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.