Financial Services and Markets Bill

Baroness Noakes Excerpts

Committee stage
Thursday 23rd March 2023 Grand Committee

[Baroness Noakes (Con)]

My Lords, I have put my name to two of the amendments tabled by the noble Lord, Lord Sharkey, in this group: Amendments 243A and 243B, which would require the super-affirmative procedure to be used. I have not added my name to Amendment 241G. I am in complete sympathy with the call for Parliament to be able to amend statutory instruments; I pay tribute to the work done by the committees chaired by my noble friends Lord Blencathra and Lord Hodgson of Astley Abbotts. They have highlighted the dangerous shift to skeleton legislation with the resultant reliance on secondary legislation, which has inflicted great harm on Parliament’s ability to scrutinise and hold the Executive to account.

On the other hand, I recognise that this is a large issue that needs to be taken forward at a high level within both Houses of Parliament, and also of course with the Government. I do not believe that this Bill is the right place to start that process, although I do believe that we need to find a way of progressing the dialogue to find a way forward. I am of course concerned about the parliamentary processes around the many statutory instruments that will come under the powers in this Bill. The super-affirmative procedure is certainly better than the ordinary affirmative procedure, which is why it has my support.

In adding my name to these amendments, I am in fact hitching a ride on them in order to raise some wider issues about the statutory instruments that will come forward once this Bill is made law. This is an issue that should probably have been debated earlier in Committee but I have only recently been made aware of it. I have given my noble friend the Minister only a very small amount of notice of the nature of my concerns; I accept that she may not be able fully to answer at the Dispatch Box today.

The amendments focus on parliamentary oversight of legislation being brought in by statutory instrument. What I think we have not focused on is whether there will be adequate consultation by the Treasury before the statutory instruments are laid in Parliament. Many of the statutory instruments will of course be uncontroversial in the sense that they will merely recreate the EU law in a UK-based framework for the rules that will then be made by regulators.

However, it is entirely possible, as the noble Lord, Lord Sharkey, said, that the statutory instruments will contain significant changes from EU law. Clause 4, which allows the restatement of EU law, can be used to incorporate changes to the law within the huge range of possibilities that are allowed for by Clause 2(3). There is no requirement in Clause 4 for the Treasury to consult anyone at all before laying these statutory instruments. This is in stark contrast to the regulators, who have very clear statutory obligations to consult in respect of any rules they will be laying under the terms of the statutory instruments that give them the power.

In addition to Clause 4—this is the actual example that has come to my attention—the Treasury might choose to use the new designated activities power in Clause 8 to set up the replacement regulatory regime under UK law. As with Clause 4, the use of the Clause 8 power does not require the Treasury to consult anyone at all. The example that has been brought to my attention concerns the prospectus regime. I am indebted to the briefing provided to me by a partner in one of the Magic Circle law firms.

As part of the Edinburgh package, the Government published a policy note and a draft statutory instrument on how they intended to replace the EU prospectus rules. Put simply, the designated activities regime will be used to create the new prospectus regime when the existing EU law is repealed. The publication of the draft statutory instrument and the policy note was well received because it allowed those who specialise in this territory to get to grips with the proposed legal framework. Although the policy note was clear that the drafting was not final, it was not clear whether there would be a proper consultation on the new regime.

By way of background, there was a policy intent to deal with the issue of mini-bonds in the light of the London Capital & Finance scandal; that policy is, of course, uncontroversial. The Government were clear in their policy note that they intended to affect retail investors only and did not intend to cover things that were regulated elsewhere. It appears, however, that the chosen vehicle of relevant securities, as defined in the draft statutory instrument, also captures things with no likely impact on the retail market, including—somewhat incredibly—over-the-counter derivates and some loans, securities and financial transactions. I believe that this analysis has been made available to the Treasury via various players in the wholesale financial markets.

Although I understand that communications are constructive, there is a fundamental problem emerging: the so-called illustrative statutory instrument now seems to have morphed into a pre-final document on which no formal consultation will be held. This is important, given the significant widening of the reach of the proposals, well beyond the existing prospectus regime. I would be grateful if my noble friend the Minister could set out how the Government see the next steps for the prospectus statutory instrument and whether formal consultation will occur. I hope that she will be able to respond not only on the particular issue of the prospectus statutory instrument but, more broadly, on the extent to which the Treasury will consult across the range of replacement EU law when it brings that law forward.

[Viscount Trenchard (Con)]

My Lords, I declare my interest as stated in the register.

I congratulate the noble Lord, Lord Sharkey, on finding a way to amend statutory instruments. If it really is possible to change what noble Lords have always believed about SIs, that is welcome news indeed. As the noble Lord says, this procedure would be used only on the rare occasions when your Lordships’ House or another place considered it vital.

I support the noble Lord’s Amendments 243A and 243B, to which my noble friend Lady Noakes has added her name. These would create a super-affirmative category of approval process, introducing a higher bar but only after a resolution is made by either House of Parliament. I also agree with the points made by my noble friend on the prospectus directive and other matters. I support all these amendments.

--- Later in debate ---

[Baroness Penn (Con)]

The Government will make those changes only within the agreed scope set out in the Bill. That is perhaps why the DPRRC was content with the approach that they were taking.

[Baroness Noakes (Con)]

Does my noble friend accept that the specification in Clause 3 allows for very significant changes to be made? There are many heads under which the Government could fit a change in policy, and that policy change could be significant in the context of the restatement of EU law.

[Baroness Penn (Con)]

The intention is to allow for the restatement within EU law or to adapt it to a situation or circumstances within the UK. As I have said, in undertaking that work the Government will seek to undertake a combination of formal consultation and informal engagement appropriate to the changes being made. As set out in the Government’s policy statement on the repeal of retained EU law in financial services, the Government aim to balance the need to deliver much-needed reforms with the need to consult industry and stakeholders. They will take the decision on the approach to this on a case-by-case basis.

I wanted to address my noble friend’s specific question on the prospectus regime. The Government intend—