Draft Bank of England and Financial Services (Consequential Amendments) Regulations 2017

Jonathan Reynolds Excerpts

Wednesday 18th January 2017 General Committees

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

May I, too, say that it is a pleasure to see you in the Chair, Mr Flello? As we have heard from the Minister, the regulations are purely consequential on the change of the Prudential Regulation Authority’s status from a subsidiary to a committee of the Bank of England.

Hon. Members will be aware that the PRA was created by the Financial Services Act 2012, and it is responsible for promoting the safety and soundness of the firms it regulates. Only a few years later, sections 12 —“Bank to act as Prudential Regulation Authority”— to 14 of the Bank of England and Financial Services Act 2016 and its relevant schedules demoted the PRA to the Prudential Regulation Committee. The Labour party voted against that Act on Third Reading because of concerns that it failed to appropriately increase the oversight, transparency and accountability of the Bank’s work. In Committee in particular, Labour voted against the aforementioned section 12 owing to its downgrading of the PRA. Unfortunately, I therefore have to tell the Minister that we cannot support the regulations.

Before addressing the technical substance of the matter at hand, it is important to reflect on the fact that individuals sit at the heart of all the considerations we discuss at a Treasury level. Their lives and livelihoods can to be significantly impacted by our decisions on these matters. Despite taking place nearly a decade ago, the 2008 economic crash will be fresh in the memory of those who lost their jobs and homes as a result. Those events nearly brought down the global financial system, and it was only due to taxpayer-funded bail-outs that it was able to survive. What is more, it was that financial crisis that caused the deficit that the Government have relied on as their justification for making a series of political choices to cut public services, funding to local authorities and support for the most vulnerable, and to drive down the incomes of working people.

It is our responsibility as lawmakers to do everything in our power to ensure such events can never be repeated. Moreover, as the official Opposition, we are obliged to be honest and constructive in our scrutiny of legislation. It is in that fashion and for those reasons that we oppose the regulations. We fear that changing the Prudential Regulation Authority to the Prudential Regulation Committee signals less transparency over the Bank of England’s role. Currently, the Prudential Regulation Authority is a separate corporate body and a distinct authority. It can be held separately liable and accountable for its actions and interactions. However, the Prudential Regulation Committee will be less independent, given the demotion of the authority, which currently has statutory powers to create a rulebook and to enforce its own regulations, to being a mere committee of the Bank of England.

Debates over the past few years have thrown up numerous contradictions and queries, and it is not clear to what extent those have been sufficiently resolved. It is difficult to understand how the changes contained in the regulations will make the regulator more competent and effective in carrying out its work. Our concern is that it will not, and that there is no evidence to demonstrate otherwise. Having set up a structure that remains relatively young, would it not be logical to let it work itself out and see what the issues are, rather than to tear it up so quickly?

Will the Minister say how the body can be both more integrated and remain independent? Have the Government mitigated the serious risk of oversight being impaired by a conflict of interest? Will the Minister clarify the safety mechanisms in place to prevent the Bank’s main board from rationing resources to the proposed committee? Will he guarantee that the Prudential Regulation Committee can go public if it feels that it is not getting the support and resources it needs from the main Bank of England board?

We continue to argue for the retention of the Prudential Regulation Authority as a distinct regulatory authority, just as we continue to express concerns that the Government are failing to provide a proper framework for a banking system for the future. We need a healthy and effective banking sector that is appropriately regulated and serves the interests of our wider economy, by delivering the vital investment that our country needs for long-term economic growth. We know that people want assurances that we as a society and Parliament have learnt from the financial crisis, that we will improve transparency in banking regulation and banking practices and that the serious damage inflicted on people’s livelihoods caused by the collapse in 2008 can never happen again. I therefore tell the Minister that it is our duty to vote against the regulations. We will divide the Committee.