Financial Services Bill

Lord Holmes of Richmond Excerpts

Committee stage & Committee: 2nd sitting (Hansard) & Committee: 2nd sitting (Hansard): House of Lords
Wednesday 24th February 2021 Grand Committee

[Lord Holmes of Richmond (Con) [V]]

My Lords, it is a pleasure to take part in day two in Committee on the Financial Services Bill. In doing so, I declare my interests as set out in the register.

I speak on this group to support my noble friend Lady Noakes’s Amendments 10 and 26. I shall not detain the Grand Committee too long. I have written an extensive article on this subject—if anyone is interested, it is at lordchrisholmes.com. All the amendments in this group seek to answer a straightforward question: who watches the financial watchdogs? If I had had a more expensive education, I could do the Latin for that, but fortunately I simply had an expansive education.

It seems to me that the start point is not whether we need more or less scrutiny and accountability but what the right level of accountability is. What are we seeking to achieve? In the EU/UK process, the debate has been characterised as being between principles and prescription. That seems a somewhat false characterisation. For me, the start point of purpose would make a lot more sense. What are we trying to achieve via our regulatory approach—to the FCA and the PRA—to enable it to be to that extent and no more? We also hear of proportionality. I support the two amendments in the name of my noble friend Lady Noakes because they are elegant and leave space for detailed thinking to be done rather than for it needing to be rushed through in the Bill.

Some of that thinking needs to rest around the three Cs of capacity, consistency and co-ordination. Does any potential scrutiny have the right people, the right skills, the right experience and the right amount of time to undertake the task? On consistency, are the scrutinisers and the regulators there all the time, day in, day out, not merely when there is a significant regulatory failure or something that seems of particular political significance? Co-ordination speaks for itself, each regulator being a constituent part of a greater sector in terms of financial services and beyond that across the whole family of regulators, inspectors and ombudsmen.

In any solution that may come out of this, the greatest amount of energy seems to be around the Treasury Select Committee and a potential sub-committee. This has a great deal to recommend it, but even if we consider the first C of capacity, there would seem to be at least a challenge on this.

A similar argument, but with the addition of the right level of expertise, in my view, has been put forward in an excellent report from the All-Party Parliamentary Group on Financial Markets and Services, which was published on 18 February. It argues that a sub-committee of the Treasury Select Committee, supported by an expert panel, could be effective in this space. As has been said, it is not for the Government to prescribe what approach Parliament takes but, in this Financial Services Bill, the opportunity should be taken to provide that space and those options for such a scrutinising body to be constructed.

We have the opportunity to move a million miles away from part of the parliamentary scrutiny that we currently have—the annual report to Parliament via the Minister. We can move towards doing effective scrutiny in the 21st century in real time, rather than via the rear-view mirror: Parliament partnering with academia, the private sector and all the relevant expertise, deploying all the necessary elements of technology to enable effective and efficient scrutiny of our financial regulators for the benefit of us all.

[Lord Sharkey (LD) [V]]

My Lords, many of the amendments in this group share the aim of increasing or providing for the first time proper parliamentary scrutiny of some financial services regulatory regimes and of those who enforce them. Some amendments deal with the problem of absent or insufficient scrutiny on a grand scale and I strongly support their intent. This Government often seem to think that parliamentary scrutiny is best avoided or diluted. Our DPRRC, SLSC and Constitution Committee have regularly warned the Government against using skeleton Bills, against behaving as though consultation is a substitute for real parliamentary scrutiny and against using rule-making as camouflage legislation.

This Bill contains a particularly alarming example of the evasion of scrutiny in allowing the Treasury to revoke rules by SI by giving the regulator the power to make legally binding rules without any parliamentary involvement. That is completely unacceptable, as the Government must know. I strongly support Amendments 10 and 26, tabled by the noble Baroness, Lady Noakes, as a means of restoring some proper scrutiny. As the noble Baroness clearly explained, these amendments are not prescriptive as to the form of parliamentary scrutiny needed; they simply set out the principles that must guide construction of the scrutiny mechanisms. This is the equivalent of making an invitation to the Government that they should not refuse. It is an invitation to serious and substantive discussion about the way forward and it rightly, given the serious and far-reaching consequences, gives an appropriate incentive to resolve the issue quickly and collectively. I urge the Government to begin immediate cross-party talks on the issue.

By contrast with some of the amendments in this group, our Amendment 22 has modest and narrowly defined ambitions. As the Bill stands, Clause 3 lists the provisions of the CRR that the Treasury may revoke by regulation. There are 42 of these categories of provisions, all of them significant. Clause 3(4) makes these revocations conditional on their being or having been adequately replaced by general rules made, or to be made, by the PRA, or to be replaced by nothing at all if the Treasury thinks that that is okay. The Treasury appears to be the sole judge of what may or may not be an adequate replacement. In any event, Parliament is completely bypassed in this system. But all this means is that the Treasury can revoke provisions by SI before it has published the replacement rules or even decided what they will be. This sounds like a perfect recipe for disorderliness and uncertainty and it means that Parliament will have no opportunity to consider these new rules in a legislative setting. We get to see what has been dropped, but not necessarily what the replacement rules may be. This is another example of making law by making rules that Parliament has not been able to scrutinise.

Our amendment proposes a simple way round this. It would require any revoking SI to carry not only full details of what was being revoked but the full text of the replacing rules, except, of course, where no replacement was envisaged. These new rules can and will reshape important parts of our financial services regulatory regimes, and it is quite wrong that Parliament should be unable to scrutinise them.

I hope the Minister will be able to accept our amendment or to give us an assurance that revoking SIs will contain the full text of any replacement rules.

--- Later in debate ---

[The Deputy Chairman of Committees (Lord Duncan of Springbank) (Con)]

I have received a single request to speak after the Minister; I call the noble Lord, Lord Holmes of Richmond.

[Lord Holmes of Richmond (Con) [V]]

My Lords, I thank the Minister for his very clear and thoughtful response. I have three brief questions for clarification. First, what plans, if any, are there for a Financial Services (No. 2) Bill? Any information on that would be helpful to the deliberations of the Committee today, and to the approaches noble Lords may choose to take as we move through further stages of the Bill.

Secondly, will he say what the Government’s position is on the timeliness of such scrutiny? Does it err more towards rear-view rather than real-time? Thirdly, in the light of the debate that we have just had, will he consider discussions potentially to lead to government amendments coming forward on Report? I think that noble Lords would agree that, on scrutiny and accountability, if the Bill is passed as currently drafted that would be at least somewhat unfortunate.

[Earl Howe (Con)]

My Lords, I intended the Committee to take some reassurance from the final sentences in my winding up when I said that I was very happy to continue the conversation with noble Lords on this theme between now and Report. I hope that noble Lords will take that as a signal that the door is not closed as regards a potential tweak to this part of the Bill.