build Afghanistan in the image of the West have failed, just as they have failed in Iraq, Libya, Syria and elsewhere. The result has been chaos and the deaths of thousands of innocent people. We need a fundamental rethink of foreign policies.

I have three questions for the Minister. Can he assure the House that an independent inquiry will examine the folly of the UK’s foreign policies? Secondly, why did the Government not designate the Afghanistani Taliban as a terrorist group under the Terrorism Act 2000? Thirdly, what are the Government’s preconditions for any recognition of the Taliban Government in Afghanistan?

House of Lords: Remote Participation and Hybrid Sittings

Lord Sikka Excerpts

Thursday 20th May 2021 Lords Chamber

[Lord Sikka (Lab) [V]]

My Lords, I thank all noble Lords for their contributions to this vital debate. We are having it at a time when many companies are giving their workers greater flexibility in terms of working from home or other location. It seems that remote working and meetings are now the future. This House cannot call itself progressive if it continues to hark back to the old, archaic ways of operating, which disabled many from discharging their public duty.

A number of noble Lords today have referred to the pre-Covid era and claimed that a physical Parliament was better able to hold the Government to account. Was there really ever such a golden age? In September 2019, the Government prorogued Parliament. Was the House able to hold them to account? Was that better than what might have been done if the House was meeting in a hybrid form? There probably never was a golden age when Ministers always answered the questions actually asked. Holding Governments to account is a vital matter, and failures are connected more to ethics and morality of Ministers and weaknesses in constitution than to the mode of this House’s sitting per se.

The hybrid arrangements give Members flexibility. Those who wish physically to attend can do so; those who are unable to be physically present can still participate in debates. They can network and make informal contacts with others physically and/or virtually, as I have done. Reducing the need to travel from far-flung parts of the country also cuts Parliament’s carbon footprint.

Since joining this House, I have participated in Oral Questions, Private Notice Questions, short debates, debates on statutory instruments and Committee and Report stages of Bills. My observation is that hybrid proceedings have enabled more noble Lords to speak and provide a diversity of views. That is surely a positive thing.

Some noble Lords have assumed that, just because Members are not present in the House, maybe they are just skiving or loitering around, but of course that does not mean that they are not carrying out their public duties. Unlike the Front-Benchers, we Back-Benchers do not really have any staff support. We have to carry out our own research in order to intervene and speak, and that keeps us busy. Many of us have online meetings with a variety of stakeholders who have an interest in matters being discussed in the House. Insistence on physical presence would severely reduce that interaction, impoverish debates and alienate stakeholders.

I like the advance notice of Questions and listing of speakers. This is far better than just hoping to catch the Lord Speaker’s eye in a crowded House. In any case, the physical space of the House is such that it can accommodate only a limited number of Members. Those unable to find a good seat, or any seat, will never be able to catch the Lord Speaker’s eye and therefore probably not get many opportunities to make a contribution. The remote submission of Questions and remote voting are far better than wasting time in long queues and should be retained.

Some earlier speakers gave the impression that the pandemic, or the worst of it, may soon be over. I would urge caution. New variants are constantly emerging, and the virus will continue to mutate for some time, just like the flu virus continues to mutate. Yesterday, the Health Secretary urged the public to take part in trials to find out whether a third dose of Covid vaccine could protect against new variants. Many experts think that large sections of the population will need an annual booster jab. This is likely particularly for senior and vulnerable citizens, and this House has more than a fair share of that part of our society. Insistence on returning to the pre-Covid arrangements will expose many Members to avoidable risks, especially as they will need to travel on crowded trains and buses. I urge the House to consider all aspects of the debate today.

Covid-19 Update

Lord Sikka Excerpts

Thursday 13th May 2021 Lords Chamber

[Baroness Evans of Bowes Park (Con)]

As I have said, my right honourable friend the Chancellor of the Duchy of Lancaster has been talking to the First Ministers about this, and those discussions will continue.

[Lord Sikka (Lab) [V]]

My Lords, in 2010, 2.5 million people in England were waiting to start their NHS treatment. This reached 4.52 million in December 2019, with nearly 224,000 waiting for more than 52 weeks. Today, the number on the waiting list is 4.95 million, with 436,000 waiting for more than 52 weeks. Can the noble Baroness tell the House what the waiting list will be in six and 12 months from now, and when the Government will be able to reduce it to 2010 levels?

[Baroness Evans of Bowes Park (Con)]

The noble Lord is right to set out the challenge, but I do not think it would be responsible of me to pluck a figure. “I do not know” is the obvious answer—I do not think anyone does. All I can say is that we are working hard with the NHS to tackle these backlogs. It is an absolute priority and we should thank our NHS staff for the incredible work they have done through the pandemic and what they will be doing to help us tackle this backlog.

Financial Services Bill

Lord Sikka Excerpts

3rd reading & Report stage
Monday 19th April 2021 Lords Chamber

Moved by

[Lord Sikka]

33: After Clause 40, insert the following new Clause—
“FCA duty to make a statement about ministerial directions on investigations
(1) The Financial Services and Markets Act 2000 is amended as follows.(2) After section 1T (right to obtain documents and information) insert—“1U Duty to make a statement about ministerial directions on investigationsWhere a Minister directs, comments on, or intervenes with an FCA investigation into wrongdoing or malpractice by a company, the FCA must make a public statement about the nature of any such intervention.””

[Lord Sikka (Lab) [V]]

My Lords, I am very grateful to the noble Baroness, Lady Bennett of Manor Castle, and the right reverend Prelate the Bishop of St Albans for supporting this amendment. It was discussed in Committee, but the Government’s response has raised more questions than answers.

The amendment seeks transparency about ministerial interventions or directions on investigations, especially into malpractice by companies. It would require the FCA to make a statement as and when Ministers intervene. Currently, ministerial interventions and directions, especially those that stymie investigations, are made in secret. Parliament and the public are not informed, and there is no opportunity to question Ministers. Such interventions mean that selected corporations receive ministerial favours and others do not. In the absence of investigations into the criminal practices of major corporations, it is impossible to develop effective legislation or financial regulatory practices.

In Committee, I provided some evidence of how the UK Government protected criminal organisations. It related to HSBC, which, by its own admission, had been engaged in criminal conduct in the US. In 2012, it was fined $1.9 billion for money laundering offences, which at that time was the largest fine ever levied upon a corporation. HSBC also faced the prospect of a criminal prosecution.

HSBC was supervised by the Financial Services Authority, an independent regulatory body in the UK. The US fine did not persuade the FSA to investigate. Instead, on 10 September 2012, the then-Chancellor George Osborne, the Bank of England and the FSA secretly wrote to US regulators and urged them not to prosecute HSBC, as the bank was apparently too big to fail.

The ministerial interventions came to light not because of any statement made by the Government but through a July 2016 report by the US House of Representatives Committee on Financial Services. The report was titled Too Big to Jail, and reproduced the Chancellor’s letters and some email and telephone conversation records, though these are not comprehensive. It is clear that the Bank of England, the Treasury and the regulator colluded to protect a bank engaged in criminal conduct. The matter came to light in July 2016, but there was no Statement made to Parliament to explain why a criminal organisation was being protected by the Government. By July 2016, the FSA had morphed into the FCA, but the FCA did not launch an investigation either.

The report by the US House of Representatives Committee on Financial Services shows that the Government were also shielding other UK banks. These included Standard Chartered, which was fined £670 million for money laundering, and a closer reading of the same report shows that the Government also intervened to protect Barclays.

In Committee, I referred to my legal endeavours to secure a copy of the Sandstorm report, which provides some information about frauds and fraudsters at the Bank of Credit and Commerce International. The bank was closed in July 1991, but there has been no forensic investigation into the biggest banking fraud in the 20th century. Most of the Sandstorm report is available in 1,300 US libraries. The UK courts have forced the Treasury to release a copy to me, and it shows that the Government are still protecting individuals linked to al-Qaeda, Saudi intelligence, and the royal families of Abu Dhabi and other countries in the Middle East, as well as arms dealers, smugglers, fraudsters, convicted criminals, BCCI senior personnel, and some politicians.

What kind of Government protect criminal organisations and wrongdoers? What kind of democracy do we have when such interventions are not explained to Parliament and the people? One of our greatest failures is to not develop durable institutional structures, effective laws and enforcement, and a major reason for this is that many frauds and abuses are simply covered up.

--- Later in debate ---

[Earl Howe (Con)]

My Lords, before I respond to this amendment, I would like to express my sadness on behalf of us all at the news of the death of the noble Lord, Lord Judd. Lord Judd took part in our debates on the Bill only just before Easter. He was a Member of this House for some 30 years, a man of great wisdom and wide experience, but above all a man of great kindness, who had an abiding concern for those less fortunate than himself both in this country and across the world. We shall miss him.

Amendment 33 seeks to require the FCA to make a public statement on the nature of any intervention a Minister may make concerning an FCA investigation into an individual firm. The noble Lord, Lord Sikka, made a number of allegations against Ministers, past and present, and the Treasury. I do not have the facts or the briefing to enable me to respond to him today on so many detailed issues. Indeed, I have to say that, for the most part, I did not recognise the picture that he painted. I hope, therefore, that he will allow me to write to him on what he has said, copying in noble Lords speaking in this debate, and in doing so I shall attempt also to address the points made by the noble Baroness, Lady Bennett of Manor Castle. However, I can respond to the issue of principle raised by this amendment, which is what we are here to focus on for the purposes of the Bill.

The House may recall that, in Committee, I outlined the current legislative framework which establishes the FCA as an independent, non-governmental body. In my remarks today, I hope to build on that discussion and reassure noble Lords that this amendment is not necessary. Ministerial intervention in the activities of the FCA, were it to occur, would be one of two things: either legally permitted under existing statute, or illegal. What actions are legally permitted within the legislative framework? Under the framework established by Parliament, the Treasury and hence Ministers have strictly limited powers in relation to the FCA. Indeed, the Treasury’s ability to direct or influence the regulators is set out in statute. Most crucially, the Treasury has no general power of direction over the FCA.

The Financial Services Act 2012 sets out the legislative mechanisms through which the Treasury can launch investigations, provided under Section 77 of that Act, which provides a mechanism for the Treasury to direct the FCA to conduct an investigation into events related to a person carrying on a regulated activity. Section 77 was made use of recently, as noble Lords will know, in relation to the regulation of London Capital & Finance, or LCF. Under Section 78, the Treasury can provide direction as to the scope of an investigation, the timeline that it should cover and how it is conducted. So the scope of the powers available to the Treasury is tightly circumscribed by statute. That has to be right, because the ultimate independence of the FCA is vital to its role. Its credibility, authority and value to consumers would be undermined if it were possible for the Government to intervene in its decision-making or ongoing supervision of authorised firms.

As the FCA has acknowledged in its mission statement, Parliament has given the FCA a range of tools in order to deliver its objectives. These tools range from guidance, to censure, to its Section 166 FSMA powers, which allow the FCA to seek the view of an independent third party or “skilled person” on aspects of a regulated firm’s activities if it is concerned or wants further analysis. These accompany independent powers for the FCA to make decisions on how to use these tools most effectively. In my remarks in Committee, I did not intend to suggest that the FCA cannot investigate events that occurred before it was created. I merely pointed out that the events being discussed were historical. The FCA can and does look at historical behaviour of the firms that it supervises.

In the context of this amendment, it is necessary to appreciate that the FCA is an independent body and that there are laws which govern and strictly limit the directions that the Treasury can and cannot give it. However, were such directions to be given under Section 77 and 78 of the 2012 Act, I cannot conceive of a situation where Ministers and the Treasury would not make that fact public.

That covers the intervention that is legally permitted; what about nefarious interference? In Committee, the noble Baroness, Lady Kramer, raised the Ministerial Code, as indeed she has today, and asked whether the provisions of the code were applicable in this instance and strong enough in relation to engagement with regulators. I have since written to the noble Baroness on this topic and a copy has indeed been placed in the Library. However, for the benefit of the House I will expand on that now.

The Ministerial Code requires Government Ministers to

“maintain high standards of behaviour and to behave in a way that upholds the highest standards of propriety.”

In addition, Ministers must act in accordance with the highest standards as set out in the seven principles of public life: selflessness, integrity, objectivity, accountability, openness, honesty and leadership. I particularly point to the requirements under the openness principle for Ministers to

“act and take decisions in an open and transparent manner.”

I hope that this assures noble Lords that, even if Ministers were tempted to interfere improperly, the Ministerial Code provides the proper protections against this. In short, if a Minister were to attempt it, he or she would simply not get away with it. The right reverend Prelate the Bishop of St Albans in a real sense made my point for me. If anyone has evidence of improper behaviour by Ministers, the regulators or firms, they should of course raise that through the proper channels.

It is not a case of my arguing along the lines of “Trust me—I’m a Minister.” I hope that I have demonstrated that the appropriate legislation and the appropriate code and principles of ministerial behaviour are already in place in this space to safeguard against any undue interference as envisaged by this amendment. I hope that this reassures noble Lords that this amendment is simply not necessary, and that the noble Lord is thereby content to withdraw it.

[Lord Sikka (Lab) [V]]

My Lords, I join the noble Earl, Lord Howe, in expressing sadness at the death of Lord Judd, and send my condolences to all his loved ones.

In her response, the noble Baroness, Lady Neville-Rolfe, raised the interesting point that some matters were confidential and that Ministers or the Government cannot therefore talk about them. There is also a broader issue of parliamentary accountability and public interest, and of being open and accountable, which should always triumph over the pursuit of private interests. I do not think that any of the issues I have spoken about touch upon the position of spy satellites or troop movements and are not, therefore, a real threat to national security. They may be a threat to private arrangements which some elites have negotiated with Governments, but that is another matter.

I am grateful to the noble Earl, Lord Howe, for his detailed explanation. He said that if there is any evidence about ministerial interventions it should be brought to the attention of the proper authorities, but the difficulty is that there is no mechanism by which this intervention is placed on public record. We only become aware of it because of revelations in other cases. In the case of BCCI, which I cited, it was after five and a half years of litigation against the Treasury that I managed to secure a copy of the Sandstorm report. The Government did their utmost to prevent the disclosure of that document, so there simply are no formal channels for any evidence. That means that we can only investigate past events, try to put the bits and pieces together and build up a picture about ministerial interventions.

This issue will remain with us, but one thing we cannot deny is that, even under the FCA’s rules and the Ministerial Code, which the Minister cited, the unredacted version of Lord Justice Bingham’s report on the Bank of England’s supervision of BCCI still remains a secret document. That is really bizarre. The Sandstorm report is on the internet, because I put it there, but as far as the state is concerned it is somehow a secret document.

As I said, this issue is not going to go away. In the post-Covid world there may well be more scandals and more issues. There will, therefore, be more questions about government accountability and interventions. For the time being, I withdraw the amendment, but hope to return to it in the future. I thank noble Lords for their indulgence.

Amendment 33 withdrawn.

Moved by

[Lord Sikka]

34: After Clause 40, insert the following new Clause—
“Supervisory Board
(1) There is to be a Supervisory Board to perform the function of monitoring the FCA and PRA.(2) The Supervisory Board must consist entirely of stakeholders.(3) Recruitment for the membership of the Supervisory Board is to be conducted through open competition and the appointments are to be confirmed by the House of Commons Treasury Committee, or another relevant House of Commons Select Committee.(4) The Chancellor of the Exchequer may nominate individuals to the Supervisory Board.(5) The following are ineligible for appointment to the Supervisory Board—(a) current and past employees of the FCA and the PRA, and(b) current employees of organisations supervised by the FCA and the PRA.(6) A member’s membership of the Supervisory Board cannot exceed a period of five years beginning with the day the member’s appointment is confirmed under subsection (3).(7) The Supervisory Board has no responsibility for—(a) the day-to-day operations of the FCA or the PRA, and(b) investigations and enforcement of the rules devised by the FCA and the PRA.(8) The Supervisory Board’s functions are to—(a) provide strategic oversight of the Executive Boards of the FCA and PRA responsible for day-to-day operations;(b) inquire into the adequacy of resources used and available to the FCA and the PRA;(c) seek explanations from the Executive Board for reasons for the delay in launching and completing investigations; and(d) seek explanations from the Executive Board in relation to the efficiency and effectiveness of the FCA and the PRA in discharging their statutory duties.(9) The Supervisory Board shall have powers to—(a) demand explanations from the Executive Board on any matter affecting the protection of consumers from harmful practices;(b) secure information from the Executive Board about their transparency and accountability to the public; and(c) liaise with whistle-blowers and examine FCA and PRA policies for protecting and rewarding whistle-blowers.(10) The Supervisory Board must hold open meetings with the Executive Boards of the FCA and the PRA at least once every three months.(11) The working and background papers of the Supervisory Board must be made publicly available.(12) The Supervisory Board must lay before each House of Parliament an annual report highlighting matters of concern relating to the operation of the FCA and PRA which it has discovered in exercising its powers and functions.(13) The Supervisory Board must be consulted on appointment and reappointment of the Chief Executives of the FCA and the PRA.”Member’s explanatory statement
The new Clause will create a Supervisory Body for each of the FCA and the PRA. Its function would be to internally monitor the Executive Boards of the FCA and the PRA and provide a diversity of views on the conduct and practices of the FCA and the PRA.

[Lord Sikka (Lab) [V]]

My Lords, I thank the noble Baroness, Lady Bennett of Manor Castle, and the right reverend Prelate the Bishop of St Albans for supporting this amendment, which seeks to democratise regulators by giving the people a direct say in their governance structure, and thus act as a bulwark against capture by corporate interests. Almost every regulator claims to serve the people, but normal people—as I like to call them, rather than ordinary people— are kept off the boards. This amendment would put people inside the regulatory bodies. The amendment proposes a two-tier board structure for the FCA and the PRA. One tier, the executive board, would be responsible for the day-to-day operations, just as it is today. The second tier, a supervisory board consisting of stakeholders, would exercise oversight of the executive board and its practices. The amendment sketches out the composition and some of the powers, rights and duties of the supervisory board and its modus operandi, which is complete sunshine.

Throughout the debate on the Bill, many noble Lords have expressed concerns about the failures of the FCA. Capture by corporate interests has been identified as a major factor. The colonisation of the FCA and the PRA boards, working parties and committees by corporate interests means that their interests are prioritised and anything threatening is filtered out of consideration altogether. The FCA and the PRA are more likely to have one-to-one meetings with finance industry elites than with the victims of banking frauds or mis-sold financial products, or individuals concerned about the RBS and HBOS frauds and bank forgeries.

--- Later in debate ---

The amendment also proposes that the FCA and PRA be required to attend hearings in front of a supervisory board. Here, again, I remind the House that they must already attend such hearings before parliamentary committees. Parliament is well placed to ensure that these hearings focus on the most vital areas. The FCA, for example, must attend general accountability hearings before the Treasury Select Committee twice a year. The PRA must appear before that committee after the publication of its annual report. In addition to these regular hearings, as I have stated previously, parliamentary committees of both Houses are able to summon the regulators to give evidence on an ad hoc basis. Requiring the regulators to also attend regular hearings before a supervisory board would therefore be unnecessarily burdensome; it would not substantively enhance our current oversight regime. Therefore, given the existing processes that I have just set out, which already offer ample opportunity for independent supervision of the regulators, I hope the noble Lord will consider withdrawing this amendment.

[Lord Sikka (Lab) [V]]

My Lords, I thank everyone for their contributions and deep insights. As I listened to the noble Baronesses, Lady Neville-Rolfe and Lady Noakes, I was briefly reminded of the historical development of the role of the non-executive director, which became popular after the 1973 US crash due to fraud at the Equity Funding Corporation. After that, audit committees staffed by non-executive directors became mandatory for companies listed on the New York Stock Exchange.

However, if you look at the history from about 50 years before that you will find non-executive directors frequently described as inexperienced, lacking in technical knowledge and not knowing enough about business. How could they really invigilate boards of directors in 15 to 20 hours a year? It is strange that so many years after non-executive directors were established we are now hearing the same kinds of points being made against the involvement of stakeholders in the governance of regulatory bodies.

To my mind, democratisation of regulatory bodies is essential. Periodic scrutiny by parliamentary committees is not a substitute for the real-time involvement of stakeholders and their oversight of the executive board. I have listened to all the arguments carefully and will withdraw the amendment; no doubt, I will refine it and return to it at some time in the future.

Amendment 34 withdrawn.

--- Later in debate ---

[Baroness Noakes (Con)]

My Lords, we simply do not need another body set up to look at the financial services industry. It is already in effect a core function of the Treasury and if the Treasury thought that it needed some help in identifying the issues that the proposer of this amendment identifies, it does not need the cover of primary legislation to set one up. In addition, Parliament itself has always taken a keen interest in the financial services industry. The long-standing Treasury Select Committee of the other place examines regulators as well as key emerging themes in relation to financial services and your Lordships’ House has recently created an Industry and Regulators Committee, which is having its first meeting as we speak. Indeed, the noble Lord, Lord Eatwell, the noble Baroness, Lady Bowles of Berkhamsted, my noble friend Lord Blackwell and I are members of the new committee. Therefore, it should not surprise the House if in due course there is a focus on matters relating to the financial services sector.

I suspect that the subtext of this amendment is a belief that the financial services sector is wicked and has a negative impact on the UK economy. I do not believe that belief is widely shared in your Lordships’ House. On the other hand, there are few—if any—Members of your Lordships’ House who think that the financial services sector is perfect, and that includes me. The important point is that we already have the scrutiny mechanisms that I have described to give a proper focus to the activities and the impact of the financial services sector. I agree with the noble Baroness, Lady Bennett of Manor Castle, that this amendment should not be pressed to a vote.

[Lord Sikka (Lab) [V]]

My Lords, it is always a pleasure to speak after the noble Baroness, Lady Bennett of Manor Castle. The key issue, which has been touched on by a number of speakers, has been how to secure effective, responsible and accountable regulation. This amendment presents another model. We have already heard about a number of models.

Numerous aspects of life have been financialised, and the finance industry affects every household and almost every walk of life—all the more reason to examine its effects on the economy and daily life. The last 50 years have been littered with examples of mis-sold financial products. We have had a banking crisis in every decade since the 1970s, but still the finance lobby is too powerful for Governments to resist. We need structures and policies that can mitigate the negative effects of the finance industry.

Financial Services Bill

Lord Sikka Excerpts

Report stage
Wednesday 24th March 2021 Lords Chamber

[Baroness Noakes (Con)]

My Lords, this is the first time that I have spoken on the Bill on Report and I draw the attention of the House to my interests as set out in the register—in particular, shares that I hold in listed financial services companies.

I have considerable sympathy for the amendment because the financial regulators are not very accountable. At the moment, there are set-piece appearances before the Treasury Select Committee in the other place and occasional appearances before committees of your Lordships’ House but these do not amount to a systematic and comprehensive examination. The Government often rely on the fact that annual reports are laid before Parliament but the annual reports of regulators get no more attention paid to them than the annual reports of companies. With rare exceptions, they provide few insights of value. By their very nature, annual reports accentuate the positive and shy away from the negative.

The problem of the accountability of regulators is not confined to financial services regulators. I could say much the same about Ofcom, Ofgem and other regulators, but we cannot solve the problems of the world in this Bill. The accountability of the PRA and the FCA is covered in the future regulatory framework, the consultation that has recently been completed. We discussed this a little on our first day in Committee and I hope that my noble friend the Minister will provide some information on the next steps when he responds to the amendment. The consultation closed over a month ago and the Treasury must have some idea on what it will be doing next and when.

If the outcome of that review, so far as accountability is concerned, is a well-developed form of parliamentary scrutiny, either jointly between both Houses of Parliament or within each House, the need for an independent review clause such as that contained in Amendment 2 would recede. Parliamentary committees can look at issues in depth but only if they are properly focused and well resourced. On that basis, the noble Baroness, Lady Bowles of Berkhamsted, might want to await the legislation implementing the outcome of that review rather than tackle the issue in this legislation, because action could be set in a broader, more holistic context regarding how the regulators will operate overall in due course.

If the noble Baroness, Lady Bowles, wishes to pursue her amendment—I thought I heard her say that it was more of a probing amendment for today—it would be wise to look again at its drafting because it calls for one review covering four regulators, but they are all different in what they do and how they do it. I am not convinced that there would be sufficient focus if one review tried to cover all the regulators—the two major ones and the two smaller units with regulatory responsibilities, one in the Bank of England and the other being the Payment Systems Regulator in the FCA.

In addition, I, like the ABI, wonder whether a review every two or three years is too frequent for the kind of in-depth review that the noble Baroness, Lady Bowles, has in mind. A rolling series of reviews, perhaps carried out over five years but concentrating on individual regulators, would provide more information of value to those seeking to hold them to account. However, the noble Baroness, Lady Bowles, has the right ideas in the amendment, although it may not be right for this Bill.

[Lord Sikka (Lab) [V]]

My Lords, it is a great pleasure to support Amendment 2. Throughout the earlier stages of the Bill, a number of noble Lords have drawn attention to the failures of financial regulators. Essentially, it was argued that they are captured by the finance industry and therefore advance its interests. They are too slow to protect people from malpractices. Over the years, numerous financial products have been fraudulently sold, including pensions, endowment mortgages, precipice bonds, split capital investment trusts, interest rate swaps, payment protection insurance and much more. The names of the products change from the aforementioned to mini-bonds and supply chain finance, but the basic problems are still the same and the regulators have failed to secure positive change in the culture of financial services enterprises.

During debates, Ministers have emphasised the tax contribution of the finance industry but have been silent on the costs imposed by that industry on society. Scholarly research shows that between 1995 and 2015 the oversized and scandal-ridden finance industry made a negative contribution of £4,500 billion to the UK economy, equivalent to around £67,500 for every woman, man and child in the UK. Of the £4,500 billion, £2,700 billion is accounted for by misallocation, whereby resources, skills and investments are diverted away from productive non-financial activities to the financial sector. The other £1,800 billion arises from the 2007-08 banking crisis that ushered in never-ending austerity. The economy and most people are yet to recover from that. That £4,500 billion is a massive cost and we simply cannot afford it. The status quo is not tenable and it is too expensive. The cost of the financial curse for the UK cannot be reduced by carrying on the regulatory business as usual, which is what the Government seemed to indicate in Committee.

Our regulators need to be effective and proactive but they seem to neglect their duty to the people. This is well documented in the reports on London Capital & Finance and the Connaught Income Fund. The FCA knew that mini-bonds were a problem but was slow to act at London Capital & Finance, and the same pattern has now been repeated at Blackmore Bond. The FCA does not welcome public scrutiny. Just look at the excuses it concocted to conceal the report on frauds at HBOS. The saga is still not resolved and same goes for frauds at RBS.

It is well documented that thousands of people are trapped in the £3.7 billion collapse of Woodford Investment Management. The Woodford Equity Income Fund was first authorised by the FCA in 2014. In 2015, the FCA was informed about the fund’s precarious existence as it was investing excessively in unlisted securities that affected its liquidity, but the FCA ignored the information until at least 2017.

--- Later in debate ---

Moved by

[Lord Sikka]

7: Clause 22, page 28, line 23, at end insert—
“32B Gibraltar-based persons: reporting requirements(1) A Gibraltar-based person carrying on an activity approved under Schedule 2A, or which has permission by virtue of relevant Gibraltar provision to carry on an activity, in the United Kingdom must be registered under section 1046 of the Companies Act 2006.(2) A company of the type referred to in subsection (1) is to be regulated in respect of activities that it undertakes in the United Kingdom by a relevant person as defined by the Financial Services and Markets Act 2000.(3) A reference to a relevant Gibraltar provision is to be read with section 23 of the Financial Services Act 2021.”Member’s explanatory statement
This amendment would require any Gibraltar-based person carrying on activities in the UK to file their accounts at Companies House and to be regulated in the UK with regard to their UK activities.

[Lord Sikka (Lab) [V]]

My Lords, the right reverend Prelate the Bishop of St Albans sends his apologies. Due to unforeseen circumstances, he is unable to speak to Amendment 7. At very short notice, he has asked me to speak for him.

Amendment 7, in the name of the right reverend Prelate the Bishop of St Albans, the noble Baroness, Lady Bennett of Manor Castle, and myself, would require companies operating under the Gibraltar authorisation regime, or GAR, to be registered and to file their accounts in the UK at Companies House. It would also ensure that GAR companies are regulated in respect of their UK activities, in accordance with UK regulations.

I beg your Lordships’ indulgence. In order to minimise any disservice to the right reverend Prelate, my speech will be in two parts. First, I will relay what the right reverend Prelate would have said. Secondly, I will briefly add my own comments.

In the words of the right reverend Prelate the Bishop of St Albans: I have placed this amendment because I did not feel that my concerns about Gibraltar were adequately satisfied in Committee when I tabled a similar amendment. I will be frank: I got the impression that because Gibraltar was an associated territory, there was a reluctance to ensure that it could not be used by companies to reduce their tax obligations. I understand that the Gibraltar authorisation regime allows for continuity of the financial services that existed when we were a member of the EU. But this should not discount the fact that a single market in financial services is being created here. Gibraltar is not necessarily a serial, global tax haven. According to the Tax Justice Network, Gibraltar ranks 30th in the corporate tax haven index, whereas the UK is ranked 13th. In no way do I want this to be an attack on the territory of Gibraltar, particularly having highlighted that the UK is ranked as a worse tax haven.

This amendment attempts to speak to a specific UK-Gibraltar issue on tax avoidance. The current relationship allows a Gibraltar-based company to operate, conduct its business and receive what would be taxable income in the UK, but then to pay corporation tax in Gibraltar. There is a corporation tax disparity between the UK and Gibraltar. Our corporation tax is 19% whereas Gibraltar’s is 10%.

During his evidence session to the Commons Committee, the Minister from Gibraltar said that the corporation tax rate was not a factor in companies relocating to Gibraltar. No doubt the Mediterranean climate and lifestyle make it a very attractive place to reside, but I would not presume that the warm climate is responsible for 20% of the UK’s private insurance market being underwritten from Gibraltar, despite the territory holding not even 0.1% of the UK’s population.

Financial services are one of Gibraltar’s primary industries, hence the tabling of this amendment. One might assume that greater transparency would apply to the finance and other sectors, ideally through stricter and more thorough reporting standards between Gibraltar and the UK. It is common practice in many industries for transactions placed in the UK to be processed via servers in Gibraltar—a technicality that allows what is, in reality, taxable income in the UK to be taxed in Gibraltar.

Obtaining evidence on the cost of the system to the UK Treasury is difficult. However, we have reliable data for the online gaming and gambling sector. Research and private investigations have shown that some of the UK’s major gambling firms actually pay corporation tax in the UK of between 3% and 13% by either headquartering in Gibraltar or using subsidiaries based there. We know of this only because the size of these firms brought them under journalistic scrutiny. If these practices were well documented for one sector, it would be illogical if other sectors did not follow the same incentives. After all, the purpose of reducing corporation tax is only one major reason for relocation to Gibraltar.

This amendment does not deal with the issue of taxation. In fact, even if the Government adopted the amendment, these practices would still continue. It would ensure that companies operating under the GAR regime abide by the Companies Act 2006, which mandates foreign countries to register and file accounts at Companies House.

--- Later in debate ---

[The Deputy Speaker (Lord Lexden) (Con)]

My Lords, I have received no requests to speak after the Minister, so I call the noble Lord, Lord Sikka, to conclude the debate on the right reverend Prelate’s amendment.

[Lord Sikka (Lab) [V]]

I thank all the contributors to this debate, which has been very informative and helpful. Given that roughly 25% of UK motor insurance is written from Gibraltar, it is clear that large amounts of profit made in the UK are being booked in Gibraltar and that the public purse here is being deprived of large amounts of tax revenue.

Of course, we might take the view that Gibraltar has been hit hard by Brexit and therefore deserves some support, but, as I pointed out, the beneficiaries of those profits are not necessarily people in Gibraltar but are actually corporations using Gibraltar to extract revenue from the UK. The ultimate destination of those profits is not really known because there is no transparency at all. Whether somebody is engaging in tax evasion or tax avoidance, the effect on the UK public purse is the same: the loss of revenue.

We still need greater transparency but at the moment, we do not have it. I hope that, when we have a public form of country-by-country reporting, perhaps that will provide some form of transparency, but at the moment the Government are not committed to that.

Nevertheless, I thank everybody for their contributions to the debate, and with the permission of the House and on behalf of the right reverend Prelate the Bishop of St Albans, I beg leave to withdraw this amendment.

Amendment 7 withdrawn.

Financial Services Bill

Lord Sikka Excerpts

Committee stage
Wednesday 10th March 2021 Grand Committee

Moved by

[Lord Sikka]

107: After Clause 40, insert the following new Clause—
“FCA duty to make a statement about ministerial directions on investigations
(1) The Financial Services and Markets Act 2000 is amended as follows.(2) After section 1T (right to obtain documents and information) insert—“1U Duty to make a statement about ministerial directions on investigationsWhere a Minister directs, comments on, or intervenes with an FCA investigation into wrongdoing or malpractice by a company, the FCA must make a public statement about the nature of any such intervention.””

[Lord Sikka (Lab) [V]]

My Lords, Amendment 107 seeks transparency about ministerial interventions in regulatory investigations, by requiring the FCA to make a statement. I am grateful to the noble Baroness, Lady Bennett of Manor Castle, for her support. Currently, ministerial interventions are made in secret, and neither Parliament nor the people are able to call Ministers to account. Ministers intervene to stymie investigations, and the trail is often carefully concealed. Some years later, a few interventions do become visible.

Consider the case of HSBC, a bank supervised by UK regulators, implicated in global money laundering and protected by UK Ministers and regulators. In July 2012, the US Senate Permanent Subcommittee on Investigations published a report entitled U.S. Vulnerabilities to Money Laundering, Drugs, and Terrorist Financing: HSBC Case History, which documented the fact that, despite evidence, HSBC staff knowingly laundered money for criminals and engaged in sanctions-busting.

In December 2012, HSBC was fined $1.9 billion by the US authorities—the biggest fine at that time. The US Department of Justice said that HSBC permitted

“narcotics traffickers and others to launder hundreds of millions of dollars through HSBC subsidiaries, and to facilitate hundreds of millions more in transactions with sanctioned countries”.

It added that HSBC had

“accepted responsibility for its criminal conduct and that of its employees.”

However, HSBC was not prosecuted, and instead entered into a deferred prosecution agreement until 2017. The levying of the largest ever fine on a UK bank and admission of “criminal conduct” did not prompt an investigation of HSBC’s practices in the UK. Did the bank engage in similar practices here?

In March 2013, the US House of Representatives Committee on Financial Services began a review of the US Department of Justice’s decision not to prosecute HSBC or any of its employees or executives for criminal activities. The committee’s July 2016 report, Too Big to Jail, showed that the Governor of the Bank of England, the chief executive of the Financial Services Authority and Chancellor George Osborne intervened to protect HSBC. The report contained a two-page letter, dated 10 September 2012, from the Chancellor to Ben Bernanke, chairman of the US Federal Reserve. It urged the US to go easy on HSBC, as it was too big to fail. The US report reproduced some correspondence showing the determination of the UK Government and regulators to protect a bank that had, by its own admission, engaged in “criminal conduct”.

The FSA, Bank of England and Chancellor also urged the US to go easy on Standard Chartered Bank, which was fined $670 million for money laundering, sanctions busting and falsification of records. Its deception was aided by Deloitte. The US Treasury court documents referred to the bank as a “rogue institution”. No statement was made at that time to the UK Parliament to explain regulatory silence or the Chancellor’s interventions. How do we improve banking regulation or hold anyone to account for nefarious practices when Ministers and regulators collude to protect wrongdoers?

I shall return to some questions after my next illustration. It relates to the July 1991 closure of the Bank of Credit and Commerce International. It was the site of the biggest banking fraud of the 20th century. BCCI was supervised by the Bank of England and was closed only after investigations in the US. The UK closure was followed by a few prosecutions and some parliamentary committee hearings. However, unlike previous bank collapses in the 1970s and 1980s, or even subsequent ones such as Barings in the 1990s, there has been no independent forensic investigation and key documents continue to be suppressed to this day.

On 19 July 1991, the Government appointed Lord Justice Bingham to examine some aspects of the Bank of England’s supervision of BCCI. The Prime Minister John Major told Parliament:

“The conclusions of the inquiry will be made public.”—[Official Report, Commons, 22/7/1991; col. 755.]


The Bingham report was published on 22 October 1992 and was highly critical of the Bank of England’s failures. However, it was published without the supporting appendices containing extracts from a document codenamed the “Sandstorm report”, which provided information about some of the frauds and named some of the parties involved in them.

Meanwhile, the US Senate Foreign Affairs Committee investigated BCCI frauds and, in December 1992, published a report titled The BCCI Affair, which said that

“BCCI’s British auditors, Abu Dhabi owners, and British regulators, had now become BCCI’s partners, not in crime, but in cover-up.”

The US Senate committee secured a censored version of the Sandstorm report from the Federal Reserve, which had obtained it from the Bank of England. The committee also secured an uncensored version and said that it

“revealed criminality on an even wider scale than that set forth in the censored version.”

The committee also had access to CIA files on BCCI, which have been made public. Despite this, the Sandstorm report remains suppressed in the UK.

--- Later in debate ---

[Earl Howe (Con)]

My Lords, Amendment 107 would require the FCA to make a public statement on the nature of any intervention a Minister may make into an FCA investigation into an individual firm.

The current legislative framework established the FCA as an independent, non-governmental body responsible for regulating and supervising the financial services industry. I listened with great care to the noble Lord, Lord Sikka but, with respect to him, and without belittling the value of lessons from history, the examples of investigations that he cited are ones that are unrelated to investigations carried out by the Financial Conduct Authority. That is a key point because, although the Treasury sets the legal framework for the regulation of financial services, it has strictly limited powers in relation to the FCA.

The Treasury is the FCA’s sponsor in government but, in view of the regulator’s independence, it is not appropriate for the Treasury or Ministers to seek to intervene in individual cases. In particular, the Treasury has no general power of direction over the FCA. I will write to the noble Baroness, Lady Kramer, on the content of the Ministerial Code, but I am not aware of any loopholes in the code that would permit the kind of conduct that has been talked about.

We are talking here about an independent organisation. The independence of the FCA is vital to its role. Its credibility, authority and value to consumers would be undermined if it were possible for the Government to intervene in its decision-making. I realise that the noble Baroness, Lady Bennett, has some mistrust of Government Ministers, but I hope that that fact is of at least some reassurance to her.

That is not to say that the FCA is not accountable for its actions when investigating potential wrongdoing or malpractice by firms because, equally, the noble Baroness, Lady Bennett, should be reassured that the FCA is governed by the framework of duties set out in legislation by Parliament. It would be unlawful for it to act outside this framework in order to further vested interests. The decisions of the FCA can be subject to judicial review and, under legislation, the FCA must maintain arrangements for the investigation of complaints.

In the event of a significant failure to secure an appropriate degree of protection for consumers, where those events might not have occurred but for a serious failure in the regulatory system, Section 73 of the Financial Services Act 2012 imposes a duty on the FCA to investigate. Situations can arise in which the Government determine that it is appropriate to intervene. In such situations, the relevant legislation—Section 77 of FSMA —provides a mechanism for the Treasury to direct the FCA to conduct an investigation where it suspects that there may have been regulatory failure.

Under Section 77, the Treasury can require the regulators to conduct an investigation into relevant events where the Treasury considers there to be a public interest. In addition, Section 77 investigations can consider aspects outside the regulatory system as established by FSMA, allowing a comprehensive review to be undertaken in the public interest. However, it is important to note that a Minister cannot use a Section 77 direction to do anything else at all, or to stop the FCA doing anything else.

The most recent example of Section 77 in action was in relation to the regulation of London Capital & Finance, when the Economic Secretary to the Treasury laid a direction before Parliament on 23 May 2019, and formally directed the FCA to launch an independent investigation. The direction was public and transparent, as we would always expect to be the case. The report was laid before Parliament on 17 December 2020.

I hope that this has clarified the legal underpinning of the FCA’s independence, and the very limited powers that Ministers and the Treasury have in this area. I hope that what I have said has reassured the noble Lord that appropriate legislation is in place, and that he is content to withdraw his amendment.

[Lord Sikka (Lab) [V]]

I am grateful to all noble Lords for their contributions, but somewhat disappointed by the Minister’s response. The examples I gave—if I had time, I could add another dozen—all inevitably relate to the past, when, despite government efforts, things have come to public attention. At no point have Ministers ever volunteered information or made statements that they have stymied investigations.

In the parliamentary debate on the Banking Act 1987, which formally made the Bank of England the supervisor of banks, Ministers claimed that the Bank would be an independent regulator. Then we discovered that there was a whole process of cover-up—the BCCI case, for example. When the Bank of England ceased to be an independent regulator, the next one, the Financial Services Authority, came in. Again, it was claimed that that was independent. Well, under ministerial pressure, it did not intervene. It did not investigate HSBC’s misdemeanours in the UK, and indeed it was a party to cover-up in the US. The US House of Representatives committee report contains some correspondence showing how the Bank of England, the FSA and the Chancellor were pressuring the officials there to go easy on HSBC. The idea that somehow the FCA is some brand new version of independence which we ought to believe simply neglects what has happened in the past, and that is not really very helpful. Of course, Ministers can allay all public fears by simply saying, “Yes, we will embrace independence.” What is wrong with that?

I have visited the US on many occasions. I have met many academics, regulators and businesspeople, and I always ask them two questions when I deliver a seminar or after a meeting. The first question I ask is, “If you could commit financial crime, where would you like to commit it?” The response is always, “The US, because there is a lot of money to be made.” The next question I ask is, “If you are caught, where would you like to be prosecuted?” At that point, laughter sets in and they all say, “The UK.” Indeed, this country has become kind of a standing joke in regulatory circles. If I were referring to any other country and explaining how Ministers and regulators have colluded to protect organisations which, by their own admission, engage in criminal conduct, many Members of the House would say, “Well, that country is corrupt” or “It is a banana republic”. But I find it surprising that the ministerial response is basically “Well, we are good, and we don’t really need to take account of any of these events.” That is really the tip of a corrosive iceberg, because this corruption goes very deep.

I have asked Ministers a number of times to comment on the public statement of Anthony Stansfeld—the Thames Valley police and crime commissioner—that there is a “cover-up” at Cabinet level of the HBOS and RBS frauds. It is interesting that no Minister has denied it, and no Minister has confirmed it. I have quoted a statement from a very senior law enforcement officer—what could be a greater indictment of the UK’s regulation?

Finally, could the Minister please tell us why the Sandstorm report, which is sitting in 1,300 US libraries, is still a state secret in this country after 30 years? I do not know if it is appropriate for him to reply but I would not be opposed to that.

[The Deputy Chairman of Committees (Lord Duncan of Springbank) (Con)]

Does the Minister wish to respond?

[The Deputy Chairman of Committees (Lord Duncan of Springbank) (Con)]

Can I confirm with the noble Lord, Lord Sikka, that he does not wish to press his amendment?

[Lord Sikka (Lab) [V]]

I will withdraw the amendment for the time being.

Amendment 107 withdrawn.

--- Later in debate ---

Moved by

[Lord Sikka]

120: After Clause 40, insert the following new Clause—
“Supervisory Board
(1) There is to be a Supervisory Board to perform the function of monitoring the FCA and PRA.(2) The Supervisory Board must consist entirely of stakeholders.(3) Recruitment for the membership of the Supervisory Board is to be conducted through open competition and the appointments are to be confirmed by the House of Commons Treasury Committee, or another relevant House of Commons Select Committee. (4) The Chancellor of the Exchequer may nominate individuals to the Supervisory Board.(5) The following are ineligible for appointment to the Supervisory Board—(a) current and past employees of the FCA and the PRA, and(b) current employees of organisations supervised by the FCA and the PRA.(6) A member’s membership of the Supervisory Board cannot exceed a period of five years beginning with the day the member’s appointment is confirmed under subsection (3).(7) The Supervisory Board has no responsibility for—(a) the day-to-day operations of the FCA or the PRA, and(b) investigations and enforcement of the rules devised by the FCA and the PRA.(8) The Supervisory Board’s functions are to—(a) provide strategic oversight of the Executive Boards of the FCA and PRA responsible for day-to-day operations;(b) inquire into the adequacy of resources used and available to the FCA and the PRA;(c) seek explanations from the Executive Board for reasons for the delay in launching and completing investigations; and(d) seek explanations from the Executive Board in relation to the efficiency and effectiveness of the FCA and the PRA in discharging their statutory duties.(9) The Supervisory Board shall have powers to—(a) demand explanations from the Executive Board on any matter affecting the protection of consumers from harmful practices;(b) secure information from the Executive Board about their transparency and accountability to the public; and(c) liaise with whistle-blowers and examine FCA and PRA policies for protecting and rewarding whistle-blowers.(10) The Supervisory Board must hold open meetings with the Executive Boards of the FCA and the PRA at least once every three months.(11) The working and background papers of the Supervisory Board must be made publicly available.(12) The Supervisory Board must lay before each House of Parliament an annual report highlighting matters of concern relating to the operation of the FCA and PRA which it has discovered in exercising its powers and functions.(13) The Supervisory Board must be consulted on appointment and reappointment of the Chief Executives of the FCA and the PRA.”Member’s explanatory statement
This new Clause would create a Supervisory Board to monitor the Executive Boards of the FCA and PRA and provide a diversity of views on the conduct of the FCA and the PRA.

[Lord Sikka (Lab) [V]]

My Lords, Amendment 120 seeks to strengthen regulation by empowering stakeholders to watch over the conduct of the executive boards of the FCA and the PRA, so that stakeholder interests do not continue to be marginalised.

Throughout the passage of the Bill in this House and the other place, considerable concern has been expressed about regulatory failures. In particular, the noble Baronesses, Lady Bennett of Manor Castle and Lady Bowles of Berkhamsted, and the noble Lord, Lord Davies of Brixton, drew attention to the well-known problem of regulatory capture.

Regulatory bodies such as the FCA and the PRA are too close to the interests of the finance industry, often at the expense of broader social interests. The revolving doors swing both ways as regulators come from the industry and, after a stint, they return to the industry. The regulatory capture has inflicted misery on millions, as shown by numerous scandals. There is no resolution of the HBOS and RBS frauds, there is dithering on mini-bonds, the London Capital & Finance and Connaught scandals testify to regulatory failures, the FCA was absent in the Carillion scandal, puny sanctions for mis-selling numerous financial products have not really changed corporate culture, and there has been little success in curbing tax avoidance, money laundering, and interest rate and exchange rate rigging. Indeed, there is a long history of regulators doing the bidding of the industry; my earlier interventions referred to the regulatory sympathies for HSBC, Standard Chartered bank and BCCI even though they were involved in anti-social and criminal activities.

Regulatory capture is built into the system as individuals close to the industry occupy senior decision-making positions as executive and non-executive directors. Ministers and others often argue that individuals of particular experience are needed. The focus on technical expertise inevitably privileges industry insiders and marginalises the experience of the people who are actually practised upon, who remain relatively invisible. These experienced people rarely blow the whistle on corrupt practices or check the groupthink that has become all too prevalent in regulatory bodies.

In theory, non-executive directors are expected to provide some oversight of executives of regulatory bodies, but they, too, have little independence from the industry. The non-questioning of the regulatory practices inside the regulatory boards only deepens the crisis. Even when whistleblowers give executive and non-executive directors hard evidence, their concerns are often ignored. Who can forget the heroic efforts of the late Paul Moore, who alerted regulators of problems at HBOS before the financial crash? But he was ignored. Corporate grandees at regulatory bodies all too often see the issues through the industry’s lenses. Regulatory bodies have become echo chambers of the vested interests. We are talking here not just about simple regulatory capture but cognitive capture, which standardises subjectivities and has naturalised the interests of the finance industry within the regulatory bodies.

--- Later in debate ---

[Lord Sikka (Lab) [V]]

My Lords, I wanted to provide some examples of the kind of questions which the supervisory board might raise. For example, it could ask the FCA/PRA executive board to explain the delay in securing compensation for the victims of the HBOS and RBS frauds—that could be one question; I shall give a few more examples. It could ask why no one at the board level of HBOS and RBS has so far been prosecuted or why HSBC took 20 hours to respond to calls on its fraud helpline—which is of concern to many people. It could ask whether it was appropriate for the FCA to commission Section 166 reports from organisations involved in antisocial practices, or what progress the FCA had made in dealing with the issues relating to banks forging customers’ signatures. It could ask what policies were being developed to deal with global warming—which, again, is of interest to many people. It could ask what the regulators were doing to protect people from predatory lending practices—payday lending problems have not gone away, as we all know—or to protect businesses, especially small businesses, from excessive charges by credit card companies. It could ask what the PRA was doing to address the shortcomings of the Basel III recommendations. Lastly, as we all know that a remit of the FCA is to promote competition in respect of financial services, the supervisory board could ask how the FCA would do that given that many towns now lack bank branches.

These kinds of probing questions do not interfere with the day-to-day running, but they provide oversight and they push back against regulatory silence and capture. A supervisory board will erode the space for regulators to sweep things under their dusty carpets. It can transform our country and ensure that regulators work to protect the people and address their concerns.

Ministers often say that regulators are there to serve the people, so what objections can there be to empowering people to sit on the supervisory boards and democratise the regulatory structures and our society? Empowering people has a much lower cost than that associated with scandals and financial crisis.

I beg to move the amendment.

[Viscount Trenchard (Con)]

My Lords, I understand that Amendment 120 in the name of the noble Lord, Lord Sikka, seeks to establish a supervisory board for the two regulators. My first thought was that the noble Lord intended that this board should function in the same way as a joint co-ordination committee, as proposed in Amendment 86 in the name of my noble friend Lord Blackwell, which we debated on Monday. The explanatory statement, however, does not suggest that the board would co-ordinate the activities of the two regulators; rather, it would simply monitor the executive boards of the regulators and provide a diversity of views on their conduct.

From his opening remarks, I understand that the noble Lord’s intention is very different. While there have inevitably been some mistakes, I do not recognise the picture that he paints. The regulators have always been willing to learn from what has not gone as well as it might have. As long as the PRA and FCA remain separate organisations with different functions and objectives, it seems to me that this supervisory board would, in effect, have two separate personae or incarnations. It would have to function separately as a supervisory board of the FCA and as one of the PRA. I think it cannot be a part of the legal structure of either regulator or of both regulators. It would seem to duplicate the arrangements for parliamentary oversight which we have discussed and on which I would ask my noble friend the Minister to tell the Committee how his thinking is developing.

The amendment refers to the executive board of the PRA, although the noble Lord, Lord Sikka, should be aware that the board of the PRA was replaced by the Prudential Regulation Committee of the Bank of England in 2017. I do not think that such a supervisory board would replace the need for parliamentary scrutiny of the regulators, which will in itself provide appropriate transparency and accountability, rather than the completely crushing, destructive oversight that I believe the noble Lord’s new board would cause. It would be a cumbersome, expensive and bureaucratic body that would have a negative effect on the future attractiveness and competitiveness of the City of London as a global financial centre, so I cannot support his amendment.

--- Later in debate ---

[Earl Howe (Con)]

My Lords, the Government agree that effective oversight of the FCA and PRA is a crucial component of our regulatory framework. Indeed, noble Lords will remember that in earlier debates we discussed the existing mechanisms to ensure effective independent oversight of the regulators by a diverse range of stakeholders. For example, both the FCA and PRA are required under the Financial Services and Markets Act 2000 to consult independent panels on the impact of their work.

I should say that in general I do not recognise the picture of regulatory capture that the noble Lord, Lord Sikka, painted in relation to our two financial regulators, although I shall of course read his comments in Hansard and make sure that I understand all that he said.

For the PRA, this involves consulting an independent practitioner panel of industry representatives, while the FCA must consult four different statutory panels, representing consumers as well as the financial services industry. Furthermore, the regulators are already under a statutory obligation to publish the results of their public consultations, including on proposed new rules.

The amendment proposes that the FCA and PRA should attend hearings in front of a supervisory board. I simply observe that both bodies must already attend such hearings before parliamentary committees, and those committees may also hear evidence from stakeholders about the performance of the regulators. The FCA, for example, must attend general accountability hearings before the Treasury Select Committee twice a year, while the PRA must appear before that committee after the publication of its annual report. Parliamentary committees of both Houses are also able to summon the regulators to give evidence whenever they may choose. For example, the CEO and chairman of the FCA appeared before the Treasury Select Committee on 1 March to answer questions on their regulation of London Capital & Finance.

The amendment proposes that a supervisory board should have the power to inquire into the adequacy of resources used and available to the FCA and the PRA. However, as we have discussed in previous debates, the Treasury already has the capacity to order independent reviews into the regulators’ economy, efficiency and effectiveness. Therefore, all told, the amendment would result in a duplication of existing opportunities for scrutiny and oversight of the regulators’ resourcing.

I realise that the noble Lord, Lord Sikka, has a close interest in the issue of supervision, but I hope I have convinced him that the PRA and FCA are already accountable in meaningful and tangible ways, and that a diverse range of stakeholders has opportunities to participate in scrutiny of their actions.

Finally, let me say that the Government are not closing down debate on these issues. As I have set out during other debates, the future regulatory framework review is already exploring how our framework needs to adapt to reflect our new position outside the EU. It would be premature to make changes to these arrangements before we consider stakeholder responses to the ongoing consultation. However, I have noted the contributions from the Committee on what form that may take. Against that background, I ask that the amendment be withdrawn.

[Lord Sikka (Lab) [V]]

I am grateful to all noble Lords for their contributions to the debate, and it would be helpful if I could respond to a few points. First, under my amendment both the FCA and the PRA would need a supervisory board. Indeed, if I were redesigning the entire regulatory architecture in the UK, every regulatory body would have a supervisory board, because that is the only way of putting ordinary people, who are practised upon, inside the organisation, to check the conduct of executive boards and reshape the organisational culture, which has given us such problems.

The amendment does not duplicate in any way whatever what any parliamentary committee or review board might do. The supervisory board would simply be engaged in day-to-day strategic oversight. Those people would be in the organisation on a permanent basis, observing, requiring reports, making recommendations and in many ways hoping to prevent the major scandals that we read about later—often some years later. It has been suggested that such regulatory architecture would be cumbersome and expensive. My response, as always, is, “What do you think the cost of the status quo is?” How many more banking crashes can we afford? How many more London Capital & Finances, how many more Connaughts, and other scandals, can we afford? We simply cannot afford them.

--- Later in debate ---

[The Deputy Chairman of Committees (Lord Faulkner of Worcester) (Lab)]

My Lords, I have had a request to speak after the Minister from the noble Lord, Lord Sikka. I point out to him that we are almost out of time for this Committee tonight, and I ask him please to be as brief as possible.

[Lord Sikka (Lab) [V]]

My Lords, as we are pressed for time, I withdraw my intervention. I hope that I will make it another day.

[The Deputy Chairman of Committees (Lord Faulkner of Worcester) (Lab)]

We are grateful to you, Lord Sikka.

Financial Services Bill

Lord Sikka Excerpts

Committee stage
Monday 8th March 2021 Grand Committee

[Baroness Noakes (Con)]

My Lords, I am struggling with Amendment 74 because I think that it is aiming at a target that does not really exist, and it confuses capital and profits and losses.

The amendment would require what are quaintly called the “accounting numbers” to be adjusted to align with regulatory capital. Apart from anything else, that would result in accounts that do not comply with the Companies Act 2006, which requires, under Section 393, that accounts show

“a true and fair view of the assets, liabilities, financial position and profit or loss”.

The amendment seems to suggest that adjustments would be made to the accounts other than for the purposes of compliance with international accounting standards or to show a “true and fair view”, and, in that case, I believe that the resulting accounts would not comply with the Companies Act. We have to emphasise that these are international accounting standards, to which all countries that sign up follow, so this would be a major departure for accounting by banks and other institutions in this country.

I also note that, in proposed new paragraph (d), this is to apply to “profits for distribution purposes”, but that seems to misunderstand the fact that distributable profits are determined at the level of the parent entity solo accounts, whereas the adjustments that I believe are being targeted would be found in the accounts of subsidiary regulated entities or in the consolidated accounts, rather than those of the parent itself.

Regulatory capital already operates as a constraint on lending, so I fail to see what real-world impact any adjustments in the statutory accounts would have. While I understand the concept of regulatory capital, I do not understand the concept of “prudential” or “regulatory” profits or losses. I do not believe that “regulatory profits or losses” is a term that really exists, except to the extent that accumulated profits or losses form part of regulatory capital. It is difficult to see how proposed new paragraph (c) in Amendment 74 would work in relation to remuneration.

The noble Baroness, Lady Bowles of Berkhamsted, has explained the sorts of adjustments that are made for regulatory purposes and that, under her amendment, would be taken into the statutory accounts—for example, the treatment of intangible assets. It is not clear to me why the prudential treatment of these items should be imported into true and fair accounts. The treatment for regulatory capital is linked to loss absorbency, which is not an underlying principle of financial accounting, and it therefore cannot readily be accommodated within the structure of accounting standards.

Pillar 3 statements, which are required to be produced by all regulatory banks, set out the information required in much detail. If the noble Baroness is correct—I am not sure that she is—that analysts use and rely on Pillar 3 statements, not statutory accounts, they already have that information: all of it is in the public domain.

Amendment 77 is unnecessary. It is already open to the PRA to base regulatory capital on different numbers from those in the annual accounts. I have already mentioned intangible assets. It also ignores gains or losses or known liabilities, a very arcane bit of the accounting standards that makes companies recognise gains when their credit ratings reduce the fair value of their outstanding liabilities. The PRA has not needed any special statutory cover to eliminate that from regulatory capital.

Furthermore, it is unsound for the Bank of England to approach accounting for individual institutions on the basis of the impact that a standard may have on the economy of the UK, as if accounting were a mere plaything of policymakers. I hope that the noble Baroness, Lady Bowles, will not press these amendments.

[Lord Sikka (Lab) [V]]

My Lords, it is a great pleasure to follow the noble Baronesses, Lady Bowles of Berkhamsted and Lady Noakes. I will speak to Amendments 74 and 77 because they both raise some real, important and fundamental issues.

As the noble Baroness, Lady Bowles, indicated, vastly different numbers for bank capital and profits are communicated through conventional financial statements and by the regulators—because they are prepared on different assumptions, for different audiences and for different purposes. I hope that the Minister will tell us which of those numbers can considered true and fair. Can he also say whether the regulators are justified in relying on something that does not pass that test?

Financial Services Bill

Lord Sikka Excerpts

Committee stage
Monday 1st March 2021 Grand Committee

[Baroness Noakes (Con)]

My Lords, having been a director of a regulated bank for most of the last decade and therefore on the receiving end of regulation, the idea of a skilled person review of the regulators is immensely attractive.

The concept of a skilled person review appears in FiSMA as one of the regulators’ tools to be used when investigating the organisations they regulate. It was not used a great deal by the FSA, but over recent years skilled person reviews have become the weapon of choice for the PRA and the FCA, as the statistics given by my noble friend Lord Trenchard bore out. They can be effective tools for the regulators to get to the bottom of issues in individual institutions, but they are also very expensive and usually incentivise the skilled person to extend the work into later stages and wider remits. They can also be highly contentious, especially when the selected “skilled person” turns out to be less skilled than is needed for the task.

If there are to be skilled person reviews of the regulators, one thing that should have been included in subsection (3) of the amendment of the noble Baroness, Lady Bowles, is the use by regulators of their powers under Section 166 of FiSMA and more generally the provisions under Part XI. That could usefully be added to the list of items she has set out in proposed new subsection (3).

I was concerned that “skilled person” is not defined in the amendment—it is in FiSMA, but not in a way that would read across to this amendment. There also seems to be some confusion over whether a skilled person is involved or a body set up for the purpose, as seems to be suggested in subsection (2).

More substantively, I do not believe that a person nominated by your Lordships’ House and the other place should have any part in the conduct of such a review. I am not suggesting that there are no Members of either House who would have the skill to contribute to such a review; rather, I do not believe that Parliament should get involved in carrying out a review. Parliament should concentrate on its outcome, not its execution. I am also concerned that such a review could end up being a political football, given that proposed new subsection (3)(i) allows Parliament to request the inclusion of any matter in the review. The amendment is also silent on whom any report is to be made to and how it would interface with Parliament and its processes; for example, whether it is to be laid before Parliament or considered in any particular way.

I am sure my noble friend the Minister will not accept this amendment. However, if he does not, I invite him to explain to the Committee how the Government are satisfied that the PRA and the FCA are effective and fit for purpose, as it is not obvious that they are. If they are not, this makes a bigger case for bringing in some mechanism for an external review of the regulators to inform Parliament’s understanding of how well they discharge their responsibilities.

[Lord Sikka (Lab) [V]]

My Lords, I congratulate the noble Baronesses, Lady Bowles of Berkhamsted and Lady Kramer. I am delighted to support their suggestion for reform.

Last week, a number of proposals for arresting regulatory failures were put forward, each offering to help the regulator—what I call “acting as a guide dog for the watchdog”. This is another proposal which has considerable merit. It builds on the notion of an independent skilled person review, a practice that is already well established to some extent. However, in the details of the amendment, it differs from the conventional notion of a skilled person review in focusing on systemic factors rather than individual cases. These include matters relating to internal controls and operations, regulatory parameters, effectiveness, treatment of whistleblowers, public policy objectives and, more importantly, matters of public concern.

Although the amendment does not explicitly say so, I am sure that the noble Baronesses, Lady Bowles and Lady Kramer, would not be opposed to the independent skilled person review being conducted by a panel of retired judges; that could be feasible. The review in any case should be in the open, take evidence on oath and require the production of key documents from producers, consumers, intermediaries and other key parties in the finance industry. The panel could travel to different parts of the UK to take evidence and report within a specified period, like the Australian royal commission that we heard about earlier.

The main aim of the inquiry would be to focus on systemic problems, get to the bottom of the recurring and unresolved scandals in the industry, enable consumers to share their experiences with the industry and its regulators, and facilitate the legislative changes needed to secure confidence in the industry. The proposed review would be a necessary step to bring about a much-needed change in organisational culture and a sense of personal responsibility and accountability in the regulatory bodies, as well as the industry.

The proposed review and its specified headings of “regulatory perimeters”, “public concerns” and “effectiveness of relevant legislation” can also focus on neglected and emerging issues. A good example of issues totally neglected in the Bill, and by the FCA and PRA, are those about the impact of shadow banking. The shadow banking sector is intertwined with retail and investment banks, insurance companies, pension funds and others, and any crisis there is bound to have a huge impact on the rest of the economy. The sector could be worth nearly $117 trillion, far bigger than the world’s GDP; it is lightly regulated, and normal prudential rules do not apply to it. I remind the Committee that the 2007-08 financial crash was triggered not by mass withdrawals of bank deposits by savers but by the inability of Lehman Brothers and Bear Stearns, key players in the shadow banking system, to meet their contractual obligations arising out of speculative gambles. So there is an urgent need for an independent review; that is what we should be aiming for.

I want to reply to a couple of comments made earlier. The noble Viscount, Lord Trenchard, and the noble Baroness, Lady Noakes, referred to the issue of costs. As the noble Lord, Lord Desai, pointed out, the biggest cost is associated with the status quo, which has never been cost free. Over the months and years I have spoken to many victims of bank frauds who have lost their homes, businesses, savings, investments and pensions. All that any review panel or committee has to do is talk to them, and they will soon understand that there is a cost associated with the status quo.

The second point was the question of where on earth we would find these skilled persons. It is a sobering thought that it is not the skilled persons who told the world about any of the frauds or scandals. Journalists and ordinary people have been far more aware of what is wrong, and I am quite happy to trust their judgment to tell us what is wrong with the system, rather than having a very legalistic explanation.

I hope that in his response the Minister will now tell us how the Government have weighed up the evidence of systemic failures of the FCA and what assessment they have made of the impact of such failures on people’s lives. So far, Ministers have not supported any proposals for assisting the regulators or put forward any suggestions. Maybe the Government plan to appoint a royal commission or an independent public inquiry under the Inquiries Act 2005, or something else. It would be very helpful to know whether the Government are content or not content with the current state of affairs in the finance industry.

[The Deputy Chairman of Committees (Baroness Fookes) (Con)]

I understand that the noble Baroness, Lady Neville-Rolfe, has withdrawn, so I now call the noble Lord, Lord Naseby.

--- Later in debate ---

[The Deputy Chairman of Committees (Baroness Fookes) (Con)]

My Lords, I understand that the noble Baroness, Lady McIntosh of Pickering, has withdrawn, so I now call the noble Lord, Lord Sikka.

[Lord Sikka (Lab) [V]]

My Lords, I draw attention to my interests as set out in the register: I am an unpaid adviser to the Tax Justice Network. I strongly support Amendment 46 and congratulate the right reverend Prelate the Bishop of St Albans for providing the moral lead in securing tax justice and transparency.

As the noble Baroness, Lady Bennett, just pointed out, Gibraltar is one of the most secretive jurisdictions on this planet; indeed, it is among the top 30 most secretive, and inflicts tax losses on many nations including the UK. We all know that secrecy is an essential ingredient for tax avoidance and illicit financial flows. Over the years, Transparency International has reported that Gibraltar-based companies have been used to purchase properties in the UK, possibly with dirty money. Gibraltar has a population of around 33,000 but it has over 60,000 registered companies: that is, nearly two for every person living on the Rock. Many of these are just shell companies and little is really known about their authentic beneficial owners.

Gibraltar-based companies pop up in smuggling and bribery scandals all over the world. Unsurprisingly, a headline in the Guardian on 9 April 2017 said:

“Defend Gibraltar? Better Condemn it as a Dodgy Tax Haven”.


Little has changed. In February 2020, a report by the Council of Europe’s anti-money laundering body, MONEYVAL, called on Gibraltar to improve its efforts to combat, money-laundering and financing for terrorism.

The right reverend Prelate the Bishop of St Albans has already drawn attention to the tax haven aspects of Gibraltar. Unsurprisingly, many UK insurance and gambling companies are headquartered there because it is considerably more profitable to run UK operations from there by dodging UK taxes and increasing profit-related executive pay.

Research by TaxWatch shows that Gibraltar is indeed a hub for tax-avoidance: some 55% of the remote gambling services provided to UK-based customers are provided by companies based in Gibraltar. Most of the big companies, including William Hill, Ladbrokes and Bet365, have links to the Rock. Unibet’s website states that its servers are based in Malta, Alderney and Gibraltar and that it is registered and licensed in Gibraltar. The company is also listed on the New York Stock Exchange. This organisational maze provides opacity and tax avoidance and obfuscates accountability and the regulators’ ability to investigate.

William Hill has six subsidiaries in Gibraltar and is expected to pay around 12% in corporation tax for 2020, compared with the headline rate of just 19%. One of Ladbrokes Coral’s two licences to operate in the UK is registered in Gibraltar. On 9 August 2019, the Daily Mail reported that 32Red, which is based in Gibraltar,

“paid just £812,000 in corporation tax over ten years—an effective tax rate of just three per cent.”

The company is obviously not in Gibraltar just for the sunshine and the good climate. On 7 August 2020, the Daily Mail reported:

“Over the past two years, Bet 365 paid an effective tax rate of 12.7 percent on profits of £1.4 billion.”


Bet365’s accounts for the period 2015-19 show that the company’s corporation tax bill was £176 million lower because it has various operations in tax havens, including Gibraltar. Adjusting for inflation, Bet365 avoided around £182 million of UK corporation tax for the period 2015-19.

Ministers continue to tell us that companies should be taxed where sales and profits are made, but then we have this Bill, which will enable companies to book their profits in Gibraltar, even though they will have their sales and profits in the UK. The Government’s briefings on the Bill have not stated how much of the profits made in the UK are booked in Gibraltar and what the effect the Financial Services Bill will have on that.

The Government have a legal and moral duty for the good governance of Gibraltar and other jurisdictions to ensure that they do not continue to be what I call the world’s fiddle factories. Through this Bill, the Government are showering more gifts upon Gibraltar but without any quid pro quo; what exactly is it that we are getting in return? Can the Minister explain how these gifts aid tax justice in the UK? I strongly support Amendment 46 because it provides the basis for tax justice and transparency.

[Baroness Kramer (LD)]

My Lords, I will be very brief—this is not my area of expertise. I do not know if this is a required declaration, but my family have a small apartment in Andalusia; we do not rent it out, so there is no income involved—but it means that we have many neighbours who seem to run their financial affairs through Gibraltar, much to their general advantage.

Gibraltar suffers from a perception that it is something of a tax haven, and, indeed, most of the normal taxes that are levied in the UK or Spain are not levied there. However, I think we all feel great sympathy for Gibraltar; it has absolutely been caught in the Brexit conundrum and has seen many of its sources of income from the Navy and the military disappear over a number of years.

Financial Services Bill

Lord Sikka Excerpts

Committee stage & Committee: 2nd sitting (Hansard) & Committee: 2nd sitting (Hansard): House of Lords
Wednesday 24th February 2021 Grand Committee

[Viscount Trenchard (Con)]

My Lords, I declare my interests as stated in the register. I support both Amendments 10 and 26 in the name of my noble friend Lady Noakes. They do not mean that Parliament would be seeking to usurp the role of the regulators, or to attempt to rewrite MiFID II which, according to Forbes Magazine, has required 30,000 pages to explain its regulations.

It is right that the Bill enables our regulators to act quickly and flexibly to respond to changes in the markets or the introduction of new financial products. However, without the scrutiny formerly carried out by the European Parliament of each and every detail of regulations and directives, it is necessary that Parliament should have oversight of the regulators’ work. My noble friend is right that we need to agree the optimum balance and how this will be done before the powers conferred upon the PRA and FCA are made available for them to use.

Amendments 18 and 19 in the name of the noble Baroness, Lady Bowles of Berkhamsted, are motivated by a desire to continue to align to EU regulation, even though there are no expectations that the EU will make any further significant equivalence declarations in the short term. Amendment 19 places a large, poorly defined burden on the FCA to show where and how its draft rules have been influenced. It is clear that the FCA will consider many external factors in drafting its rules. As your Lordships know, it is intended to agree a basis on which both regulators will be made accountable to your Lordships’ House and another place for the way in which they carry out their work. Accordingly, I think it would be too restrictive on the FCA if this amendment were supported. It would also create uncertainty over the Bank of England’s ability to act quickly as necessary in exercising its macroprudential responsibilities.

Similarly, Amendment 20 seeks to allow committees of your Lordships’ House and another place to publish a report on proposed Part 9C rules. It is not clear which committees these will be in the future. It would slow down changes that the FCA will want to make quickly, which could be damaging to the standing and competitiveness of the City. Perhaps my noble friend can tell the House how the Government intend to amend the Bill in order to provide for the necessary scrutiny of acts of the regulators. I am not sure that that would be the effect of Amendment 22, in the name of the noble Lord, Lord Sharkey. The Government’s intention, which I support, is that we should move away from the cumbersome, codified nature of rules. I would expect the PRA to try to make rules that are shorter and clearer than the regulations they replace. It would not always be appropriate for them to include the full text of the general rules to be replaced.

Amendment 27, in the name of the noble Baroness, Lady Bowles, seems to place a very heavy demand on Parliament to become closely involved in what our regulators do at international conferences, in a way that might be too restrictive on their freedom to participate fully at those conferences. This would be likely to weaken British influence on the outcomes of discussions and decisions made at such conferences.

In Amendment 38, the noble Baroness, Lady Bowles, seeks to duplicate other arrangements which will be made to institute the necessary parliamentary accountability and again appears motivated by a desire to continue to align to EU rules. If the Government can bring forward an amendment to increase the attention that the PRA is required to give to the competitiveness of the markets, as strongly proposed by several noble Lords on Monday, I would suggest that Amendment 38 might be unnecessary.

While considering this matter, can the Minister confirm that it remains the Treasury’s intention to advise the Bank of England not to adopt a similar measure to the EBA to permit banks to capitalise software investments for the purpose of stress testing? This is one example of where, instead of equivalence, we will have higher standards than the EU, although regulatory standards are often not two-dimensional, high or low.

The effect of Amendment 39 is surely to transfer back to Parliament the detailed rule-making powers. Quite apart from the fact that neither your Lordships’ House nor another place is equipped to carry out such detailed, line-by-line scrutiny, the amendment would seriously slow down rule-changing, removing agility and flexibility from the regulators.

Amendment 40 in the name of the noble Lord, Lord Tunnicliffe, does not remove the ultimate power to change rules from the regulator but introduces a cumbersome process involving the issuance of reports by committees of both Houses. Does the noble Lord intend these committees to be new standing committees, and how will they be resourced? I also note that in the case of a draft being laid, say, a week before Parliament rises in July, it might be three months before 20 sitting days of either House have elapsed.

I do not understand the intention of the noble Lord, Lord Sikka, in introducing Amendment 71—a requirement separately for the Treasury Committee in another place to assess the FCA’s conduct prior to the appointment of a new chief executive.

My noble friend Lord Blackwell’s Amendment 85 makes an interesting proposal as to how the regulators should be made accountable to Parliament. Does my noble friend Lord Howe think that, as far as your Lordships’ House is concerned, scrutiny would come from an existing or soon to be established Select Committee, such as the strangely named Industry and Regulators Committee, or whether a new standing committee should be set up to exercise these functions?

The noble Lord, Lord Bruce of Bennachie, in his Amendment 137 seeks to place a statutory duty to consult the devolved Administrations over a reserved matter. We await with bated breath the publication of the Dunlop review, which should inform us of how the Government intend to manage relations with the devolved Administrations in the future, including on reserved matters. However, I cannot support the noble Lord’s amendment, which is unnecessary and provocative to certain elements within the devolved authorities.

I look forward to other noble Lords’ contributions and the Minister’s reply.

[Lord Sikka (Lab) [V]]

My Lords, I will speak to Amendment 71, which is in my name and supported by the noble Baronesses, Lady Bennett of Manor Castle and Lady Bowles of Berkhamsted, and the right reverend Prelate the Bishop of St Albans.

The amendment seeks to strengthen the effectiveness of financial regulation and calls for scrutiny of the FCA’s conduct by the Treasury Committee prior to the appointment or reappointment of its chief executive. It effectively calls on the committee to act as a guide dog to the watchdog. We all know that effective regulation is a necessary condition for protecting people from malpractices, holding miscreants to account and promoting confidence in the finance industry.

The FCA has failed to deliver robust and effective enforcement and it needs to be helped. Its failures are documented everywhere. The recent report by Dame Elizabeth Gloster on the collapse of London Capital & Finance noted that the FCA did not discharge its functions in respect of LCF in a manner that enabled it to effectively fulfil its statutory objectives and that there were significant gaps and weaknesses in its practices. From my perspective, even more damning was the revelation that FCA staff were not even trained to read financial information to recognise unusual or suspicious transactions.

Another report on the scandal-ridden Connaught Income Fund concluded that the FCA’s regulation of the entities and individuals was not appropriate or effective. We are still awaiting the report on the Woodford Equity Income Fund, when thousands of investors are trapped. Regrettably that is not an independent investigation, but we await the outcome with considerable interest.

The FCA failed to act in the case of Carillion, a company that collapsed in January 2018. Carillion inflated its balance sheet and profits through aggressive accounting practices. These included the use of mark-to-market accounting, enabling the company to leave at least £1.1 billion-worth of worthless contracts on its balance sheet. It failed to amortise £1.57 billion of good will, which was effectively worthless. The company was disseminating that misleading information to the markets but the FCA took no action whatever. Curiously, on 18 September 2020, nearly 21 months after Carillion’s collapse, the FCA issued a warning notice saying that the company and some of its directors had recklessly misled markets and investors over the deteriorating state of its finances before the company collapsed. Where was the FCA for all the earlier years while Carillion was publishing that misleading information? It was nowhere to be seen.

There is now considerable public evidence that the banks have been forging customers’ signatures to alter key documents and repossess customers’ businesses and homes, and that evidence has been published in the mainstream media. I understand that there are over 500 documented cases and the FCA has not even started any investigation. A senior Metropolitan Police fraud officer wrote to the Treasury Select Committee in 2017, stating that the executive boards of some of the most prominent banks were “serious organised crime syndicates”, yet that has not resulted in any action by the FCA.

The bank RBS has systematically defrauded its customers but the FCA has been dragging its feet, often pushed by parliamentary committees and others to do its job. In November 2013 a 20-page report prepared by Lawrence Tomlinson summarised this abuse of bank customers and small businesses at RBS’s global restructuring group, or GRG. The Tomlinson report stated that rather than nurturing small businesses, the bank actually pulled the financial rug and sent them to premature bankruptcy. GRG operated from 2005 to 2013, and at its peak handled 16,000 companies with total assets of around £65 billion. A proportion of those companies were not viable but a great number were and had never defaulted on loans. The FCA’s approach was to bury its own Section 166 report on the RBS frauds. In February 2018, the Treasury Committee ignored the FCA’s reluctance and published the report. The committee said:

“The treatment of vast numbers of SME customers placed in RBS’s Global Restructuring Group was nothing short of scandalous.”


In June 2019 the FCA published what it described as its final report on the investigation into RBS’s treatment of small and medium-sized businesses. The co-chair of the All-Party Parliamentary Group on Fair Business Banking and Finance said:

“This report is another complete whitewash and another demonstrable failure of the regulator to perform its role.”


The timidity of the FCA is also evident from the long-running HBOS frauds, which show no sign of resolution. In 2013, a report codenamed “Project Lord Turnbull” was published by Sally Masterton, Lloyds senior manager in credit risk oversight in the regulation and governance section of its risk division. It was prepared in response to inquiries made during Thames Valley Police’s investigation into the frauds at the Reading branch of HBOS, and also covered the period before the 2007-08 banking crash and bailouts and the subsequent takeover of HBOS by Lloyds Banking Group. The report noted that HBOS executives had “concealed” asset-stripping frauds at its Reading branch ahead of the bank’s takeover by Lloyds in 2008. The FCA did nothing to bring fraudsters to book.

Covid-19: Road Map

Lord Sikka Excerpts

Tuesday 23rd February 2021 Lords Chamber

[Baroness Evans of Bowes Park (Con)]

I can certainly assure the noble and gallant Lord that the design of the road map has been informed by the latest scientific evidence and is a balance between the societal and economic impact of lockdowns and restrictions and the risks posed by the virus. As I said in response to a question from the noble Lord, we will make an assessment against the four tests at every point of the data, but there will be five weeks between each step.

[Lord Sikka (Lab) [V]]

My Lords, last week’s High Court judgment concluded that

“the secretary of state acted unlawfully by failing to comply with the transparency policy.”

What lessons have the Government learned from the court judgment, and when will a Minister come to the House to answer specific questions about it?

[Baroness Evans of Bowes Park (Con)]

We are committed to publishing government contracts as quickly as possible. As my right honourable friend the Secretary of State said, the reason that some contracts were published late at the height of the pandemic was obviously that the team were working flat out, side by side with the public sector, to procure enormous amounts of goods and expertise with extreme urgency. I believe that there will be a UQ about this issue in the Commons tomorrow, and I assume your Lordships will want to take it.