Brexit: The Future of Financial Regulation and Supervision (European Union Committee Report)

Baroness Neville-Rolfe Excerpts

Wednesday 6th June 2018 Lords Chamber

[Baroness Neville-Rolfe (Con)]

My Lords, the noble Baroness, Lady Falkner of Margravine, has summarised our report with her usual dynamism and clarity. She has been a skilled and dedicated chairman and I echo the warm words from fellow members of the committee. I also warmly thank our clerk Matthew Manning, his assistant Claire Coast-Smith and our former policy analyst Holly Snaith, whom I wish very well in her career at the Bank of England. I take this opportunity to express particular regret that the noble Lord, Lord Woolmer of Leeds, is now leaving the committee. He is a wise owl. He helped me a lot in my first year on the committee, and we have benefited greatly from his contributions.

Much of the ground in the report has been covered. I think I am more in the school of my noble friend Lord De Mauley than the school of the noble Lord, Lord Liddle. I am very concerned by the risk-taker/vassal state implications of the EEA option. It is one of the key reasons why the Swiss voted against being in the EEA all those years ago, despite them having a strong financial services industry, as we do.

I am going to focus on two issues: the impact of the changes that the fintech revolution is ushering in and the future of international co-operation on standards and stability. I believe that fintech—that is, business providing financial services by making use of software and other modern technologies such as AI and blockchain—is becoming ever more important. It was pioneered by a number of small and rapidly growing firms, but is now changing the way that traditional financial institutions operate. In my view, this revolution could be more important than Brexit to the future of the sector, so we need to continue the positive climate that the UK has provided for such innovation. There is also a competitive threat: a growing fintech dynamism in the United States and indeed in Asia, especially in Singapore. We need to ensure that the UK companies retain their edge and remain at the heart of this important revolution.

So what do we need to achieve that? First, we need the right regulatory regime, as witness Andrew Bailey, chief executive of the Financial Conduct Authority, told the committee, in paragraph 42 of our report:

“FinTech, interestingly, is very little subject to regulation at the moment, and that is a good thing”.


His own contribution on fintech has been important and the FCA’s regulatory sandbox has been widely praised, as my noble friend Lord De Mauley emphasised. However, as he also said, there is a risk that EU plans to take more control in this area could change things for the worse. In particular, if we were to become a rule-taker of new controls on fintech under any Brexit deal with the EU, that would bring risks to our vibrant industry here. Perversely, the rich tech entrepreneurs would probably move outside the EU and European competitiveness would be eroded.

Secondly, fintech also needs access to talent. The biggest concern of tech entrepreneurs is to continue to attract top people. It is now clear that existing employees can stay, but a smooth and efficient Home Office system for future talent will be vital. The sector may also need to improve apprenticeships and training for locals. That is something that it should already do.

Thirdly, it needs access to capital. The majority of capital for businesses of this kind is raised privately or by venture capitalists in London. They themselves are a source of innovative finance, such as peer-to-peer lending. However, there will no longer be access to ECB funds and the British Business Bank will have to fill the gap. This was recognised in a very good session with the then City Minister, Stephen Barclay MP, who was immediately promoted. I am glad to say that the move to the British Business Bank is now the subject of forthcoming work by our committee.

Lastly, fintech needs to be able to export and to grow outside the UK. Many UK companies in the sector have set up or are setting up in Dublin, Amsterdam, Paris or Berlin. They may need a bit more government support in a post-Brexit world. More importantly, the Government’s post-Brexit focus on global Britain and on international investment is good news for fintech. Their leaders now form a significant part of overseas delegations, as I saw for myself on a visit to India last year when I was Commercial Secretary. However, the UK also has fintech agreements with Singapore, South Korea and China.

The second area that I want to highlight is the future of international co-operation on standards, stability and supervision. As our report says:

“UK regulators have been highly influential at both technical and political levels within the international standards-setting bodies”.


Indeed, I would say that this has continued throughout the history of financial services. However, the future will be different. The UK will at best have some sort of observer status in the various EU financial bodies and, given the economic importance and interconnectivity of financial services, we must hope that any free trade agreement includes arrangements for deep ongoing co-operation between the UK and the EU 27. This must include parliamentary relations, which, as I know from my own experience, have the long-term benefit of involving politicians of all parties.

The Chancellor will not be present at ECOFIN, and Mark Carney’s chairmanship of the Financial Stability Board is coming to an end. Unless his successor as chairman is also the successful candidate to succeed him as governor next year, which is unlikely, we will see a serious decline in influence. What can we do about this? I shall build on my noble friend Lord Lindsay’s comments by posing some questions. Do the Government have a plan for influencing internationally in these much less favourable circumstances? Should we second more key people to the international financial institutions that we list in the committee’s report—not only the FSB but the Basel Committee on Banking Supervision, the International Organization of Securities Commissions, the International Association of Insurance Supervisors and the International Accounting Standards Board? All are important, but perhaps most important of all is the question of whether we can use the opportunities of the G7, the G20 and the OECD to better effect in the financial standards and supervision area. We will be in a different world where new forms of influence will be important. Several of us have expressed concern on this vital issue, and I hope the Minister will be able to give us some reassurance about what is planned and indeed about resourcing, which was raised by the noble Lord, Lord Bruce.

This is an important month for the Government, and I wish the Prime Minister great success at the European Council. Britain has great strengths, including some that I have touched on in financial services. We have a stronger hand than we sometimes realise, and we should be ready to use it.