Financial Services and Markets Bill (Fifth sitting)

Debate between Angela Eagle and Craig Tracey

Committee stage
Thursday 27th October 2022 Public Bill Committees

[Craig Tracey (North Warwickshire) (Con)]

As ever, it is a pleasure to serve under your chairmanship, Dame Maria. I refer to my interest, which I declared at the start of Committee proceedings. I welcome the Bill, and particularly clause 24 because of its competitiveness duty, for which I have campaigned for quite some time. I would prefer it to be a primary objective, and perhaps the Minister will look into that, but if we keep it in its current form, then we have to go further for it to be meaningful. There must be proper metrics to ensure that the regulator follows up on it. For that reason, I support the amendments put forward by my hon. Friend the Member for Wimbledon.

In the evidence sessions, I was surprised to hear that the FCA was not aware of any other regulator that had a competitiveness duty. That is quite worrying. It seemed slightly detached from what our competitors are doing. We need to ensure that the FCA is pressed hard on this issue, and that there is a clear, stated objective for them to promote competitiveness in the industry. To be clear, this is not at all about lowering standards. The FCA said in its evidence that it considers jurisdictions such as Hong Kong, Japan, Singapore and Australia to be robust financial centres. They all have a competitiveness duty, so a duty of that kind can be beneficial.

Let me put this into context by giving the example of insurance-linked securities. The FCA created regulations regarding them, which Singapore then lifted—took and used. Because of Singapore’s competitiveness duty, we lost one firm midway through the process. In the same timeframe, 15 firms have been regulated there, against five in this country. The estimated loss is around $700 million. That is money out of our economy that could come our way with just this simple change.

There is a similar story on captives. We do not have any set up here. The reason cited is over-burdensome regulation. The industry agrees that there needs to be regulation, but it needs to be proportionate, and we need to ensure that it does not block investment in this country. I hope the Minister will consider the amendments and see what can be done to strengthen the measures.

[Dame Angela Eagle]

I approve completely of having a competitiveness and effective competition analysis duty being attached to the regulators, and for them to report on it annually, which would allow us to see how much they are taking account of it. I would also like them to be thinking about financial inclusion, but that comes later in our proceedings.

Will the Minister tease out a little for the Committee how he thinks the regulator can go about discharging that duty safely? We have seen some of the carnage caused by bad regulation in the energy sector, where a superficial view of competition has led to problems in that market, with companies collapsing. There is an obsession with the idea that competition is about the number of firms, whether or not they are sound. If something similar were to happen in this context, it could be even more serious and even more costly. I broadly support the aims of clause 24, but would welcome the Minister’s thoughts on how the problems and the bad effects in the energy market caused by the regulator’s misguided attempts to prove that there was competition—the trap of thinking that competition is just about the number of firms—can be avoided in this context.

--- Later in debate ---

[Craig Tracey]

I will speak specifically to clause 26. It is really welcome that this measure has been brought forward, but I have a big worry that the wording of the clause is open to interpretation. I have therefore tabled a new clause that we will get to later. The main change is to amend the wording in the clause that the regulator has complied with the competitiveness duty, “in its opinion”. I think that is quite worrying. There is a worry that it will turn into a tick-box exercise. As Emma Reynolds from TheCityUK pointed out, there is concern that the regulator will end up marking its own homework. The regulator was not even aware that other jurisdictions had international competitiveness duties.

We should also find it concerning that Charlotte Clark from the ABI said in her evidence that she could not recall a new insurance company being set up in this country in the last 10 to 15 years, yet they are being set up in other countries, including in the EU—countries with which we have equivalence. The main reasons seem to be the time that it takes to get regulated and the cost. As my hon. Friend the Member for Wimbledon said, in some instances it is up to 14 times more expensive to get regulated here than in similar jurisdictions that are similarly robust.

I therefore think that the provision needs to be much tighter and to have some proper key performance indicators and metrics. It was good to hear the FCA say that it was looking at those, but we need to set them out clearly. The types of thing that could be in there are an understanding of who is leaving the country for other regimes and why; rule monitoring and evaluation; the level of duplication in the rulebook; the speed and responsiveness of the regulator; and our success in attracting new applicants. As I said, I have a new clause, which we will come to at the end, but it would be great if I could meet the Minister beforehand to talk this through and to see whether it can be incorporated into the Government’s thinking.

[Dame Angela Eagle]

Again, there is largely agreement about the aims of clauses 25 and 26. We are on the cusp of a complete transformation in the way our economies have to work. Sometimes, I think we do not quite understand the extent of the transformation that will be needed and the speed at which it will have to be done, given that we are so behind in our attempts to reach net zero and avoid catastrophic climate change. It really is the last few hours, in terms of the biodiversity and climate stability of the Earth, for us to be able to do this.

The scale of the required transformation is mind-boggling. Virtually every piece of infrastructure in existence in our society will have to be transformed. That will have to be done through public-private partnerships, investment to lead the market in areas where there is market failure and investment in innovation in financial services to help to provide that investment, but also through proper regulation, which is what these clauses are about. All those things have to be done in a timely way to create the circumstances for realising all the capital investment potential that will be needed to make this change happen, especially in established economies with old infrastructures, which are often the largest emitters of carbon, as it happens. All of that has to be done virtually in parallel, so that we can try to reach these important targets.

It is very important that, through these clauses, the Government have agreed to incorporate the legislative target of reaching net zero by 2050 into this part of financial services law. However, they have amended it by replacing what was there before—the “have regard to sustainable growth”—with the target. Is that the right way to go about it? By getting rid of that “have regard”, do we lose an opportunity to make progress, rather than just focusing on a future output? That is not a philosophical question; it is a practical one. Why have the Government decided to replace the “have regard”, rather than enhance it? Will the Minister reassure us that, in the context of having to retool the way we do almost everything in all our infrastructure, we could not have gone with both? Will there be the potential for people to think, “We’ll put everything off until closer to 2050,” because the “have regard” has been replaced with an end-date output target? Can the Minister justify why the Government thought that was the best approach?

When regulation is being refocused on net zero, there will be those who wish to greenwash what they are doing—I will use that phrase; the Minister understands what it means—in order to continue to attract investment and piggyback on the good will of people who wish this change to happen when, in the case of those companies, it is not happening. I suspect there is a little bit of that going on at the moment. How does the Minister envisage enforcement mechanisms and proper regulation being put in place to ensure that greenwashing is not going on everywhere? Such greenwashing would move us away from meeting the target. Not only would it be to the detriment of consumer interests; it would squeeze out more genuine activities, firms and investment if it were allowed to be too prevalent.