Financial Services Bill

Harriett Baldwin Excerpts

2nd reading & 2nd reading: House of Commons & Programme motion & Programme motion: House of Commons & Ways and Means resolution & Ways and Means resolution: House of Commons
Monday 9th November 2020 Commons Chamber

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

I thank the Minister and his officials for the information they have shared about the measures in the Bill over the past couple of weeks. I have, of course, been riveted by the Bill in recent days, but I confess that I had to put it down for a while at 5 o’clock on Saturday to watch CNN when something more exciting than the Bill came through on the news.

[Harriett Baldwin (West Worcestershire) (Con)]

Will the right hon. Gentleman clarify whether that is where all his colleagues are this evening? I note that he does not have many behind him. In fact, his Benches are empty.

[Mr McFadden]

There is a phrase: I am not my brother or my sister’s keeper. They will have to answer for themselves.

The backdrop to these measures is formed by two significant events in recent years. The first of those is not Brexit but the financial crash of 2007 and 2008, which exposed the risks being run in the financial services industry and the huge knock-on effects for the rest of the economy when those risks go wrong. That experience prompted a global rethink about banking regulation, the capital levels that banks and other financial institutions are expected to hold, resolution measures in the event of banking failure, and the balance of obligations between the industry and the state. Much of that rethinking was expressed in the series of directives with which the Bill deals and in the Basel process on capital rules.

For all the complexity in the detail of these things, at root the questions are quite basic. First, how much capital should institutions hold as insurance against things going wrong? Secondly, who should be on the hook if things do go wrong? And thirdly, how do we insulate the wider economy from the consequences of instability in financial services? It is on these questions that much financial services regulation has focused over the past decade. The UK has been a key player in this process at both a European and a more global level. These are not things that have been imposed on us; we have played a significant role in the design of the measures that we are onshoring through the Bill.

The second event is, of course, Brexit and the consequent withdrawal from the European regulatory institutions responsible for the oversight and implementation of these directives. By definition, the process requires a recasting of regulatory responsibilities in the UK, and much of the Bill is concerned with that. The key question, then, is not so much the onshoring of the regulations themselves, but what happens next. Do the Government intend to diverge significantly from the rulebook, and in which direction will they go?

--- Later in debate ---

[Harriett Baldwin (West Worcestershire) (Con)]

It is a pleasure to follow my Treasury Committee colleague, the hon. Member for Glasgow Central (Alison Thewliss).

The right hon. Member for Wolverhampton South East (Mr McFadden) talked about the historic events that had distracted him from preparing for his speech, although I do not think anyone would ever have known it, because he spoke in a very well-informed way. We often recognise historic turning points—certainly, Saturday at 5 pm was one of them, and today’s announcement of the Pfizer vaccine is another—and that is why I am a little disappointed that there are so few colleagues here for what is an important turning point in the UK financial services sector. I do not say that because the measures in the Bill are gripping, although they are sensible, practical measures, and they will no doubt be expatiated on at greater length by colleagues. Rather, I put in to speak in today’s debate because I wanted to hear the Minister at the Dispatch Box talk about the vision for post-transition UK financial services.

We are at an important inflection point, which is why I welcome the fact not only that the Minister outlined that vision today, but that the Chancellor was able to come here earlier to talk about the future, as he sees it, for this incredibly important sector. He emphasised in his statement, as the Minister did at the Dispatch Box, what a significant export sector this is. It is our biggest export sector. It pays £75 billion a year in taxes. It helps to fund the public services we all rely on. That is why we need it too to do well in the future and why it is important to note this historic turning point. We may look back at this moment, as we look back on the big bang in 1986, as being a really significant inflection point.

The Chancellor set out today three ways in which we can really build on our existing comparative advantage to become the leading financial services sector of the 21st century. He made some bold statements this afternoon that really reflected what financial services are going to become. First, he spoke about our global openness. It is a matter of regret that we have not been able to mutually agree equivalence with the EU. Obviously, we are entirely equivalent, and it would have been much more satisfactory if we had been able to respect each other’s starting point as being completely equivalent and to go forward from there. It is clear from the way in which the European Union has not been prepared to offer us equivalence that it will continue to use EU regulation in financial services as a bit of a stick with which to beat up on this sector, in which the UK already excels. I am sorry to say that, and it gives me no pleasure, but that would clearly be unacceptable.

In the Treasury Committee, we heard from the Governor of the Bank of England that it would be dangerous to financial stability if we were to allow an external regulator to suddenly take away equivalence from our financial services sector. So the judgment that was made to come to the Dispatch Box and say, “Do you know what? We’re unilaterally going to do it for the UK,” was regrettably the right decision to take historically. It was accompanied with the three statements about the kind of financial services sector that we envision for the 21st century—one that is globally open and inviting of inward investment and listings from around the world, not just from other EU countries.

Secondly, the Chancellor said that the financial services sector should also be technologically innovative. That is so important. We have led the world in the FinTech sector and regulation, and have set up FinTech bridges with other countries. Singapore, another FinTech innovator, was the first with which we established a regulatory bridge. That is clearly how financial services will evolve in the 21st century, and the announcement about the leadership we are showing on digital currencies was incredibly important.

Thirdly, the headline measure—the one that will no doubt get coverage around the world—was the equally important announcement that we will issue a green gilt. I am the first to congratulate my hon. Friend the Member for Grantham and Stamford (Gareth Davies), who has been assiduous in calling for that. We have had announcements on the global vision, the technological vision and the importance of the UK being the lead financial centre for financing the climate revolution of the 21st century. We financed the industrial revolution, and we will finance the green industrial revolution. Countries from around the world will issue bonds in the UK against the green gilt benchmark, so this Bill is historic.

I pay tribute to my hon. Friend the Minister for the work he has done on breathing space. I know how passionate he is about it. He and I were elected in 2010, and he has always championed that issue, so it is wonderful to see him bringing forward legislation to make progress on it.

I want to ask the Minister a few questions. He and the Chancellor highlighted the UK’s importance as a global financial centre. First, what progress has been made on what the UK is hoping to achieve on a US financial services free trade agreement? That has always struck me as important. We are the biggest investors in each other’s countries, and the ability to do more in terms of financial services would help consumers in both countries, so what are his aspirations and ambitions for that?

Secondly, what is the Minister’s vision for the Basel framework, particularly with regard to the very high risk weighting that it gives to investments in Africa? When I was Africa Minister, one of the things that used to get me excited was the potential for inward investment into Africa. We had a big Africa investment summit in January. The risk weighting for assets in many African countries is incredibly high under the Basel rules, so can the Minister update the House on anything he is doing to try to make those assets appear less risky on bank balance sheets?

My third question is about the assets we still own as a result of the financial crash in 2008. Will the Minister update the House on what the exit strategy is for those remaining financial services assets?

Those are my three questions for the Minister. Given the general direction and strategy the Government have announced today, I think this is a historic moment for UK financial services. In 10 or 15 years, we will look back on it as equally significant as the announcement from Pfizer and the US election. I congratulate the Minister on introducing the Bill and I look forward to hearing more detail when he responds.

Financial Services Bill (First sitting)

Harriett Baldwin Excerpts

Committee stage & Committee Debate: 1st sitting: House of Commons
Tuesday 17th November 2020 Public Bill Committees

[Abena Oppong-Asare]

Q I put the same question to the other witnesses.

Victoria Saporta: To response to your question directly, yes, from the very beginning we had discussions with Treasury colleagues about how, within the narrow confines of this Financial Services Bill—I can talk about the related but quite distinct issue of the future regulatory framework—we could be more accountable, given that the Bill effectively gives the Government powers to revoke particular narrow areas of what will become, on 1 January, primary legislation, and then asks the regulators to fill in those particular gaps. The Government were keen that the process should be part of an enhanced accountability framework.

As Sheldon has said, within the confines of this Bill, the enhanced accountability framework applies to the updating of the rulebook to take into account the new Basel III provisions and the investment firms regulation, and three new “have regards” regulatory principles, which are set out in the relevant schedule and refer to us having to take regard of relevant standards recommended by the Basel Committee on Banking Supervision. That applies obviously to the PRA. We need to take the likely effect of the rules on the UK’s relative standing as a place for internationally active credit institutions and investment firms to carry on activities. Also, we need to take into account the likely effect of the rules on the ability of firms to continue to provide finance to households and businesses. This is an enhanced accountability framework, and the Bill also obliges us to publish how we have taken into account these “have regards”.

Those measures are within the proposals in the Bill to enhance our accountability publicly. There is the separate issue of the consultation that the Government are currently doing on how the future regulatory framework will look, what the enhanced accountability provisions within that are and how they should apply. I would not want to pre-empt that consultation but, clearly, the Government are interested and are trying to look at ways of keeping our feet to the fire, and that is absolutely appropriate.

[Harriett Baldwin (West Worcestershire) (Con)]

Q My questions are for the FCA. In terms of the impact of the Bill on the end consumer and the end user of financial services, what impact assessment has the FCA done on the potential regulatory cost and how that might affect the consumer? We hear a lot from financial services firms about the cost to them, not only of regulations, but also of the fees that they have to pay to the FCA. What business plan and cost assessment has the FCA done on the impact that the measures and the responsibilities in the Bill will have on the industry, which will then be passed on to the consumer, or will it be a reduction in cost?

Sheldon Mills: We have not undertaken a cost-benefit assessment of the Bill. That would be a matter for the Government. We have considered, as we discussed in response to earlier questions, the impact on resources within the FCA. Our current intention is to keep that within our current financial envelope, so we are not predicting at this stage an increase in fees or levies to take account of the Bill. That is all I can say at this stage.

In terms of the impact of the Bill and the onshored legislation, when we review the regulations on the investment firms prudential regime and so on, we will do a cost-benefit analysis of the rules and regulations that we are proposing at that stage. At this stage, we will not be doing that—that would be a matter for the Government, not for us.

In terms of the impact on consumers more generally, as I said, there are aspects of the Bill that are very consumer enhancing. I do not think they came up very much on Second Reading, but the provisions in relation to breathing space will be very helpful for consumers facing issues around statutory debts, which we are interested in as a financial regulator. The issues in relation to the register will be extremely helpful for us in terms of tackling fraud and scams. There are many elements of the Bill that are helpful. It is complicated, but the investment firms prudential regime is also consumer enhancing; currently, the capital requirements facing investment firms are those for the systemically important banks, and they are not fit for purpose. This regime will help us have a capital and prudential regime that is fit for investment firms. So there are a whole host of aspects of the Bill that are supportive of consumer interests and will not necessarily increase costs in a way that will be inimical to their interests.

[Harriett Baldwin]

Q The FCA has not prepared anything specific demonstrating that—it is a hunch based on what is in the Bill—but has it done any cost-benefit analysis of the breathing space measures that you mentioned?

Sheldon Mills: All these measures are Government proposals, so the cost-benefit analysis that is required will be carried out by the Government and not by us. Once the Bill has been passed, in whatever form—we are bringing forward rules and regulations—we will undertake a cost-benefit analysis. I am giving an indicative view, as opposed to one based on a cost-benefit analysis that we are not required to carry out at this stage.

[Stella Creasy (Walthamstow) (Lab/Co-op)]

Q I should like to explore what you have said, particularly about how the Bill will benefit consumers—after all, we are all concerned about the regulation of financial services markets. You set out your interest in the debt respite scheme. We all agree that that is very welcome, but debt prevention is an ultimate aim. How do all three of you think that this way of regulation will help businesses and households with debt prevention?

Sheldon Mills: It is a broader question than the Bill, but I will answer by giving our approach to debt.

As a regulator, our approach is not to have a policy on whether people should be able to access credit, but we are concerned about the impact on people of firms providing credit. We want firms to be able to provide credit in a way that treats individuals fairly, takes account of their needs and circumstances and, in particular, supports vulnerable customers if they are in debt.

We work closely with debt charities. Some of the issues that we are seeing, which we all face and of which the FCA is cognisant, include the accumulation of debt among certain parts of the population, which is why it is important that rules and processes are in place to support people with debt management and why a breathing space policy forms an important part of that. I think that answers your question, but you might have more specific questions.