Financial Services and Markets Bill

Lord Carrington of Fulham Excerpts

2nd reading
Tuesday 10th January 2023 Lords Chamber

[Lord Carrington of Fulham (Con)]

My Lords, it is a great pleasure to follow my noble friend Lord Randall, but I am not planning to follow him into the woods and forests and deforestation. I find myself in a situation which many noble Lords in this Chamber will have been in at various times of their career, where you have prepared a speech which is, frankly, brilliant, and you have all the points laid out with wonderful clarity, only to find that the second speaker makes your points, and the fourth speaker makes your points—I lost count after that. Everybody has talked about regulation, which is what I was planning to talk about. So, noble Lords will be extremely relieved to hear that my speech is going to be quite short, because nearly everything that can be said about regulation has been said—but, I have to say, not quite everything.

I do not have any interests to declare; I used to have interests to declare in financial services. I used to be a regulated authorised person by the PRA and the FCA, and I used to be the chairman of a very small bank, so I have had some experience of being regulated and recognise the importance of regulation. I recognise the very important role that the regulators play in keeping London as a premier financial centre. One of the principal reasons we are still a major financial centre in the world and manage to fight off the competition, which now comes from Europe as well as from New York and Singapore—China may well become competition again, but Hong Kong has largely disappeared —is our honesty and probity through regulation. That is very important, and we need to preserve it. For that reason, I also very much support the part of the Bill which gives the regulator further duties, particularly the duty in relation to international competition and growth, and to the green agenda. All this is very important, but it raises quite serious issues about what we want the regulator to do.

Perhaps I could digress for a moment and say a little bit about what I think regulators ought to be doing. This follows on a bit from what the noble and learned Lord, Lord Thomas, who sadly is not in his place at the moment, said earlier about large and detailed rulebooks being a disincentive to effective regulation. In fact, I would say—only he is a lawyer—that the great danger is getting the lawyers involved in regulation at all.

The point about regulation is that it is there to stop the villains and to stop people doing things that they should not do, but it is trying to do that in markets that are extremely fast-moving and highly inventive and innovative. A regulator that has rules that were set in stone 20 years ago and stretch from here to eternity will never catch those people. Indeed, there is a very strong argument, which I have seen written up by people who know much more about it than I do, that the great crash of 2007-08 was caused largely by regulators being hidebound by what they had seen in the past, rather than understanding what was happening and developing for the future—not just in this country, I have to say, but principally in the United States as well.

Regulators have to be very close to their markets and understand what is going on in them. They have to see the trades being done, know the participants and hear the gossip. In all markets, whether traded or over-the-counter, the participants know who is good, who is stupid and who is bad. They may not get it 100% right but they get it pretty nearly right, which means that we have to get the regulation of the regulators right. That is desperately important.

I do not believe the Treasury can do it, because it is too close to the regulators. The Bank of England clearly is a regulator and cannot do it. The Treasury Select Committee, of which I have some experience, having been a chairman many years ago, cannot do it. We have to find a way of doing it which is effective. It may involve parliamentary committees, but my guess is that it will involve another regulator, to regulate the regulator. We need little fleas on the backs of big fleas to bite them. I am afraid that that is what we will have to do. We need to find a solution, because the regulators are becoming too powerful and too important, and they need to change.

Financial Services and Markets Bill

Lord Carrington of Fulham Excerpts

Committee stage
Wednesday 1st February 2023 Grand Committee

In addition, the Government are supporting Sir Mark Hendrick’s Private Member’s Bill, which would allow co-operatives, mutual insurers and friendly societies further flexibility in determining for themselves the best strategies for their business relating to their surplus capital and restrictions on the use of these assets. Furthermore, we are in active discussions with the Law Commission on options to proceed with a review of both the Co-operative and Community Benefit Societies Act 2014 and the Friendly Societies Act 1992, with a view to launching these reviews in the next financial year. I hope that has reassured the noble Lord, Lord Tunnicliffe, and my noble friend Lord Naseby, among others, that the Government remain committed to this agenda and have a further programme of work to look at what more we can do to support mutuals in future.

[Lord Carrington of Fulham (Con)]

On a point of clarification, my noble friend talks about mutual societies, which are very important. Mutual firms have many characteristics that are similar to those of so-called Islamic banks—banks that are sharia-compliant. Do her comments also refer to that slowly growing part of the economy?

[Baroness Penn (Con)]

They refer to organisations that were formed under the legislation to which I referred. We are taking forward work to look at amending the Building Societies Act, the Co-operative and Community Benefit Societies Act and the Friendly Societies Act. The definition of who I am talking about is driven by those Acts.

Amendments 157 and 158 are on transparency over who has responded to the regulators’ consultations. While promoting transparency is important, confidentiality must be respected. If a respondent has not consented to the publication of their name, they may be deterred from responding by the knowledge that a category description will be published, which risks making them identifiable. This is particularly the case in areas where only a small number of firms are affected. It could therefore reduce the number and scope of responses, which would weaken the effectiveness of the consultation process as a way for the regulators to receive challenge and feedback on their proposals. This would be contrary to the Government’s aims and, I believe, to the intentions of noble Lords, including the noble Baroness, Lady Bowles.

This brings me to the conclusion of my remarks—

Financial Services and Markets Bill

Lord Carrington of Fulham Excerpts

Committee stage
Monday 13th March 2023 Grand Committee

[Baroness Bennett of Manor Castle (GP)]

My Lords, it is a pleasure to follow the noble Baroness, Lady Sheehan, who has highlighted the gender aspects of this debate, and the noble Lord, Lord Sharkey, who has been a consistent champion on this issue in your Lordships’ House. I wish to make a couple of comments additional to what has already been said, while offering support for this amendment to push the Government to take action.

It was Green Party conference at the weekend, and I found myself discussing again and again how the public, who once thought that when the Government announced something that meant it would happen, are increasingly aware of the legislative process, and even the role of your Lordships’ House, because it is taking so long between government announcements and something actually happening. That is true of the announcement of a bottle deposit scheme for England, but there has been an even longer stretch between the promise of sharia-compliant finance, particularly for student loans, and the delivery.

The last figures that I saw showed that 9% of higher education students in the UK were Muslim. Extending loans for lifelong learning into further education makes it very likely that the percentage of students affected by the lack of sharia-compliant loans will increase. It is not as though the Government have not been reminded of this again and again. I note, again, that it was in July 2021, during the passage of what became the Skills and Post-16 Education Act, that we debated this. We were promised, “Yes, it’s going to happen; it’ll come”, but, yet again, we have just had a report from the Government which shows that there has been no progress. That is simply not good enough.

We often debate in your Lordships’ House how to get trust in government and the system. One way is to deliver on your promises in a reasonable and timely manner, particularly the things that really should not be that difficult, of which sharia-compliant loans is a case in point.

[Lord Carrington of Fulham (Con)]

My Lords, I support the noble Lord, Lord Sharkey, in this. There is no question that there are a large number of Muslims, both students and others, who have the very strong belief that their religion forbids them from engaging in normal financial practices as recognised in the West. It is about time we did something about it; it has taken far too long to get to where we are now, and we need to find a solution, particularly for student finance, where it is urgently indeed.

I can entirely understand why there is a problem. I understand why His Majesty’s Treasury is finding it difficult to find a solution. I spent a considerable part of my banking career devising means of meeting the religious requirements of Muslim communities to access financial services, often in conjunction with the Islamic Development Bank. It is an extraordinarily complex business. There are many different ways of doing it, but one of the problems is that there is no universal agreement as to what is an acceptable form of finance under the sharia. That is partly because of the difficulties between the various types of Islam—Sunni or Shia—and the various interpretations within the various branches of Islam itself, which also impact the nature of the financial products that are capable of being used. Indeed, Islamic scholars, particularly in the Sunni version of Islam, cannot agree among themselves what is acceptable and what is not. All this leads to considerable problems in devising a universally acceptable product.

Of course, the additional problem that the Treasury will have is that there is considerable scepticism among the conventional financial markets, particularly the western ones, about the credibility of Islamic finance altogether. To put it bluntly, there is scepticism about whether it is not just a con. In some cases, it is: the market is full of rogues, charlatans and crooks who will try to put up products that do not, in fact, meet the sharia requirements. So there is no great agreement on what should be done.

Financial Services and Markets Bill

Lord Carrington of Fulham Excerpts

Report stage
Thursday 8th June 2023 Lords Chamber

[Lord Carrington of Fulham (Con)]

My Lords, I will add my two cents’ worth to encourage the establishment of a Joint Committee. I cannot believe that having a committee in each House of this Parliament would work effectively, for all the reasons that the noble Lord, Lord Eatwell, has suggested. The committees of this House and the other place are grossly underresourced in any case. We need a committee looking at something as detailed and complex as this which operates in the way that the Public Accounts Committee in the other place is set up, is dedicated to look at regulation and has the resourcing to double-guess not only the regulators but the advisers who advise them, so that it can stand up and come to its own opinion. In the small time that the members of those committees are able to dedicate to the committee, with all the other duties they have as parliamentarians, it should be able to analyse the evidence and come up with sensible, and inevitably highly technical, solutions.

I have some experience of the committees of both Houses. I chaired the Treasury Select Committee, donkey’s years ago, and I served on the Economic Affairs Committee here for some time. Neither of those committees has the resources to be able to undertake this kind of task. It needs a completely new structure. Possibly the only model we can look at is the PAC, which has the National Audit Office advising it very closely. I am not suggesting we should set up a national audit office for regulation, although I know my noble friend Lord Bridges has suggested such a thing. We need to make sure that whatever is set up is properly resourced. I recognise that it is a matter for both Houses to decide how they do that, but we have to be absolutely clear that both Houses can do that only if the financial resources are made available by His Majesty’s Treasury and the Government to enable them to do so. It will be a decision to be taken by His Majesty’s Government and my noble friend the Minister to ensure that the resourcing is available.

It is a necessary step. However, it is a step and almost certainly not the conclusion. Once we have experience of regulating the regulators, we will be able to judge what other changes are needed to make sure that the regulation is effective and that financial markets in London are regulated in a way that is effective and convincing for participants in those markets on a global basis.

[Baroness Kramer (LD)]

I congratulate the noble Lord, Lord Forsyth, on being so persuasive. The Government have listened carefully to his advice and have come forward with amendments that are identical in their outcome, even if perhaps they have found a more effective or legally acceptable way to set out the wording. I am sure that that is a step forward, but I want to join the chorus.

I had the privilege of being on the Parliamentary Commission on Banking Standards, which in effect was a Joint Committee of both Houses. It was very much driven by the Government, who set it up in the first place, and it was properly resourced. From the work we did over the two years, there are two lessons to be drawn. One is that, with that resource, you can genuinely produce the evidence and go into the detailed questioning that is necessary to expose what may not have been obvious from a superficial or limited inspection; in-depth was possible because of the resource that was made available. The second lesson is that as a Joint Committee—I am very attracted to Joint Committees, as they avoid the duplication that others have talked of—that commission received a degree of respect and significance that is probably not available to a committee that is the creature of one House but not the other. The joining together of the forces of both Houses was meaningful.