Financial Services and Markets Bill

Debate between Baroness Bowles of Berkhamsted and Lord Thomas of Cwmgiedd

Committee stage
Wednesday 1st February 2023 Grand Committee

[Lord Thomas of Cwmgiedd (CB)]

My Lords, I will make three brief observations. First, in this context, we are looking at the mandate that we are giving the regulator. One obviously could look at rules by some ex ante supervision, but that is not how this will work. Leaving it all to accountability after the horse has bolted is not the right way to proceed. It is very important that we give attention to the scope of the mandate.

Secondly, there is an obvious illustration as to the scope of the mandate in the proposal from the noble Baroness, Lady Noakes: proportionality. I would be astounded if anyone disagreed with that proposition, because only a fool would argue that you should make disproportionate legislation.

It seems to me that, in looking at this, we ought to know how the people given the mandate by Parliament intend to operate. Do they intend to produce consistent and predictable rules? I would imagine that they do intend to. They may agree with many of these objectives, but it is very important for the Committee to know the Government’s view of the form of regulation—the mandate—before we decide on what should happen. We also need to know how they are going to do it, because you always ask your agent how they will do something. If we were informed, there might be much less dispute.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I have Amendment 70 in this group, which was also referenced by the noble Baroness, Lady Noakes, who supported and signed it. It would insert a regulatory principle of efficiency that the PRA and FCA must ensure that their supervisory and approval interactions are efficient from the perspective of the regulated entities and in comparison with regulators in comparable countries. Clearly, it overlaps with some of the issues that we have already discussed, but it gets to the heart of the matter as to how and for whom the regulators are thinking, and whether they recognise what their impact is.

My Amendment 122 establishes that a corresponding report is required, which must include how they have undertaken this efficiency comparison, including the periodicity of the comparison and its outcome.

Amendment 144 is another go at inserting the same principle into the bank’s supervisory roles. It will not have escaped the notice of those who have read all the amendments that a similar amendment also appears in other places and formats, in part as a response to the layering of objectives to make sure that they actually happen. The point is really to find the best place for this, not to keep repeating it, but I had several bites at the cherry.

As I said, the substance of my amendment has already been discussed in the previous group, but I wanted to bring out the perspective point. The regulator itself might be very efficient at the expense of the industry it regulates—for example, by using the same template letter at the start of institutional approval processes, without any regard for proportionality or without saying anything useful about what might already have been presented at an extensive, exploratory, preliminary meeting. I recognise the traps that the regulators are trying not to fall into, but this has to be looked at from the other side.

As I said before, when the Industry and Regulators Committee was looking at competitiveness, there was a constantly repeated complaint from industry about delays over routine approval matters, including staff appointments, which caused delay and costs in day-to-day matters. These issues keep coming up, both in real life and in the amendments from noble Lords from around the House, including from the Government’s side. I therefore hope that the Minister and Government will help us to address them as we proceed on the Bill. It is obviously a matter to which we will return on Report, probably in more than one way. Therefore, some preliminary discussions with the Minister would be very useful.

I must also comment on the proposals from the noble Lord, Lord Lilley. If you look at all his amendments, you will see that he is also a victim of the need to insert the same thing all over the place in FSMA in order to make it happen—and I appreciate that there are bigger and more developed amendments to come. My concern is whether the amendments achieve the objectives they set out to. I see the attractiveness of predictability, but I think that some of the concepts underlying these kinds of amendment are about reintroducing thinking in the regulator and in industry. By having layer on layer of complex rules, starting at the top, drilling down, then making the next one slightly different and providing lots of tick boxes, you can get certainty. But everybody says they want principles. I thought the idea was to have principles and then to discover that, if you did not take some reasonable precautions, there may be some regulatory actions against you. I have had these kinds of conversations with some of the authors of these proposals.

This almost goes back to where it used to be, when there was unlimited liability, but you took a little more care, because you might be for the high jump. You had to think about what you would do and consider the harm, instead of looking at a set of rules, against which you could put a little compliance tick that took away the thought and judgment that should be going into what you are doing in such an important industry. This cannot be tick-box. I fear that this is driving in the same direction. If I heard correctly, even the noble Lord, Lord Lilley, talked about these broad principles needing more detail underneath.

These amendments do not solve what some of those who have spoken in this group have told me that they want them to solve. I fear that this will be static rather than agile, yet after Brexit we keep saying that we want our regulators to be agile to new things and able to adjust. One cannot be both agile and wholly predictable, because you have to respond to new circumstances.

United Kingdom Internal Market Bill

Debate between Baroness Bowles of Berkhamsted and Lord Thomas of Cwmgiedd

Consideration of Commons amendments
Monday 14th December 2020 Lords Chamber

[Baroness Bowles of Berkhamsted (LD) [V]]

My Lords, I will speak to my Amendment 50F and Motion G2, which I may wish to move. I also support Amendment 50E and Motion G1. Amendment 50F looks to the stage at which there may be changes to state aid provisions, whether that be changes in definitions, remedies, or the scope of exemptions, or introducing conditions or time limits on approval. I agree with the Minister that at the moment they are gone, but might not alternatives be introduced, or some aspects reintroduced? I think that would also constitute a change.

The EU state aid provisions were indeed the subject of a statutory instrument recently, and they end at the end of the transition period. But, as the Minister has informed us previously, the UK will follow WTO rules and consult and report on whether any wider scope is to be introduced. If the outcome is a recommendation for going wider—some kind of policy change—it begs the question of how it will be introduced.

My proposal is not made instead of consultations and approvals with the devolved Administrations, which we support; it is in recognition that the full range of public authorities and businesses are affected wherever they may be. Therefore, the detail of how any post-consultation policy change is implemented is of significant interest.

The withdrawal Act was used to make the changes that happen at the end of the transition period. But it would seem inappropriate for that to be used for any new policy. A new policy other than moving to the WTO default should surely have the scrutiny of primary legislation.

I know the Minister may say that how policy is to be implemented can be a point in consultation, but my submission is more constitutional than convenience. Parliament should be able to scrutinise and amend, and to spot those weaknesses and problems that this House in particular has the experience to iron out, especially at the first time around of making independent, post-Brexit state aid rules.

Therefore, my Amendment 50F seeks to put on the face of the Bill that changes to the test for harmful subsidy remedies, the scope for exemptions or the conditions or time limits on approvals may not be done by regulation. I do not seek to prevent policy change being made by the Secretary of State; I am just saying that, at least first time around, it should be made by primary legislation. It may be that the Minister can put my mind at rest, and I await his response with interest.

[Lord Thomas of Cwmgiedd (CB) [V]]

My Lords, I will speak briefly in support of the eloquent and persuasive speech of my noble friend Lady Finlay in moving the amendment in Motion G1. First, I thank the Minister for his letter of Friday, which makes clear the Government’s wish for a constructive and collaborative relationship with the devolved Governments on state aid control and that the clause does not cut across the power of the devolved Governments to provide state aid or to determine how it is provided; it seeks only to restrict the distortive effects. With those thanks comes one short observation and two questions.

My observation is this: the proposal is very modest and not to the devolved institutions’ liking because, at the end of the period put forward in this amendment, it would nevertheless reserve a matter that the devolved Governments are right in saying is devolved. Of the many strengths of the proposal, it would provide a means for agreeing the regime and ensuring that it does not go forward without any risk of unilateral attack by a devolved institution. Surely the prize of agreement and strengthening the union is worth having.

I now pose my two questions to the Minister. First, the devolution statutes are now all framed based on reserved powers. That means that, if the UK Government have not reserved something, it is devolved. The power to control state aid is not reserved. If it were, these amendments would be unnecessary. This amendment therefore plainly changes the devolved settlements by removing a power that the devolved Governments have and transferring it to the UK Government. In those circumstances, I ask why the UK Government would not work together with them, consult them before the Bill was produced and try to find a common solution to that which I have always accepted as an absolute necessity: a unified state aid control regime. I fear it is an example of Westminster saying that it knows best, rather than working with the devolved Administrations.

Secondly, if the desire was to work together but, at the same time, provide a means of subsidy control, why, when changing the scheme of devolution, was a commitment not made in the Bill to work together with the devolved Administrations to develop the new regime? These questions seek to show that much could have been done to proceed in a way that strengthens the union, for that is the point of these amendments: to ensure that the UK Government work together with the devolved Administrations.

It is therefore necessary to ask the Minister a general question: how serious are the UK Government in their claims that the devolved legislatures and Governments will be fully involved in developing the subsidy regime? There are many important questions, particularly the role of the CMA as an independent regulator and not an adviser to the UK Government. I am grateful to the Minister for his letter and the constructive conversations we have had, but I join the noble Baronesses in asking for these further assurances and hope we receive them.

Corporate Insolvency and Governance Bill

Debate between Baroness Bowles of Berkhamsted and Lord Thomas of Cwmgiedd

Committee stage & Committee: 1st sitting (Hansard) & Committee: 1st sitting (Hansard): House of Lords
Tuesday 16th June 2020 Lords Chamber

[Lord Thomas of Cwmgiedd [V]]

I put my name down to speak on these amendments because of the very wide terms in which they were drafted. From the perspective of legal certainty and the importance of the London financial markets, it seemed that the Government’s overall policy of excluding financial service contracts was completely the right one, and the suggestion of these amendments was to remove part or all of that protection. However, from what has been said in this debate, it is clear—at least, I hope it is clear—that what gives rise to the concern really relates to the position of pension funds. It seems to me that this is a much narrower subject and it turns on the question of the priorities that will need to be clearly spelt out in the event of an insolvency.

Earlier, I raised the rather difficult issues that relate to priorities. This debate seems to underline the importance of that. I hope the Minister will have the opportunity to clarify precisely the way in which the priorities as between financial service contracts and a pension fund are to be resolved in the event of an insolvency.

[Baroness Bowles of Berkhamsted [V]]

My Lords, it is a pleasure to follow many speakers with great experience in the pensions world. As the Minister said in speaking to the first group of amendments, the objective of moratoriums in this legislation is that they will succeed and that companies with a hope of surviving will do so. But that will not always be the case. Insolvencies or other arrangements may follow. The moratorium structure rewards those who continue to supply, with an enhanced priority in a subsequent insolvency. It rewards financial institutions in a particular way that is identified as giving priority to creditors, including those who would have just ranked alongside pensions as unsecured creditors but are promoted above them.

As has already been mentioned, the Minister said in responding to the first group of amendments that some change will be made to exclude accelerated debt from super-protection. That does not sound like even as much as was covered in the group 1 amendment of the noble Lord, Lord Hodgson, which I signed, but it is a start. Nevertheless, I am still concerned that it elevates all financial debt above pensions, as explained by the noble Baroness, Lady Drake. If I heard the Minister correctly, he implied that without being given priority, in return for none of the things that bind other companies, banks would not play ball—I paraphrase what was actually said. The reason why the banks will play ball is to get benefits. That still means that they will make greater demands and ask for bigger fees. They will still accelerate payments even if they do not get priority, but that will still suck funds out, because banks do not have a payment holiday.

I am attracted somewhat to what the noble Lord, Lord Balfe, said on whether the PPF will survive. I note that having to stand behind pensions actually comes from European legislation. I believe the UK was taken to court on this subject. Do the Government still stand behind legislation protecting pension benefits, or is that a piece of EU legislation headed for the dustbin of broken promises?

Like other noble Lords, I think that the Government need to think further about the legislation’s effects on pensioners, the Pension Protection Fund, the Pensions Regulator, pension trustees, companies contributing to the PPF, which will face elevated contributions, and those self-same companies facing deficit repayment schedules that will need to be greater to compensate for the actions in this legislation, as well as the fact that many schemes are much further in deficit because of the current crisis situation that we are in.

Also, what does this blackmail change—I call it “blackmail” because that is what it sounded like when the Minister explained it—to the insolvency waterfall say about the stability of legal agreements and contracts in the UK, if securities that have been pledged to pension funds can be sold from under them through a retrospective law change made without any warning or notice? That is what this priority change is. “Moratorium” might have been trailed, but “moratorium” means delay, not a change of priorities and the inclusion of financial institutions in special arrangements for no consideration—for that is what it is: no consideration. It is more than simply consequential to the running of a moratorium.

Various amendments in the group aim to prevent harm to pensions, and my probing Amendment 118 suggests that the PPF should be consulted in any compromise arrangement. It could or probably should be made stronger and require consent, but then I do not really need to speak to it because the noble Baronesses, Lady Drake and Lady Altmann, have come up with extremely sound, detailed amendments. I support them and commend them to the Government.

I realise that the Minister indicated in his email last night that some movement in this direction will happen. He has also said that the Government will give creditor rights, which is the issue covered by Amendments 63 and 64 in the name of the noble Baroness, Lady Drake, but the extent and effect of those rights is important. I therefore remain concerned. Changing the ranking of creditors also opens up questions about, “Why just that change?” There are arguments, with which I have a lot of sympathy, that say pension deficits should have a higher ranking in insolvency anyway, given their origin as deferred pay. We will come to other provisions on that in the next group.

I am now quite glad that we have not finished the pensions Bill because, if these new priorities are enacted, they will take a wrecking ball to the difficult consensus that was being reached on the speed of paying down deficits, and other provisions coming from the regulator regarding its powers and what it would do to make sure that deficits were paid down. We will certainly have to take into account these new circumstances in this Bill and seek follow-on protections if it proceeds largely in the format it is in at the moment.

In summary, this group has four sensible proposals, independently made from across the House, that have significant overlap: scrap the financial institution priority, which weakens the position of pensions; ensure that pledged securities are not sold without the consent of the PPF; amend the Pensions Act 2004 so that a moratorium is an insolvency event and triggers a PPF assessment period; and have the PPF involved, with vetoes, in restructuring arrangements. I commend a composite of those arrangements to the Minister and I hope that productive discussions can follow because, welcome though the moves already flagged are on the PPF having creditor rights, we need to make sure that they fit the bill and that pension deficits do not still face significant losses.