Financial Services and Markets Bill

Debate between Viscount Trenchard and Baroness Penn

Report stage
Tuesday 13th June 2023 Lords Chamber

[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.

Financial Services and Markets Bill

Debate between Viscount Trenchard and Baroness Penn

Report stage
Tuesday 6th June 2023 Lords Chamber

[Baroness Penn (Con)]

It is a joint report from the City of London and the Government that provides analysis of a number of the areas that the noble Baroness covers in her amendment.

I was just moving on to the Financial Stability Report, which is published twice a year by the Bank of England’s Financial Policy Committee, setting out the committee’s latest view on the stability of the UK financial system and what the committee is doing to remove or reduce any risks to it and make recommendations to relevant bodies to address systemic risks.

I hope that noble Lords will agree, although I am sure that not all do, that a well-regulated and internationally competitive financial services sector is a public good for the UK and something that we should continue to support. I therefore hope that my noble friend Lord Trenchard will withdraw his amendment and that other noble Lords will not move theirs when they are reached.

[Viscount Trenchard (Con)]

My Lords, I thank all noble Lords who have taken part in this short debate. The noble Baroness, Lady Bowles of Berkhamsted, talked about the senior managers and certification regime. Does she know that the Japanese banks have given up sending senior directors to London because they cannot get authorised, so they have to promote people who are already in London? All three main megabanks are now doing that because they are so exasperated with the difficulty of getting their senior officers approved by the FCA.

I entirely agree with what the noble Baroness said about the problem of the uneven playing field between listed companies and listed investment trusts. That is an urgent problem that needs to be addressed now. The FCA, with its current culture, is just not responsive to that type of situation. Everybody is aware of that, and it is why some of us are pushing so hard for a more determined effort to change things. I think that if the competitiveness and growth objective had been given equal status with the stability objectives and the other consumer protection objectives, we might have got somewhere nearer that, but I know that not all noble Lords agree.

The noble Baroness, Lady Bennett of Manor Castle, and the noble Lord, Lord Davies of Brixton, supported Amendment 10 to leave out the competitiveness objective and Amendment 112 to reduce the size of the financial services sector. If you leave out the competitiveness objective, you will not have much of a financial services sector, so we would not need both amendments.

The noble Lord, Lord Eatwell, always speaks with great authority. We served together on the original Joint Committee on Financial Services and Markets under the excellent chairmanship of the noble Lord, Lord Burns, in 1999, and it was hugely successful. I take the noble Lord’s point, but I still do not think that we should be bound to align to an international standard just because it is a Basel committee standard; we should have to have regard to it. I say to the noble Lord, Lord Livermore, that some of the other jurisdictions that he mentioned do not subordinate their competitiveness objective to the main stability objectives.

I am grateful for my noble friend’s reassurance and beg leave to withdraw my amendment.

Financial Services and Markets Bill

Debate between Viscount Trenchard and Baroness Penn

Report stage
Tuesday 6th June 2023 Lords Chamber

[Baroness Penn (Con)]

My Lords, I join noble Lords in wishing my noble friend Lady Noakes and her husband well, and I look forward to her return to this House. As my noble friend Lord Trenchard noted, she worked with our noble friend Lord Callanan on amendments to the retained EU law Bill to introduce similar reporting standards to those in Amendment 3A. I can confirm that the reporting requirements in the retained EU law Bill already apply to the retained EU law repealed through Schedule 1 to this Bill, so the reports that the Government prepare under that obligation will include the Treasury’s progress in repealing retained EU law in Schedule 1.

I reassure my noble friends that through the Bill the Government are asking Parliament to repeal all legislation in this area, and we expect to commence it fully. The revocation is subject to commencement, and each individual piece of legislation listed in the Bill will cease to have effect only once the Treasury makes an SI commencing the repeal. As I noted in Committee, this is being taken forward in a carefully phased and prioritised way to deal with retained EU law, splitting it into tranches and prioritising areas that will provide the most concrete benefits to the UK. The implementation will take place over a number of years, which means that we are prioritising those areas with the greatest potential benefits of reform. We have demonstrated intent and action in this area. We have conducted a number of reviews into parts of retained EU law, including the Solvency II review, the wholesale market review and the UK listings review by my noble friend Lord Hill of Oareford, which my noble friend Lord Trenchard referred to in his Amendment 3B. The whole- sale markets review reform in Schedule 2 demonstrates the Government’s pace and ambition for reforming retained EU law, and that is very much the case.

I turn to Amendment 3B. Of course the Government must think carefully before choosing to replace EU law, and understand the impact of any replacement. The Government have consulted extensively on their approach to retained EU law relating to financial services, and there is broad consensus in the sector behind the Government’s plans, as I have already noted. However, I do not believe that an explicit mandatory statutory obligation to consult impacted parties is required. The powers in the Bill to designate activities under the designated activities regime are closely modelled on the secondary powers which already exist in FiSMA, especially the power to specify regulated activities. This existing power does not have an explicit statutory obligation to consult. I think the Government have already demonstrated that they will always consult when appropriate and will always approach regulating a new activity carefully. We can see this in the Government’s consultation on the regulation of funeral plans in 2019, and in draft legislation related to “buy now, pay later” published in February.

My noble friend Lord Trenchard referred to the listings review and implementing its results but, again, the Government have already consulted extensively. They launched a consultation in July 2021 that ran until September this year, and the proposals on listing reforms received broad support across the industry. The Government have already published a draft statutory instrument to illustrate how the new powers in the Bill could be used to bring forward a new regime in this area, so I believe that the Government have already demonstrated that they will consult properly when using the regulated activities order power. Therefore further amendments in this area are not necessary, so I hope my noble friend is able to withdraw Amendment 3A and will not move Amendment 3B.

[Viscount Trenchard (Con)]

My Lords, I thank all noble Lords who have taken part in this debate. In particular, I thank my noble friend Lady Lawlor for her support, and I entirely agree with what she said about the need to move back to our former common law-based approach. The noble Baroness, Lady Kramer, suggested that this would mean not just common law but going back to a simple, light-touch regulatory system. I am advocating going back not to a light-touch regulatory system but to a system based on common-law principles which also maintains the high standards for which the City is renowned across the world. Such a system is pursued also in the United States, Australia and many other countries with which we are doing more and more in financial services, including many CPTPP countries.

I am nevertheless grateful for the noble Baroness’s support, at least on Amendment 3B. I was not sure about the noble Baroness, Lady Chapman, but she was at least interested in both amendments and, I think, supported the need for increased accountability to Parliament.

I speak to the financial services industry and know many people in it. I have some outside interests, which I have declared, which involve me in it. I simply do not agree that all participants in the industry blame Brexit for the difficulties it faces. Rather, there are large parts of the financial services industry—in banking, insurance and asset management—which are waiting for us to reap the benefit of the upside of being free to develop our own regulatory regime. We have suffered the downside, which we knew would happen; we believe that reaping the benefits of the upside will be necessary to ensure that London can maintain its leading position. I very much hope that we can rely on the support of the parties opposite, as well as my noble friends, in seeking to ensure that that happens.

I am to some extent reassured by my noble friend the Minister’s words and her response to these amendments. She went further than I have heard her go before in saying that it is the Government’s intention to repeal all the EU retained law in—I think—Schedule 1, and that she has prioritised some areas. However, there are other areas that she has not prioritised. One of the those is the alternative investment fund managers directive and all its associated legislation, which was opposed universally by practitioners and—at the time—by the Treasury as well as by the regulators. Nevertheless, it was foisted on us by the EU for political reasons. I am very disappointed that few people in the Treasury seem to recognise how many small investment management companies have gone out of business or not succeeded in introducing new products because of the cost and burden of complying with this regulation. This is why, later in the Bill—I will not speak to it today —I have again brought back my amendment dealing with that issue. It is just one example of bits of EU legislation that, six years after the Brexit vote, I believe this Bill should deal with immediately.

I thank my noble friend for her partial reassurance and, in the circumstances, I am happy to withdraw my amendment.

Financial Services and Markets Bill

Debate between Viscount Trenchard and Baroness Penn

Committee stage
Thursday 23rd March 2023 Grand Committee

[Baroness Penn (Con)]

My Lords, I would not want to pre-empt the approach for any specific area of regulation, but the principles on which we are seeking take forward this work are about looking at regulation and ensuring that we use the opportunities outside the EU to take the right approach to that regulation for the UK. My noble friend talked about the different perspectives taken by regulators in the different jurisdictions. That is right. The aim of moving from retained EU law is not simply to transcribe it into UK law but to ensure that it is well adapted to our own circumstances, too. However, I do not think that I can helpfully pre-empt the approach in each area in this debate, but only talk about some of those wider principles.

I was talking about the intention to move all retained EU law into the FSMA model. We have set out our priorities for the first areas in which we are seeking to do this. The Government have not to date seen evidence that the reform of the Alternative Investment Fund Managers Directive is a widely shared priority across the sector. However, the Treasury would of course welcome representations on this point. We are keen to engage further with industry and understand the sector’s priorities as we work to repeal retained EU law associated with alternative investment fund managers over the medium term.

The FCA also recently issued a discussion paper to consider whether wider changes to the asset management regime should be undertaken in future to boost UK competitiveness using the Brexit freedoms introduced by this Bill. This will allow the Government and the regulators to consider what replacement is appropriate for the legislation before commencing its repeal. For these reasons, I ask my noble friend to withdraw his amendment.

[Viscount Trenchard (Con)]

My Lords, I thank my noble friend the Minister for her reply, but I confess that I find it rather disappointing. I am grateful for the support that I received from my noble friend Lady Lawlor, who talked more than I had and expanded on what I had said about the emergence of the directive and the reasoning behind it at the EU level at the time. As she so well explained, the AIFMD system was always seen, not only at the outset but since then, to be unsuitable for the UK system.

My noble friend the Minister said that the Government have decided gradually to approach the question of repeal and reform of EU law—certainly, very gradually, I would suggest. As she rightly pointed out, this sector is hugely important and of huge value—she mentioned the figure of 122,000 jobs—to the City and the economy as a whole.

However, the Minister said that the financial services industry is underpinned by healthy and proportionate regulation, which I cannot agree with. I tried hard to explain the reasoning, as I understood it, for the introduction of this directive, and I tried to argue that it is not proportionate at all; it is widely regarded as being disproportionate.

The Minister said that there is no evidence of a widely held belief that the regulation underpinning this sector needs reform or revocation. I strongly question who she has been speaking to. In the last week, I have spoken to a very senior regulator of one of the Crown dependencies, who completely endorsed what I said: it is just not true to argue that this regulation is proportionate. The City has been hugely damaged over the years that the AIFMD regime has been in force. The Minister talked about 122,000 jobs, but how many more would there have been had we not, wrongly and unnecessarily, shackled this innovative sector of our financial services industry with this unnecessary, bureaucratic, cumbersome regulation, introduced entirely for political reasons?

I do not accept what the Minister said: that this would undermine the UK’s reputation. The UK’s present reputation, in the IOSCO and among other financial services markets, is that it has become steadily more bureaucratic. I talk to a number of other regulators, and I have technically been a regulator: I was the first non-Japanese to be appointed to the board of the Japan Securities Dealers Association, which has statutory, regulatory powers.

I very much hoped that the Minister would at least say that this is one sector where the Government recognise that there is disproportionate regulation, rather than argue that it is proportionately regulated, which I am convinced it is not. This would have been an opportunity to improve the City’s competitiveness. The listings review recently conducted by my noble friend Lord Hill of Oareford contains many instances of areas where the Government should move quickly. It is a pity that the Government are not using this Bill to move ahead immediately in areas where the case for further consultations is rather weak.

I hope that the Minister will bring back some better news when we next discuss matters such as this. In the meantime, I beg leave to withdraw my amendment.

Financial Services and Markets Bill

Debate between Viscount Trenchard and Baroness Penn

Committee stage
Monday 13th March 2023 Grand Committee

[Viscount Trenchard (Con)]

My Lords, I support my noble friend Lady Noakes in her amendment. As she has explained well, Clause 38 requires the FCA, the FOS and the FSCS to co-operate and to consult with each other in exercising their statutory functions. However, it is important that FOS decisions with wider implications do not diverge from FCA rules, or there may be unintended consequences, and predictability and consistency may be negatively affected.

As my noble friend just said, this does not mean that the FCA or the FOS should act without thinking very carefully about what they are doing. Her amendment takes account of that and would be likely to encourage real thought about the consequences of making a particular decision in any case. Besides, Parliament never intended the FOS to be a quasi-regulator. UK Finance has recommended that the FCA should be given a power to overrule a decision by the FOS where it believes that the decision could have wider and perhaps unforeseen implications. My noble friend’s amendment would deal effectively with this potential problem.

Of course, the granting of additional powers to the FCA strengthens further the case that the FCA must be properly accountable to Parliament, and I regret that I have not yet heard my noble friend the Minister acknowledge that, as drafted, the Bill does not provide adequate arrangements for this. I firmly believe that a properly resourced joint committee is how to achieve that.

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

My Lords, the Government agree that, where there are wider implications, it is critical that the bodies within the financial services regulatory framework, including the FCA and the FOS, co-operate effectively.

As my noble friend Lady Noakes noted, that is why Clause 38 of this Bill introduces a statutory duty for the FCA, the FOS and the Financial Services Compensation Scheme to co-operate on issues which have significant implications for each other or for the wider financial services market. Clause 38 also ensures that the FCA, FOS and FSCS put appropriate arrangements in place for stakeholders to provide representations on their compliance with this new duty to co-operate on matters with wider implications.

As my noble friend also noted, these organisations already co-operate on a voluntary basis through the existing wider implications framework. The voluntary framework was launched in January 2022 to promote effective co-operation on wider implication issues. Clause 38 will enhance that co-operation and ensure that these arrangements endure over time while retaining the operational independence of the bodies involved.

Financial Services Bill

Debate between Viscount Trenchard and Baroness Penn

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

[Viscount Trenchard (Con) [V]]

My Lords, I declare my interests as stated in the register. I apologise to the Minister and the Committee for failing to get my name on the speakers’ list for this group on time and appreciate been given a chance to speak after the Minister. In the circumstances, I will confine my remarks to Amendment 1, introduced by the noble Lord, Lord Sharkey, with whom I often agree. However, on this occasion I strongly agree with what my noble friend Lord Blackwell said.

On the duty of care, the FCA has itself, as other noble Lords said, consulted on this question and provided feedback in November 2019. Many respondents thought that, rather than further complicating the FCA’s responsibilities, with the commensurate risk of increased litigation, it would be better to let the newly introduced senior managers and certification regime settle down.

I suggest that there is already evidence of cultural change in many regulated companies as a result of this, and that those who think we should not at this time bring in changes likely to make the FCA more cautious in the exercise of its functions are correct. It surprised me that while many respondents thought that the FCA should be given a duty of care, most of them thought that the duty should not be enshrined in law because it would lead, inter alia, to duplication of existing obligations, the loss of regulatory agility, and costs, delay and the stress of litigation for consumers. Even the adoption of a non-statutory duty of care would have many of the same effects. Surely the thing we most want to avoid, to ensure that the City retains its position as one of the two leading global financial centres, is a loss of regulatory agility.

[Baroness Penn (Con)]

My Lords, I believe that contribution has put another side of the argument. It is the balance between these two perspectives that the Government seek to strike. We also think the FCA is in the right position to strike it, with its obligations to protect consumers and its detailed understanding of the markets that it regulates.

--- Later in debate ---

[Viscount Trenchard (Con) [V]]

My Lords, again, I am grateful to the Committee for allowing me to speak after the Minister. I will speak only to Amendment 73 because it introduces another subjective concept: “unconscionable conduct”.

I searched for instances of “unconscionable” on the FCA’s website and found only one: John Griffith-Jones, the former chairman of the FCA, for whom I have the highest regard, said in a 2014 speech:

“In 1951 in the Money Lenders Act we described a 48% interest rate as ‘unconscionable’.”


It occurs to me that, as recently as 2018, the main banks were charging 1p per £7 borrowed per day for arranged overdrafts. This was about 50% per annum, but it was not disclosed; indeed, when the banks stopped telling people what their APR was and instead started telling them what the fee per £7 borrowed per day was, this was welcomed by the FSA, which thought that requiring to tell consumers the real interest rate was unhelpful because they would not understand it.

Now that the banks have reverted to informing customers of real annual interest rates, albeit in very small print, the cost of an arranged overdraft has gone down from around 50% to around 40%, which is possibly still unconscionable in today’s world of negative interest rates. As such, I certainly do not think that we should rely on the FCA to decide what is and is not unconscionable. Does the Minister agree that the banks should make clearer what real interest rates on overdrafts are?

[Baroness Penn (Con)]

My Lords, clarity around all terms and conditions is, of course, to be welcomed. I agree with my noble friend that one challenge with these amendments is potentially introducing new concepts, which might need to be defined through regulation, where we think that there are existing protections in place and the effect could be duplicative.

New Businesses: Capital Gains Tax

Debate between Viscount Trenchard and Baroness Penn

Wednesday 20th January 2021 Lords Chamber

[Baroness Penn (Con)]

My Lords, a number of factors are taken into account by the Treasury and the OBR when assessing tax policy. On the second point, the enterprise management incentive has been protected during the Covid-19 outbreak; the Treasury has prioritised urgent support measures for people, amending legislation so that the scheme can still be used by affected firms where employees are furloughed or where their working hours have been reduced as a result of Covid.

[Viscount Trenchard (Con)]

My Lords, the rebasing for CGT purposes of assets on death, coupled with the ability to transfer via a surviving spouse who expects to live seven years, distorts the transfer of assets down the generations. Has the Minister considered introducing a capital tax regime like those of Canada and Australia, where there is no inheritance tax but also no exemption from CGT on death—instead, 50% of the capital gains arising on death is aggregated with the beneficiary’s other income and charged to income tax, leaving the other 50% untaxed?

[Baroness Penn (Con)]

My Lords, inheritance tax is currently the main tax levied at the point of death. However, I am sure the noble Lord will be aware of the Office of Tax Simplification’s report on inheritance tax; the Government are considering its findings carefully.

Covid-19: Gig Economy

Debate between Viscount Trenchard and Baroness Penn

Thursday 22nd October 2020 Lords Chamber

[Baroness Penn (Con)]

My Lords, as I said to the right reverend Prelate, we will bring forward the employment Bill, but I cannot preview what will be in it today. As I have also said, we have not waited for that Bill as the opportunity to make changes to the balance between flexibility for employers and flexibility for employees. We will continue to take measures to protect workers where we can.

[Viscount Trenchard (Con)]

My Lords, I declare my interest as stated in the register. Is the Minister aware that the basis for allocations of Arts Council England’s cultural recovery fund grants is widely seen as incomprehensible, arbitrary and unfair, leaving many viable festivals with no funding to repay hundreds of thousands of pounds to thousands of ticketholders who have not rolled over their tickets to 2021? Will she confirm that there will be an appeals process to ensure that the undistributed part of the grant can be allocated fairly to those whose applications may not have been properly considered?