Financial Services and Markets Bill (First sitting)

Craig Tracey Excerpts

Committee stage
Wednesday 19th October 2022 Public Bill Committees

[Stephen Hammond (Wimbledon) (Con)]

I guide the Committee and witnesses to my entry in the Register of Members’ Financial Interests.

[Craig Tracey (North Warwickshire) (Con)]

I chair the insurance and financial services all-party parliamentary group and am a former insurance broker.

[Peter Grant (Glenrothes) (SNP)]

I have money saved and invested with Nationwide building society, which has submitted evidence on its own account. I am also with a credit union that I believe is affiliated to the association of one of the witnesses.

--- Later in debate ---

[Tulip Siddiq]

Q I was referring to provisions in the Bill relating to net zero—as you say, it is not direct—but I hear what you are saying. I have a similar question for you, Karen. How should the regulators’ new secondary objective on long-term growth take account of investment in green industries, which is what Charlotte was talking about?

Karen Northey: Again, I would highlight that the UK is a centre for green finance and has done very well in it. It is a big part of what our members do. For risk management, investment managers have to take a long-term view, and that long-term view, by its nature, has to take into account climate change. Additionally, they play a huge role in directing finance towards transition, so there is a dual role for our industry.

In terms of a competitive and growth objective for our regulators, I agree with Charlotte that the regulators are generally doing a very good job. One of the key things in green finance is international standards and compatibility between them. There is a cross-border element to all forms of capital movement and investment, and alignment with international standards, so taking into account what is happening elsewhere is a key part of a regulator’s activity, particularly in green finance.

[Craig Tracey]

Q I think Charlotte partially answered my first question, which was about whether you think the objective should be a primary or secondary one. Karen, I think you said that you were happy with it as a secondary objective. First, do you think it will be enough to shift the culture of the regulator as a secondary objective? Secondly, when the FCA gave evidence it was unable to say, at this stage, what its key performance indicators or metrics would be; in the interests of helping it to form its opinions, do you have any views on that and how it could be effectively reported?

Karen Northey: On your question of whether the secondary objective is enough to change culture, I think an objective is necessary but I do not think it is sufficient—so it is necessary but insufficient. Culture absolutely has to follow. What we do not want is for it to be a check in the box when you are making a new rule for the handbook—“Yes, it will contribute to this.”

There does have to be an overall culture change, but to do that you do need the objective. I think that a lot of the ideas put forward this morning by TheCityUK around, for example, disclosure and transparency reporting on exactly how the objective is being met in each decision, will be key to that. I think we will continue to work with our regulators on that, as we currently do, but we would definitely encourage more transparency and disclosure around how individual measures are meeting that secondary objective.

[Craig Tracey]

Q Let me follow up before Charlotte comes in. Where do you see Parliament—not just Government but Parliament—sitting in that process?

Karen Northey: Parliament plays an important role. If I think of the various roles that, for example, the FCA plays as a rule-maker or a law-maker, as well as in supervision and enforcement, we are specifically talking about the rule-making function of regulators, which will be significantly increased. European directives are created through a process of Parliament, as well as through the Commission and Council, so if the regulators are taking on those responsibilities, it is important that Parliament then also plays a significant role in holding them to account. These are quite significant powers coming back from Europe and Parliament has a legitimate and important role that to play.

One important thing, from our perspective, is that that review and that holding to account of the regulators when they are being reviewed must be sufficiently well resourced and have access to sufficient expertise. Certainly our industry—I know this is true across financial services more generally—is willing and available to provide and help with that expertise, as appropriate. I understand that there are balances that need to be made, but ensuring that level of expertise is important, because there is a lot of this regulation and it is also very technical and across lots of different areas. Parliament absolutely has an important role to play and will need the resources and expertise to do that.

Charlotte Clark: My response is pretty similar. Part of the reason for arguing for the primary objective is that a lot of our experience is coloured or shaped by the debate around Solvency II. The Government proposed three objectives for the review of Solvency II. One was around a vibrant industry, the second was around policyholder protections and the third was around investment—getting investment in infrastructure, net zero and those sorts of things.

I would say that the regulator is still very focused on policy holder protection. While no one would want to undermine that—financial stability is the absolute bedrock of everything—it is a necessary but insufficient condition for everything else that needs to happen with regard to investment and growth. That is part of the reason why we have argued for the importance of a primary objective: that culture shift is needed. Could it be done through a secondary objective? I hope so. It is about whether there is the right reporting and the right accountability and whether the challenge is there.

These are very complicated issues. This is the joy of discussing Solvency II—I apologise if I have inflicted that on any of you. These are very complicated issues and it is very difficult to get that wider challenge. Those people who embed themselves in this day to day can slightly overrule things, rather than find a balance for the way these things are implemented.

[Craig Tracey]

Q I have a final question. How much of a barrier to investment is the current regulatory framework? We have heard about the time that it takes to get regulated, and the insurance and financial services all-party parliamentary group has had reports on the cost—that it is up to 14 times more expensive to be regulated in the UK. How much of a barrier do your members see that as? Will the Bill help to address it?

Karen Northey: I think that is a barrier. Previous conversations have covered authorisations of individuals and firms. If there is something unique in our sector, it is that our products also need to be authorised—the funds themselves need to be authorised. I mentioned the examples of Ireland and Luxemburg as key competitors in fund domicile: in Ireland it is possible to have approval for a fund within 24 hours. The FCA target is a month, but that does not always happen. There are definitely instances where in-depth review is important—we want to make sure that funds are meeting obligations—but sometimes they are very similar to previously authorised funds, run by managers who have a long history and so on. Definitely when it comes to fund domiciles it is something that is considered as important.

I know that the Bill focuses a lot on bringing EU legislation back, which is absolutely essential in terms of targeting certain areas so they are more fit for purpose for the UK market, but there are other areas of reform that are more homegrown that have led to challenges for our members in terms of our international competitiveness—the consumer duty was mentioned, for example, and there is the financial services compensation scheme and a number of others. It is not the only factor in making a decision, but it is definitely a factor.

Charlotte Clark: Similarly, I cannot recall a new insurance company being set up in this country—certainly not in the last 10 or 15 years. They are being set up in Gibraltar, Bermuda and other places where there is equivalent regulation. There is something about how we attract it, do it quicker and ensure that people feel that this is a good place to do business.

I will make a broader point with regard to investment and slightly contradict something I said previously about net zero. One of the things we talk about is that it is harder to invest in a wind farm than it is in coalmines. Those sorts of regulatory barriers need to be changed so that we are investing in the right things for the UK economy, particularly when it comes to net zero.

[Emma Hardy]

Q Karen, I wonder whether you heard the back and forth between me and Sheldon on financial inclusion. What are your thoughts about introducing a “have regard” provision for the FCA on financial inclusion? What else could be done through the Bill to strengthen financial inclusion?

Karen Northey: Financial inclusion is probably not relevant to our industry, in terms of access to bank accounts, but financial wellbeing is critical to our industry, in terms of how money is invested for the long term—particularly later in life—for individual investors. Three quarters of households use an investment manager through their pensions, for example, so it is about making sure they get the most out of their investments.

We have suggested that you address as quickly as possible the advice-guidance boundary. That might sound quite technical, but there are a large number of individuals who simply do not get financial advice because of the way the regulations work at the moment. We are encouraged to hear that the FCA fairly recently announced a comprehensive review of the advice-guidance boundary, but there are definitely things that can and should be done around enabling more people to get help, whether that be more bespoke guidance—there is lots of technology and innovation that will help without giving regulated advice, which absolutely should be the bedrock of complicated financial planning—or simplified advice. In terms of financial wellbeing, that is something we would like to see.

Financial Services and Markets Bill (Second sitting)

Craig Tracey Excerpts

Committee stage
Wednesday 19th October 2022 Public Bill Committees

[Tulip Siddiq]

Q Andrew Bailey wrote a letter to the Treasury Committee in July, which I am sure you are aware of. It stated:

“Anything that would weaken the independence of regulators would undermine the aims of the reforms”

implemented by the Bill. Do you think he was referring to the proposed intervention powers?

Sir Jon Cunliffe: There has been a lot of discussion. There was discussion in the consultation about a number of aspects that might affect either the independence or balance of the regulators. I know there was a discussion on the competitiveness objective, and we think it has been drafted in a very sensible way. That came up in the consultation. At that point there was also talk of an intervention power, so it would apply to that as well, I guess.

[Craig Tracey (North Warwickshire) (Con)]

Q You mentioned credible regulation before, and I do not think anyone would argue with that. There seems to be a need to have proportionate regulation as well. The FCA confirmed in its evidence that it saw the Singapore regulation as robust, which was good to hear because, on things like insurance-linked securities, they took our regulation, but, because they have this competitiveness duty, there have been 18 new firms set up in Singapore as opposed to five here. That is about $700 million-worth of business. It seems to suggest that the competitiveness duty needs to exist. Do you accept that there are areas where we could do better and we could be more proportionate in how we regulate, particularly where we deal with more sophisticated customers?

Sir Jon Cunliffe: I should say at the outset that our responsibility is the prudential regulation. The FCA deals with a different market. On the prudential and infrastructure side that I deal with, there is not a huge amount of commerce with Singapore. Would I accept that the competitiveness of our financial sector relative to Singapore’s in the areas that I deal with has been damaged? No, I do not think I would. I do not know of any examples. I think the firms that you quoted were in the FCA area. The competitiveness of the financial system depends on many things. It depends on our openness to migration. One thing you hear most from international banks and the like is the overriding importance of getting the best talent. That is a huge advantage for the UK, which has been called into a little doubt recently, but I think is now being re-established.

The taxation regime plays a role, and then there are lots of things about the attractiveness of the location for people to live in. On making a comparison between two financial centres on how many firms have started one and how many firms have started another, and assuming that all of that is to do with the way regulation is designed, I would be careful about making comparisons on that basis. There is a lot more in it.

I will bring it back to my area if it helps. When I look at the technological changes that are coming, and when I look at the European Union, which is where we were, and look at areas where I know we have not had the flexibility to design the regulation that we would have wanted to design—there are pros and cons to being in the European Union, and we can argue about those—you have to be within a single market where the rules are pretty much set for everybody. On the rulebook as we have it now and instances where people have said, “We don’t like that part of the rulebook. We will set up somewhere else”, I do not have any instances where that has happened, but it probably has.

As these powers, which are now coming back to the UK and I think rightly coming into the regulator’s rules, are exercised, where does the regulator put the balance? What is the scrutiny of the regulator? Is there accountability? In the end, those decisions, if I can encapsulate it, lie in the way the Bill has been set up with the primary and secondary “have regards”, and those arrangements should ensure that we are competitive in future.

[Craig Tracey]

Q On the technological side of it and the flexibility, do you think there will be a culture shift as a result of the Bill to try and encourage the regulators to be more nimble and flexible?

Sir Jon Cunliffe: With the greatest of respect, I do not think I need my culture shifting, within the regulatory framework that we have at the moment. I have made a series of speeches on new technology and the benefits that new technology can bring and the importance of that, so I would not regard myself as in that position. Others might have a different view and are obviously entitled to it, but I certainly would not accept that, if I can make that point clear. You can look at the published statements of the Bank of England and the speeches we have made.

We welcome schedule 6 of the Bill because it will give us the powers to put in place a regulatory framework for stablecoin and digital assets used as payments. I would argue, because I hear this from lots of the fintech community in London, that they want a regulatory framework. They do not want a system where the public think, “This is unsafe. What happened to Terra and LUNA could happen to me. I could be scammed. I am betting in an unfair casino.” They actually want a regulatory system. They want it to be designed to recognise their technology.

There will always be tension between where we put the risk cursor and where the private sector would like it to be put. That is a discussion we have to have. The importance of this Bill is that it will give us the powers to get on and do it. I do not think I would accept the criticism that our culture is anti-innovation and inflexible. We need the powers and the tools to do that job and that this Bill will give us them.

[Martin Docherty-Hughes (West Dunbartonshire) (SNP)]

Q It is good to see you, deputy governor. In June this year, at the annual lecture of the Bank for International Settlements, the former Governor of the Bank of England —who I believe is your former boss—said in relation to stablecoin, the adoption of cryptocurrency and the concerns about systemic crises:

“In baseball, it’s three strikes and you’re out. In cricket, it’s only the equivalent of one. For systemic payment systems, one is too many. If that means, as it must, very rigorous oversight and rules for private stablecoins, what would then differentiate them from CBDCs?”

First, could you answer the former Governor’s question—what then does differentiate them from a central bank’s digital currency? Secondly, I am glad to hear you rightly say that the industry wants good regulation; is this regulation rigorous enough to enable that to happen?

Sir Jon Cunliffe: I do not normally contradict my ex-colleague and boss, Mark Carney, but I would say a number of things. On the landscape, let us be clear about what we are talking about: we are not just talking about new forms of payment systems; we are talking about new forms of money. Most of us do not realise it, but when we use our credit card, phone or cheques—if we use cheques—we are exchanging private money, which is our deposits at commercial banks. What these stablecoin proponents propose to do is create a new settlement asset—that is, a new form of money—to be used in transactions. I think that is why Mark said that when a payment system—the money going through it and the mechanism for transferring it—breaks down, then one of the basically essential services in the economy, like water or electricity, breaks down and transactions cannot happen. So you do not get one strike: if the payment system goes down, people cannot transact at scale. This is fundamental infrastructure, if I can put it that way.

The money that travels through these payment systems is also fundamental to society. It needs to be robust and safe, and history has lots of examples of what happens when people lose confidence in the safety of the money they are holding and transacting. That is why these things are crucially important. However, 95% of the money that we use in our economy is not public money from the Bank of England but private money from commercial banks, and I do not see, a priori, a reason why a new form of private money could not emerge using different technology in the way that stablecoins have proposed. What I will say, and the financial policy committee at the Bank has said this very clearly, is that the money that they use and the transaction machinery that they use must be as robust as the money we are using from commercial banks or the Bank of England. The public should not need to think, “Which money am I using?” It should all be one money of equivalent value.

I think there is a world in which you have a CBDC, stablecoins, commercial bank money and Bank of England cash, which we will produce as long as anybody wants it, and those things are interchangeable and people use them interchangeably—we use the moneys of different banks interchangeably now—but the regulatory system has to be strong and make it very clear that if what you are offering is a better service, an innovation, that is fine, but if it works because it operates to a lower standard, that is not fine.

--- Later in debate ---

[Siobhain McDonagh]

Q To both our witnesses, do you agree that there is a societal duty for the Government to ensure that the most vulnerable people in our society have free access to cash?

Natalie Ceeney: Yes, I do. The one thing I would say as you consider the drafting is that the Bill covers small businesses as well as consumers. Small businesses, typically, via their contracts, pay for their cash access. As you draft amendments, limiting that to retail consumers is going to be important. I do not think that there is any appetite for banks to want to charge for cash access, so I do not think that you would get any opposition to putting that in the legislation or empowering the FCA to take it through to regulation.

Martin Coppack: There is absolutely a need for this. Bearing in mind today’s audience, I did a bit of research and looked at the poverty premium at a constituency level for different MPs. It might surprise you to know that a typical parliamentary constituency loses £4.5 million a year in terms of the poverty premium. That is money that could be going into your constituents’ pockets. We have linked that to research that shows that the poorer you are, the more likely you are to spend that locally. The reason I am talking about this point right now, as well as it costing £2.8 billion across Great Britain, is that the poverty premium very much exists for people trying to access cash.

If you lived in, let us say, the Conservative constituency of Vale of Clwyd, people are paying about £40,000 to access their own money. If, for example, you were in Kingston upon Hull West and Hessle, you would be paying around £70,000 to access your own money. Say you lived in the SNP constituency of West Dunbartonshire —I cannot say it; I should have practised that before I came—people are paying £64,700 in that constituency to get access to their own money. I hope that is a good representation of why we need to tackle it.

[Craig Tracey]

Q Martin, as you alluded to, you gave some powerful evidence to our all-party parliamentary group last year on the poverty premium, which I think was off the back of a report from the FCA that said there were about 27 million people with characteristics of vulnerability. I think most of those were around buying insurance. In the last 12 months, has any progress been made? One of the areas we have talked about as much as cash machines is, when looking at things like insurance, the digital disadvantage that is a problem. There seems to be an ever-growing push to push people online. You are a former teacher, but I am a former insurance broker, and I think that the benefits of advice, in particular to vulnerable customers, should not be understated. What are you seeing now?

Martin Coppack: Unfortunately, not a lot of progress has been made. We have had numerous conversations with the Treasury, signposting to the FCA. Some days we have the conversation about how we do not have enough data, which we cannot get hold of—firms have their own data on insurance, how it is distributed and how the calculations are made—so, unfortunately, nothing can be taken forward.

We have now done a second piece of work. We did one with the Institute and Faculty of Actuaries, which agreed that there is a real positive premium issue. We are doing a second report with the Social Market Foundation, calling again for the FCA to collect the data and for the Treasury to understand how far prices are a market problem, so regulation can tackle it, or how far it is a social policy problem, so social policy makers can tackle it. However, we cannot get further than that. I have probably been having this conversation for the past 10 years. In our world, as an ex-regulator, if it does not get measured, it will not get done.

[Craig Tracey]

Do you have anything to add, Natalie?

Natalie Ceeney: No.

[Craig Tracey]

Q I have one quick follow-up. With that in mind, is the FCA the right one to have a remit for financial inclusion? If not, who should?

Martin Coppack: Importantly, when asking the FCA to do social policy, it would not allow it. What it is about is closing that complete spiral. Seventy-odd organisations have signed our call, and some firms. We are trying to close that loop so that we can have conversations about the most difficult things affecting the poorest of your constituents. That is all we are trying to do, and what I would urge you to support.

[Emma Hardy]

Q Thank you both for your work in this area. Martin, you might have heard Sheldon from the FCA earlier trying to reassure us all that we do not need to have regard to financial inclusion, and that it is all fine and there is nothing to see here. Will you elaborate? If the FCA had a “have regard” to financial inclusion, what difference would it make to the lives of people facing financial exclusion? Can you provide any examples of the interventions that the FCA could make if it had that “have regard”? What difference would it make? The FCA is saying, “It’s all fine, and we do something anyway”, and it pointed to the consumer markets—that was its answer.

Martin Coppack: Gosh, there was a bit there. Remind me if I do not get everything. First, the FCA will talk about the consumer duty and its vulnerability guidance. Neither of those touches anything to do with income. Vulnerability touches lots of things, like losing a partner or disabilities, which is great, but looking at income does not touch any of it. I have had numerous conversations with the FCA, and it is not supportive of this, but it recognises the issue, although it has not come up with an alternative.

On examples of how this would have worked well in the past—actually, I have a current one. How long has Natalie been trying to get some action here, on access to cash, before the infrastructure absolutely wilts away? It is a race against time. I was in the FCA 10 years ago, or whatever, and I saw all the letters going between Departments and the FCA to say, “Let’s not touch that. It is not in our remit.” That is a live one right now.

Past examples: the loyalty premium insurance everyone knew was an issue. It took Citizens Advice getting all its resources together to do a super-complaint to get any further on the loyalty premium in insurance. Access to basic bank accounts—Sian Williams at Toynbee Hall was going at this for years before we got any further. Those are the types of intervention that would be allowed.

On the difference at the ground level, I could go through a few more parliamentary constituencies. For example, tackling the insurance poverty premium would make a huge difference of £500 million to your constituents, James; it would make a difference of one million three hundred for your constituents, Emma. I could go on.

One other quick thing is that, when we talk to people in the community, they do not have a clue why the market is why it is. People like me can say, “Cost to serve—it’s a rational way the market is working.” But if you ring up and say, “I want car insurance,” they say, “We don’t serve you—it’s your postcode.” I have had people say, “If I cross the road in Glasgow, my life expectancy goes down by this much. The same applies in terms of my insurance going up.” People say they are lying on their insurance forms by putting different postcodes on, because they need their car because they are disabled. This is how consumers react to a system that does not work for them.

Financial Services and Markets Bill (Fifth sitting)

Craig Tracey Excerpts

Committee stage
Thursday 27th October 2022 Public Bill Committees

[Stephen Hammond]

It is a pleasure to see you in the Chair, Dame Maria, and to serve under your chairmanship. I would again guide the Committee to my entry in the Register of Members’ Financial Interests.

For many of us, chapter 3 of the Bill is hugely important because it looks at the accountability of regulators. As the Bill could hugely increase their powers, the themes that many of us explored during the evidence session—of transparency, accountability and proportionality—are fundamental. Clause 24 deals with the secondary objective. Regulation and regulatory culture are some of the biggest factors affecting the competitiveness and attractiveness of a jurisdiction.

This is not about a race to the bottom. Any jurisdiction that is not well respected and well regulated, with tough regulation and an independent regulator, will fail on the international stage. It is about ensuring the regulator’s accountability, particularly for the objective. We heard evidence from major City trade organisations last week, and Emma Reynolds from TheCityUK said to us:

“it is important that the regulators are not marking their own homework”––[Official Report, Financial Services and Markets Public Bill Committee, 19 October 2022; c. 18, Q28.]

Charlotte Clark from the Association of British Insurers made a similar point.

It is clear that there is a track record, but we must make sure that the regulators stay on track and are held to their duty regarding the new secondary objective. Amendments 46 and 47, which are fairly simple, would change “facilitating” to “promoting”. Facilitating almost implies letting something happen, perhaps through disregard. There should be active promotion of the secondary objective to remain internationally competitive. Internationally, we would not be alone in taking such action. The Swiss Financial Market Supervisory Authority is required to take particular account of the effect that regulation has on competition, innovation and the international competitiveness of Switzerland. There is a very similar objective for the Monetary Authority of Singapore, and no one anywhere will suggest that those are not well regulated, competitive international markets.

London trade bodies, such as the London Market Group, suggest that in the UK, some regulatory costs are up to 14 times what they are in other places around the world. When we look at the one-size-fits-all approach sometimes taken by the Financial Conduct Authority, it is clear that a distinction needs to be drawn. If we are not careful, the objective could be subsumed in others and forgotten. If we want London to be the global financial centre, we should have regard to the secondary objective. I want the Bill to set out more clearly regulators’ accountability for this objective, the intention, and regulators’ role regarding the objective.

[Craig Tracey (North Warwickshire) (Con)]

As ever, it is a pleasure to serve under your chairmanship, Dame Maria. I refer to my interest, which I declared at the start of Committee proceedings. I welcome the Bill, and particularly clause 24 because of its competitiveness duty, for which I have campaigned for quite some time. I would prefer it to be a primary objective, and perhaps the Minister will look into that, but if we keep it in its current form, then we have to go further for it to be meaningful. There must be proper metrics to ensure that the regulator follows up on it. For that reason, I support the amendments put forward by my hon. Friend the Member for Wimbledon.

In the evidence sessions, I was surprised to hear that the FCA was not aware of any other regulator that had a competitiveness duty. That is quite worrying. It seemed slightly detached from what our competitors are doing. We need to ensure that the FCA is pressed hard on this issue, and that there is a clear, stated objective for them to promote competitiveness in the industry. To be clear, this is not at all about lowering standards. The FCA said in its evidence that it considers jurisdictions such as Hong Kong, Japan, Singapore and Australia to be robust financial centres. They all have a competitiveness duty, so a duty of that kind can be beneficial.

Let me put this into context by giving the example of insurance-linked securities. The FCA created regulations regarding them, which Singapore then lifted—took and used. Because of Singapore’s competitiveness duty, we lost one firm midway through the process. In the same timeframe, 15 firms have been regulated there, against five in this country. The estimated loss is around $700 million. That is money out of our economy that could come our way with just this simple change.

There is a similar story on captives. We do not have any set up here. The reason cited is over-burdensome regulation. The industry agrees that there needs to be regulation, but it needs to be proportionate, and we need to ensure that it does not block investment in this country. I hope the Minister will consider the amendments and see what can be done to strengthen the measures.

[Dame Angela Eagle]

I approve completely of having a competitiveness and effective competition analysis duty being attached to the regulators, and for them to report on it annually, which would allow us to see how much they are taking account of it. I would also like them to be thinking about financial inclusion, but that comes later in our proceedings.

Will the Minister tease out a little for the Committee how he thinks the regulator can go about discharging that duty safely? We have seen some of the carnage caused by bad regulation in the energy sector, where a superficial view of competition has led to problems in that market, with companies collapsing. There is an obsession with the idea that competition is about the number of firms, whether or not they are sound. If something similar were to happen in this context, it could be even more serious and even more costly. I broadly support the aims of clause 24, but would welcome the Minister’s thoughts on how the problems and the bad effects in the energy market caused by the regulator’s misguided attempts to prove that there was competition—the trap of thinking that competition is just about the number of firms—can be avoided in this context.

--- Later in debate ---

Fifteen years ago, Sir Nicholas Stern described climate change as “the biggest market failure” we have ever seen. If we do not address nature now, we will be having the same conversation in 15 years about why we did not take the opportunity of this Bill to address it seriously. As I said, I have not tabled amendments at this point, but there is always Report stage if we do not feel that these issues are being taken seriously enough by the Government.

[Craig Tracey]

I will speak specifically to clause 26. It is really welcome that this measure has been brought forward, but I have a big worry that the wording of the clause is open to interpretation. I have therefore tabled a new clause that we will get to later. The main change is to amend the wording in the clause that the regulator has complied with the competitiveness duty, “in its opinion”. I think that is quite worrying. There is a worry that it will turn into a tick-box exercise. As Emma Reynolds from TheCityUK pointed out, there is concern that the regulator will end up marking its own homework. The regulator was not even aware that other jurisdictions had international competitiveness duties.

We should also find it concerning that Charlotte Clark from the ABI said in her evidence that she could not recall a new insurance company being set up in this country in the last 10 to 15 years, yet they are being set up in other countries, including in the EU—countries with which we have equivalence. The main reasons seem to be the time that it takes to get regulated and the cost. As my hon. Friend the Member for Wimbledon said, in some instances it is up to 14 times more expensive to get regulated here than in similar jurisdictions that are similarly robust.

I therefore think that the provision needs to be much tighter and to have some proper key performance indicators and metrics. It was good to hear the FCA say that it was looking at those, but we need to set them out clearly. The types of thing that could be in there are an understanding of who is leaving the country for other regimes and why; rule monitoring and evaluation; the level of duplication in the rulebook; the speed and responsiveness of the regulator; and our success in attracting new applicants. As I said, I have a new clause, which we will come to at the end, but it would be great if I could meet the Minister beforehand to talk this through and to see whether it can be incorporated into the Government’s thinking.

[Dame Angela Eagle]

Again, there is largely agreement about the aims of clauses 25 and 26. We are on the cusp of a complete transformation in the way our economies have to work. Sometimes, I think we do not quite understand the extent of the transformation that will be needed and the speed at which it will have to be done, given that we are so behind in our attempts to reach net zero and avoid catastrophic climate change. It really is the last few hours, in terms of the biodiversity and climate stability of the Earth, for us to be able to do this.

The scale of the required transformation is mind-boggling. Virtually every piece of infrastructure in existence in our society will have to be transformed. That will have to be done through public-private partnerships, investment to lead the market in areas where there is market failure and investment in innovation in financial services to help to provide that investment, but also through proper regulation, which is what these clauses are about. All those things have to be done in a timely way to create the circumstances for realising all the capital investment potential that will be needed to make this change happen, especially in established economies with old infrastructures, which are often the largest emitters of carbon, as it happens. All of that has to be done virtually in parallel, so that we can try to reach these important targets.

It is very important that, through these clauses, the Government have agreed to incorporate the legislative target of reaching net zero by 2050 into this part of financial services law. However, they have amended it by replacing what was there before—the “have regard to sustainable growth”—with the target. Is that the right way to go about it? By getting rid of that “have regard”, do we lose an opportunity to make progress, rather than just focusing on a future output? That is not a philosophical question; it is a practical one. Why have the Government decided to replace the “have regard”, rather than enhance it? Will the Minister reassure us that, in the context of having to retool the way we do almost everything in all our infrastructure, we could not have gone with both? Will there be the potential for people to think, “We’ll put everything off until closer to 2050,” because the “have regard” has been replaced with an end-date output target? Can the Minister justify why the Government thought that was the best approach?

When regulation is being refocused on net zero, there will be those who wish to greenwash what they are doing—I will use that phrase; the Minister understands what it means—in order to continue to attract investment and piggyback on the good will of people who wish this change to happen when, in the case of those companies, it is not happening. I suspect there is a little bit of that going on at the moment. How does the Minister envisage enforcement mechanisms and proper regulation being put in place to ensure that greenwashing is not going on everywhere? Such greenwashing would move us away from meeting the target. Not only would it be to the detriment of consumer interests; it would squeeze out more genuine activities, firms and investment if it were allowed to be too prevalent.

Financial Services and Markets Bill (Sixth sitting)

Craig Tracey Excerpts

Committee stage
Thursday 27th October 2022 Public Bill Committees

Indeed, we are not neutral actors, because as we raise the level of the regulatory burden, one of the unintended consequences, which the hon. Member for Wallasey precisely spoke about, is that we often raise the cost of accessing products, or exclude parts of society, because that increased regulatory burden means that providers sometimes withdraw from the sector.

[Craig Tracey (North Warwickshire) (Con)]

Will my hon. Friend give way?

[Andrew Griffith]

I will give way; I do not propose to speak for very long on this point, anyway.

[Craig Tracey]

I am very much in favour of financial inclusion, but we have to be careful about how we achieve it. I was an insurance broker before coming here. The reason I left was that the cost of regulation on our business meant that we disappeared from the high street. That meant that vulnerable people had less access to insurance. We see more and more access points moving out, and having to go online, so people are losing out. Does the Minister agree that, although we must ensure that we are looking after the most vulnerable people, more regulatory burdens will put up the cost and affect the availability of products?

[Andrew Griffith]

I thank my hon. Friend for that intervention. He put it far better than I did, bringing to bear his personal experience, but that was precisely the point that I was making.

Financial Services and Markets Bill

Craig Tracey Excerpts

Report stage
Wednesday 7th December 2022 Commons Chamber

[Olivia Blake]

The Bill is important because it presents an opportunity to set out a new, responsible and green vision for the City and financial services, but the Government are squandering that opportunity. That is why I rise to speak in support of amendments that would enshrine climate protections and harness the power of the City to act as a force for people and planet.

Let us look at the resources in that sector. Globally, privately invested financial assets are expected to reach $145.4 trillion by 2025—a 250% growth in less than 20 years. In the UK, pension assets amount to a staggering £2.7 trillion. The financial challenge for decarbonising the economy is significant. The UN has estimated that, globally, we require £90 trillion of infrastructure investment by 2030 alone. In the UK, private investment in carbon-cutting activities needs to grow by an extra £140 billion over the next five years to reach our net zero goals. We should mobilise the huge resources in the finance system to meet the existential challenge of the climate crisis. Instead, financial institutions are adding fuel to the fire, as I mentioned.

Britain is a financial giant and is the biggest net exporter of financial services in the world. I support new clause 6, tabled by my hon. Friend the Member for Hampstead and Kilburn (Tulip Siddiq), because we need a strategy for how we use that influence to reshape the system in accordance with climate priorities. However, those climate priorities are not the priorities in the Bill. Rather than making it a statutory aim of regulators to ensure compliance with our net zero aims and protect our natural environment, the Bill makes the main aim of regulation growth and competitiveness in the sector. In fact, although it is supposed to represent the Government’s vision for the future of financial services, it does not mention “nature” once. That is why I support new clause 25, which aims not for growth and competitiveness on its own, but for a regulatory regime designed for long-term economic resilience, climate safety and nature restoration.

The science is clear: complying with our net zero and Paris agreement obligations means keeping dirty fossil fuels in the ground, so we should encourage divestment in fossil fuels and put an end to fossil fuel extraction. New clauses 21 and 26 have my full support because they rightly restrict and provide disincentives for that kind of harmful investment. We need not only to incentivise fossil fuel divestment, but to ensure that investors make demands of companies on climate action.

I tabled new clauses 8 and 9 because we need to raise the bar on stewardship rules, putting ethical engagement with companies on the climate crisis and much more at the heart of investor activity. I support amendments 23 to 27 because they would reinstate the position limit rules on the kinds of awful things that we have seen relating to speculating on food and betting on hunger. We should stand firmly against that, especially given global heating.

I will finish by saying a few words about fraud. My constituents have been frustrated by the lack of accountability in the financial services sector. Some fraud victims are passed from pillar to post in trying to access justice, so I welcome new clause 1, which tasks the Government with creating a national strategy on preventing fraud. Although these will not be pressed to a separate vote, I draw the House’s attention to my new clause 26 and my amendment 20, which make clear the responsibility for reporting fraud and compensating victims. I also express my support for new clause 2, which would ensure that everyone has access to essential in-person banking services.

We need financial services that work for people and planet. As the clock ticks on climate action, now is the time to pull every lever and seize every opportunity to decarbonise our economy and society. However, the Bill has presented us with more of the same agenda—deregulation and lip service to climate goals. As the slogan goes, we need “system change not climate change.” I am afraid that without significant changes, the Bill will deliver the opposite.

[Craig Tracey (North Warwickshire) (Con)]

I declare an interest as chair of the insurance and financial services all-party parliamentary group. I welcome the Bill as a great opportunity to cement the UK’s position as a leading market for financial services.

The London insurance market alone is bigger than all its competitors combined. That is great news, but it also means that it is a target and that it has the most to lose, so it is really important that we get this key legislation right. I thank the Minister for his engagement at earlier stages; I know he is keen to make the Bill a big success, as I am, and I really appreciate the conversations that we have had.