Financial Services Bill (Second sitting)

Julie Marson Excerpts

Committee stage & Committee Debate: 2nd sitting: House of Commons
Tuesday 17th November 2020 Public Bill Committees

[The Chair]

Constance, do you have anything to add?

Constance Usherwood: Generally, we hope that the EU and the UK will establish a close, co-operative and stable long-term relationship for financial services, and it is very important to underline that that should be the long-term goal. I think the Bill leaves the door open for doing that.

[Julie Marson (Hertford and Stortford) (Con)]

Q Constance, when he was the interim chief executive officer of the FCA recently, Chris Wollard made the point that having the highest international standards of regulation and doing the best for the markets are certainly not mutually exclusive. You might even go further and say that they are actually vital for each other. To what extent do you feel that the Bill achieves those two objectives—having the highest standards and the best framework for the markets?

Constance Usherwood: It is very clear that the UK Government’s intention is that the UK should maintain high, consistent and global standards. From my knowledge of interaction with the PRA, it is committed to doing that. That was also made clear last week by Sam Woods in his Mansion House speech—it is not about a race to the bottom. In so far as a jurisdiction maintains a predictable, open and transparent rule-making process—we expect the PRA to do that with consultation processes—and operates a high, globally consistent standard, that is a really good competitive base from which global banks can operate out of.

[Ms Eagle]

Q Adam, I wonder whether there is anything that you would have liked to see in this Bill that is not there, given that it is an initial first step. Is there anything that you think should have been paid attention to and dealt with in this Bill that has not been?

Adam Farkas: Given that it is providing a framework for the future regulatory architecture in financial services, I am not suggesting that these are missing, but I will list what is important for the industry: that the framework is predictable—that is key for the players—that the framework provides transparency, so that when the rule making is happening under the Bill, the process is transparent; that it is possible for the industry to engage, so when different rules or pieces of the rules are consulted on, there is sufficient accountability provided, but that is not for us to decide on; and that sufficient time is provided for implementation—that is always a critical issue for the industry.

I think that what is proposed in the Bill goes very far on all those points. In that sense, it is difficult to give a definite answer of what else would need to be in the Bill. Those are the points that we are looking at with great interest in relation to the final adoption of the Bill.

Financial Services Bill (Third sitting)

Julie Marson Excerpts

Committee stage & Committee Debate: 3rd sitting: House of Commons
Thursday 19th November 2020 Public Bill Committees

[Abena Oppong-Asare]

Thank you.

[Julie Marson (Hertford and Stortford) (Con)]

Q Thank you for your evidence, Susan. I think we all agree that it is such an important area, and your evidence is really interesting.

I was looking at some of the specialist fraud and financial crime law firms’ response to the Law Commission’s review, particularly how it relates to the “failure to prevent” suggestion. They have called the Government’s desire to look at that in the round a very measured approach, and they have pointed to the fact that there have been lots of developments in regulatory and legal environments since the call for evidence. They have said that, actually, the best approach is probably to wait and see—to review, and to look at the entire issue in the round. Given the complexity and the cost to business, what is your response to that?

Dr Hawley: What has happened since the call for evidence closed is the Barclays judgment. We have also had a judgment in the Serco case, in which Serco was involved in procurement fraud against the MOJ, and it could not be the party to a deferred prosecution agreement—only its subsidiary could—because of these corporate liability rules. How it fits with the regulatory system is a really important question. As you will have seen from our evidence, we think that can be really properly thought through and hammered out at the guidance stage to the “failure to prevent” offence. That is where you would have a really good discussion with the private sector, bringing them in to show how you make those parts fit together.

I would like to add that on the regulatory side, as I mentioned earlier, we are seeing a worrying decline in the number of fines imposed by some of the regulatory bodies, for instance in the money laundering space. Creating a criminal offence—it is important to note that it is not a new criminal offence, but a different way of holding people to account for the same criminal offence—would open up a broader range of people who might bring action against a company. We have seen criticism in the paper, including from some of the law firms, about a lack of action by the Financial Conduct Authority on money laundering regulations, very few investigations and no prosecutions of corporates. If it were a criminal offence, companies might be looking at investigations by the SFO, which would really make them sit up.

I think it is about deterrence and how you ensure that compliance with the regulations is not just a box-ticking exercise, which is the risk if you take only a regulatory approach. What is really interesting about the responses to the Government’s call for evidence is that the vast majority of respondents do not think that where a serious crime occurs, a regulatory approach is appropriate; there need to be criminal approaches. I was really struck by how common that was. I think there is some urgency, if I am honest, particularly in relation to the UK falling behind emerging standards elsewhere, but also with the problem of inequality before the law, which I think could become really heightened when the response to the covid crisis plays out. You might get quite a lot of resentment when large actors are seen as getting away with it.

[Julie Marson]

Q I have just one quick follow-up question. You are quite right that in that evidence there was quite a consensus on the need to act. Is it fair to say that there was less of a consensus on exactly how to act—that plays into what we are looking at, waiting for the Law Commission to respond—and that, given the length of time since the call for evidence, there might be less consensus because there have been more actions since?

Dr Hawley: Since the call for evidence, we have seen the SMCR and the money laundering regulations, but they were kind of around and being introduced—the SMCR in 2016 and the money-laundering regulations were on the books for 2017—so I do not think that there has been anything dramatically new since then. Those were on the cards at the time of the 2017 call for evidence. This does need private sector consultation and it needs to be thought through carefully.

On the consensus about where to go, another problem we are worried about is that that lack of consensus will be replicated in the Law Commission’s consultation, because you have essentially two options—that is how it has been put to me, quite often by prosecutors. You go with the US model, with vicarious liability, or you have a “failure to prevent” offence. There was not really any clarity in the way the call for evidence was worded that would result in a kind of consensus. Quite a lot of law firms think we should have vicarious liability, because that is the strongest form of liability there is.

I worry about coming to the end of the Law Commission consultation with exactly the same result: no consensus about the way forward, let’s not do anything, and then we will be stuck in the same place. Do you see my point with that?

[Julie Marson]

I do, but I will let someone else come in. Thank you.

[Ms Angela Eagle (Wallasey) (Lab)]

Q You said something astonishing today. You said that, in your opinion, we have outsourced our enforcement on economic crime to the US.

Dr Hawley: That is not my wording; I think that one of the business press has used that phrase. Do you want me to explain why I think that?

Financial Services Bill (Fourth sitting)

Julie Marson Excerpts

Committee stage & Committee Debate: 4th sitting: House of Commons
Thursday 19th November 2020 Public Bill Committees

[Alison Thewliss]

Q Even when fines ought to be due, they are not enforced. I ask periodically about Scottish limited partnerships and how many people have been fined for failing to register a person with significant control. Every time I ask, it is not in, which is ridiculous. My last question is about the issues to do with Gibraltar. Do you have any concerns about that, or anything that the Committee ought to know?

Duncan Hames: I do not think that the measures with regard to Gibraltar particularly focus on money laundering. Obviously, Gibraltar is covered by the fifth anti-money laundering directive. I think they would consider themselves to be among the earlier adopters of the measures required under that directive. What we see in the Government’s language is an emerging global standard. That has been recognised in the past year or so by the Crown dependencies and, increasingly, by British overseas territories.

Although the US starts from a very far-back position on public beneficial ownership transparency, on the basis of bipartisan—as I think they call it, or on both sides of the aisle—working on this issue, even with a Republican Senate it seems set to advance new regulatory requirements around a central register of beneficial ownership. The tide is definitely moving in the direction of greater transparency. I think it would help British overseas territories to be encouraged to keep up with that direction of change.

[Julie Marson (Hertford and Stortford) (Con)]

Q Thank you for your evidence; it is really interesting and this is an important area. We have heard reference to—you used the phrase—the UK outsourcing the prosecution of financial crime to the US. I am sure you will correct me if I am wrong—I do not have it in front of me—but on Transparency International UK’s own list of corruption, the UK comes out 12th out of 198, whereas the US comes out at 23rd, so by comparison with the US, the UK does very well.

I am interested to hear your reaction to the criticisms of the report that that phrase came from. It was felt that the scope of the report did not include, for example: the bribery and corruption statistics, including on the “failure to prevent” provisions; the period after the financial crisis, which meant that much implementation was not included in the report; or the way prosecuting in the US often involves plea bargains, which are used to extract fines, so the measurement of the extraction of fines is not necessarily a justified comparison between the UK and the US. What is your reaction to that?

Duncan Hames: The corruption perceptions index measures views of the prevalence of corruption in public sectors, whereas for the most part here we are talking about enforcement of corporate wrongdoing. None the less, you are right to record where those countries are in the index.

“Exporting corruption”, our recent report produced for the OECD anti-bribery working group—part of a series of reports published every other year—is the one in which the UK is recognised to be an active enforcer of anti-bribery laws and laws to prevent foreign corporate bribery. None the less, the US is top of the table and, while it is good that Britain remains an active enforcer, the calculation that grants that assignation is such that the UK hung on by a hair’s breadth this year and there is no room for complacency.

The statement that I reference from the Secretary of State for Justice was made when he was Solicitor General, at the Cambridge International Symposium on Economic Crime. His words were that these differences in how the law operates

“result in other jurisdictions holding British companies to account where ours has not.”

He said he was making that observation in an argument in favour of moving towards the “failure to prevent” approach to economic crime.

For all of America’s challenges, I do not think anyone would criticise it for being less assertive in enforcement of the law that it has. Even at a time when one might have feared political interference or the undermining of the Department of Justice, its level of enforcement has remained high, without signs that it is falling back. I think we have to reflect on why that is. It is partly to do with resourcing, but it is principally to do with the challenges of our arrangements for prosecutors.

Lisa Osofsky, the director of the Serious Fraud Office, describes what we have as “a very antiquated system”. She said:

“We are hamstrung right now by the identification principle”.

She explained to the Justice Committee that she can “go after Main Street”—forgive the American references; I am sure you will be able to translate them—but she

“cannot go after Wall Street, and that is unfair”.

When we think about the businesses that each of you represent, you would want there to be a level playing field, where traditional businesses with perhaps traditional ownership models are not facing a greater requirement to uphold the law than much larger, perhaps more anonymous, conglomerates in complex corporate structures spread over many jurisdictions.

[Julie Marson]

Q You mention Lisa Osofsky. I was looking at various practitioners who work on fraud and corporate fraud, and they have welcomed the fact that the Law Commission is going to conduct a review. It is easy to scoff, I suppose, about, “Let’s wait to the end of the review,” but this actually has huge cost implications for business. It is a very complex area. Those practitioners have actually said that it can only be a good thing that the Government are not amending the current law without full consideration and that the Government are taking a very measured approach.

Duncan Hames: I think Ministers observed that responses to the consultation were mixed. It is regrettable that responses to the consultation are not public and people can form their own views about them. If you conduct a consultation about enforcing criminal law and those who might be subject to that enforcement, in a way that they are not currently, are able to make submissions in response to that proposition, then one would hope that in evaluating those responses they would not carry the same weight as more objective respondents. If we were asking how much chicken wire we should put around the hen coop, I would hope that we would largely disregard the foxes’ views.

[Julie Marson]

That is an interesting comparison.

[Stella Creasy]

Q I was thinking more of asking turkeys whether Christmas was a good idea. I want to follow up on this, because I have been waiting for the Law Commission on another piece of work that I worked on, which is already a year and a half overdue. It is not connected to financial services, but it indicates some of the challenges of waiting for the Law Commission to follow up on the FATF report, which makes some specific requirements about Gibraltar. This legislation is about the ability to trade between Gibraltar and the UK.

I want to ask your opinion on whether we might be able to learn from the specific proposals in that report. In particular, it recognises that although this does tend to happen, there is no legal requirement to reject applicants with a criminal background in Gibraltar. If we will allow Gibraltar and the UK to operate in the way that this Bill does, do you think we could make it a requirement in the Bill to look at the criminal background of people applying for financial services?

Duncan Hames: I should acknowledge that Gibraltar is not within the scope of the work that I do. I will not profess expertise on the rules as they apply in Gibraltar. I think Bloomberg reported today on a bank in Luxembourg and some of its practices. You ask a good question about the personal credentials that enable one to take on responsible roles in our financial system, whether in banks or other institutions.

I note, for example, that the proposals in relation to Companies House are not that it should be more discerning in the acceptance of the directors of companies registering, but rather that it should simply verify the accuracy of the identity and the information provided. Current initiatives do not go as far as you are suggesting would be reasonable. It seems hard enough just to get us responsible for ensuring the accuracy of the data, which is provided as a piece of our economic infrastructure, without getting to a position of demanding some kind of individual assessment.

Financial Services Bill (Seventh sitting)

Julie Marson Excerpts

Committee stage & Committee Debate: 7th sitting: House of Commons
Thursday 26th November 2020 Public Bill Committees

[John Glen]

I am always open to looking at the possibility of amendments, as I have demonstrated during the sittings we have had so far. The 10-year reference was under the revised methodology for LIBOR to be produced by the administrator. It will probably be useful for me to reflect on this exchange, and to write to the right hon. Gentleman and the Committee to clarify the apparent discrepancies and rationale for this. I recognise that this is genuinely complicated. I want to bring satisfaction to the Committee and I am happy to do that.

[Julie Marson (Hertford and Stortford) (Con)]

It is a pleasure to serve under your chairmanship, Mr Davies. The shadow Minister is obviously concerned and quite rightly scrutinising the detail of every clause. Does my hon. Friend agree that it would be apposite to recall from the evidence from the regulators, including the Prudential Regulation Authority, the FCA, and specifically the LIBOR transition director for UK finance, how supportive they are of the provisions of this Bill? The LIBOR transition director said explicitly in his evidence:

“These powers, in preventing all those negative outcomes for both customers and market integrity, are absolutely critical as part of the transition.”––[Official Report, Financial Services Public Bill Committee, 17 November 2020; c. 18, Q30.]

That plays back into the consultation and regulators’ support for the Bill.

[John Glen]

I appreciate my hon. Friend’s intervention. It demonstrates that there is widespread concern for this legislation to be passed. The right hon. Gentleman is pressing me, quite appropriately, on these apparent anomalies, and I am happy to submit to his questions. The issue is that synthetic LIBOR is related to the 10-year provision, but the five-year provision is for other critical benchmarks, which do not have the same context in terms of their contractual longevity. As I said in my response to the right hon. Gentleman, I will write to him and to the Committee to bring clarity on this matter. It is an important matter that needs clarifying.

Question put and agreed to.

Clause 12 accordingly order to stand part of the Bill.

Clause 13

Designation of certain critical benchmarks

Question proposed, That the clause stand part of the Bill.