Financial Services Act 2021 (Prudential Regulation of Credit Institutions and Investment Firms) (Consequential Amendments and Miscellaneous Provisions) Regulations 2021

Baroness Kramer Excerpts

Tuesday 30th November 2021 Grand Committee

[Lord Naseby (Con)]

My Lords, I declare a possible interest as a trustee of the Parliamentary Contributory Pension Fund. I want to put this on the record, as we are getting wide briefings at the moment. I also have some experience of the friendly society movement as a former chairman of the Tunbridge Wells Equitable Friendly Society and two Invesco investment trusts.

I particularly draw attention to paragraph 7.8 of the Explanatory Memorandum, which is key. It says that

“the framework in its current form does not appropriately cater for the differences between credit institutions and investment firms and can be disproportionate”

and “burdensome”, et cetera. That seems crucial. It then goes on to mention the consultation that has been carried out. When my noble friend winds up, could he make it clear whether all parts of Part 9C rules have been produced and circulated to the interested parties, or not? Certainly, implementation on 1 January 2022 does not fill me with enthusiasm. It is after Christmas and less than a month away, so I hope he will say that they have been produced, and when.

I am sure that my noble friend and all noble Lords would feel that there are some deficiencies in UK-retained law. I seek reassurance that we are confident that those deficiencies have been removed.

The other dimension I raise relates to paragraph 12.3. It will not surprise my noble friends that, once again, I feel very strongly about impact assessments and statements from Her Majesty’s Treasury that it considers that the net impact will be less than £5 million and very limited. Paragraph 14.1 says that

“the number of small businesses in scope is low.”

They may be small businesses, but they are important businesses to whoever is running them—and we are talking about financial firms.

It is always helpful to have a review of any legislation, particularly legislation relating to our coming out of the EU. That may not be proportionate in the judgment of the Treasury, but I do not know how many firms we are talking about. If my noble friend has that information, that will be helpful. I suppose that if we are talking of only three or four, that may be right, but I do not believe that that is the number—from my experience in the City, from some of the presentations we have recently had and, indeed, from some of the publicity about what is happening in the financial sector at the moment.

Is my noble friend absolutely confident that those firms do not want the SI reviewed after a period? If they all say no—that they do not want a review and are comfortable—fine, but my judgment is that, in life, it is helpful to have a review at some point.

[Baroness Kramer (LD)]

My Lords, obviously I will not oppose this statutory instrument, but it raises a number of issues which need to be explored, and I shall look forward to the Minister’s response to our concerns. We raised these concerns during the passage of the Financial Services Act 2021, but they have not been alleviated.

The Act and this SI transfer significant power to set the UK rules on Basel III standards to the financial regulators accompanied by minimal parliamentary oversight. It is a crucial process and has a fundamental impact on financial stability, as it sets the capital and risk management requirements for banks and other financial institutions. The PRA and the FCA are expected to consult on their decisions, and parliamentarians can contribute to those consultations, but as no more than ordinary consultees, despite their responsibilities to the public, and can at best hope for a few comments on their points as part of the general response.

Committees of Parliament can question the PRA and FCA and undertake reports but, in practice, on only a handful of issues each year, so they are likely to be visited exceedingly rarely and probably only at a time of crisis, which is rather too late. Even the SIs offer no meaningful accountability, because they cannot be amended. This SI, with the powers it gives the regulators, will mean that the issues of Basel III, so crucial to our financial structure, will probably never again come before either this House or the other place, except through that committee arrangement, which is, as I said, pretty minimal. Perhaps the Minister will confirm that.

When we were members of the EU—I know mentioning that is not popular with the Government—basic Basel standards were implemented through EU law, where the process was open and accountable and as different as day from night from our current circumstance. Before the EU Commission proposed draft legislation, it held many conferences and public meetings involving parliamentarians; parliamentarians were engaged in briefings, expert evidence sessions and discussions with a wide range of relevant regulators and supervisory authorities; and the Economic and Monetary Affairs Committee would be involved in scrutinising the main directive and regulations by way of co-decision. With Brexit, the power has transferred from the EU, but the Government have chosen to do it in a way that essentially removes any meaningful democratic accountability. I should like to hear for the record why the Minister has chosen such a route.