UK Infrastructure Bank Bill [HL]

Baroness Noakes Excerpts

Committee stage & Lords Hansard - Part 1
Tuesday 14th June 2022 Lords Chamber

Moved by

[Baroness Noakes]

1: After Clause 1, insert the following new Clause—
“Regulation(1) In section 22 of the Financial Services and Markets Act 2000 (regulated activities), after subsection (1B) insert—“(1C) An activity is a regulated activity for the purposes of this Act if it is an activity carried out by the UK Infrastructure Bank, a company registered in England and Wales with the company registration number 06816271.”(2) The Bank is to be treated as having been designated as a PRA-regulated activity under section 22A of the Financial Services and Markets Act 2000 (designation of activities requiring prudential regulation by PRA).”

[Baroness Noakes (Con)]

I am disappointed that so many noble Lords find the content of the UK Infrastructure Bank Bill of so little interest that they are departing this Committee.

The Committee stage of a Bill often starts with an amendment that engages the passions of your Lordships’ House and results in something close to a Second Reading debate. I am sorry to disappoint noble Lords with my rather technocratic Amendment 1, and I hope not to detain the Committee with it for too long.

The amendment seeks to bring the UK Infrastructure Bank within the regulatory ambit of both the Prudential Regulation Authority and the Financial Conduct Authority. When I raised the regulatory status of the bank at Second Reading, my noble friend the Minister told me that it would not carry out any activities that required it to be regulated by the PRA or the FCA; hence it would not be regulated by them. She also said that the Treasury would carry out the FCA’s functions in relation to the senior managers and certification regime instead. I did not find that answer very satisfactory, so I tabled Amendment 1 to probe this further.

I doubt that my amendment is technically correct, given the complex structure of FSMA, and I hope that my noble friend does not feel it necessary to spend a long time telling me about the amendment’s inadequacies: it is a probing amendment. I am keen to explore why the body dealt with in this Bill, which is called a bank and will carry out many activities that proper banks carry out, should be outside the reach of the financial regulators.

While specific activities drive whether an organisation is required to seek authorisation of the PRA or the FCA, once an organisation is within that regulatory scope, a number of broadly based obligations ensue. In particular, regulated firms have to comply with the PRA’s and the FCA’s handbooks, which contain extensive requirements aimed at a huge range of things. The SM&CR, which is dealt with in this group by Amendment 53 from the noble Lord, Lord Teverson, is just one aspect. Others include whistleblowing, risk management, outsourcing, financial crime, and systems and controls. I could go on, but my point is that a financial services body within the ambit of the FCA and the PRA is subject to extensive regulatory supervision, and this will not apply to the UK Infrastructure Bank.

The Minister said that the Treasury would be the regulators in loco for the purposes of the SM&CR, but she said nothing about the other aspects of supervision. For example, who will look at the effectiveness of the bank’s risk management systems or money laundering procedures, which might be particularly relevant given the aim to crowd in investment?

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[Lord Tunnicliffe (Lab)]

My Lords, I rise to speak to these amendments, but I will make a general point about my approach to today’s debate. I find myself agreeing with a very high proportion of the amendments. We obviously want to hear from the Minister the extent to which the Government agree with them, but it seems that the issues we will face on Report will be about which of these amendments need to go into the Bill, rather than whether they are intrinsically sensible, which I think most of them are. I even venture into uneasy territory in this group by finding myself almost agreeing with the noble Baroness, Lady Noakes, again. I put it in slightly guarded terms—

[Baroness Noakes (Con)]

I have no problem with that.

[Lord Tunnicliffe (Lab)]

The noble Baroness should be uncomfortable as well.

UKIB is not an ordinary bank, but strong arguments have been made for subjecting it to at least some of the regulatory measures under the Financial Services and Markets Act. Of course, we will shortly see a new version of that legislation and it is difficult to know exactly what it will look like. Nevertheless, there seems merit in the suggestion made by the noble Lord, Lord Teverson, that UKIB staff should be passed as fit and proper persons. It may be that the Minister is able to offer assurances that that will be the case. If so, perhaps she could write to us and outline the process in more detail.

The noble Lord, Lord Holmes, talked about the bank’s lending and borrowing powers. These are important questions at this early stage of the bank’s existence and, once again, I look forward to the Minister’s response.

--- Later in debate ---

[Baroness Noakes (Con)]

My Lords, before I move on to what I will be doing with my amendment, could I ask one factual question? During my noble friend’s response, she said that the UK Infrastructure Bank had a borrowing limit of £7.5 billion. I understand that the source of that borrowing limit is this framework document. Could she confirm that? If that is the case, I think it is going to make the status of the framework document and its interaction with the statute a very important issue for the conduct of this Committee. The question posed to her by the noble Lord, Lord Vaux, becomes particularly important for us to have a proper understanding. Will she respond on that specific point?

[Baroness Penn (Con)]

I think that the framework document sets out those limits and they are put in place, as it were, by the Treasury. That is my understanding of that interaction.

[Baroness Noakes (Con)]

I thank my noble friend for that, I think what we take from that is that the framework document needs to be well-understood in its scope and effect for many aspects of the debates in this Committee.

In relation to my own amendments, I thank all noble Lords who have taken part in this debate. It has raised some important issues, in particular those related to whistleblowing by the noble Baroness, Lady Kramer. I hope that she gets answers to the questions she has raised because they are important.

I had not appreciated that Parliament approved an exemption for the UK Infrastructure Bank last week. My noble friend did not tell me that at Second Reading, but these things pass one by when dealing with financial services regulation. We were asleep on the job when that came up, but now we have this Bill so we have the opportunity to revisit that question.

I say to my noble friend the Minister that I am not entirely convinced by the argument that, because there is no issue of protecting depositors, there is no systemic risk from the UK Infrastructure Bank, and it should therefore be exempt from the panoply of oversight and supervision banks are ordinarily subject to, whether or not they are small banks. We should not dismiss lightly the areas that have been raised: whistleblowing; the senior manager and certification regime; and financial crime. There are some very important issues which would get attention at the moment, if this were not a state-owned bank, from the FCA/PRA. Without that, nobody is looking at them. I do not think that is a very safe way to set up this bank. I hear what my noble friend says about reviewing it in 2024, but there is a question of whether it is sensible to run the risks until 2024. For today, I beg leave to withdraw my amendment.

Amendment 1 withdrawn.