Financial Services and Markets Bill

Bim Afolami Excerpts

2nd reading
Wednesday 7th September 2022 Commons Chamber

[John McDonnell (Hayes and Harlington) (Lab)]

I hope there will be plenty of time to discuss the detail of the Bill both in Committee and on Report, so I wish to make some general comments on my worries about where it is situated. When J. K. Galbraith wrote about the 1929 crash, his advice for the future was that people could set up all the institutions they needed to try to prevent it from ever happening again, but the greatest protection would come from memory. I therefore want to go back in time to some of the lessons that we perhaps should have learned but did not.

I wrote about the big bang in the 1980s and I can remember the concerns we expressed about a wave of enthusiasm for deregulation similar to what we see today. That enthusiasm resulted, in effect, in a casino economy. The City of London and the finance sector are the most successful lobbyists in the history of politics in this country and they are incredibly powerful. Sometimes, that results in corporate capture, not just of Governments but even of Oppositions at times. That period of enthusiasm for deregulation resulted in a casino economy that eventually resulted in a series of crashes—we endured not just 2007-08 but other crises.

I was in this House in 2007-08 and was the first Member to raise the issue of Northern Rock. I remember that in the debate after Northern Rock, the Treasury itself spoke about the “excessive concern for competitiveness” that brought about elements of that crash. I worry that we are re-inserting into legislation an emphasis on competitiveness that could override so many other issues of concern.

Here we go again. We are introducing legislation and placing in it a reliance on the structures that we established after the 2007-08 crash, particularly the FCA. I believe the FCA has been a catastrophic failure. My constituents have gone through London Capital & Finance, Woodford and Blackmore Bond. We saw the FCA’s failure to address HBOS and RBS properly, and we are supposedly still waiting for the independent review of Lloyds that was established in 2017, yet the FCA has moved not one inch to take further enforcement actions. As I have made clear on the Floor of the House, I was concerned that the FCA chief executive at the time was accused—rightfully, I believe—of being asleep at the wheel. Before we even had the report on London Capital & Finance and so on, we appointed him as Governor of the Bank of England.

[Bim Afolami (Hitchin and Harpenden) (Con)]

The right hon. Gentleman is making an important and interesting speech. On that point about the FCA, will he explain to the House whether he supports changing the regulatory structure and having one super-regulator, or something of a similar description?

[John McDonnell]

The hon. Gentleman knows where my mind is going. We instituted a regulatory review a couple of years ago, and Prem Sikka, a professor of accountancy, and a team of corporate specialists and finance specialists introduced an excellent report. He is now in the Lords and I warn Members that he will shred this legislation when it goes up there. He outlined that 40 bodies are regulating our finance sector in some way and that there is a need for consolidation and to learn the lessons of the experiences of some of these bodies so far. That job is still to be done. I was hoping that the bringing forward of this legislation would coincide with the Government’s clear recommendations on where we go on that structure and, in particular, the role of the FCA.

I am also concerned about the fact that, although we are having the debate about this legislation, we are not debating potential future threats. I am anxious that in this legislation we are not addressing shadow banking, where we have already seen elements of individual firm collapses, particularly in respect of equity firms, that could create a domino effect and then produce a significant collapse.

I am also anxious about the move away from MiFID II. That issue has been raised and was derided by some in the House. We have recently seen the evidence with regard to speculation on both energy and food prices. Of course the cost of living crisis has been caused by a combination of the breakdown of supply chains, covid and the war in Ukraine, but there is significant evidence now that these increases in energy costs and food costs have been exacerbated by speculation in the markets. This is speculation where the paper markets are distinct from the reality of commodity supply. It is not just me expressing that; it has been expressed elsewhere, particularly in the States, but also by a number of global institutions. I regret that we have not addressed that issue in this legislation. We need to hold to the MiFID II, particularly the constraints on asset holding with regard to food commodities, as I am anxious about price speculation forcing prices up.

I was critical of Gordon Brown on some of his response to the banking crash in 2007-08, but one thing he did successfully was bring the world together, and there were international meetings where we looked at a global response to these problems. I believe that we now need to look at a global response to the food and energy speculation that is taking place, which is exacerbating the cost of living crisis that our constituents are facing. In that way, the Government’s approach is lacking. We will have the discussion tomorrow about their response to the energy prices increase and the cost of living crisis. I am hoping that from that, and as we move forward, we will recognise that there is an international role to be played by this Government in bringing people together, in the same way as Gordon Brown did.

I am particularly concerned about the issue of food. The UN special rapporteur Olivier De Schutter has said that what is happening now is that people are betting on people’s hunger. That cannot be right. Anything that we do that undermines in any way our own national legislation, which is against speculation in essential products such as that, is dangerous, but if we fail to ensure that we take up our international responsibilities, we will regret that for the future, as our people increasingly confront the problems of hunger and starvation.

--- Later in debate ---

[Bim Afolami (Hitchin and Harpenden) (Con)]

It is a pleasure to speak in support of the Bill. I will not repeat what so many hon. Members have said about the excellent work of the former Economic Secretary—my hon. Friend the Member for Salisbury (John Glen)—and the present Economic Secretary in bringing it to the House, but I want to bring up a couple of specific issues that may not have come up in the debate as much as they might have.

The former Chancellor, my right hon. Friend the Member for Richmond (Yorks) (Rishi Sunak), mentioned the call-in power. There has been some criticism in the press, which may or may not have come from people within the regulators or from people speaking on their behalf, suggesting that the Government’s call-in power will somehow damage our regulatory system or that it is somehow illegitimate for the elected Government or this House—in extremis, if they feel that something is badly awry—to override the non-elected regulators in a specific area of financial regulation.

I put it on record that those concerns may be well intentioned, but I think they are wrong. It is critical that this House and the elected Government have that power over something as significant as the financial regulation of the sector that is our jewel in the crown. The sector employs millions of people, two thirds of whom are outside London. We all accept, on both sides of the House, that we should champion the sector and work with it. It is almost unconscionable that such a power does not already exist, so we should stand firm if, in the other place or in Committee in this place, Members wish to reject the call-in power. I think it is critical.

[Alison Thewliss]

The hon. Gentleman speaks with a lot of expertise in the area. Could he give an example of when the power might be used? In what circumstances might the Government want to use it?

[Bim Afolami]

Lest anybody should think I have any particular specialist knowledge, I stress that this is entirely my own view, but I could imagine a scenario in which the Government, supported by this House, intended certain changes to a regulation such as MiFID II. A strategy document might say that the intention is for a, b and c to occur, but when the regulations were drafted, that intention might not appear to come through. In that instance, it would be very legitimate for the House or the Government to say, “No, what we intend is the following, and we will change the detailed regulation in order to achieve the aim—the democratic aim, supported by the Government and the House—that we seek to achieve.”

There are a couple of other areas in which I think the Government could have gone further in the Bill, and which I hope we will consider in the coming weeks and months. The first is the bank levy. I know that this is not always a popular thing to say, but in politics it is sometimes important to say unpopular as well as popular things. When we have an internationally competitive sector, if the tax burdens of jurisdictions with which we are competing for people, for capital, for institutions or for new investment reach a point at which they are significantly, or even a little bit, less than ours—and people may find those jurisdictions attractive for other reasons—we should consider finding ways of reducing our own tax burden, which has risen in recent years. The bank levy was one of those, but it came during the aftermath of the financial crisis, which happened quite a long time ago. I think we should consider getting rid of it, in order to emphasise as much as we possibly can that Britain is still the leading centre of financial services for the world.

I am not saying that this is a panacea; far from it. The Bill contains 300-odd pages because we have a great deal to do. However, the bank levy is a tax, and if we impose high taxes on internationally mobile capital or institutions, there may well be a penalty for this country in terms of attracting those institutions. I ask the House, and in particular those on the Treasury Bench, to reflect on that point.

My second point concerns ringfencing, which the former Chancellor mentioned. When I was at HSBC—I probably should have declared at the beginning that I worked at HSBC before I came to the House, and indeed in other institutions in the City—I had the good fortune to work for quite a long time on the internal restructuring of the bank as part of a strategy of which ringfencing was a huge element. HSBC and Barclays were the two big British banks that had big consumer retail bits and big investment banking bits.

Even at that time, it was obvious to many of us that the most critical part of what we were doing in ensuring the safety of those institutions—and indeed, because they were so big, helping to ensure the safety of the whole financial services sector—was the recovery and resolution power, and not just the ringfencing aspect. While I think the review that has been carried out is very capable and very thorough, I urge the Treasury to look a bit further, and to ask whether we still need ringfencing even under the terms of the way in which it has been reviewed. Can we look again at the thresholds? Can we make this less onerous for big institutions?

Why should we do that? I return to what I said about competitiveness. If there are ways in which we can improve our competitiveness without compromising on safety, I think we should consider them.

[Ian Paisley (North Antrim) (DUP)]

Let me take the hon. Gentleman back to his earlier point about competitiveness, and the possibility of certain institutions being turned off from investing or establishing themselves, or removing themselves from the United Kingdom. Where does he think the single largest threat comes from, if there is a turn-off?

[Bim Afolami]

I would posit two particular jurisdictions. First, I think of the London stock exchange. The House may not fully appreciate the amount of capital that it has, through capital raising by means of initial public offerings and various other measures. However, we have seen a dramatic fall-off since even five years ago, let alone 10 years ago. Meanwhile, Amsterdam’s stock exchange is doing very well. I think that, although Amsterdam as a jurisdiction will never rival London or, I should say, the UK, because we have huge advantages and huge strengths, we need to consider the threat to the London stock exchange from that source.

Secondly, there is the middle east, where various jurisdictions, including some quite surprising ones—particularly Dubai—are trying hard to make themselves attractive to, in particular, capital from America and Asia, and to make themselves into a hub for some of this work. Again, they cannot rival us, but it is not necessary to match us fully to damage our competitiveness, and I think it important to bear that in mind.

[Ian Paisley]

Does the hon. Member think that that when it comes to those locations, especially the middle east, there may be an opportunity for, let us just say, funds to arrive at those destinations without being scrutinised to the same extent as they would be here in the United Kingdom? Is that a potential threat to the banking sector?

[Bim Afolami]

I do not want to cast aspersions on any other jurisdiction. It is clear that we should be proud of our own high standards. I know we will probably get to discussing illicit money from Russia later this year, as we did earlier in this Session. In this country we take action and we pride ourselves on our higher standards—that is not always the case everywhere—but that aspect of competitiveness is not a race to the bottom. This is a really important point. We can be competitive and have high standards. We should not say that the drive for competitiveness means that we drop our standards and end up with corruption, money-laundering and all the rest of it. That is not necessarily true. In this country we are proud of our institutions, proud of our sector and proud of our ecosystem, but that does not mean that nothing needs to improve, and this Bill contains a huge panoply of measures that can help to strengthen our financial services sector.

My last point is about mutual recognition agreements. These are quite dry technical things but ultimately they allow for the easing of doing business between one jurisdiction and another—for example, between the UK and Switzerland, with whom we have built a very good relationship. We should do much more of that, but we should work with the International Trade Department to ensure that our trade deals include much more in terms of services provision and not just mutual recognition agreements that are separate from that. Services trade will benefit this country more than pretty much any other country in the entire world, and we need to work with our International Trade Department, with the Foreign Office and with our international ambassadors to achieve that aim.