Financial Services and Markets Bill

Baroness Bowles of Berkhamsted Excerpts

Committee stage
Wednesday 1st March 2023 Grand Committee

[Lord Deben (Con)]

My Lords, much of what we have just heard would be very much supported by the group of people with whom I work. We do not want to reduce the protection of either group of which we are speaking, particularly small people asking for redress.

The ombudsman service needs reform; there is no doubt about that. We really have to discuss putting some stakes in the ground about not blaming people for things they would never have thought of at that point because we now think of them. I am afraid that my noble friend Lord Lilley’s amendments do not help us in that direction. In other words, all the issues I would want to raise about the ombudsman are not covered by these amendments. Similarly, it is true about the protection of people from the effect of investigation, even when that investigation turns out not to be justified.

I finish by reminding the Committee of the original discussion we had. We need a system that people see to be fair and is shown to work effectively for small as well as big people. I do not think these amendments will help this, but I hope we will be able to have changes. I do not think that you should accept any changes just because you want changes, and I submit that these are the wrong changes.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I am speaking later than I would have in the debate, due to the absence of my noble friend Lady Kramer. The Committee will be pleased to know that I shall not try to say everything that I would have said, as well as everything that she would have said.

It is well known from the previous FSMA that I support independent review. I had an earlier amendment to this Bill suggesting the use of the NAO, to which the noble Lord, Lord Bridges, referred. I am pleased to support his amendments, which I have put my name to and which lay out a much more thorough range of new provisions. At this stage, I should probably remind the Committee of my interests in the register, in that I am a director of the London Stock Exchange, as I am going to talk about my regulator.

The UK would not be alone in having independent review of financial regulations as part of its accountability. That was one outcome of the review of the financial crisis in Australia. I have been around this argument many times, and today it has already been eloquently explained by the noble Lord, Lord Bridges, so I pose instead the question: what happens without an independent review? One thing that is certain is that there will be complaints about regulations and, by and large, the regulators will defend their work. Parliament’s committees will try to scrutinise, but that is a public process—or it has been called the political process. They are well adapted to do the kind of inquiry that they do and often get into the nub of the matter. But as we have found out in the Industry and Regulators Committee, it is difficult to get industry to state in public what its issues are with the regulators. As I have pointed out with amendments and speeches on previous days, the Government do not give any legislative status to the parliamentary reports, so there is scrutiny but no consequence, which is not accountability.

Additionally, within intensively supervised frameworks, such as that which exists, probably uniquely, in the financial services sector, there is genuine concern on the industry side about regulators’ retaliation or suspicion if they complain. I acknowledge that the heads of the regulators have said that this would not happen, and would be wrong, but that does not allay concerns or whispers about this most crucial of relationships between industry and its regulators, where every word is guarded. There are also genuine concerns that explanations require public disclosure about investigations or other difficulties that firms may have faced in compliance, which they would rather not put in the public domain—for example, out of commercial confidentiality about future plans and not for reasons of bad behaviour.

Industry will therefore instead bend the ear of government through many of the private channels that it has, whether through the Treasury or at Cabinet level—for example, as it has about international competitiveness. The Government may choose to act, as they have in that instance. Meanwhile, the public channels remain uninformed or unconvinced, because—and I refer again to the experience of the Industry and Regulators Committee—we were given evidence of only operational inefficiency and not of rules that caused any lack of competitiveness. How is public trust to be maintained under these circumstances? How is there to be the legitimacy that has been spoken about? How are reviews to get through the confidentiality concerns in a way that the public trusts?

The Minister has sat tight on review in all the previous debates on this Bill and the previous one, saying that the Government have given themselves powers to satisfy those requirements—powers to ask the regulator to review its rules. I do not object to that, but it hardly has any independence or new eyes. There are powers to seek independent reviews but as we know from experience, because those powers have been around for a while, such reviews have not been used quickly or frequently. They tend to follow a sequence of disasters, as the Gloster review did, and not to be done in any checking or anticipatory way. I understand why that is, because government must keep a certain distance and look for some systemic concern rather than one-off causes, but that distance leaves a gap.

Of course, there are powers to intervene by way of directions, which need to be used with care if the independence of regulators and international respect for them are to be maintained. None of those powers satisfactorily address how there should be checking in a way that permits private submissions but remains free of it looking as if government either is interfering too much and getting too cosy with industry, which is what it will look like if the Government use their powers to intervene as much as might be needed, or never acts until there has been substantial damage, when it really is too late.

I would also be interested if the Minister would inform the Committee of the level of resources and number of personnel that the Treasury is able to put behind its own monitoring, and whether it is free from reliance on industry and consultancy involvement. It is no good if it is just sent back to the same people, who will give the same information as comes in through the private channels anyway. How is that meant to be independent? I hope the Minister will take account of the fact that calls for independent review, as well as enhanced parliamentary scrutiny, come from all sides of the House and need to be addressed. There should be some serious conversations before we get to Report.

I will briefly say a few things about the amendments put forward by the noble Lord, Lord Lilley but I agree entirely with the noble Lord, Lord Tyrie. It would be a dreadful shame if one of the major achievements of this Parliament after the last financial crisis were watered down or, even worse, set aside. I fear that, as has been explained, that could well be the case. When the noble Lord, Lord Lilley, introduced his previous amendments, I said that I am not totally against a libertarian approach—one where you have to take care, and if you get it wrong then you are for the high jump—but that is not what is presented here. This proposal would make it extremely difficult for the regulators. It does not fit with the kind of regulatory system we have, with its underfunded regulators. It is a way to make it easy to set aside what the regulators have done. Given what I just explained about the relationship that firms have with their regulators—one of the reasons why, regrettably, they will shy away from legal action—it will not necessarily overturn that.

I do not agree with the predictability and consistency objective, for the reasons that others have explained: we want agility and change, and have to adapt to circumstance. If something comes to court, surely it could remain that a judge ultimately applies it, but that would be in the light of circumstances and an acknowledgement that circumstances change and regulation necessarily proceeds.

Likewise on a good-faith defence and reasonableness, my take on the senior managers regime is that the whole point is to make individuals be proactive, rather than just coasting along in what has been a comfortable way of life—how things have always been done. It has meant they have to engage their brain, think about it and update in the light of circumstances. Just saying, “There was a set of rules and I complied”, is not meant to be enough; you have to take account of what is going on.

Is there not a conflict here to some extent between people on the one hand talking about wanting principles-led regulations and, on the other, talking about that being vague? There are complaints that there are too many rules, yet it is industry compliance departments that are first off the blocks saying, “Where are the rules? Give us the rules! I want to know where to put my tick”, so I am not sure which section of the market this proposal is supposed to serve.

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[Baroness Penn (Con)]

My Lords, I would never want to speculate as to future parliamentary timetables. My noble friend Lord Naseby talked about the importance of listening to those who are impacted by the provisions of the Bill. He spoke about the City, and we have heard various points of view in that respect. I would add consumers into that mix, too. I say to noble Lords that the Government have consulted extensively on the approach we are taking in the Bill, and we have received a number of responses on this specific issue in both future regulatory framework review consultations that took place. Although I absolutely recognise that a small number of respondents were supportive of further consideration of such a body, the vast majority were focused on how existing mechanisms for accountability to Parliament and government and engagement with stakeholders could be strengthened. The Government therefore decided, in response to those consultations, against creating a new body, and focused on ensuring that the mechanisms for Parliament and government to scrutinise the regulators are effective.

[Baroness Bowles of Berkhamsted (LD)]

Will the Minister clarify what the questions were in the consultation? My recollection was that it was relatively open. Obviously, at that stage, industry was focused on its very important relationship with government—one cannot overestimate the importance of that—and it answered questions saying that it was happy with parliamentary scrutiny, but I have no recollection of there being a suggestion as to whether there should be another body that enabled any kind of regular review. Since that time, industry bodies have said that it would be a good idea, so it seems a bit inconsistent to claim that the consultation cleared the way to say that none was required.

[Baroness Penn (Con)]

My Lords, I was simply pointing out that this Bill is the result of two rounds of consultation. The Government are criticised for bringing forward proposals without sufficient consultation. I note the noble Baroness’s points but, even in the context of those questions, there were bodies that put forward the kinds of ideas that we are discussing today. However, in the balance of responses to that consultation, they were not the dominant voice or viewpoint from the range of different people who responded to us.

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[Baroness Penn (Con)]

That is not what I am saying. One of the things that I was referring to with regard to the powers in the Bill was an amendment tabled in the Commons stages to try to respond to further questions about how we can facilitate accountability. I think I have been clear to all noble Lords in this Committee that that is a question that the Government will continue to consider and to engage with noble Lords on, whether it is about strengthening parliamentary accountability or other measures that help to provide the information and resources that people need to do that work. The Government will continue to reflect on those points.

[Baroness Bowles of Berkhamsted (LD)]

I am sorry to interrupt, but I find it slightly strange that the Minister is saying the Government will continue to interact with us. All that that interaction has been so far is “No”.

[Baroness Penn (Con)]

In Committee, we are discussing the different proposals that have come from noble Lords to solve these problems. I am trying to set out where the Government have previously considered these questions and the thinking behind our approach in the Bill, demonstrating that where we have been able to, for example in the introduction of Clause 37, we have made amendments to the Bill further to take into account some of these issues. When it comes to the specific proposals we are talking about, it is right that I set out that this has been considered by the Government, including through public consultation.

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[Baroness Penn (Con)]

It would be best to set out in writing for noble Lords the specific areas of the consultation that sought to address the issues we are discussing today. As I have said, in response to those consultations, certain respondents put forward proposals in this area, so it is not right to say that it was not a topic for consultation. However, as my noble friend wants clarity on the record, I think that would be best delivered in writing.

[Baroness Bowles of Berkhamsted (LD)]

Perhaps I could intervene on this important point. In the first consultation, there were some respondents—I confess, I was one of them—who put forward notions of there being independent scrutiny. There were possibly some other organisations, I do not know, of the kind that come forward with policy ideas. But I suggest that the majority of respondents tended to be from the industry, and it is not usual for industry to invent new ideas in their responses to consultations. I asked some of the industry bodies about this at the time, and that was the response I got. They said that they thought that, as I had led the way, they might want to pick it up in later consultation—but by the time you get to round two, it is much more concentrated on what will be in the Bill and “Do you agree with this?” It does not say “And, by the way, what have we left out that might have been a good idea?” Industry does not spend its time and risk putting in responses about that kind of thing.

I should be very interested to hear the analysis of the type and numbers of people who responded. Frankly, we have to rely on what we are told. Once upon a time, you used to know who had responded and could judge, and if the weight of the responses came from industry, I am not surprised that there was nothing in there. If the weight of the responses from the non-industry part had some good ideas, perhaps the Minister could tell us.

[Baroness Penn (Con)]

As I have said, I will set out further detail on the consultation process in writing. It is worth just noting that this question was also considered by Parliament through the Treasury Select Committee in its report The Future Framework for Regulation of Financial Services, which said that

“The creation of a new independent body to assess whether regulators were fulfilling their statutory objectives would not remove the responsibility of this Committee to hold the regulators to account, and it would also add a further body to the financial services regulatory regime which we would need to scrutinise.”

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To conclude, the noble Lord, Lord Eatwell, set out why the nature of the changes proposed by my noble friend Lord Lilley would need significant consultation and discussion rather than being appropriate as an amendment to the Bill. While I will of course engage with my noble friends and all noble Peers ahead of Report on the issue of regulators’ accountability to this House, we need to reflect on the need for measures to receive sufficient consideration and consultation in order to be added to the Bill. I close by emphasising my offer to noble Lords to continue to engage in and discuss the issues of accountability that we have heard in this Committee session and others.

[Baroness Bowles of Berkhamsted (LD)]

I think the Minister has just said that she will engage but that the answer is still “no”.

[Baroness Penn (Con)]

I have set out why the Government have concerns and that we should have further conversations to explore the issues that have been raised. I believe that is neither a “yes” nor a “no”.