Financial Services and Markets Bill

Alison Thewliss Excerpts

2nd reading
Wednesday 7th September 2022 Commons Chamber

[Richard Fuller]

My hon. Friend opens up what was an area of particular personal interest to me when I was a Back Bencher, and I therefore feel tempted to stray, during what might be my rather temporary position on the Front Bench—[Hon. Members: “No!”] That was a cheap attempt for a laugh, but if I may just say this without straying too far, I think it is recognised across the House that the role of Parliament in holding regulators to account needs further investigation. The Bill is quite remarkable because we are building on a structure from the year 2000 that put tremendous power in the hands of the regulators. We think that is right. We do not think that we should have the same prescriptive statute-based approach as the European Union, because we feel that is too rigid, does not promote competition and does not help growth. But we must recognise, as we take the Bill through the House, that we have a responsibility carefully to ensure that those structures of parliamentary oversight are appropriate.

[Alison Thewliss (Glasgow Central) (SNP)]

I very much enjoy serving on the Treasury Committee, but it has an incredibly busy agenda. What the Government are doing here is taking a huge amount of scrutiny of incredibly important structural issues relating to financial services from 650 Members of Parliament and giving it to a Committee of 11 and a perhaps yet smaller Sub-Committee. Does the Minister really think that is adequate?

[Richard Fuller]

The hon. Lady tempts me to talk beyond what is really the responsibility of the Government. She is raising questions that are correctly and appropriately for the parliamentary authorities to respond to. On her more general point about whether the system is correct to rely on the regulatory framework that was established in 2000, I think the answer is absolutely yes. As I have just mentioned, it provides the ability for an agile, pro-growth, competitive set of financial services regulations, and I believe that Parliament itself is capable of providing that democratic oversight over the regulators. If she is concerned about that, I encourage her to take it up with the parliamentary authorities in the usual way.

So I welcome the Treasury Sub-Committee. I have said that ultimately it is for Parliament to determine the best structure for the ongoing scrutiny of financial services regulators. The Bill also includes a new power for the Treasury to require the regulators to review their rules when that is in the public interest. Following any such review, the final decision on potential action would be for the regulators to make.

Following the repeal of retained EU law, the Government will have no formal mechanism to bring public policy considerations directly into rule-making. It is right for the democratically elected Government of the day to be able to intervene in a matter of financial services regulation where there are matters of significant public interest. The Government’s intention is therefore to bring forward an intervention power that will enable Her Majesty’s Treasury to direct a regulator to make, amend or revoke rules where there are matters of significant public interest. The Chancellor will take a final decision on the precise mechanics of the power and the Government will table an amendment in Committee.

Let me now turn to the Bill’s second objective: bolstering the competitiveness of UK markets and promoting the effective use of capital. I have already spoken about the improvements to the UK’s regulation of secondary markets in this Bill through reforms to the MIFID framework in the wholesale markets review. These changes will lower costs for firms and align our approach with that of other international financial centres such as the United States. To improve the smooth functioning of markets, we will introduce a senior managers and certification regime for key financial market infrastructure firms. We will expand the resolution regime for central counterparties to align with international standards, and enhance the powers to manage insurers in financial distress.

The next objective of the Bill is to strengthen the UK’s position as an open and global financial hub. Outside the EU, the UK is able to negotiate our own international trade agreements, including mutual recognition agreements—MRAs—in the area of financial services. The Government are currently negotiating an ambitious financial services MRA with Switzerland. Clause 23 enables the introduction of any necessary changes through secondary legislation to give effective to this and to any future financial services MRAs. Schedule 2 contains measures that enable the United Kingdom to recognise overseas jurisdictions that have equivalent regulatory systems for securitisations classed as simple, transparent and standardised, allowing UK investors to diversify their portfolio while maintaining the level of protections they currently enjoy.

The Bill takes the UK further forward as a centre for financial markets technology. Clause 21 and schedule 6 extend existing payments legislation to include payments systems and service providers who use digital settlement assets that include forms of crypto-assets used for payments, such as stablecoin, backed by fiat currency. This brings such payments systems within the regulatory remit of the Bank of England and the payments system regulator, allowing for their supervision in relation to financial stability, promoting competition and encouraging innovation.

To foster innovation, clauses 13 to 17 and schedule 4 enable the delivery of a financial markets infrastructure sandbox by next year, allowing firms to test the use of new and potentially transformative technologies and practices that underpin financial markets, such as distributed ledger technology. In parallel, the Bill promotes the finance sector’s resilience by allowing the financial service regulators to oversee the services that critical third parties provide to the sector.

Let me turn to the Bill’s final objective, which I know will have the commendable focus of colleagues throughout the House: the promotion of financial inclusion and consumer protection. The Government will continue to foster an industry that supports everyone so that individuals do not feel left behind by the rapid advancement in financial technology. There is an extensive programme of ongoing work related to consumer protection, especially in the areas that were legislated for in the Financial Services Act 2021, such as buy now, pay later agreements and the FCA’s rules on the consumer duty.

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[Alison Thewliss]

The hon. Gentleman is making an excellent point on the proximity of cash machines and arbitrary limits. The city centre of Glasgow is right at the heart of my constituency. Putting a couple of kilometres around that would basically knock out every other cash machine that was not on Buchanan Street, so I agree with his point. Does he agree with me that the Government have to think more carefully about such limits?

[Paul Maynard]

I very much welcome that. The challenge for the Government is that the access to cash statement must reflect what good access looks like—not just to a cashpoint, but to wider in-person banking services. It cannot just be “Can I get a bank note out of a machine?” It has become increasingly common in my own local area for cash machines not to have been filled up. There is not much point in having a cash machine without any bank notes in it, as if it were a rather decorative antique object.

One important feature that does not require legislation, but which deserves a great deal of comment—more than the two minutes I now have—is the right for communities to review any decision taken on whether they should have a banking hub. Not only is LINK assessing any closure of a bank branch already announced, but the right for a community to request a review of cash access. I am sure every single Member worth their salt in this place will be sitting down looking at the map of their constituency and saying, “I need a review there, there, there and there.” I am sure LINK will not thank me for doubling or quadrupling its workload in that regard, but it is a fantastic opportunity and a mark of how far this debate has moved. In my view, the legislation should specify a simple, fair and independent process that allows communities to appeal decisions. That could easily be placed in the legislation as an additional duty for the FCA. It will help the communities, the banks and LINK by ensuring a fair, independent and transparent method for communities who are not satisfied to have issues quickly considered under the oversight of the FCA. There is a great deal of suspicion out there about the banks and their approach to their branch networks. I do not want communities to appeal or to ask LINK to have a look and then be very disappointed about why they do not get the banking hub they might think they are entitled to. The process must be clear and transparent for communities to have confidence in it.

In summary, the Government proposals ensure that the FCA has the powers it needs to tackle the issue of access to financial services. After many years—my hon. Friend the Member for Salisbury is back now. He missed me saying well done to him. Don’t duck out for your starring moment! I don’t know. [Laughter.] This issue has taken far too many years to solve. It has not his fault either; it has been very complex. Too many communities have lost the banks they already had. Too many have been reduced to a single bank or to no bank at all. We now have a robust process in place to identify the locations, to find an alternative, to find a solution, without people having to drive miles away. For that reason alone, the Bill is to be welcomed. But it can be improved with one single four-letter word: free. Please, Minister, free me from my anticipation and make cash free to access.

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[Bim Afolami (Hitchin and Harpenden) (Con)]

It is a pleasure to speak in support of the Bill. I will not repeat what so many hon. Members have said about the excellent work of the former Economic Secretary—my hon. Friend the Member for Salisbury (John Glen)—and the present Economic Secretary in bringing it to the House, but I want to bring up a couple of specific issues that may not have come up in the debate as much as they might have.

The former Chancellor, my right hon. Friend the Member for Richmond (Yorks) (Rishi Sunak), mentioned the call-in power. There has been some criticism in the press, which may or may not have come from people within the regulators or from people speaking on their behalf, suggesting that the Government’s call-in power will somehow damage our regulatory system or that it is somehow illegitimate for the elected Government or this House—in extremis, if they feel that something is badly awry—to override the non-elected regulators in a specific area of financial regulation.

I put it on record that those concerns may be well intentioned, but I think they are wrong. It is critical that this House and the elected Government have that power over something as significant as the financial regulation of the sector that is our jewel in the crown. The sector employs millions of people, two thirds of whom are outside London. We all accept, on both sides of the House, that we should champion the sector and work with it. It is almost unconscionable that such a power does not already exist, so we should stand firm if, in the other place or in Committee in this place, Members wish to reject the call-in power. I think it is critical.

[Alison Thewliss]

The hon. Gentleman speaks with a lot of expertise in the area. Could he give an example of when the power might be used? In what circumstances might the Government want to use it?

[Bim Afolami]

Lest anybody should think I have any particular specialist knowledge, I stress that this is entirely my own view, but I could imagine a scenario in which the Government, supported by this House, intended certain changes to a regulation such as MiFID II. A strategy document might say that the intention is for a, b and c to occur, but when the regulations were drafted, that intention might not appear to come through. In that instance, it would be very legitimate for the House or the Government to say, “No, what we intend is the following, and we will change the detailed regulation in order to achieve the aim—the democratic aim, supported by the Government and the House—that we seek to achieve.”

There are a couple of other areas in which I think the Government could have gone further in the Bill, and which I hope we will consider in the coming weeks and months. The first is the bank levy. I know that this is not always a popular thing to say, but in politics it is sometimes important to say unpopular as well as popular things. When we have an internationally competitive sector, if the tax burdens of jurisdictions with which we are competing for people, for capital, for institutions or for new investment reach a point at which they are significantly, or even a little bit, less than ours—and people may find those jurisdictions attractive for other reasons—we should consider finding ways of reducing our own tax burden, which has risen in recent years. The bank levy was one of those, but it came during the aftermath of the financial crisis, which happened quite a long time ago. I think we should consider getting rid of it, in order to emphasise as much as we possibly can that Britain is still the leading centre of financial services for the world.

I am not saying that this is a panacea; far from it. The Bill contains 300-odd pages because we have a great deal to do. However, the bank levy is a tax, and if we impose high taxes on internationally mobile capital or institutions, there may well be a penalty for this country in terms of attracting those institutions. I ask the House, and in particular those on the Treasury Bench, to reflect on that point.

My second point concerns ringfencing, which the former Chancellor mentioned. When I was at HSBC—I probably should have declared at the beginning that I worked at HSBC before I came to the House, and indeed in other institutions in the City—I had the good fortune to work for quite a long time on the internal restructuring of the bank as part of a strategy of which ringfencing was a huge element. HSBC and Barclays were the two big British banks that had big consumer retail bits and big investment banking bits.

Even at that time, it was obvious to many of us that the most critical part of what we were doing in ensuring the safety of those institutions—and indeed, because they were so big, helping to ensure the safety of the whole financial services sector—was the recovery and resolution power, and not just the ringfencing aspect. While I think the review that has been carried out is very capable and very thorough, I urge the Treasury to look a bit further, and to ask whether we still need ringfencing even under the terms of the way in which it has been reviewed. Can we look again at the thresholds? Can we make this less onerous for big institutions?

Why should we do that? I return to what I said about competitiveness. If there are ways in which we can improve our competitiveness without compromising on safety, I think we should consider them.