Financial Services and Markets Bill

Lord Hill of Oareford Excerpts

2nd reading
Tuesday 10th January 2023 Lords Chamber

[Lord Hill of Oareford (Con)]

My Lords, I declare my interest as both the lead NED at the Treasury and an adviser to financial and professional service firms in Europe and the UK. My real interest today is in talking about the accountability of the new regulatory framework proposed in the Bill.

The underlying purpose of the Bill is clear enough: to give our financial regulators more independence and more flexibility in setting the regulatory framework for our financial services. As someone who was responsible for financial regulation in the EU and who saw some of the downsides of that rather clunky, consensus-based system, I fully support that objective. The ideal regulatory framework is flexible and dynamic. Risk is not static, and regulation should not be static either.

But if we are to give our regulators more independence and more control day to day over an industry that is so important to the well-being of our country, that surely has to go hand in hand with more accountability. The question that follows is whether this Bill does enough to increase the accountability of our regulators alongside the increase in independence that it clearly gives them. The answer at the moment is that it does not.

To say we need more accountability is not, by the way, to attack our regulators or question the importance of independence. They have an incredibly difficult job and have gradually had more responsibilities dumped on them by politicians who have outsourced their own responsibility for managing risk. If we get it right, clear accountability should strengthen our regulators and protect their independence.

When we talk about accountability, we first need to be clear on our terms. I draw a distinction between the regulations themselves on the one hand and the application of those regulations on the other. Very often, the two are conflated and we just talk loosely about regulation, but the UK’s overall regulatory environment, and our competitive position, are shaped by both the detailed law and what we might call regulatory culture or behaviour. Both affect sentiment in the marketplace and shape the decisions that companies take as to where they want to base their business. When people grumble about regulation in the UK, it is often the process—the length of time it takes to get approvals, inefficiencies, a box-ticking mentality—rather than the rules themselves which infuriates them.

I draw this distinction because we need accountability mechanisms which cover both points—both the rule-making and the application of those rules. When we talk about holding the regulators to account, I am sure we will have a lot of discussion about the proper role of Parliament in the process. As has already been asked, does a session in front of the Treasury Select Committee amount to proper accountability? Is the TSC properly set up and resourced to provide proper scrutiny? Clearly, the answer to both questions is no.

We also need to look at non-parliamentary mechanisms for increasing accountability. Should the regulators publish how long it takes them to process approvals, for example? Should an independent body provide some comparative statistics on how UK regulators do compared with other jurisdictions? Can we beef up the annual “state of the City” report which the then Chancellor, Mr Sunak, committed to publish once a year? Should we think about establishing a body modelled on the OBR which could provide some independent validation of the work the regulators are doing? After all, their decisions have a massive impact on the functioning of our economy and thus our ability to fund public services. If it is good enough for the Treasury goose to have the OBR, why not for the regulatory gander?

This is a vital Bill which will set the framework for one of our most important industries for years to come. I am all for the independence for the regulators it contains, but we will need to do better on accountability.

Financial Services and Markets Bill

Lord Hill of Oareford 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.