Financial Services Bill

Baroness Hayter of Kentish Town Excerpts

Tuesday 10th July 2012 Lords Chamber

Moved by

[Baroness Hayter of Kentish Town]

96A: Clause 4, page 14, line 35, at end insert—
“( ) Within a year of commencement of this Act, the Bank of England shall publish a review of the effectiveness of coordination by the regulators of the exercise of their functions relating to membership of, and their relations with, the European Supervisory Authorities (namely, the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority), and their relations with other regulatory bodies outside the United Kingdom.”

[Baroness Hayter of Kentish Town]

My Lords, Amendment 96A stands in my name and that of my noble friend Lord Eatwell. Despite the increasing importance and powers of the new European Systemic Risk Board and its three ESAs—including, on occasion, the power to override our own regulators—the Bill’s new architecture does not map with theirs. So while Europe cuts by area—with a committee for banking, one for securities and markets and one for insurance and occupational pensions—the Bill divides between prudential and conduct. As AXA warns,

“There is a significant danger that the new structure will diminish the UK’s capacity to influence European regulators as”,

our,

“new ... bodies will be organised along different lines to the European Supervisory Authorities”.

London First, which represents over 200 of London’s leading employers, including many in the financial world, expresses similar concerns about the new framework not mapping onto that of Europe. While it welcomes the establishment of an international co-ordinating committee, it remains worried about the committee’s effectiveness unless it is appropriately resourced and staffed.

We have ceded powers to the EU on many areas of financial services regulation, but there are areas where we may want to retain powers; for example, to impose higher capital requirements on banks. There are also areas for future negotiation where it is imperative that we give leadership and have a good negotiating stance and team in order to have a good outcome. That depends on good preparation within domestic regulators—and that will require considerable co-ordination, which we will rely on a committee to produce.

Our own European Union Committee warned about the mismatch between our new structure and that of the ESAs last July, but the Government did not appear to take much heed of the potential problem. Perhaps the Government are right, and whichever way one cuts and divides, there will not be a brilliant fit. However, given the Government’s commitment to,

“ensuring that the UK authorities … take a leadership role in the ESAs”,

and given the importance of Europe in regulating, in standard setting and in influencing our financial regulators, it might be wise to have a built-in review to check whether we have got it as good as it could be, and to give this House and the other place a chance to see whether any adjustments are called for in the light of experience.

The Governor of the Bank of England has said that the new architecture is,

“a bit by way of an experiment”.

He went on to say that we,

“need to experiment and see how it evolves”

in regard to the whole schema, which he thought should be revisited after five years. In the case of our relations with the European bodies, however, we cannot wait that long. Decisions are being taken even as we meet.

These overlaps—or underlaps—are not theoretical. We know that Michel Barnier, the EU Commissioner overseeing financial services, is to amend EU market abuse rules in the light of the LIBOR scandal. Much of this work will overlap with the probe led by Martin Wheatley of the FCA which is examining almost the same issues. While the EU initiative is likely to complement Mr Wheatley’s conclusions on whether to apply criminal penalties to the manipulation of LIBOR or any other indices, there is potential for a clash over whether to regulate this or other indices.

Clear, focused input into EU thinking is therefore essential for the UK markets. We must ensure that we have the processes and structures right to make sure that those decisions suit our needs. This amendment seeks the information needed to help us assess what adjustments might have to be made to ensure that the decisions taken both here and in Europe really are as good as they can be. I beg to move.

[Baroness Noakes]

My Lords, I completely take the main thrust of the noble Baroness’s amendment, which is that the lack of mapping of our structure onto the European regulatory structure potentially creates problems. We have certainly heard from bodies in the City that they also are concerned that the particular issues that arise in their areas might not be well represented. There is a particular concern about the FCA and ESMA, given the FCA’s inevitable consumer centre-of-gravity and the perceived problem of issues relating to proper representation of the markets in Europe. So I completely buy the need to keep this under review. I question, however, whether the Bank of England is the right body to do that. If we need to hard-bake some kind of review process into the Bill, the review ought to be done by the Treasury, because it is the Treasury that could do something about it if it is not working well.

--- Later in debate ---

[Baroness Hayter of Kentish Town]

First, I thank those who have contributed to the debate and have spoken very much, I think, in support of what I have been saying. I thank the noble Baroness, Lady Noakes, the noble Lords, Lord Flight and Lord Neill of Bladen, and my noble friends Lord Liddle, Lord Davies and Lady Cohen.

I am surprised that the Minister did not quite know what was coming. I said all this in my Second Reading speech, which I thought would be a little clue to what this was going to be about. However, I think that there is wide acceptance of the mismatch between the new architecture and what exists across the water. The Minister said that there were divergent voices. I do not agree. I think everyone is saying that we need to look at this issue. The noble Lord, Lord Flight, may be right that it would be better for Her Majesty’s Treasury to do it rather than the Bank of England, but that is quite a small point compared with the thrust of the amendment, which is that this matter needs to be reviewed.

This issue raises quite important questions, as I saw when I helped to regulate actuaries. Many of the rules were written down in Europe through CEIOPS, as it was called at the time. We did not have direct access to CEIOPS; we had to go to the FSA, which was our representative on it, and that made the negotiation much more difficult. Therefore, this is not an easy matter and it will be very important to review how the international co-ordination committee is coping, how effective our input is, whether what we are doing really is sustaining and enhancing the single financial market and whether we are properly, adequately and well represented on it.

The noble Lord, Lord Neill of Bladen, may well be right that a regular review is needed. We proposed a one-off review because our domestic architecture is new and it may need some adjustment. However, the Minister is right: it is an EU moving target, so it may well be that a review will be required more often.

I hear what the Minister says about the NAO looking at this and the possibility of reviews by the Treasury Select Committee. However, it seems to me that the commitment to produce the evidence should come from the Treasury rather than the Bank of England, and any of those bodies could then take a view on the information. In particular, it needs to be automatically brought before Parliament so that this House and the other place are able to opine on whether adjustments should be made.

I am very happy to withdraw the amendment at this stage but I hope that we will be able to come back to this matter to look for an appropriate way of building in a review. I beg leave to withdraw the amendment.

Amendment 96A withdrawn.

--- Later in debate ---

[Lord Sassoon]

My Lords, this is a large group of minor and technical government amendments that I hope we can dispatch very quickly. The amendments address a number of technical issues such as updating the Bill to accommodate changes in European law made since the Bill was introduced, amending some rogue references to the FSA in FiSMA, making consequential amendments to enactments that have been passed since the Bill was introduced and making other technical improvements. I am happy to discuss them, or write in more detail, if any Member of the Committee would like to discuss them. I beg to move.

[Baroness Hayter of Kentish Town]

I will just say that I am very happy to accept the assurances from the Minister that, first, these are technical amendments and, secondly, that he would be very brief in what he said today. I have tried to see whether I could speak for longer than he did. I have not been through every amendment but did look at a sample. Each one I sampled was, indeed, technical and minor.

Amendment 101ZA agreed.