Financial Services and Markets Bill

Lord Deben Excerpts

Committee stage
Wednesday 1st March 2023 Grand Committee

[Lord Hill of Oareford (Con)]

My Lords, I will speak briefly but strongly in support of this amendment and, in doing so, state my interest as the lead NED at the Treasury and as an adviser to a number of global and European financial businesses.

It is a pleasure to follow the noble Lord, Lord Vaux, because he made the point that I wanted to start with: we must not think of this as an alternative to parliamentary scrutiny. We all agree that we need much more thorough parliamentary scrutiny; this amendment would help Parliament to do its job. The point that the scrutiny is to be fact-based and analytical is key.

The proposal for the overall framework of scrutiny has an OFRA-sized hole, which this amendment would fill. It is rare to find an amendment where you cannot detect anyone who is going to lose from it, but I can see only an upside for all groups with this amendment. It would be good for the regulators, as we have heard, because it has the potential to detoxify the political debate. It would be good for the Government because it would provide a more stable, long-lasting framework. We need to get this right now because I do not know when next a Bill will come along that will enable us to look at this framework. We have been waiting for a long time, since 2016, so we need to get something that is stable and going to endure. As we have argued, it would be good for Parliament because it would aid its task of scrutiny and it would be good for the financial services sector, which is our most important contributor to tax revenue, because it would provide an analytical basis in which it could have confidence and trust. My noble friend Lord Bridges has presented the Minister with a gift horse and I very much hope that she will not look it in the mouth.

[Lord Deben (Con)]

My Lords, I remind the Committee of my interests, including chairmanship of PIMFA, which represents financial advisers, and at Sancroft we advise a number of financial institutions on sustainability.

I merely want to say that one of the groups of people who will benefit considerably from this are those who are regulated. The fact is that we need to recover confidence in the regulator in two particular areas. The first is what I call the conflicts between regulators, for which there is really no way of unpicking them so that they can work more effectively. That is particularly true among many of the people with whom I deal almost every day.

The second reason why this is so important is that I do not believe that anyone should be unaccountable if they have a public position. I very much agree with the noble Lord opposite who talked about the terrible opera story. I just do not think regulators can do their job properly unless they look over their shoulder to the public as a whole, which is what we are talking about in this bit regarding accountability. As a Minister for 16 years, I know that one’s accountability to Parliament and the public was an essential part of doing the job properly. One had to say to one’s civil servants, “Look, we can’t do that because it really would make people feel that we were behaving in a way that was unacceptable to Parliament or to the public.”

That is the problem for the boards of these regulators, which seems to me to be one of the issues. As my noble friend Lord Bridges suggested, some say that the boards should deal with it. That is not possible unless a board is itself accountable to the public and, in that sense, to Parliament. I do not believe that you can expect the boards to do their job of saying to the regulator, “Look, I’m sorry, you really can’t do that”, or indeed, “You can and should do this”. I am not suggesting that it should always be “Don’t do it”; sometimes it should be “Do it”. Later on, for example, we will discuss the issue that in the City of London the regulator does not insist that a competent person says not only whether, for example, there are gas deposits but whether under the law of Britain those gas deposits will be able to be used, which is just as important. At the moment the regulator does not do that and there is no way of insisting that it should. I therefore strongly support what my noble friend Lord Bridges has said.

[Lord Forsyth of Drumlean (Con)]

My Lords, this amendment is absolutely inspired. We had a debate earlier about the merits of parliamentary committees, and it was questioned whether they would have sufficient resource to do the work. I am very taken by what the noble Lord, Lord Tyrie, had to say. At the risk of embarrassing him, he was a very distinguished member of the Treasury Select Committee and did some fantastic work there. He comes from a background in the Civil Service and has experience inside government. Therefore, we should take very seriously what he had to say about the merits of this proposal.

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In the meantime, my only remaining question is to ask whether the Minister accepts that the RDC has some concerning shortcomings. If so, it would be much easier for us all. Perhaps the Minister can take this problem away, ask for an independent assessment of the RDC’s performance and then publish the results. If that does not take place, perhaps it could be an early project for the scrutiny body proposed by the noble Lord, Lord Bridges, which could do a thorough report on the job and advise on how to improve the RDC’s performance.

[Lord Deben (Con)]

My Lords, much of what we have just heard would be very much supported by the group of people with whom I work. We do not want to reduce the protection of either group of which we are speaking, particularly small people asking for redress.

The ombudsman service needs reform; there is no doubt about that. We really have to discuss putting some stakes in the ground about not blaming people for things they would never have thought of at that point because we now think of them. I am afraid that my noble friend Lord Lilley’s amendments do not help us in that direction. In other words, all the issues I would want to raise about the ombudsman are not covered by these amendments. Similarly, it is true about the protection of people from the effect of investigation, even when that investigation turns out not to be justified.

I finish by reminding the Committee of the original discussion we had. We need a system that people see to be fair and is shown to work effectively for small as well as big people. I do not think these amendments will help this, but I hope we will be able to have changes. I do not think that you should accept any changes just because you want changes, and I submit that these are the wrong changes.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I am speaking later than I would have in the debate, due to the absence of my noble friend Lady Kramer. The Committee will be pleased to know that I shall not try to say everything that I would have said, as well as everything that she would have said.

It is well known from the previous FSMA that I support independent review. I had an earlier amendment to this Bill suggesting the use of the NAO, to which the noble Lord, Lord Bridges, referred. I am pleased to support his amendments, which I have put my name to and which lay out a much more thorough range of new provisions. At this stage, I should probably remind the Committee of my interests in the register, in that I am a director of the London Stock Exchange, as I am going to talk about my regulator.

The UK would not be alone in having independent review of financial regulations as part of its accountability. That was one outcome of the review of the financial crisis in Australia. I have been around this argument many times, and today it has already been eloquently explained by the noble Lord, Lord Bridges, so I pose instead the question: what happens without an independent review? One thing that is certain is that there will be complaints about regulations and, by and large, the regulators will defend their work. Parliament’s committees will try to scrutinise, but that is a public process—or it has been called the political process. They are well adapted to do the kind of inquiry that they do and often get into the nub of the matter. But as we have found out in the Industry and Regulators Committee, it is difficult to get industry to state in public what its issues are with the regulators. As I have pointed out with amendments and speeches on previous days, the Government do not give any legislative status to the parliamentary reports, so there is scrutiny but no consequence, which is not accountability.

Additionally, within intensively supervised frameworks, such as that which exists, probably uniquely, in the financial services sector, there is genuine concern on the industry side about regulators’ retaliation or suspicion if they complain. I acknowledge that the heads of the regulators have said that this would not happen, and would be wrong, but that does not allay concerns or whispers about this most crucial of relationships between industry and its regulators, where every word is guarded. There are also genuine concerns that explanations require public disclosure about investigations or other difficulties that firms may have faced in compliance, which they would rather not put in the public domain—for example, out of commercial confidentiality about future plans and not for reasons of bad behaviour.

Industry will therefore instead bend the ear of government through many of the private channels that it has, whether through the Treasury or at Cabinet level—for example, as it has about international competitiveness. The Government may choose to act, as they have in that instance. Meanwhile, the public channels remain uninformed or unconvinced, because—and I refer again to the experience of the Industry and Regulators Committee—we were given evidence of only operational inefficiency and not of rules that caused any lack of competitiveness. How is public trust to be maintained under these circumstances? How is there to be the legitimacy that has been spoken about? How are reviews to get through the confidentiality concerns in a way that the public trusts?

The Minister has sat tight on review in all the previous debates on this Bill and the previous one, saying that the Government have given themselves powers to satisfy those requirements—powers to ask the regulator to review its rules. I do not object to that, but it hardly has any independence or new eyes. There are powers to seek independent reviews but as we know from experience, because those powers have been around for a while, such reviews have not been used quickly or frequently. They tend to follow a sequence of disasters, as the Gloster review did, and not to be done in any checking or anticipatory way. I understand why that is, because government must keep a certain distance and look for some systemic concern rather than one-off causes, but that distance leaves a gap.

Of course, there are powers to intervene by way of directions, which need to be used with care if the independence of regulators and international respect for them are to be maintained. None of those powers satisfactorily address how there should be checking in a way that permits private submissions but remains free of it looking as if government either is interfering too much and getting too cosy with industry, which is what it will look like if the Government use their powers to intervene as much as might be needed, or never acts until there has been substantial damage, when it really is too late.

I would also be interested if the Minister would inform the Committee of the level of resources and number of personnel that the Treasury is able to put behind its own monitoring, and whether it is free from reliance on industry and consultancy involvement. It is no good if it is just sent back to the same people, who will give the same information as comes in through the private channels anyway. How is that meant to be independent? I hope the Minister will take account of the fact that calls for independent review, as well as enhanced parliamentary scrutiny, come from all sides of the House and need to be addressed. There should be some serious conversations before we get to Report.

I will briefly say a few things about the amendments put forward by the noble Lord, Lord Lilley but I agree entirely with the noble Lord, Lord Tyrie. It would be a dreadful shame if one of the major achievements of this Parliament after the last financial crisis were watered down or, even worse, set aside. I fear that, as has been explained, that could well be the case. When the noble Lord, Lord Lilley, introduced his previous amendments, I said that I am not totally against a libertarian approach—one where you have to take care, and if you get it wrong then you are for the high jump—but that is not what is presented here. This proposal would make it extremely difficult for the regulators. It does not fit with the kind of regulatory system we have, with its underfunded regulators. It is a way to make it easy to set aside what the regulators have done. Given what I just explained about the relationship that firms have with their regulators—one of the reasons why, regrettably, they will shy away from legal action—it will not necessarily overturn that.

I do not agree with the predictability and consistency objective, for the reasons that others have explained: we want agility and change, and have to adapt to circumstance. If something comes to court, surely it could remain that a judge ultimately applies it, but that would be in the light of circumstances and an acknowledgement that circumstances change and regulation necessarily proceeds.

Likewise on a good-faith defence and reasonableness, my take on the senior managers regime is that the whole point is to make individuals be proactive, rather than just coasting along in what has been a comfortable way of life—how things have always been done. It has meant they have to engage their brain, think about it and update in the light of circumstances. Just saying, “There was a set of rules and I complied”, is not meant to be enough; you have to take account of what is going on.

Is there not a conflict here to some extent between people on the one hand talking about wanting principles-led regulations and, on the other, talking about that being vague? There are complaints that there are too many rules, yet it is industry compliance departments that are first off the blocks saying, “Where are the rules? Give us the rules! I want to know where to put my tick”, so I am not sure which section of the market this proposal is supposed to serve.

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[Baroness Penn (Con)]

Whether it is there to aid others in the accountability structure or is an accountability body itself is a further question, but its proposed role raises questions about, for example, how transparently it operates, as the noble Baroness, Lady Bowles, touched on, and other such considerations. I merely said to my noble friend who raised this point that the establishment of the OBR happened in a Bill of its own after a manifesto commitment, and that it had been up and running for some time before it was put into statute. It is not unreasonable to say that considerations need to be made when we think about this issue.

[Lord Deben (Con)]

There are certainly considerations, but surely one of them is that we have an opportunity to make the change in this Bill, and we will not have another opportunity for a very long time. The Minister is proposing that we do not do it, frankly. Therefore, let us do it in this Bill, because it is the one opportunity that we have.

[Baroness Penn (Con)]

My Lords, I would never want to speculate as to future parliamentary timetables. My noble friend Lord Naseby talked about the importance of listening to those who are impacted by the provisions of the Bill. He spoke about the City, and we have heard various points of view in that respect. I would add consumers into that mix, too. I say to noble Lords that the Government have consulted extensively on the approach we are taking in the Bill, and we have received a number of responses on this specific issue in both future regulatory framework review consultations that took place. Although I absolutely recognise that a small number of respondents were supportive of further consideration of such a body, the vast majority were focused on how existing mechanisms for accountability to Parliament and government and engagement with stakeholders could be strengthened. The Government therefore decided, in response to those consultations, against creating a new body, and focused on ensuring that the mechanisms for Parliament and government to scrutinise the regulators are effective.

Financial Services and Markets Bill

Lord Deben Excerpts

Committee stage
Thursday 23rd March 2023 Grand Committee

[Lord Deben (Con)]

If my noble friend is saying what the noble Baroness asked, she is making a very serious change. To object to the changes being recommended on the basis that this is the wrong place seems to me to be quite difficult to uphold.

[Baroness Penn (Con)]

The Government will make those changes only within the agreed scope set out in the Bill. That is perhaps why the DPRRC was content with the approach that they were taking.