Financial Services and Markets Bill

Viscount Trenchard Excerpts

Report stage
Tuesday 13th June 2023 Lords Chamber

Moved by

[Viscount Trenchard]

120: Clause 78, page 90, line 34, at end insert—
“(4A) The Treasury must make regulations under subsection (3) so as to bring section 1 and Schedule 1 into force for the purposes of revoking, within the period of two months beginning with the day on which this Act is passed, the provisions mentioned in that Schedule connected with Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers.”Member’s explanatory statement
This amendment ensures that the retained EU Law which replaced the Alternative Investment Fund Managers Directive and associated legislation will cease to have effect no later than two months after the passage of the Bill.

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[Viscount Trenchard (Con)]

My Lords, I have tabled Amendment 120 in the same form as I tabled Amendment 246 in Grand Committee, and I am again grateful to my noble friend Lady Lawlor for adding her name in support of it.

I confess to having been rather disappointed by my noble friend the Minister’s response when she replied to that debate. She started by reminding the Committee that throughout this Bill the Government are seeking gradually to replace all retained EU law in financial services,

“so that the UK can move to a comprehensive FSMA model of regulation”.—[Official Report, 25/1/23; col. GC 68.]

She said that the Government were prioritising those areas that offer the greatest potential benefits of reform and mentioned three such areas: the Solvency II review, the wholesale markets review, and the listings review undertaken by my noble friend Lord Hill of Oareford. She provided some statistics which show that the UK is the world’s second-largest global asset management centre, with $11.6 trillion of assets under management, representing a 27% increase in the past five years. My noble friend rightly suggested that the asset management sector is in good health. However, I am bemused that she and the Treasury officials who advise her have already forgotten the controversy over the introduction of AIFMD. She suggested that the Government were not aware of any evidence that reform of the alternative fund sector is a widely shared priority across the sector. She specifically said that it is the Government’s intention to move all retained EU law in the financial services field into the FSMA model and that this will apply to this area too, but not as one of the first wave of priorities.

I agree that reform in the three areas that the Minister recognises as priorities is also a priority, but all of them are more complicated and I do not believe that any of them are candidates for complete revocation without partial replacement. She may remember that I have long advocated the abolition of the unbundling provisions for research contained within MiFID II and have argued for many of the recommendations made by my noble friend Lord Hill with regard to listings. From the beginning, the Solvency II regulations were inappropriate and disproportionately severe for the UK insurance market, many of whose participants believed that they were a deliberate attempt by the EU to damage the London insurance markets. However, none of those pieces of legislation are, in their entireties, candidates for revocation without partial replacement. But AIFMD is such a candidate.

My point is that this Bill is principally an enabling Bill, and it hardly revokes any EU law right away. However, AIFMD was universally resisted by the industry, the regulators, the Treasury and the Bank. It was foisted on us. It is unnecessary, so why do we not get rid of it now? We do not need further consultations on it. It has diverted many small asset managers away from the UK over the years, and the costs and burdens involved in compliance with it are completely disproportionate. Many innovative, so-called alternative strategies are developed by small companies, and I am aware of many that have failed to bring their ideas to market or have been forced to merge with another firm because of these regulations. As I explained in Committee, the motivation for the unexpected introduction of AIFMD was political, driven by French and German allies of Mr Manuel Barroso, who was seeking reappointment as Commission President. Charlie McCreevy, the Internal Market Commissioner at the time, was opposed to the measure.

I wish the Bill had been designed to abolish without delay not just AIFMD but parts of MiFID II, EMIR, et cetera. But AIFMD is the one piece of anti-UK bureaucratic red tape foisted on us by the EU, and more than two years have passed since the end of the transition period. It is depressing that my noble friend suggested that it will, in due course, be replaced rather than revoked. Those who are interested in the story should read A Report on Lessons Learnt from the Negotiation of the Alternative Investment Fund Managers’ Directive by Dr Scott James of King’s College London, prepared for the British Venture Capital Association.

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[The Parliamentary Secretary, HM Treasury (Baroness Penn) (Con)]

My Lords, I am afraid that, as my noble friend Lord Trenchard set out, his amendment has not changed since Grand Committee and neither has the Government’s response, which he so adeptly summarised on my behalf. We are not able to support the amendment for those reasons.

While I recognise all three of my noble friends’ strength of feeling on this issue, it is important that we do not inadvertently damage the UK fund sector or its access to international markets. However, I reinforce the Government’s commitment to revoking all EU law in financial services—but with prioritisation and process. I hope that all three of my noble friends will take heart from the fact that we are on the last amendment on Report and near the end of the process by which we can see the Bill on the statute book. We can then begin the process of the revocation of EU law and its replacement—or perhaps not, depending on the individual circumstances—with an approach that is guided by what is best for the UK and our financial services sector, to support growth in that sector and across the whole country. That is something that we can all support as a result of the Bill. I hope that my noble friend is able to withdraw his amendment.

[Viscount Trenchard (Con)]

My Lords, I thank my noble friend for her reply. I am slightly more reassured than I was by her reply in Committee. I nevertheless do not feel that she yet recognises the very clear point that this regulation was hugely controversial and was opposed by everybody involved in the financial services industry—there were no supporters of it. I am afraid that we have become rather inured to operating under it, but I can assure her that there are still very large sectors of the asset management industry that would be delighted if the Government would show that this is a priority area for revocation when she gets going with the job of revoking EU law and replacing it with a more reasonable UK-friendly alternative regime.

I thank my noble friend for her response. I also thank all those still in the Chamber for their patience in sitting here right to the end and sharing in this final amendment. I beg leave to withdraw my amendment.

Amendment 120 withdrawn.