Financial Services Bill

Baroness Neville-Rolfe Excerpts

Committee stage & Committee: 2nd sitting (Hansard) & Committee: 2nd sitting (Hansard): House of Lords
Wednesday 24th February 2021 Grand Committee

[Baroness Bennett of Manor Castle (GP) [V]]

My Lords, I thank the noble Lord, Lord Tunnicliffe, for his clear and incisive introduction to this group, and the identification of the problem of Clause 3, which I am proposing in a probing amendment should not stand part of the Bill. Amendments 24 and 25 seek to improve Clause 3 and appear to do so, but this group is crucial for debating the very issues that the noble Lord has raised. He reflected some of the concerns that I expressed in the first day of the debate: namely, that the language we are hearing from the Government and some Members of this Committee closely resembles that of 2006, most notably in the then Chancellor Gordon Brown’s infamous Mansion House speech.

Clause 3 transfers certain prudential regulation matters into PRA rules. The Treasury may by regulation revoke provisions of capital requirement regulations relating to the matters listed—a list that then amounts to a couple of pages. This Bill is often presented as primarily simply a matter of transferring and translating technical regulations from Basel and the EU into UK statute. Many of us have spent much of the last year in this Room working on just such statutory instruments. However, when considered more deeply, vesting such powers in the Treasury would seem to be a kind of discretionary deregulatory charter. It has been described to me as potentially a clause allowing Singapore-on-Thames to run riot.

I would not care to take an examination on the detail of what Clause 3 does, but I am being advised by someone who could set that exam, and I take great heart from the earlier expression of support from the noble Baroness, Lady Kramer, for this probing amendment—for Clause 3 potentially hands quite substantial discretionary powers to the Treasury to get more involved in PRA matters. It could be used to soften up or undermine the PRA. I can already predict some of the answer that I may hear from the Minister, that “Our intentions are good”. But, as we go around this merry-go-round again and again, what matters is what is written on the face of the Bill, not whatever the current Minister or Government’s intention might be.

My question, to which I would appreciate an answer now and perhaps in more detail later, is: does the Bill as currently written—perhaps improved by Amendments 24 and 25, but certainly without them—hand too much discretionary power to the Treasury and should the wording not be tightened to specify more precisely the circumstances in which the Treasury would involve itself in these matters of the PRA?

[Baroness Neville-Rolfe (Con)]

My Lords, as the noble Lord, Lord Tunnicliffe, intimated when he introduced his amendments, Clause 3 is very important to prudential regulation and the banks and financial institutions concerned. However, we must make progress with this Bill, so I will speak briefly. I look forward to the Minister’s explanation of what is intended here and why, and what the safeguards will be for those entities regulated by the PRA in terms of purpose, consultation, impact, cost benefit and so on. I do not read it in the same way as the noble Baroness, Lady Bennett of Manor Castle.

I would like to understand the competitive position. My son works in London for a French investment bank regulated primarily in Paris rather than London, under the equivalence arrangements that we have granted. I suspect that the local branch here may be part of a legal entity based in Paris. How would such an EU bank be affected by the proposed changes in Clause 3 and whatever replaces the revoked regulations? Is there a level playing field?

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

My Lords, the noble Lord, Lord Tunnicliffe, has reminded us that this is the clause where the legislation on the CRR gets waived away into rules without any legislative replacement. This follows the pattern that the Government proposed in their consultation: once there are rules from the regulators, the statutory instruments are revoked.

Paragraph 2.25 of the Financial Services Future Regulatory Framework Review states:

“The default approach would be for any retained EU law provision that is in scope of the regulators’ FSMA rule-making powers to be taken off the statute book to become the responsibility of the appropriate regulator.”


Therefore, although there may be consultations on replacement rules at the point of revoking the SIs, there are no checks further down the track, so at some time further on all the rules could be revoked too. As a practical matter, that will not happen, but it is possible that for some things big changes could happen. It is probably more of a worry when it is happening to the wider generality of financial services legislation than with standards that are underpinned by Basel provisions, but I make this point because the Minister said on Monday at the start of Committee that everything is being listened to in the context of the consultation, although I must say that his replies so far do not inspire too much confidence.

It may seem convenient to have a more flexible arrangement of having regulators doing everything and not bothering Parliament with statutory instruments, and the view being pushed by the Government seems to be that Parliament should not become too bothered by rules because they contain frightening Greek letters such as Σ that really just indicate some very simple sums that could easily be explained in a sentence. Underlying that is that there should not really be challenge, only fig leaves and what the noble Lord, Lord Holmes, called the rear-view mirror.

Even though I have no great love of statutory instruments as a measure for showing parliamentary consent, there is a qualitative difference compared with rules, and I want to flag up that this clause is where the notion that we will no longer have any firm policy against which to hold the regulator accountable is endorsed. From here on, the regulator makes the policy, and there is no policy guidance between the regulator’s rules and the simple objectives, have-regards clauses and perhaps a few generalised statements, such as supporting UK economic growth. I do not like this sparseness, and it is ridiculous to suggest that rules are constantly, rapidly needing change. That is not true and not internationally sustainable.

To some extent the Government acknowledge this, otherwise there would not be the statement in the consultation that some things may have to be put into SIs as a consequence of equivalence decisions. So other countries can measure our standards, but not Parliament. How embarrassing. I heard what the Minister said in reply to my equivalence information point in the first group today. He said that such things may have to stay out of the public domain—at least until they become a statutory instrument—but I never suggested that they be public, just that there should be some sharing with Parliament about the policy direction. I am pretty sure that the EU will take the view that regulator rules alone are not enough and are potentially too transient when it comes to such a large financial centre as London, not least when it comes to looking at the lavish use of “bespoke”, which was always one of Brussel’s most hated words because it thought, and I tend to agree, that it was tailoring cut to flatter and trick the eye. That is fine for clothes, but not so good for financial services rules.

As I want to mark resistance to this passing of all policy to the regulators so they end up held accountable only to their own rules, I support the noble Baroness, Lady Bennett, in the suggestion that Clause 3 does not stand part.