Financial Services Bill

Baroness Noakes Excerpts

Committee stage
Monday 1st March 2021 Grand Committee

[Lord Holmes of Richmond (Con) [V]]

My Lords, it is a pleasure to take part in day three of our Committee deliberations on the Financial Services Bill. In doing so, I declare my interests as set out in the register. I will speak to Amendment 136A in my name, concerning environmental, social and governance—ESG—factors.

The rationale behind my amendment is quite simple: what is the point of profit if there is no planet to spend it on? In this amendment I am seeking to look at the funds’ billions of pounds of assets, under fund managers. It would probably be helpful for institutional investors and individuals to know a lot more about those funds and where their assets are invested. It is a very simple amendment, requiring the Secretary of State to make regulations to have fund managers report on how their funds—and, indeed, all the constituent parts of their funds—stack up against agreed ESG considerations.

The reason I stated it like that in the amendment is so that there can, I hope, be a public discourse around what all parties believe should be measurable and helpful when considering the operations and activities of these funds. The SDGs are obviously important—there is a reasonable level of global agreement around them—but there are other factors specifically relevant to certain sectors or regions of the UK. There could be a public debate, whereby the Secretary of State could consider what would form the particularities of the ESG for fund managers to report on.

I do not believe that the amendment would in any way fetter the market or overstep into the market—it certainly does not seek to—and nor does it seek to direct funds in one particular direction or another. What I hope it would do is throw light on the funds to enable far greater clarity of decision-making by investors, institutional or individual, into those funds. It is in no sense seeking to control or direct activity.

I hope the Minister will accept the amendment in the spirit in which it is being offered. It would aid a greater debate and understanding of funds and their operations. In some small way, it would indicate how we can move forward and have real-time analysis of these funds’ investments using many of the new technologies available to us, not least distributed ledger technology and elements of artificial intelligence, which can instantly adopt, analyse and report on the ESG performance of any fund and constituent part of it. The power that these new technologies affords us would not have been available three or five years ago, never mind a decade ago.

I ask my noble friend the Minister to consider both the positive impact that such a requirement could have and the deployment of new technologies to achieve the objectives set out in Amendment 136A.

[Baroness Noakes (Con)]

My Lords, most of the amendments in this group are about bank capital. I believe strongly that the setting of the capital requirements of individual banks should be about prudential risk to the capital of the banks and the resilience of the financial system as whole. The setting of bank capital should not get caught up in wider policy issues.

On Amendment 28, the level of exposure to climate-related financial risk should indirectly already be taken into account in the conventional capital-setting process. Climate-related financial risk is very unlikely to be a separate risk category for a bank. It is primarily a credit risk—the risk that borrowers will not repay loans—and it does not need to be separately considered. There may need to be adjustments made to banks’ evaluation of how credit risk will crystallise due to climate change but the essential elements—calculating the exposure at default and the loss that would arise if default occurred—are already in the system.

The impact of climate change on banks is very much an emerging area. I am sure noble Lords will have heard of the so-called biennial exploratory stress test, which the major banks need to submit to the Bank of England later this year. It will focus on how these risks will evolve under various scenarios, which have not yet been published by the Bank of England.

It is pretty unlikely that climate-related financial risk would have a major impact on current bank capital because the determination of bank capital contains buffers which are derived from stress tests that focus on the next five years. Therefore, the impact of risks from climate change working their way through credit risk is unlikely to find its way into bank capital in the short term. That is why the Bank of England’s exploratory stress test seeks to understand how this will evolve over a longer period. In addition to credit risk, there may be an element of operational risk, but that too should be capable of being captured by the existing rules for the calculation of operational risk.

These points are also relevant to Amendment 42, which tries to get climate-related financial risk into credit ratings. I am sure that the credit rating agencies need no reminders about any kind of risk and I would expect the biennial exploratory stress test to be an important input to their thinking on how their ratings will evolve. But, again, this will be over time and not something that is done immediately.

Amendment 28 seeks to ensure that disclosure requirements are also taken account of in setting bank capital. It would be wholly inappropriate to include compliance with disclosure requirements in the calculation of bank capital requirements because disclosure can never have an impact on the amount of capital that a bank needs to keep. It is an extraneous consideration that should not feature in the determination of prudential capital. I have absolutely no idea on what rational basis capital requirements for individual banks could be adjusted for the climate change objectives of the Government, which also features in Amendment 28.

As the noble Lord, Lord Oates, has explained, Amendments 31 and 32 would require mandatory risk weights for exposures related to fossil fuel; namely, 150% for existing exposures and 1,250% for new funding. These are both penal and unrelated to the underlying credit risk. I accept that funding fossil fuel exploration might well carry higher risks in the future than it does currently, but that will be reflected in banks’ evolving lending policies, including pricing for risk, and in the risks that are reflected in how they calculate credit risk-weighted assets.

Risk weighting is about loss at default and these amendments are suggesting that there could be a total loss at default; that is the particular implication of the 1,250% risk weight for new exploration. Neither assumption is realistic. Banks do not lend in situations where default is likely or total losses will occur, and I did not understand the reference to 100% equity funding in the explanatory statement: banks lend money; they do not make equity investments in the companies with which they deal.

In general, corporate borrowing is not linked to specific activities. At the weekend, when I was at home thinking about what I was going to say on these amendments, I found a copy of Shell’s most recent accounts, which I looked at to see how its balance sheet was made up. Most of Shell’s debt is in generic corporate bonds, rather than for specific activities within Shell. Like other major oil and gas companies, Shell has a mix of activities, including those which the green lobby will approve of.

As drafted, by reference to

“exposures associated with the funding of existing fossil fuel production and exploitation”,

the amendments are probably ineffective because lending is not likely to be hypothecated in the way the amendments assume. I should also say that Shell, as a corporate borrower, currently has long-term credit ratings of A+ and Aa2, which imply a low risk of default and therefore a relatively low likelihood of loss needing to be taken account of in the way that assets are risk weighted.

Even if these amendments were drafted in a way that was effective and made sense, I suspect that the only real-world impact would be that debt financing for oil and gas companies would be driven out of the London market. Why on earth would we want to deprive the City of London of relatively low-risk, profitable business?

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[The Deputy Chairman of Committees (Lord Russell of Liverpool) (CB)]

The noble Baroness, Lady Neville-Rolfe, has withdrawn from this group, so I call the next speaker, the noble Baroness, Lady Noakes.

[Baroness Noakes (Con)]

My Lords, various amendments in this group address different aspects of small and medium-sized banks and other financial institutions, and I am not opposed to having more and different banks in the financial system. Indeed, anyone who has had a bad customer experience with one of the major banks, as I have in the past year, supports more competition and choice. However, I sound a note of caution: we have to be very careful not to send the regulators down a path that could lead to poorer outcomes for consumers.

I am always reminded of the history of building societies, the number of which has shrunk dramatically over the past 100 years or so. These were often small and regionally based, and the numbers have reduced for two main reasons. One reason for this was obviously the liberalisation measures which allowed a number of them to demutualise—one of the more recent trends—but, over time, the other reason was that these were small organisations which were often not managed particularly well and had insufficient financial resilience, and they often had to effectively sell themselves to other building societies in order to protect members when things went wrong.

Against that background, regional banks, as suggested in Amendment 126 in the name of my noble friend Lord Holmes of Richmond, are, in my view, unlikely to be a panacea. It is less than clear that the failure of a regional bank could easily be prevented in the current regulatory environment. I do not oppose the report that he suggests but I am a bit of a cynic when it comes to seeing that as a useful way forward.

I particularly want to speak to Amendment 91 in this group, in which the noble Baroness, Lady Kramer, has suggested restricting access to the term funding scheme if it is not then available for onlending to other banks and providers of finance. I accept that there may be an element of protectionism in the large banks that have access to the term funding scheme not wanting to share that advantage source of finance with other lending institutions. But the scheme suggested by the noble Baroness, Lady Kramer, would require the major banks to accept the credit risk of dealing with these smaller organisations without any ability to price for that risk. These organisations often struggle to raise equity capital, for good reason: they carry higher risk, they are often not profitable, and they do not all survive.

It seems to me that if the Government think it is a good idea to fund more lenders at preferential rates in order to fund the various lending schemes that have been introduced, they should instruct the Bank of England to vary its lending criteria for the term funding scheme. At the moment, it is restricted to those with access to the discount window facility. It would not take too much to get that changed, without trying to distort the lending decisions of the major banks. If the Bank of England were unwilling to assume that risk itself, it would be open to the Treasury to underwrite it for the Bank, without distorting the decisions made by the banks that do take term funding scheme finance.

[Lord Naseby (Con) [V]]

My Lords, I will speak to Amendments 29 and 126. Amendment 29 adds a hugely important new clause, clearly positioned by the mover, the noble Baroness, Lady Bowles, to whom I pay tribute.

By way of background, I have been involved in the mutual movement nearly all my life. My parents were active members of a co-operative. I bank with the Co-operative Bank. I have been politically involved since the days when I was leader of the London Borough of Islington, for some three years from 1968. I entered the Commons in 1974 and took an interest in debates from then onwards, becoming a non-executive director of the Tunbridge Wells Equitable Friendly Society in the 1980s. When I left the Commons in 1997, I became chairman of this society, the trading name of which was the Children’s Mutual. We built up a leading position for the child trust fund; to my deep regret, the Government of the day decided to end that fund. Finally, I had a Private Member’s Bill in your Lordships’ House, which became the Mutuals’ Deferred Shares Act 2015. So, I reckon to know a little bit about the mutual movement.

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[Baroness Noakes (Con)]

My Lords, having been a director of a regulated bank for most of the last decade and therefore on the receiving end of regulation, the idea of a skilled person review of the regulators is immensely attractive.

The concept of a skilled person review appears in FiSMA as one of the regulators’ tools to be used when investigating the organisations they regulate. It was not used a great deal by the FSA, but over recent years skilled person reviews have become the weapon of choice for the PRA and the FCA, as the statistics given by my noble friend Lord Trenchard bore out. They can be effective tools for the regulators to get to the bottom of issues in individual institutions, but they are also very expensive and usually incentivise the skilled person to extend the work into later stages and wider remits. They can also be highly contentious, especially when the selected “skilled person” turns out to be less skilled than is needed for the task.

If there are to be skilled person reviews of the regulators, one thing that should have been included in subsection (3) of the amendment of the noble Baroness, Lady Bowles, is the use by regulators of their powers under Section 166 of FiSMA and more generally the provisions under Part XI. That could usefully be added to the list of items she has set out in proposed new subsection (3).

I was concerned that “skilled person” is not defined in the amendment—it is in FiSMA, but not in a way that would read across to this amendment. There also seems to be some confusion over whether a skilled person is involved or a body set up for the purpose, as seems to be suggested in subsection (2).

More substantively, I do not believe that a person nominated by your Lordships’ House and the other place should have any part in the conduct of such a review. I am not suggesting that there are no Members of either House who would have the skill to contribute to such a review; rather, I do not believe that Parliament should get involved in carrying out a review. Parliament should concentrate on its outcome, not its execution. I am also concerned that such a review could end up being a political football, given that proposed new subsection (3)(i) allows Parliament to request the inclusion of any matter in the review. The amendment is also silent on whom any report is to be made to and how it would interface with Parliament and its processes; for example, whether it is to be laid before Parliament or considered in any particular way.

I am sure my noble friend the Minister will not accept this amendment. However, if he does not, I invite him to explain to the Committee how the Government are satisfied that the PRA and the FCA are effective and fit for purpose, as it is not obvious that they are. If they are not, this makes a bigger case for bringing in some mechanism for an external review of the regulators to inform Parliament’s understanding of how well they discharge their responsibilities.

[Lord Sikka (Lab) [V]]

My Lords, I congratulate the noble Baronesses, Lady Bowles of Berkhamsted and Lady Kramer. I am delighted to support their suggestion for reform.

Last week, a number of proposals for arresting regulatory failures were put forward, each offering to help the regulator—what I call “acting as a guide dog for the watchdog”. This is another proposal which has considerable merit. It builds on the notion of an independent skilled person review, a practice that is already well established to some extent. However, in the details of the amendment, it differs from the conventional notion of a skilled person review in focusing on systemic factors rather than individual cases. These include matters relating to internal controls and operations, regulatory parameters, effectiveness, treatment of whistleblowers, public policy objectives and, more importantly, matters of public concern.

Although the amendment does not explicitly say so, I am sure that the noble Baronesses, Lady Bowles and Lady Kramer, would not be opposed to the independent skilled person review being conducted by a panel of retired judges; that could be feasible. The review in any case should be in the open, take evidence on oath and require the production of key documents from producers, consumers, intermediaries and other key parties in the finance industry. The panel could travel to different parts of the UK to take evidence and report within a specified period, like the Australian royal commission that we heard about earlier.

The main aim of the inquiry would be to focus on systemic problems, get to the bottom of the recurring and unresolved scandals in the industry, enable consumers to share their experiences with the industry and its regulators, and facilitate the legislative changes needed to secure confidence in the industry. The proposed review would be a necessary step to bring about a much-needed change in organisational culture and a sense of personal responsibility and accountability in the regulatory bodies, as well as the industry.

The proposed review and its specified headings of “regulatory perimeters”, “public concerns” and “effectiveness of relevant legislation” can also focus on neglected and emerging issues. A good example of issues totally neglected in the Bill, and by the FCA and PRA, are those about the impact of shadow banking. The shadow banking sector is intertwined with retail and investment banks, insurance companies, pension funds and others, and any crisis there is bound to have a huge impact on the rest of the economy. The sector could be worth nearly $117 trillion, far bigger than the world’s GDP; it is lightly regulated, and normal prudential rules do not apply to it. I remind the Committee that the 2007-08 financial crash was triggered not by mass withdrawals of bank deposits by savers but by the inability of Lehman Brothers and Bear Stearns, key players in the shadow banking system, to meet their contractual obligations arising out of speculative gambles. So there is an urgent need for an independent review; that is what we should be aiming for.

I want to reply to a couple of comments made earlier. The noble Viscount, Lord Trenchard, and the noble Baroness, Lady Noakes, referred to the issue of costs. As the noble Lord, Lord Desai, pointed out, the biggest cost is associated with the status quo, which has never been cost free. Over the months and years I have spoken to many victims of bank frauds who have lost their homes, businesses, savings, investments and pensions. All that any review panel or committee has to do is talk to them, and they will soon understand that there is a cost associated with the status quo.

The second point was the question of where on earth we would find these skilled persons. It is a sobering thought that it is not the skilled persons who told the world about any of the frauds or scandals. Journalists and ordinary people have been far more aware of what is wrong, and I am quite happy to trust their judgment to tell us what is wrong with the system, rather than having a very legalistic explanation.

I hope that in his response the Minister will now tell us how the Government have weighed up the evidence of systemic failures of the FCA and what assessment they have made of the impact of such failures on people’s lives. So far, Ministers have not supported any proposals for assisting the regulators or put forward any suggestions. Maybe the Government plan to appoint a royal commission or an independent public inquiry under the Inquiries Act 2005, or something else. It would be very helpful to know whether the Government are content or not content with the current state of affairs in the finance industry.

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Moved by

[Baroness Noakes]

44: After Clause 15, insert the following new Clause—
“Continuity of contract
If the FCA exercises one or more of the powers under Article 23D of the Benchmarks Regulation in respect of a benchmark, any reference to or description of that benchmark in a contract, security or instrument must be, with effect from the date of such exercise, interpreted as a reference to or description of the benchmark as modified by the FCA under its powers under Article 23D.”Member’s explanatory statement
This amendment would ensure that if the FCA revised a benchmark under Article 23D (inserted by Clause 15) there would be continuity of contract by replacing references to the earlier benchmark with the revised one.

[Baroness Noakes (Con)]

My Lords, in moving Amendment 44 I shall speak to Amendment 45 in this group. I am grateful to the noble Baroness, Lady Bowles of Berkhamsted, and my noble friend Lord Holmes of Richmond for adding their names, especially as I had not expected to have any companions at all for these amendments, which are pretty technical and lack the sex appeal of some of the other groups of amendments.

These amendments concern what are known as tough legacy contracts in the context of the transition from Libor, which is expected to complete by the end of this year. The cessation of the use of Libor was first announced in 2017, and banks and other financial services firms have been working on transition since then. A principal focus for financial services firms has been on ensuring that new loans and other transactions do not reference Libor or, if they do, that there is legally watertight fallback language allowing the use of alternative rates once Libor is no longer available. This may sound easy, but I can assure the Committee that it has not been easy, and work is still ongoing. However, that is not the focus of these amendments, which are targeted at past contracts that reference Libor.

Despite considerable efforts, which will continue throughout this year, the industry has been clear from the outset that it is highly likely that there will be contracts at the end of 2021 which either have no fallback provisions or where the fallback provisions are effectively inoperable or would result in an uneconomic or unintended outcome. The regulators have been clear that the industry should solve this problem itself through bilateral or multilateral negotiations, and very considerable progress has been made. In particular, there is a revised ISDA protocol that will deal with the vast majority of derivative contracts. However, it is the case that not all contracts can be dealt with before the end of the year and possibly not at all, because there will be cases where there is no realistic means of proactive restructuring or where restructuring attempts fail.

The contracts in this legacy bucket are very varied. At one extreme, there are complex bonds which have multiple parties in many different jurisdictions, which range from hedge funds to Japanese retail investors. Getting agreement from all parties, which some bond documentation requires, is not feasible. At the other end of the spectrum are individual or SME borrowers who, for various reasons, such as default or dispute, may refuse to engage with the banks or lenders. The banks are particularly sensitised to the conduct issues that can arise if individuals or SMEs are unduly pressured to engage, especially in the context of the economic and health stresses of Covid-19.

The good news is that the regulators and the Treasury have accepted that there is a problem that needs to be solved, and this Bill contains some changes to the benchmarks regulation which will allow some legacy use of Libor, together with the ability for the FCA to set out how the benchmark is to be determined—the so-called “synthetic Libor”. These provisions have been widely welcomed by the financial services industry. However, the new provisions leave some legal loose ends, which I seek to address with my amendments.

Amendment 44 seeks to ensure that there is continuity of contract, so that any contracts transferred to synthetic Libor under the new provisions of the benchmark regulations are treated as if references to Libor were to the synthetic Libor. This is important, because a counterparty could well argue that the terms of the contract meant that, if Libor became unavailable, the contractual fallback provisions should be used instead of synthetic Libor. In the bond markets, I understand that this will in effect result in a floating rate bond becoming a fixed rate bond. In other commercial lending, the fallback will in many instances be some form of “cost of own funds”, the exact meaning of which is likely itself to be the subject of litigation. I understand that derivative contracts that cannot be restructured have no effective fallback language. I believe that a continuity of contract provision such as that provided in my Amendment 44 is essential to provide legal certainty for these situations.

Amendment 45 is a companion amendment, designed to give safe harbour from any legal claims. The opportunities for litigation could be significant, whether vexatious or not. In the retail and SME space there could even be a new opening for the dreadful claims management companies.

I should say that I claim no particular merit for the drafting of the amendments; I know that parliamentary counsel have their own ways of doing things, were the Government minded to accept the principle of these amendments. I have been assisted in the drafting by the International Capital Market Association and specialist City lawyers involved in its working groups. This has in turn drawn on the drafting of similar provisions by ARCC, the American Alternative Reference Rates Committee, for New York law. Given the international nature of some of the markets affected by tough legacy contracts, I believe the UK would be wise to act in a similar manner.

Since I tabled my amendments, the Treasury has issued a consultation paper on continuity of contract and safe harbour, which is a bit behind the pace but none the less very welcome. I know that the consultation period will run until 15 March; I hope my noble friend the Minister will update the Committee on how the Government now see this progressing.

The problems of continuity of contract and safe harbour cannot be dealt with by the FCA or the PRA because that is beyond their powers. The solution needs to reach beyond “supervised entities”, as it is not just banks and the like that need to be covered. The problems can be solved only by primary legislation. If we lose the opportunity of this Bill, I fail to see how the Government will be able to act, given that the deadline of the end of this year will be rushing up on us. Financial Services Bills are not an everyday occurrence —thank goodness—and it is important to understand how the Government will progress this important issue. I will be especially interested in my noble friend’s comments on how the Government see this. I beg to move.

[Lord Holmes of Richmond (Con) [V]]

My Lords, it is a pleasure to speak on this group; I declare my interests as set out in the register. It is an even greater pleasure to follow my noble friend Lady Noakes. She declared that she thought she would be a solitary performer on Amendments 44 and 45 because of their technical nature; they are certainly technical, but none the worse for it. They are absolutely necessary, as she set out. Almost irrespective of what happens beyond this point—much needs to happen—she has done a great service in throwing such a spotlight on this issue for everyone involved in this phase.

Like my noble friend, I was concerned about the seeming inoperability of many fallback positions in which various entities will find themselves. Like her, I ask my noble friend the Minister to look at that point. Similarly, can my noble friend the Minister say where the thinking is on synthetic Libor? Does she think that it is complete and that all reasonable eventualities have been considered within that construction? Alongside that, what representations has Her Majesty’s Treasury received, not least from the City and in relation to derivatives, which my noble friend Lady Noakes pointed out are a particularly sticky part of this issue?

On a previous group, my noble friend Lady Noakes described herself as a cynic—not a bit of it. She is certainly a healthy sceptic, and all the better for it.

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[Baroness Penn (Con)]

My Lords, as this debate has illustrated, when you hear about Libor it is hard not to think about the benchmark’s manipulation in the wake of the financial crisis. However, since then there has been substantial reform to the regulation of benchmarks and significant improvements have been made to the governance and controls around the submission and administration of Libor itself.

As a result of declining activity in the wholesale lending market that Libor seeks to measure, in 2015 the Financial Stability Board recommended a transition away from certain interest rate benchmarks including Libor to alternative rates based on active and liquid underlying markets. As Andrew Bailey remarked in his speech on Libor wind-down last summer,

“Public authorities and market participants … have … been working together to transition away from reliance on Libor for a number of years.”


It remains of the utmost importance that firms continue to prioritise the move away from the use of the Libor benchmark where possible. We need to reduce the number of contracts that refer to the Libor benchmark as much as possible before the agreement between the FCA and panel banks to continue submissions to Libor to facilitate this transition ends. For most Libor currencies, that is the end of this year.

However, it has been clear for some time that there will be certain tough legacy contracts that will not be able to transition away from Libor in time. In May 2020, the Working Group on Sterling Risk-Free Reference Rates highlighted the need for legislation to support these contracts. Without government intervention, parties to these contracts would be left without a means of determining contractual obligations when panel bank submissions cease, resulting in significant disruption.

Shortly after that, the Government announced their plans to give the FCA the powers to manage an orderly Libor wind-down through this Bill in a manner that protects consumers and market integrity. This includes legislation to deal with these tough legacy contracts. The UK was the first country to set out an appropriate regulatory framework to manage the wind-down of critical benchmarks, and this legislation has been very well received by industry.

My noble friend Lord Holmes and the noble Viscount, Lord Trenchard, asked about synthetic Libor. The proposed legislation does not prescribe what a synthetic benchmark might look like but allows the FCA flexibility and discretion as to what methodology change it might choose to impose. For example, the FCA could use this power to direct a change to Libor’s methodology so it is no longer reliant on panel bank submissions. The FCA has recently consulted the market on its proposed policy approach to using this power.

Turning to the amendments, Amendment 44 would require that where the FCA has used the powers given to it in this Bill to impose a change in the methodology of the benchmark, that new benchmark must be interpreted as the same benchmark in any contracts which reference the original benchmark. Amendment 45 seeks to reduce the scope for litigation where the FCA has exercised this power.

Since the introduction of this Bill, the Government have received representations from some key industry participants, highlighting a residual risk of disruption and potential litigation that they are concerned would remain even once the FCA has exercised its powers under this Bill. This risk is separate from the wider risks and impacts on markets that would materialise if the Government had not introduced legislation under this Bill, and it is this potential residual risk that these amendments seek to address. I appreciate noble Lords’ interest in this important issue and I reassure them that the Government are committed to looking at it and, if necessary, providing industry with any reassurance it needs. But I will now turn to the two fundamental reasons why we are unable to accept these amendments.

First, critical benchmarks such as Libor are widely used in a diverse range of products and contracts across the economy, so any action of the kind proposed in this amendment would affect a wide range of individuals and businesses. This must be taken into account before determining whether and how to act. As the noble Baroness, Lady Kramer, and the noble Lord, Lord Eatwell, have described, this would impact people outside the financial services industry.

Secondly, these amendments would intervene directly in private contracts, restricting the ability of contractual parties to seek legal redress were they to disagree with the imposition of synthetic Libor. I am sure that noble Lords agree that any such interference would need to be carefully considered and designed to be as narrow and targeted as possible while achieving the intended effect. It is therefore critical that the Government consider to the greatest extent reasonably possible the full range of Libor-referencing contracts and the impact any legal provisions, such as the ones proposed in these amendments, would have on parties to these contracts before deciding how to proceed on this issue.

For example, I am concerned that Amendment 45 would provide wide legal protection to parties using the revised benchmark against all forms of claim or causes of legal action associated with the exercise of the FCA’s Article 23D(2) power, as opposed to a more targeted form of legal protection. I have not yet been convinced that such a wide-ranging legal protection is appropriate, and it could have serious and significant unintended consequences.

For these reasons, the Treasury published a consultation specifically on this matter on 15 February, which is currently open for responses. This will allow us to properly consider these issues with the benefit of feedback from a broad range of Libor users. As the consultation is still open, I cannot say at this stage whether the responses provide evidence that a provision of this nature is necessary, or how such a provision should be structured, but I reassure noble Lords that the Government take this matter very seriously. Guided by the evidence gathered through this consultation, the Government will be well placed to decide if an intervention along the lines that these amendments intend is appropriate. I therefore ask that these amendments be withdrawn.

[Baroness Noakes (Con)]

My Lords, I start by thanking all noble Lords for taking part in this debate; I think all have supported my Amendment 44 on continuity of contract, and I think the noble Lord, Lord Eatwell, expressed some concerns in relation to Amendment 45, which dealt with safe harbour.

It is worth re-emphasising a point made by my noble friend the Minister: we should not confuse what happened with the Libor manipulation scandal—which was dreadful and affected not just the London market but the New York and other markets—with the reasons for withdrawal of Libor. As my noble friend has said, these were much more technical reasons regarding the suitability, durability and stability of Libor as a benchmark going forward. It is a more technical issue than harking back to the fact that it had been manipulated prior to the very significant improvements in benchmark administration that came about as a result of the benchmarks regulation.