Financial Services Reform

Debate between Emma Reynolds and Mark Garnier

Wednesday 16th July 2025 Commons Chamber

[Mark Garnier (Wyre Forest) (Con)]

I am very grateful to the Minister for advance sight of her statement. There is much in these Leeds reforms—many of which were formerly known as the Edinburgh reforms—that can be welcomed, and some of the details were laid out by the Chancellor in her Mansion House speech last night.

The Conservatives will always support reforms to our financial sector that ensure that the City of London remains a global powerhouse, but the Chancellor’s rhetoric last night about growth and stability obscures the truth of this Government’s record of delivery. Inflation is now at 3.6%—the highest in the G7—and growth has all but stalled. Despite yesterday’s fanfare for reform, the reality is that having run short on other ideas, the Government are now forced to turn once again to the City of London for inspiration—a last throw of the dice, hoping that it will provide an engine for the growth that their policies are stifling.

Last night the Chancellor described her Government as a “beacon of stability”, but let us not forget the actual legacy that was handed over to her. We enjoyed near record levels of employment. Unemployment was at historic lows, and inflation was under control. That is the stable foundation on which this Government were handed the keys, yet they now preside over instability. The Office for Budget Responsibility, the OECD and the Bank of England have all sounded the alarm that our growth prospects have collapsed. The Government claim to be cutting red tape for industry, but let us remember that their plan to make work pay would in fact burden employers with over 70 new regulations, reminiscent of the 1970s.

The Chancellor’s talk of unleashing the power of the City comes even as her party threatens to smother businesses in paperwork and expense. When it comes to proposals for financial services, the Conservatives welcome much that gives the sector confidence and clarity, but warm words must be matched by careful delivery. On reforms to the Financial Ombudsman Service, there is agreement that it should return to its impartial roots as a fast and effective dispute resolution service, not a quasi-regulator, but so many business and consumers are awaiting clarity, so can the Minister confirm whether these changes will limit the FOS’s power to make backdated legal determinations, and what impact will the reforms have on ongoing legal proceedings, such as the crucial car finance case before the Supreme Court?

Streamlining the approach of the FCA and the PRA may remove unnecessary friction, but we must ensure that this does not become window dressing while critical challenges remain. The FCA and the PRA must accept that stability in the markets is not the only way to deliver growth. Both their objectives must be aligned and equally ambitious in their drive for reform.

The Chancellor trumpeted reforms to ISAs, including new rules for long-term asset funds, which we welcome if that broadens access to higher-return assets for ordinary savers, but there is still no certainty on the future of the cash ISA. Without clarity, the Government risk undermining their own ambition to promote home ownership and inclusive investment, which again was trumpeted by the Chancellor during her Mansion House speech last night.

On capital investment policy, we welcome MREL reform, which was a change I championed during the recent passage of the Bank Resolution (Recapitalisation) Act 2025. This will help challenger banks to compete and expand lending.

We cautiously welcome the Government’s review of ringfencing rules, but will they confirm that all options are being considered, including alignment with the US and the EU, which, as the Minister knows, never implemented ringfencing rules?

More broadly, the history of the last Labour Government reminds us that good intentions are never enough. The Financial Services and Markets Act 2000, introduced by the then Chancellor, along with the tripartite system, was well conceived but badly implemented, contributing to the events of the 2008 financial crisis. It falls to this Government now to demonstrate that they will not repeat those mistakes.

Finally, at Mansion House last night the Chancellor missed a crucial opportunity to be straight with the British people and rule out further tax rises. Will the Minister guarantee that working families and businesses will not face more tax increases? Will she rule out any further surprise raids on the British taxpayer?

Britain’s financial services sector has always thrived when reforms are clear. The test of these reforms will come when the full details emerge, but ultimately growth will come only when the Chancellor realises that hard-working people and businesses across the country are the real engines of economic growth.

[Emma Reynolds]

Well, half of that was all right, I suppose. I do want to start constructively and thank the hon. Member for his welcome for some of the reforms. I will answer some of his specific questions before I come to the wider points.

On the Financial Ombudsman Service, we have set out in great detail what we will do. As he will be aware, some of the changes require primary legislation. We are proposing an absolute time limit of 10 years, but with discretion for the FCA to give longer periods in the case of products with a longer lifetime. I cannot comment on the ongoing car finance issue, which as he knows is working its way through the courts.

The hon. Member talked about the regulators’ different objectives. We have been very clear with the regulators that we expect them to embed their secondary objective to facilitate economic growth and competitiveness while obviously complying with their other objectives. He will see that in the remit letters that the Chancellor sent to the regulators at the last Mansion House speech last November.

On ISAs, I welcome what the hon. Member said about long-term asset funds, which we think will unlock great opportunities for savers. We continue to consider reform to ISAs. We would like to ensure that more people have the opportunity and confidence to invest, which is why we hope that targeted support, which will be introduced by firms by the end of this tax year—we have worked at pace on this—will really shift the dial and give people that confidence to invest.

I think the hon. Member said he was in favour of what we are doing on MREL, and I know that he agreed with the Bank Resolution (Recapitalisation) Act, which we put through the House and is coming into force today. I thank him for his support on that.

On ringfencing, we have detailed which areas we will look at. I am happy to write to him further on that, but one area, for example, is sharing resources across the ringfenced and non-ringfenced parts of banks. We want to ensure that we strike the right balance between growth and stability.

I turn to the hon. Member’s points about economic stability. I will take no lessons from the Conservatives—I hate to say it. We had inflation at 11%, people paying extremely high mortgage rates and debt rising year after year. The only thing that was stable under their Government was wages, which were flatlining.

Draft Payment Services and Payment Accounts (Contract Termination) (Amendment) Regulations 2025

Debate between Emma Reynolds and Mark Garnier

Wednesday 4th June 2025 General Committees

[Emma Reynolds]

It started so well—I am slightly confused by the hon. Gentleman. On one hand he says it is as though nothing changed, and did we need a general election to get to this point? On the other hand he calls into question the provisions of the SI and what impact they might have. I will come to his questions in turn. First, there has been a big change since the election. I was not here in the last Parliament, so there has been a welcome change from my point of view and on the Labour side of the House, where we have a quite hefty majority, in case he had not noticed.

The reforms were consulted on and thought about in the last Government—the hon. Gentleman was right to make that point. We consider, as did the previous incumbents in my role and the Conservatives in government, that the current notice period of 60 days is simply not adequate for customers who have their accounts closed to either make a complaint or seek an alternative provision, and that is bad for individual customers, but particularly bad for businesses. As he set out, it is crucial that businesses and individual customers have access to bank accounts.

We do not think, although I can write to him with more evidence, that this measure will make banks more reluctant to open bank accounts in the first place. The balance that we are striking in this statutory instrument is on the one hand enhanced consumer protection and on the other hand ensuring that we do not place unnecessary and disproportionate burdens on banks and other providers—it is not just about banks; it is about other payment providers, too. We have not included a statutory review clause, but that does not mean that we cannot review the legislation. We do not judge that this provision will make banks more reluctant to open bank accounts for people in the first place.

The shadow Minister asked more broadly about access to banking services, which is something that we are monitoring. As he said, that is crucial to both the operation of a business and customers. In our financial inclusion strategy, we are looking at access to banking and the relationship between financial exclusion and digital exclusion. We are doing broader work in this area to understand not only the root causes from providers but why individuals have perhaps had their accounts closed and not sought alternative provision.

We are doing broader work on financial provision, as the hon. Gentleman knows, and we will produce a strategy by the end of the year on this vital issue. I know that many of my hon. Friends will welcome that, as well as other Members across the House, because financial inclusion is something that we all care about and this Government are very committed to. I believe that I have answered all the questions.

[Mark Garnier]

Not mine, perhaps.

[Emma Reynolds]

Sorry; could the hon. Gentleman remind me of the specific question?

[Mark Garnier]

It was to do with the assessment being done of the impact on politically exposed persons. When can we expect that report to come out?

[Emma Reynolds]

I thank the shadow Minister for that question. As he will know, changes were brought into force in January 2024 under the previous Government that ensured that domestic PEPs, as they are called, were not deemed to be on the same level of risk as non-domestic PEPs. That SI was introduced under the last Government and FSMA—the Financial Services and Markets Act 2023—committed to bringing forward that legislation.

It also committed the FCA to doing a review of so-called PEPs and debanking. That review concluded that banks were not necessarily taking the wrong approach, but it said that there needs to be more proportionate application of rules. Therefore, the FCA will bring forward updated guidance on this issue, and I am happy to write to the shadow Minister in more detail on the timing of that and what will be included.

Question put and agreed to.

Bank Resolution (Recapitalisation) Bill [Lords]

Debate between Emma Reynolds and Mark Garnier

Report stage & 3rd reading
Thursday 24th April 2025 Commons Chamber

[Emma Reynolds]

We have not come to that yet; my hon. Friend can intervene on Third Reading. [Laughter.]

Taking what I was saying into account, although the Government appreciate the point raised by the sector and by the shadow Minister, we do not believe it is necessary to hardwire in legislation a requirement to update the code of practice on this matter. I understand, however, that the mutual sector feels strongly about this issue, and my officials and I will continue to engage with the sector on it. I commend to the House our position on the new clauses and amendments, which is to resist them.

[Mark Garnier]

With the leave of the House, I wish to address one or two of the points made in the debate. The hon. Member for Hendon (David Pinto-Duschinsky) is an incredibly valuable contributor to the debate because of his experience back in the days of the 2008 financial crisis. If I remember correctly, that was largely a result of the Financial Services and Markets Act 2000, which almost compounded the problem by having a tripartite regime that looked after the banking sector at the time. If I remember rightly, the Chancellor of the Exchequer at the time found it so scary that his eyebrows nearly turned white. One of the surprising things about that crisis was that just 10 years earlier we had seen the Asian banking crisis, which basically laid the groundwork for what subsequently happened in the west. Perhaps we in the west were too arrogant to believe that it could happen to us, yet it sure did.

In my role as a member of the Treasury Committee from 2010 to 2016, and on the Parliamentary Commission on Banking Standards, I looked at all these issues very extensively. It is incredibly important that we resolve the issue. As it has turned out, the Financial Services Act 2012 and the Financial Services (Banking Reform) Act 2013 have worked well in respect of some of this resolution.

On the point about LDIs and the financial crisis as a result of the Budget, we dealt with the problem pretty swiftly and pretty brutally. When one of our leaders gets it wrong, we get rid of them fairly quickly. I suggest to the Labour party that if Government Front Benchers get things wrong, it is worth cauterising the problem and moving on.

On credit unions and mutuals, we absolutely recognise the point about the mutual sector. We are not asking for demutualisation to be ruled out; we are asking for the prospect of avoiding demutualisation to be part of that very swift process. That is why we will press amendment 2 to a Division. I met the credit unions yesterday, and they are keen that the principle of new clause 3 is voted on, so we will press that as well.

Question put, That the clause be read a Second time.

Retail Investment

Debate between Emma Reynolds and Mark Garnier

Tuesday 22nd April 2025 Westminster Hall

[Emma Reynolds]

Credit unions, mutuals and co-operatives play a hugely important role in our economy and our society. That is why the Government—as my hon. Friend will know, given that she stood on the same Labour manifesto as me—promised in our manifesto to double the size of the mutuals sector, why the Chancellor asked the FCA and the Prudential Regulation Authority to look at the mutuals landscape in the Mansion House speech in November and why we have supported the establishment of the co-operatives and mutuals council—I actually went to the first meeting. As my hon. Friend said, credit unions play an important role in encouraging savings, particularly for those on low incomes. We have also launched a consultation on whether the common bond needs to be more flexible so that more people can benefit from credit unions, and that is also in train.

Coming back to the issue of ISA reform, the hon. Member for St Albans rightly said that there has been some market volatility recently. I will not comment on the day-to-day movement in markets, but I will say—I think she was also making this point—that if people are in a position where they can invest in stocks and shares in our stock market or other forms of investment, they need to take a long-term view of that. Often, that investment gives better returns than just putting something away into a cash account.

Analysis by AJ Bell from February this year suggests that someone who put away £1,000 in an average-performing cash ISA every April since their introduction in 1999 would now hold about £34,000. If their savings had instead kept up with inflation, they would now have £38,000, so that person would have lost out on £4,000. That goes to show how inflation can reduce the value of cash savings over time. In contrast, if that same individual had decided to invest in a stocks and shares ISA, they could now have around £83,000—over twice as much as their cash savings would have been. That demonstrates that if someone has the confidence and the ability—we are not talking about everybody here—to invest for the longer term, they will most likely get a better return. We need to ensure that people have the confidence and ability to engage with investing, and thus to benefit from the financial security and greater returns that investing can often provide.

My hon. Friend the Member for Vale of Glamorgan talked about people on lower incomes. On that, I will take the opportunity to say something about the help to save scheme, which is targeted at working households on low incomes. It offers a 50% Government bonus on savings of up to £50 a month over four years. The Government announced at the autumn Budget last year that the help to save scheme has been extended until April 2027. From 6 April this year, we have extended eligibility for help to save to all universal credit claimants in work as well.

The second issue raised by my hon. Friend the Member for Buckingham and Bletchley was about financial education. In fact, most hon. Members who spoke talked about its importance. One of the major barriers to investing for consumers is a lack of support to make financial decisions. We know that only 8% of adults received regulated financial advice in the 12 months to May 2022, but guidance does not often go far enough to help consumers feel confident to make a decision. We have a big advice/guidance boundary gap. Many of our constituents are therefore not getting the help they need to make their money go further. Some keep a lot of their money in savings, losing out on potential returns, and others do not regularly review their investments, or invest in products that do not meet their risk appetite.

Together with the FCA, the Government are developing a new regime called targeted support, which would allow regulated firms to provide suggestions appropriate to consumers with similar characteristics. For instance, the regime would enable firms to suggest that an individual with substantial savings could consider opening a stocks and shares ISA. It would also enable firms to suggest options for how to generate an income from an individual’s pension pot, appropriate to consumers with similar needs. The FCA will consult on the rules that will underpin targeted support in the first half of this year. Getting those reforms right will help consumers make better-informed decisions, engage in capital markets, and ultimately to be in a position to get better returns on their savings in the longer term.

My hon. Friend the Member for Buckingham and Bletchley reflected on how financial education can help level the playing field for those from less wealthy backgrounds. I really liked how he expressed in his speech the asymmetry between those who already come from a wealthy background, where this might even be discussed at the dinner table, and those in a less privileged position, who are not aware of some of the opportunities. If they are not aware, even if they were given the opportunity they would not have the confidence to take it.

In England, the independent curriculum and assessment review is considering how to ensure that he curriculum is fit for purpose. The shadow Minister, the hon. Member for Wyre Forest, talked about the importance of financial education. I cannot give him any guarantees right now, because as he will know, although we have had the interim report of the curriculum review, we are still working through some of the details. I met the Minister for School Standards to discuss this work and to make sure that my work on financial inclusion and the work of the curriculum review go hand in hand. I cannot give him any guarantees on private Member’s Bills right now, but I can take the question back to the Government Whips, who will tell me where we are. As I understand it, the private Member’s Bill on financial education that he talked about is not due to be introduced until 11 July.

We are working with the Department for Education, and the Department for Education is working across Government on how we can ensure that the curriculum review improves financial education for our young people, which I would like to see. Indeed, it was striking that in the interim review parents and pupils said that finance and budgeting was the top area they would like to see more focus on in schools; that was encouraging.

Thirdly, my hon. Friend the Member for Buckingham and Bletchley asked for action to make it easier for our citizens to engage with our capital markets. The importance of UK capital markets was mentioned by many speakers, but particularly by the hon. Member for St Albans, my hon. Friend the Member for Vale of Glamorgan and the shadow Minister. We want to make UK capital markets as attractive as possible to retail investors. Our capital markets are already among the strongest and deepest globally. I know some concerns have been raised, but more than £25 billion of equity capital was raised in London last year, more than in the next three European exchanges combined. I am keen that we do not talk ourselves down. Of course, we must recognise challenges where they arise, but we must also recognise our strengths. We are the world’s largest international bond market, with more than 16,000 active bonds traded on our markets, representing over £4.1 trillion across 55 currencies.

We want to go further to reinvigorate capital markets to ensure that they support both UK and global growth. We are currently developing a financial services growth and competitiveness strategy, and have identified capital markets, and retail participation within those markets, as a priority growth opportunity in that strategy. That strategy will come later this year, and I am sure the hon. Member for Wyre Forest will quiz me about it in the weeks and months to come.

The Government are focused on making our markets more competitive, including by supporting the FCA’s work to reform the UK’s prospectus regime to give investors access to better quality information to support their decision making, and supporting the FCA’s proposals to cut red tape for corporate bond issuance, which will encourage companies listed on stock exchanges to offer bonds in smaller sizes to improve investment opportunities for retail investors. The Government have also legislated to enable the FCA to reform the UK’s retail disclosure regime to ensure that consumers have access to the most useful information to support their investment decisions. The FCA’s consultation has just closed and the Government look forward to seeing its final rules later this year.

My hon. Friend the Member for Buckingham and Bletchley also raised the work of the industry-led digitisation taskforce, which is looking at how we can improve the system of share ownership in this country and, as part of that work, at how we can remove all paper shares. The taskforce is currently finalising its final report—my hon. Friend will have seen the interim report—and the Government look forward to receiving it, and will respond in due course.

Finally, my hon. Friend the Member for Buckingham and Bletchley called for a fundamental shift in how we think about investing in our country. He is right to say that investing should not be for just the wealthy, or those with expertise; we need to build an investment culture that enables newcomers to invest confidently and grow their financial resilience. I want to deliver that change but I know that the Government, and indeed parliamentarians, cannot deliver that shift on our own. We need to work closely with regulators and industry and, as my hon. Friend suggests, make the case to consumers for investing. I thank my hon. Friend for outlining his proposal for how we could do that.

We are thinking carefully about these matters and look forward to working with my hon. Friend and others across the House to help build the strong investment culture that we want. As part of that work, we are of course looking at international examples; the shadow Minister mentioned the importance of that. Many hon. Members will be familiar with how Americans talk a lot about their 401(k)—or so I am told—and how Australians talk a lot about their supers. A few months ago, I was talking to a financial services senior leader who told me that when she lived in Australia, her cleaner often looked at her super on her phone, and tracked the return on her investment. I would love to see that sort of inclusive, democratic access to investment opportunities in the UK. I am not being patronising—I have a fantastic cleaner too, and I would like to see her in that position. We want to ensure that people across society get these opportunities. We also want people to engage with their pensions more closely, as I have already mentioned in response to my hon. Friend the Member for Vale of Glamorgan.

If I do not get to all the questions raised by the hon. Member for Wyre Forest then I am sure that I can write to him, or we can have a discussion after the debate.

My hon. Friend the Member for Vale of Glamorgan talked about what the Government could do to promote employee share ownership. The previous Government launched a call for evidence on the save as you earn and share incentive plan schemes. The Government will use that call for evidence to consider opportunities to improve those schemes, and I thank my hon. Friend for his interest in that.

The hon. Member for St Albans talked about advertising on social media. She will know that under the Online Safety Act 2023 large internet platforms will be required to put in place systems and controls to avoid fraudulent advertising appearing on those platforms. We also welcome Ofcom’s work to bring forward codes of practice on what actions firms should be considering. However, she is right to raise the issue as a matter of concern; the Government are concerned about it.

I have answered the question from the hon. Member for Wyre Forest about the private Member’s Bill on financial education, but I am sure that he asked me other questions that I have not quite got round to; I beg his forgiveness. I also answered his question on what we can do together to ensure that people know there are risks involved with holding cash above certain levels, and about the erosion of people’s cash savings by inflation, but if he wants to repeat any of the other questions, I am happy to respond.

[Mark Garnier]

I think the Minister has covered most of my questions, but I will review and we can perhaps have a conversation later.

[Emma Reynolds]

Such great cross-party working—do not tell anyone else about it! It is really good to work with the hon. Gentleman. I remember fondly—well, not that fondly—being a shadow Minister and having very good, if different, working relationships with the Ministers who I shadowed. I very much welcome the constructive way in which he has contributed to the debate and I look forward to Thursday, when we will debate the Bank Resolution (Recapitalisation) Bill.

I thank my hon. Friend the Member for Buckingham and Bletchley for securing this debate and I also thank all the hon. Members who spoke. It has been a very constructive and interesting debate, certainly from my perspective, and I thank all hon. Members for their contributions. The Government are determined to make the UK’s retail investing environment more attractive and to boost the UK’s investment culture, and I will reflect carefully on the points raised.

Oral Answers to Questions

Debate between Emma Reynolds and Mark Garnier

Tuesday 8th April 2025 Commons Chamber

[Mr Speaker]

I call the shadow Minister.

[Mark Garnier (Wyre Forest) (Con)]

There is a great deal of speculation about the future of the cash individual savings account. As we know, it is an important savings mechanism for many savers across the country, all of whom will be dismayed at the loss of a significant cash savings opportunity. Just as importantly, cutting cash ISAs will deprive building societies of important funds for their balance sheets, reducing the amount of capital available for the residential mortgage market. This point has been raised with me by the mutual societies. Given that the loss of the cash ISA would have a profound effect on mutuals’ ability to raise debt capital, what research have the Government undertaken to establish the extent of the damage that such a measure might inflict on the residential mortgage market, which is not just important for all our constituents, but crucial for the 1.5 million new homes that the Government propose building?

[Emma Reynolds]

I work closely with the mutuals and other financial services firms, and I think the hon. Member is slightly jumping the gun, if he does not mind my saying so. We are considering options to reform ISAs, but we need to get the balance right between cash and equities. We know that many people have investments in cash ISAs who could think about investing in our capital markets, which would be a win for them through higher returns, and also for the economy. However, we absolutely understand the role that cash savings play in people having money for a rainy day.

Oral Answers to Questions

Debate between Emma Reynolds and Mark Garnier

Tuesday 4th March 2025 Commons Chamber

[Mr Speaker]

I call the shadow Minister.

[Mark Garnier (Wyre Forest) (Con)]

The City of London has been a leader of innovation in the world of finance and savings for a few hundred years now, and it has been successful because it has always seized opportunities and innovation when presented. In that spirit, we are pleased that the Chancellor in her Mansion House speech embraced the concept of securities tokenisation, but we now find that the catalyst for this innovation in the UK—a pilot for the digital gilt instrument known as DIGIT—has found itself in a two-year black hole. Innovation is not something that can hang around for two years, so will the Minister give assurances that she will do everything she can to deliver DIGIT as soon as possible?

[Emma Reynolds]

That sounds like a criticism of the previous Government. I can reassure the hon. Gentleman that we are committed to innovation and to DIGIT.

Bank Resolution (Recapitalisation) Bill [ Lords ] (First sitting)

Debate between Emma Reynolds and Mark Garnier

Committee stage
Tuesday 11th February 2025 Public Bill Committees

[Emma Reynolds]

It is a pleasure to serve under your chairmanship for the first time, but I am sure not the last, Ms Jardine. Government amendment 1 ensures that the Bank of England will have the flexibility to use the mechanism provided in this Bill in a broad range of circumstances. It does that by removing the provision added in the other place that prevents the Bank of England from using the new mechanism in relation to firms that have been directed to hold additional loss-absorbing resources, also known as MREL, or minimum requirement for own funds and eligible liabilities. I will also speak to amendment 3, tabled by the hon. Member for Wokingham, which aims to ensure that the mechanism is used only for small banks.

I appreciate that this issue is of interest to many hon. Members, as we discussed it on Second Reading, and also to those in the other place, where it was debated. However, the Government’s position on the matter is clear: as I set out on Second Reading, the intention is for the mechanism to be used primarily to support the resolution of smaller banks. The Government reaffirmed that position in their draft updates to the code of practice to which the Bank of England must have regard when using its resolution powers, and in the written statement that my predecessor, my hon. Friend the Member for Hampstead and Highgate (Tulip Siddiq), made to the House on 15 October 2024.

The Government appreciate the intent of the amendment passed in the other place and of amendment 3, and are conscious of the intent to preserve flexibility to use the mechanism on firms transitioning towards holding their full allocation of MREL. I also appreciate the remaining key concern that, without restriction on the scope of the mechanism, the Bank of England could use it on the largest banks. I make it absolutely clear that that is not the Government’s primary policy intention. The Bank of England should always, first and foremost, rely on a firm’s MREL resources, ensuring that its shareholders and investors bear the losses, rather than turning to this mechanism.

However, having considered the matter carefully, the Government believe that it is still not desirable to limit the mechanism’s scope in the Bill. That would in effect hardwire in legislation the principle that the mechanism is unavailable for larger banks, and it is that hardwiring that the Government are concerned about. As we have seen and experienced, bank failures are highly unpredictable. The Government’s concern is that if the legislation is overly restrictive, that might mean that the mechanism is unavailable in the very unlikely circumstances of large bank failures in which public funds may still be exposed. We must remember, in relation to this Bill, that the primary objective is to protect the taxpayer. The Government consider it important that the mechanism’s use is not overly constrained in the legislation, ensuring that it provides comprehensive protection for public funds—that is, the taxpayer.

To explain the Government’s thinking on this issue in more detail, I will make three points. First, there may be very limited circumstances in which the flexibility to use the mechanism on larger firms would help to protect public funds. The largest and most complex firms are required to hold additional resources to be bailed in—known as MREL—which aim to provide a robust level of self-insurance for larger firms. The Bill’s mechanism can be used only where a firm is transferred to a buyer or a bridge bank upon failure—something that is not envisaged for a large bank, which is expected to be bailed in instead. To take the points together, large banks should therefore have sufficient of their own resources to meet their recapitalisation costs, and the mechanism is unlikely to be available for use on large banks, even with the scope in the Bill remaining broad.

However, it is theoretically possible that circumstances could emerge for which a larger bank is not sufficiently resourced, although these are highly unlikely. One example would be if the firm were subject to a large redress claim, resulting in a higher recapitalisation amount than envisaged. Another example would be if the market value of the firm’s assets changed over time. That could result in more losses than expected at the point of failure—again, resulting in a higher amount of recapitalisation. Those examples, however unlikely they may be, show that there is a clear benefit in having the flexibility to source additional resources from the mechanism, having already written down the firm’s available MREL. Restricting the scope in the Bill would prevent the mechanism from being available in these types of scenario, leaving public funds and therefore the taxpayer exposed instead.

Secondly, I reiterate that the Bank of England would first look to write down or otherwise expose to loss available MREL and would then consider use of the mechanism only if a sale to a buyer or transfer to a bridge bank were needed. Funds from industry are therefore not expected to be used to cover a large bank’s full recapitalisation amount. Instead, they are expected to be needed only for an additional shortfall over and above that which the firm’s resources could fulfil and once these resources have been written down or exposed to loss. Use of the mechanism would simply be a “top-up” to achieve recapitalisation, rather than covering all of a firm’s recapitalisation costs.

Thirdly and finally, the Government agree with the intent behind amendment 3, in that it is important for there to be sufficient safeguards to prevent any inappropriate use of the new mechanism on larger firms. I reassure the hon. Member for Wokingham that a range of safeguards is already in place, which the Government believe provide the necessary checks and balances. For example, the Treasury is involved in the exercise of any resolution powers through being consulted about whether conditions for resolution have been met. The Treasury would also need to approve any resolution action with implications for public funds. If the Bank of England requested a large sum from the financial services compensation scheme, which it could not provide through its own resources, it would have implications for public funds, as the financial services compensation scheme would need to borrow from the Treasury. This means that, in practice, Treasury consent would be required if the Bank of England had requested a large sum.

The Bill also includes some important mechanisms to ensure transparency and parliamentary scrutiny. For example, the Bill now requires the Bank of England to report to the Chancellor on the use of the new mechanism, and it requires the Chancellor to lay those reports in Parliament. The Bill also requires the Bank of England to notify the Chairs of the relevant parliamentary Committees—namely, the Treasury Committee and the House of Lords Financial Services Regulation Committee—following the use of the mechanism. Those measures will ensure that Parliament can scrutinise the Bank of England’s actions in relation to the new mechanism. They were added to the Bill during the debate in the other place.

I hope that my explanations go some way to providing reassurance that the Government’s approach is the right one, and that ultimately, flexibility in the legislation is better for economic and financial stability, and for limiting the risk to public funds, which is what the Bill is all about. As a result, I hope that hon. Members can support the Government’s amendment, and I ask the hon. Member for Wokingham not to press his amendment.

[Mark Garnier (Wyre Forest) (Con)]

It is a great pleasure to serve under your chairmanship for the first time, Ms Jardine. I also thank the Minister, because we have had a fantastic time of agreement so far—but not on this particular point.

I will speak to Government amendment 1 and amendment 3 from the hon. Member for Wokingham. Government amendment 1 is aimed at reversing an amendment that was put in place by those in the other House. It was proposed by my colleague Baroness Vere, so we refer to it as “the Vere amendment”.

The Minister made quite a strong and convincing case for why the Bank of England feels that it needs the ability to use this type of financial services compensation scheme redress in the case of some of the larger banks. But what worried me, as I was listening to the Minister’s words, was that she was highlighting the fact that the MREL regime could fail. I spent three and a half years or so on the Parliamentary Commission on Banking Standards, coming up with this MREL stuff in the first place, and also on the Treasury Committee, analysing the banking crisis. We completely accept that there is no way we can legislate for any possible type of failure in the future. However, we can try to learn from mistakes. The Minister is suggesting that there is an exception—that the MREL regime is not right—but I would prefer the MREL regime to be looked at again to make sure that it operates properly.

The Minister makes the very good point that a bank could issue an MREL convertible bond, which converts into equity in the event of a default; and that the bank could be successful during the course of its life and the MREL bond is not, in fact, sufficiently big enough to meet the liabilities in the event of a default. To me, the answer is not to try to squeeze into place another bit of legislation that tries to fudge it. We should look more carefully at making sure that the MREL regime is right, although I completely understand her point that the regime is only going to make up the top-up. However, the problem is that if the Government are going for a growth agenda—we all know that the City of London and financial services institutions can grow quite quickly—we could end up with a situation in which quite a lot of money is being asked for by the other banks to be able to support this.

We will press this amendment to a Division and vote against it. I am glancing towards my Liberal Democrat friend, the hon. Member for Dorking and Horley, and I hope that enthusiastic nod means that we will not be by ourselves in doing so.

Liberal Democrat amendment 3 would bring back, in a slightly different form, the amendment proposed by Baroness Vere in the other place, but it adds something else that we are slightly worried about. Having looked at this on the Parliamentary Commission on Banking Standards for a number of years, I have become quite a purist about it. The amendment restores a fundamentally important point but what worries me is that it looks to have a negative resolution statutory instrument to ensure that that happens.

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[Emma Reynolds]

Coming on to the amendment, I am a little bit confused by the shadow Minister, because he rightly says—I agree with him about this—that it would not have been possible to use a negative SI, for example, during the weekend when everything was happening with Silicon Valley Bank. The Government at the time and the Bank of England rightly moved during that weekend to reassure the markets and everything was sorted, really—well, I say everything was sorted, but there was still more to do. However, the big decisions were made over that weekend.

If the Government had to lay an SI in order to give the Bank the permission to do that, it would not have been a good scenario. I think the shadow Minister is saying that he will back the other amendment, but not this one. I am a bit confused by his position.

[Mark Garnier]

To be absolutely clear, the Minister and I are absolutely as one on that particular point: to have a negative resolution SI, or indeed any SI, would hold up progress and create a lot of hassle. The substantive part of the amendment, which is the MREL bit, prevents us from being able to support the amendment, so we will vote against it. It is the other amendment—the growth amendment—that we will support. My apologies to the Chairman; I hope that is clear.

[Emma Reynolds]

I thought that was what the shadow Minister was saying, but it is good to get some clarification. I think I am not the only one who was a little confused.

As I said in my opening remarks, we do not support the amendment that the hon. Member for Wokingham tabled, but I understand the intent behind it and the concern that the hon. Member for Dorking and Horley raised.

A couple of other issues were raised; they go slightly beyond the bounds of the Bill, but I will respond to them anyway. As the hon. Member for Dorking and Horley knows, there is a consultation by the Bank of England on the MREL thresholds. That consultation closed recently and, as he would expect, the Treasury is working very closely with the Bank as it looks through the feedback to that consultation. That is not in the substance of this Bill, but it is a relevant consideration and I hope that reassures the hon. Gentleman that we are working closely with the Bank on this issue.

I hope that I have addressed the concerns raised by Opposition Members, but I am sure that they will tell me if I have not done so.

[Mark Garnier]

Yes.

[Emma Reynolds]

I think we will get on to the amendment on growth and competitiveness in the next stage of line-by-line consideration of the Bill.

Question put, That the amendment be made.

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[Emma Reynolds]

Clauses 2, 3 and 5 relate to the reporting and accountability requirements on the Bank of England when it uses the recapitalisation mechanism. The Government added these clauses to the Bill in the other place, reflecting the understandable concerns raised about how the Bank of England will be held to account when using the new mechanism. Together, they aim to ensure that there is effective transparency and scrutiny when the mechanism is used, helping to provide important assurances following a resolution to the Chancellor, Parliament, industry and the public.

Clause 2 requires the Bank of England to report to the Chancellor following its use of the mechanism. These reports must relate both to the exercise of the mechanism and the stabilisation option it is used in connection with. The “final report” produced by the Bank of England is intended to be a comprehensive account of the use of the mechanism, with the content and timing of the report to be specified by the Treasury.

As alluded to in the published draft updates to the Bank of England’s code of practice, the Government expect such final reports to include a number of important points: first, an explanation of the choice to use the new mechanism; secondly, how the resolution conditions and objectives were considered and given regard to; thirdly, an assessment of the costs of using the mechanism compared with placing the firm into insolvency; and finally, an explanation of why any ancillary costs were considered reasonable and necessary.

Clause 2 also requires the Bank of England to produce an interim report within three months of using the mechanism, if the final report has not been provided within that period. This guarantees that scrutiny of the Bank of England’s actions takes place in short order after a resolution involving the mechanism. The Chancellor will be required to lay any reports before Parliament, ensuring that there is appropriate transparency and accountability regarding the use of the mechanism. The Chancellor, however, will have the discretion to omit certain information from such reports when they are published if doing so is deemed to be in the public interest—for example, if reports contain commercially confidential information, or if disclosure could potentially frustrate an ongoing resolution process.

Clause 3 requires the Bank of England to notify the Chairs of the Treasury Committee of this House and the Financial Services Regulation Committee of the other place as soon as is reasonably practicable after the recapitalisation mechanism has been used. This means that Parliament will be engaged promptly following the use of the mechanism. Finally, clause 5 requires the Government’s code of practice, which sets out how the resolution regime is expected to work in practice, to include guidance on the contents of the reports of the Bank of England, which it is required to produce under clause 2. Clause 5 places an important obligation on the Treasury to ensure that there is transparency over what the Bank of England should expect to include in such reports.

At this point, I note that the Government published draft updates to the code of practice, which set out the sorts of things that are expected to be included in reports by the Bank of England. For example, reports would be expected to include an explanation of the choice to use the recapitalisation mechanism, as well as an assessment of the costs of using the mechanism compared with putting the failing firm into insolvency. The Government will issue a full update to the code of conduct in line with the provisions in the Bill that are coming into force. As mentioned at the start, these clauses provide important clarity for the Bank of England, industry and Parliament on the accountability mechanisms that apply when the recapitalisation mechanism is used. I therefore commend clauses 2, 3 and 5 to the Committee.

[Mark Garnier]

I will be brief, because I do not want to take up too much of the Committee’s time. I reiterate that accountability is an incredibly important part of the Bill; accountability of the Bank of England and the Treasury to Parliament is absolutely crucial. Having had the experience of spending my first five years in Parliament scrutinising this sector, the more information Parliament has when making legislation, the better it is for us all in producing good legislation.

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[Emma Reynolds]

I will briefly speak to clauses 6, 7 and 8, which cover the more technical aspects of the Bill. Clause 6 makes amendments to the Financial Services and Markets Act 2000. It ensures that, where the FSCS makes a recapitalisation payment to the Bank of England, its ability to levy the banking sector is extended to cover such a payment. This is key to recouping the FSCS’s funds, and thus achieving the Bill’s aim of reducing potential risk to public funds in a resolution. The clause also stipulates that credit unions are exempt from levies for this purpose, which I am sure Members will agree is a sensible and proportionate approach, given that credit unions are out of scope of the resolution regime.

The rest of clause 6 makes minor amendments to existing legislation. It clarifies that a recapitalisation payment is not classed as a management expense of the FSCS, and it clarifies that payments that are made in error, in connection with the recapitalisation funds provided to the Bank of England, can be levied for, which is consistent with the approach for the other statutory functions of the FSCS.

Clause 7 makes amendments to the Banking Act 2009. It makes it explicit that funds provided by the FSCS, in resolution in connection with the new mechanism, would not count as extraordinary public financial assistance, reflecting that the new mechanism is intended to reduce risk to the kind of public funds described within this definition. The clause allows the Bank of England to take into account the funds provided by the FSCS when calculating the extent to which certain liabilities are bailed in, when the Bank of England exercises its bail-in tool alongside executing a transfer. Without this, the Bank of England would not be able to consider the funds provided by the FSCS in instances where it exercises its bail-in tool. That might mean that the Bank of England would have to continue to write down certain liabilities, potentially including uncovered deposits, where doing so could negatively impact and destabilise the continued operation of the failed firm.

Clause 7 also gives the Bank of England the express ability to require the failing firm to issue new shares, allowing FSCS funds to then be used to pay for those shares, thereby injecting the funds into the firm. This will ensure that the Bank of England can move swiftly to recapitalise the failing firm. The clause also ensures that funds provided by the FSCS can be taken into account appropriately when deciding whether sale proceeds or compensation are due to those who owned the firm before it was transferred. This would avoid including value that was contributed by the banking sector in any assessment of the compensation payable to former shareholders and creditors, which would clearly be inappropriate and increase the cost of compensation to taxpayers.

Finally, clause 7 disapplies a requirement for the Bank of England to notify the Treasury as to whether a certain condition for providing financial assistance to a failing firm has been met, otherwise known as the 8% rule. The 8% rule states that resolution financing arrangements may be used only where the shareholders and creditors of the bailing institution have made a contribution equal in value to at least 8% of the institution’s liabilities. The Government have disapplied that requirement in their updates to the code of practice, as it is unlikely that the condition could be met by small banks since they will not hold sufficient loss-absorbing resources to reach the threshold. As such, the statutory notification requirement is redundant.

Finally, clause 8 sets out the procedural matters of the Bill, which I trust will cause no concern to hon. Members. At this point, I should note the Government’s second amendment, which removes the financial privilege amendment inserted in the other place. That is standard procedure and I trust that hon. Members will raise no objections. I hope hon. Members agree that the clauses are sensible provisions to ensure that the Bill works as intended and, as such, I commend them to the Committee.

[Mark Garnier]

You will be delighted, Ms Jardine, as I am sure the whole Committee will be, to hear that my contribution will be even shorter than the last one. The Minister rightly says that we are considering a lot of procedural-type amendments to do with the delivery of the Bill. I thank the Government for listening to industry over excluding credit unions from falling within the scope. It is incredibly important that we do not find lots of other people emerging into these sectors and suddenly finding themselves being part of a much more complicated area. On the procedural point of the Government amendment, we will absolutely support that.

Question put and agreed to.

Clause 6 accordingly ordered to stand part of the Bill.

Clause 7 ordered to stand part of the Bill.

Clause 8

Extent, commencement and short title

Amendment made: 2, in clause 8, page 6, line 1, leave out subsection (5).—(Emma Reynolds.)

This amendment removes the privilege amendment inserted by the House of Lords.

Clause 8, as amended, ordered to stand part of the Bill.

Question proposed, That the Chair do report the Bill, as amended, to the House.

[Emma Reynolds]

I commend the Bill to the Committee.

[Mark Garnier]

I thank everybody for their work. It is a great pleasure to see so many new Members of Parliament and former hedge fund managers; it is terrific. On so many occasions, I have joked about being a former investment banker and hedge fund manager, and now that I am a politician, I have the hat trick of the three most unpopular jobs known to humanity. For a next job, I will be a traffic warden. I thank everyone for their hard work.

[Emma Reynolds]

May I also take the opportunity to thank the officials of the House and you, Ms Jardine, as well as the Treasury officials who have worked so hard on the Bill? We still have some stages to go, but it is an opportune moment to do that.

Question put and agreed to.

Bill, as amended, to be reported.