Corporate Profits: Inflation

Lord Moylan Excerpts

Thursday 29th June 2023 Lords Chamber

[Baroness Penn (Con)]

My Lords, I note that the noble Lord referred to the recent IMF analysis, which looked at the euro area. The Governor of the Bank of England recently said that it does not see a higher trend in non-North Sea corporate profits. Of course, we have the energy price levy in place with respect to North Sea corporate profits, but we keep it under close scrutiny. I am sure the noble Lord will be pleased to know that, yesterday, the Chancellor of the Exchequer met with the main regulators and agreed a new action plan to ensure that consumers are being treated fairly and to help those struggling to meet their bills.

[Lord Moylan (Con)]

My Lords, does my noble friend accept that, contrary to what the noble Lord suggests, inflation is entirely a monetary phenomenon; that since 1997 the Bank of England has been responsible for the control of inflation; and that the cause of our present difficulties is the reckless creation of money in recent years?

[Baroness Penn (Con)]

My noble friend is right that, when we think about tackling inflation, the number one area is remaining steadfast in our support of the independent Bank of England as it takes action to return inflation to the target of 2% through monetary policy. However, government does have a role to play. We must make difficult but responsible decisions on tax and spending so that we are not adding fuel to the fire. We also need to take longer-term action to bring down prices, whether that is investing in our future energy security or looking at the tightness of our labour market and taking action to get people back to work—for example, through our ground-breaking reforms to childcare.

Financial Services and Markets Bill

Lord Moylan Excerpts

Report stage
Tuesday 13th June 2023 Lords Chamber

[Lord Forsyth of Drumlean (Con)]

My Lords, when I went home after the last time we discussed accountability of the regulators to Parliament, my wife said to me, “I was watching you speaking on TV and, very unusually, you were praising the Minister to the skies”. Here I am having to do it again. My noble friend Lady Penn, the Minister, has listened very carefully to all the points that have been made and has come forward in these amendments with a package that makes my Amendment 101 look rather feeble, for which I am extremely grateful.

I do not propose to spend much time talking about Amendment 101 but want to make just a couple of points. First, I declare my interest as a chairman of Secure Trust Bank. Secondly, it is not just the banks causing difficulty here; it is also credit card providers such as American Express, which seems to have been particularly heavy handed.

I have had an American Express card since 1979 and yet, only recently, I got an email which I assumed was a spoof that said I had to provide copies of my passport and bank statements, details of my investments and income, and my payslips—such as they are—to American Express within a certain number of days. I assumed this was some fraudster. Then I got another email telling me that my card had been suspended because I had failed to produce this material. When I rang American Express and said: “What is going on here?”, they said: “Unless you produce it, your card will remain suspended”. Of course, there were a number of payments on my card, which caused me some embarrassment.

That is a completely disproportionate use of the regulations. I am not even sure that some of the financial institutions are even looking at this work themselves. They may be contracting it out to other people who are simply involved in box ticking.

I will give another example from some years ago. My daughter had an account at the same bank as me, Coutts, and the manager said to her: “Is there any chance that you could move to another bank because you are such a pain to look after because your dad is a politically exposed person?”. In my view, that is an absolute disgrace. Our children find it difficult to get mortgages. People find it difficult on probate. What my noble friend is proposing today goes further than my amendment and I hope it will result in change.

There is a problem, however, in that the regulator is judge and jury in their own court on this matter, although I appreciate the measures which my noble friend has put in place to hold them to account. Of course, if we set up a committee of this House or a Joint Committee, I think this will be very high on the agenda if they have not actually dealt with it.

I have one slight niggle with Amendment 97 in my noble friend’s name, which is that she gives the FCA 12 months to publish. That seems an inordinate length of time. In the previous amendment we discussed today, my noble friend reduced the time to six months from 12 months. Perhaps she might reflect on whether it really needs 12 months to carry this out. At first, I thought it might be a move in the hope that perhaps there might be a general election and it might get lost in that and there might be a change of government and it might not happen. But one thing is clear: everyone on all sides of this House feels very strongly about this issue and I commend my noble friend for having taken this action, which I know has not been easy, and for the care with which she has listened to colleagues in coming forward with these proposed changes.

[Lord Moylan (Con)]

My Lords, I shall speak to my Amendment 105 in this group. I express enormous gratitude to my noble friend the Minister for all the effort she has put in to resolving this problem in the last couple of years and now in this Bill. I have had a number of meetings with her, for which I am grateful. I have learnt much from her in the course of those meetings and in Committee. I think this is also an appropriate occasion for me to apologise for the fact that in Committee I insisted on one particular point of detail that I was right and, of course, it turned out on closer inspection afterwards that she was 100% right and I had got it wrong, so I apologise for that.

She has made sterling efforts, and what she is proposing today is welcome. None the less, those efforts—at least until we came to this debate today—have not been successful in scrapping a system which is cruel, capricious and unjust. In part, that is because of resistance in parts of the Civil Service. While I accept her proposal today, it worries me—I am wary—that 12 months is being sought in which to come forward with proposals which will resolve it definitively.

I would prefer, in principle, my Amendment 105. I am grateful for the support given to it by the noble Baroness, Lady Hayter of Kentish Town, the noble Lord, Lord Sharkey, and my noble friend Lord Forsyth of Drumlean—which I think pretty well represents most sides of the House.

The legal background, which my noble friend explained to some extent, is that this all originates with the Financial Action Task Force—an international group in which British officials play an important part. It is not binding. It is not law, but it is like a standard of good behaviour, if you like. I can understand why my noble friend and the Government at large wish to continue to adhere to those standards. I have no problem with that.

However, it is clear that the FATF—I am afraid that is the expression I am going to use for the Financial Action Task Force—recommendations make a distinction between domestic and foreign PEPs. It is difficult for the European Union to make such a distinction internally— I think the noble Baroness, Lady Bowles, who was involved with the European Union at the time, will confirm this—so when the FATF recommendations were incorporated into a European Union directive, that distinction between domestic and foreign PEPs was lost. So, as it was then transposed into UK law through the money laundering regulations, that distinction no longer appeared. However, it is clearly there in the FATF recommendations.

Since we are no longer obliged to adhere to the European Union directive, it is entirely possible for us, and entirely consistent with any sense of international obligation we have, to restore that original distinction. That is what my amendment would do in law straightaway. The FATF recommendation is that domestic PEPs should not be subject to the money laundering regulations unless they are in what is described as a “higher risk business relationship”. I have stuck very closely to that wording in my amendment.

It is also my view that when the Government come back in a year’s time, or maybe sooner—I hope it will be sooner; it does not have to be a year—they will end up more or less with my amendment. If they want to stick to the FATF recommendations and yet alleviate some of the burden on domestic PEPs, this is more or less where they will have to be. That is what I would prefer, but I am clearly not going to see it today.

I will add a few other points. As I say, I think my amendment is the standard against which within a year we will be judging what the Government come back with. There are a few other points not captured in the amendment that I think the Government have to address in the course of the review. First, at the moment, banks claim that the tipping-off provisions in the money laundering regulations mean that they cannot tell us when they are investigating us as PEPs. So, one gets these bizarre requests, as described by my noble friend Lord Forsyth, but if you try to have an intelligent conversation with them about what is going on, you are completely blanked and no explanation whatever is forthcoming. They claim that this is mandated upon them. I think that is possibly a misinterpretation, but in either event, it has to go. We have to be able to talk sensibly to people who are trying to make such inquiries if we are indeed within scope of them at the end of this process.

Secondly, it must be made clear to the banks that the closing or freezing of accounts should be very much a last-resort action, and only if there is already evidence of a suspicious transaction. It cannot be resorted to in the way that some banks have been doing. It is simply unconscionable that perfectly ordinary people who are family members—not necessarily Members of this House—are having their accounts closed down or frozen while investigations take place, when there is no evidential basis for doing so. It is simply, “Your turn has come round on the agenda to be inquired into”. Can my noble friend say whether we can look forward to any alleviation in practice during the next 12 months while we are waiting for this to happen, or is the full rigour of this unjust system to be persisted with while we are waiting?

Financial Services and Markets Bill

Lord Moylan Excerpts

Report stage
Tuesday 13th June 2023 Lords Chamber

[Baroness Lawlor (Con)]

My Lords, I support my noble friend Lord Trenchard’s Amendment 120, to which I have added my name and which I spoke in favour of in Committee. He then spoke of the history of this legislation, which was unintended by one EU commissioner and then pushed through, for matters of politics, by his successor under José Manuel Barroso: Michel Barnier, who saw it as part of the plan for a banking and monetary union for the EU—a plan that the UK was and is not part of and has no intention of joining.

The whole UK financial sector accounts for 8% of our economy—the same proportion as in the US and Canada—whereas financial services account for only 4% of the two major economies of the EU. The ironic thing about this legislation is that 75% of alternative funds were in UK businesses then, and the funds account for that sort of proportion in our own sector today.

My main concern is that this diverse sector, which has flourished in the UK under UK law, remains under an opaque legislative system. EU regulation is unpredictable and the EU’s system, with the precautionary approach, seems to cover every eventuality but in practice it can fall short. It often favours big players over small and nimble entrepreneurs and the challengers. There is little certainty about transactions in advance, and little predictability as to how the regulators will judge.

We spoke about this in respect of the whole sector in Committee, but it is important for the alternative funds industry in particular. If we move, we need to move away from the way of thinking into which our regulators have crept. They have absorbed this precautionary approach to regulation from the EU—as well they might, after two decades.

I was glad my noble friend suggested that the hope —the intention—is that we will end EU law, but I stressed then, and would like to stress again, the importance of ending the thinking about precaution and hesitation in grasping the opportunities once we are out. That is very important for the regulators in this sector.

I shall just give a few examples. We have in English law an approach to business which, given the principle of contractual autonomy, means that the law honours contracts and contractual arrangements. It does not rely on the subjective principle of good faith, which creates uncertainty for practitioners about the expected moral and other standards of behaviour. In German civil code, parties must observe good faith in both negotiation and in performance of contracts but, without a definition of good faith in German contract law, things are uncertain.

The other aspect of UK law that I think is good for the sector is that it is flexible. This is a very flexible sector, and the judiciary’s ruling, interpreting and developing of law through its application to specific cases in different sectors moves with the times and adapts to innovation—the new structures and transactions of a fast-moving business. But that cannot happen under the rule books or their architects, the courts, or indeed in the thinking, because courts, by contrast, are not subject to the constraints of the legislative process and can react and achieve change more effectively, and this judiciary is recognised globally to be wise, deeply knowledgeable and authoritative.

I took heart from the Minister’s assurance in Committee, and again during the first day of Report, about the intention to revoke all EU laws and replace those that were considered necessary with—I use her words—an “appropriate replacement” before eliminating any aspect of the legacy. But perhaps I could ask her to think again about AIFMD. Waiting for an “appropriate replacement” sounds more like Whitehall-speak for regulation of the type that has been absorbed and reflected by our regulators under the Treasury in recent decades. Perhaps this piece of legislation could be used as a pilot for ending something that, as the noble Viscount said, was not wanted by the sector, and which the Committee warned could have dangerous repercussions for the UK’s role in global markets and in dealing with America. Because of that, there are very good reasons to let it go, because it is not a consumer-facing industry; it is for the sector itself. It can only be to the good if this sector is set free without any replacement, so that it can benefit under the benefits of UK law.

[Lord Moylan (Con)]

My Lords, I will speak only briefly in support of my noble friend Lord Trenchard. It was commonly known, and widely reported in the newspapers at the time, that following the financial crash of 2008, the EU, which has always had its doubts and scepticism—indeed, hostility—about what it referred to as Anglo-Saxon finance, withdrew the indulgence that it had previously shown towards the City of London as part of the European Union and started to enact legislation that was injurious to the City of London, and quite deliberately so, to the annoyance of the Chancellor of the Exchequer at the time, George Osborne, who was reasonably open about his opposition.

This instrument, the alternative funds directive, was the prime example of that, although there were others. It contributed significantly to the fact that there was much more support for Brexit in the City of London than people often wanted to admit at the time, or have admitted since, because they understood that that oppositional turn had taken place and the tide was now flowing against the City. So I agree with my noble friend that it is very difficult to see why, now that we have the opportunity to remove it, we continue not to do so year after year—and there are other examples of that.

I also support the remarks of my noble friend Lady Lawlor. There is a prevalent idea—and not just in financial legislation—that, as we get rid of European Union legislation that we no longer need, we need to replace it with legislation that almost replicates what the European Union was doing. A prime example of that outside the field of financial services is the Procurement Bill, a massively complicated piece of legislation replicating European Union legislation, almost in great detail. In fact, the procurement legislation of the European Union—which was obviously designed for 28 states, not simply for the United Kingdom—was there largely to deal with problems embedded in a history of municipal corruption, which were manifest in various European states but, I am glad to say, of which the United Kingdom has a long, proud history of being pretty free, with one or two exceptions. It was not necessary to replicate it in the detail in which it was done.

There are genuine concerns, certainly among those of us on this side of the House, that insufficient dispatch is being brought to getting rid of injurious legislation that we inherited from the European Union but can now get rid of, and that there is a mentality that the right way to get rid of something is, in effect, simply to re-enact something very similar after a period of consultation. I have great sympathy with what my two noble friends said, and I hope that the Minister, when she replies, will be able to give them some comfort.

[The Parliamentary Secretary, HM Treasury (Baroness Penn) (Con)]

My Lords, I am afraid that, as my noble friend Lord Trenchard set out, his amendment has not changed since Grand Committee and neither has the Government’s response, which he so adeptly summarised on my behalf. We are not able to support the amendment for those reasons.

While I recognise all three of my noble friends’ strength of feeling on this issue, it is important that we do not inadvertently damage the UK fund sector or its access to international markets. However, I reinforce the Government’s commitment to revoking all EU law in financial services—but with prioritisation and process. I hope that all three of my noble friends will take heart from the fact that we are on the last amendment on Report and near the end of the process by which we can see the Bill on the statute book. We can then begin the process of the revocation of EU law and its replacement—or perhaps not, depending on the individual circumstances—with an approach that is guided by what is best for the UK and our financial services sector, to support growth in that sector and across the whole country. That is something that we can all support as a result of the Bill. I hope that my noble friend is able to withdraw his amendment.

Financial Services and Markets Bill

Lord Moylan Excerpts

Committee stage
Monday 13th March 2023 Grand Committee

Moved by

[Lord Moylan]

215: After Clause 71, insert the following new Clause—
“Politically exposed persons: UK taxpayers
(1) Within six months of this Act being passed, the Treasury must take all reasonable steps to make regulations to amend the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (S.I. 2017/692) so as to secure that, for the purposes of the regulation of financial services, individuals who are ordinarily resident for tax purposes in the United Kingdom are not treated as politically exposed persons, or as family members or close associates of a politically exposed person.(2) Regulations under this section are subject to the affirmative procedure.”

[Lord Moylan (Con)]

My Lords, I move Amendment 215 in my name and speak in general support of the other amendments in this group, all of which tend in a similar direction. I am very grateful to the noble Baroness, Lady Hayter of Kentish Town, and the noble Lords, Lord Hunt of Kings Heath and Lord Sharkey, for adding their names to my amendment.

Noble Lords will have many personal experiences of the harm and damage being done by the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 in their own lives and in those of their families and what are described as their close contacts, so I will not begin this short speech by giving a long list of examples; I will give only one. But I hope others will arise later, because while we in the Committee understand the damage done, members of the public who might be observing this debate will not necessarily know what we are talking about or why it matters so much to us.

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[Baroness Hayter of Kentish Town (Lab)]

I am sorry, but the Minister said that we are a leading member of the Financial Action Task Force. It has been enabled to take councillors out; it is very hard to imagine that Members of this House could not be.

[Lord Moylan (Con)]

I know the answer to this. It is because the FCA said in 2017 that a council was not a parliament or similar body. Those words appear in the task force recommendation. By declaring that a council was not a parliament or a similar body, members of councils immediately fell out of the regulatory scope by virtue of the guidance as it was changed at that time.

[Baroness Bowles of Berkhamsted (LD)]

This may not be something that the Minister can answer straightaway, but she has just finished by saying that the law enforcement agencies still wanted to keep the provisions. It would be good if she could tell me which and why, and on the basis of what evidence. How many parliamentarians have been done for money laundering, for example, and how many have featured seriously in inquiries? If that information is not to hand, I should be very happy to have it explained in detail in writing. I am still a bit perplexed, because my understanding of FATF was the same as that of the noble Lord, Lord Moylan: that is to do with foreign politicians, not our domestic politicians, or has FATF been updated? Oh, the noble Lord has it on his iPad.

[Lord Moylan (Con)]

It is the website with the 2021 version of the recommendations.

[Baroness Bowles of Berkhamsted (LD)]

So I cannot reconcile what the Minister has just told us with what is in FATF. If it needs detailed and arduous explanation, I am quite happy to have it in writing, but on the face of it, it is irreconcilable.

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[Baroness Penn (Con)]

I appreciate that it will not be the right route of recourse in many circumstances, but I do not agree that it is never the right form of recourse for people. It is important for people to know that that route is there. For particular cases, it may be appropriate. The noble Baroness has set out why, in many other cases, that is not the form of recourse that people want, which is why we have also set out other points of contact and ways in which to try to resolve these issues, which also act as a data point for the FCA as the regulator to look at issues in particular banks or institutions that are not applying the guidance appropriately.

[Lord Moylan (Con)]

My Lords, we have had a very valuable debate. I am grateful to all noble Lords who spoke in it and, if I do not thank them individually, I hope that they will forgive me, given the length of the debate so far. It is unusual, at the end of such a long debate, to be able to summarise the arguments made in one or two sentences—but I can, because everybody, in effect, said the same thing. That is that we want to see change, and the majority of us want to see legislative change.

Having said that I am not going to refer to individuals, there are two speeches to which I will briefly refer, because they were important. The first was the winding-up speech from the Labour Party Front Bench by the noble Lord, Lord Tunnicliffe. He spoke very briefly, but his words were very pregnant and important as we approach Report.

The second, which I will deal with at greater length, was the speech made by the noble Baroness, Lady Bowles of Berkhamsted, who acutely put her finger on a key issue that must be addressed if we are to achieve the legislative change that we want to see. That is about the definition that we choose. When I spoke earlier, I said that there must be a way in which to distinguish satisfactorily between domestic and foreign. In doing this, I will not use the term “non-discriminatory”, because that has legal implications, but we want to do it in a way that is fair and is seen to be fair by everybody who might be affected. At least a couple of suggestions have been made, and they both have merits. This is something to which we need to return as we approach Report, to make sure that we are comfortable with it—but I thought that the noble Baroness put her finger on that very acutely.

Normally, at this stage in a speech of reply, I would turn to a lengthy and careful analysis of the remarks made by the Minister, but she has been subject to a lengthy and careful analysis by practically everybody else in the course of her winding-up speech. So perhaps I will spare her that, and congratulate and thank her for taking, with such good grace, the questions and points that were put to her.

However, I shall refer to two points, the first being the security services. Frankly, I have never come across a case where the police or security services have given up a right to scrutiny that they already have. There is always some excuse for why it is necessary. I find that unconvincing—and the reasons are not, per se, on the grounds that it is the security services, but because of the arguments made here. It is astonishing that there is a special list of people in scope of suspicion of money laundering and terrorism, who happen to be the list in Regulation 35(14), when all of us could supply—even a five year-old could supply—a list of people much more likely to be in scope, who are not being subject to the same scrutiny.

On my second point, I do not think that I am in the wrong here, and suspect that my noble friend has not quite got it right, but am happy to be corrected. What are our international obligations to the FATF, insofar as we have legal obligations to it in a legal sense, given that it is not a legal body?

From this little iPad, I read out and referred very carefully to the current version of recommendation 12. It quite clearly says “foreign”; it places no obligation on the parties to the agreement to do anything about domestic PEPs. Clearly—this is where there may be a degree of confusion—in deciding who is a foreign PEP, you have to make a decision, if you like, that they are not a domestic PEP. Naturally, a sift is therefore required to get to the point of identifying that this is a foreign PEP, but I suspect that too much has been built on that, and there is some suggestion that that sift—are they foreign or are they domestic?—involves some obligation to scrutinise them. However, it simply is not there, so I referred in the course of my noble friend’s speech to the interpretative notes, and there is an interpretative note to recommendation 12, but it deals entirely with life assurance policies.

I think I also heard my noble friend say that recommendation 22 was relevant. That may have been a mishearing on my part but, looking at recommendation 22, it deals almost entirely with casinos, real estate managers and trusts. I do not know why they are all in the same recommendation, but there we are.

Financial Services and Markets Bill

Lord Moylan Excerpts

Committee stage
Monday 6th February 2023 Grand Committee

Moved by

[Lord Moylan]

55: Clause 24, page 38, line 27, at end insert—
“(3A) In section 2B (PRA’s general objective), insert—“(3A) In advancing its general objective, the PRA must act so as to minimise barriers to the wider ownership of regulated investments by the general public consistently with its general objective in subsection (2).””

[Lord Moylan (Con)]

My Lords, I will also speak to Amendment 241, also in my name. I hope this will be the least controversial mini-debate on the Bill, because I do not think anybody in the Committee is other than opposed to financial exclusion. We favour financial inclusion, especially in a modern digital age. What is normally meant by financial inclusion is the opportunity for people of limited means or living in marginalised circumstances to participate in the financial and banking system—something that is all the more necessary now that people are so dependent on access to it, not least for benefits but also for other, ordinary means of getting about in life and so forth. Who can be against that? A number of amendments in this group tend towards strengthening the obligations on the regulators to promote financial inclusion, and I am happy to lend my general support to them.

Amendments 55 and 241 in my name relate to a different sort of financial exclusion that has grown up over the last 25 or 30 years: the general tendency to exclude the retail investor from the opportunities to invest in regulated products. For example, we have gone from a situation 30 years ago where it was possible to buy gilts—UK government bonds—at the Post Office, or to bid for new issues of gilts at an average price through cutting out a coupon in the newspaper, to a situation where it is very difficult for ordinary people to buy government bonds.

In the case of highly rated corporate bonds, an EU regulation incorporated from its prospectus directive has set the minimum denomination of new issues of bonds at €100,000, which we have applied of course. The result is that very few sterling bonds are in denominations small enough for ordinary investors to buy, and even they are long-dated issues that are running off, so soon there will be no more unless we take some action.

The days of Sid are long gone. Nowadays, when companies do new share issues—what have come to be known as IPOs, initial public offerings, or even subsequent offerings—corporate treasurers are simply uninterested in engaging with retail investors, partly because the burden of additional regulation involved deters them from doing so. Shares are generally placed in private placements with institutional investors, because it is easier and quicker—no room for the retail investor.

There have been two reasons for this. The first is overcaution on the part of regulators. They feel responsible for regulated investments, so they do not want anyone to lose any money unless they are a really big player. The easiest way of preventing smaller players such as retail investors from losing money and complaining is to prevent them from investing in the first place. The second is the reluctance of corporate treasurers to engage with the retail market, because they have no incentive to do so, only additional burdens.

This might have been motivated by a good sentiment for protecting investors, but the results have been completely perverse. Nothing prevents retail investors investing in unregulated investments, so we see people out there quite freely putting their money into spread-betting; contracts for difference, which are similar to spread-betting; and even some things misleadingly known as mini-bonds, on which they regularly lose their shirts. Indeed, one issue of mini-bonds, from London Capital & Finance, was unregulated; it was ambivalent whether or not the regulator had actually regulated it. Noble Lords will recall that, last year, we had to pass a special Act of Parliament to allow the Treasury to indemnify those investors, because they had potentially been misled on the legal position. The core point is not that we had to indemnify them; it is that they were perfectly able to invest and to lose their shirts. But we stopped them—regulators and the circumstances prevent them—from investing in much safer, regulated products.

Amendment 55, in my name—I am grateful for the support of my noble friends, Lord Trenchard and Lord Naseby, and the noble Baroness, Lady Kramer—puts a new objective on the Prudential Regulation Authority to ensure that, as part of its work, it aims to minimise the barriers to retail participation in regulated products in the financial market.

Amendment 241 deals specifically with the narrow point that denominations of corporate bonds are required at the moment to be a minimum of €100,000 and replaces that with what we were used to many years ago, by having £1,000. That would make them accessible to retail investors.

I have had conversations with brokers—and I am grateful for them—who deal with retail investors in the City. I know that they are already in contact with the Treasury and that the Treasury is sympathetic to these arguments. There is nothing in what I say that will come as a surprise to the Minister, and I hope that, when she stands up, she will say many warm words in support of both my amendments, which I would appreciate. But I am concerned that there should be more than simply warm words and unbankable promises about what regulators might be asked to do in the future, so my inclination at the moment is that legislation would be a jolly good way forward. I beg to move.

[Viscount Trenchard (Con)]

My Lords, I declare my interests as a director of two investment companies, as stated in the register. I support my noble friend Lord Moylan in his Amendments 55 and 241, to which I have added my name. My noble friend has explained the purpose of his amendments very well and he spoke persuasively on this subject at Second Reading.

I was involved in much of the privatisation programme of the 1980s, and the Government’s efforts to increase the shareholder base, especially the retail shareholder base, were rather successful. Regulation has increasingly stymied retail investors’ ability to buy equities and bonds since that time, and I strongly support my noble friend’s wish to bring back Sid. New issues of equities used to be widely available to retail investors, but additional regulatory requirements now discourage corporate treasurers from including retail tranches in public offerings.

Amendment 55 requires the PRA, in advancing its general objective, to minimise barriers to wider securities ownership. This will create a better balance of factors, which it must take into account without in any way weakening the stability of the UK financial system.

As my noble friend mentioned, the prospectus directive is a strong candidate for early reform, in particular its requirement for a minimum transaction amount in a corporate bond issue of €100,000, which obviously excludes most retail investors from the market.

I also support Amendment 241, for the reasons that my noble friend has well explained to the Committee.

My noble friend Lord Holmes of Richmond proposes a new financial inclusion objective for the FCA. I welcome the steps that the Treasury and the DWP have taken to support financial inclusion. Could my noble friend the Minister tell the Committee how the welcome decision to release £65 million of dormant assets funding to Fair4All Finance has improved access to fair, affordable and appropriate financial products for those in financial difficulty? How do the Government intend to honour their commitment to protect the long-term viability of the UK’s cash infrastructure as we move inexorably towards a cashless society.

The Money and Pensions Service, in its national well-being strategy published in 2020, set out an agenda for change containing various ways in which to help people manage their money more effectively. I welcome this and other steps that the Government are taking in this area. I am also mindful of the fact that the Government have legislated to create a consumer financial education body, and I ask my noble friend what plans the Treasury has for that body. I welcome what is being done, and I am not sure that it is sensible to give a further objective to the FCA in this area, because it would dilute the attention that the FCA must give to its existing objective and two new ones—both the one already included in the Bill, the competitiveness and growth objective, and that proposed by my noble friend Lord Lilley, the predictability and consistency objective.

I also have sympathy with Amendment 75, in the name of the noble Lord, Lord Tunnicliffe, on financial inclusion, and I look forward to what he has to say. When I look at the matters to which the FCA must have regard in furthering its consumer protection objective, I am surprised that retail investors are allowed to invest at all. I am not sure that Amendment 75 would help reduce the barriers to market participation by ordinary investors.

I have sympathy with Amendment 117, because I think it will help if the FCA has a duty to address the issue. But I cannot support Amendment 228 in the name of the noble Baroness, Lady Kramer, because it may unfairly prescribe a bank’s ability to decide within reason the businesses that it wants to undertake, and its obligations to its shareholders and depositors to invest their money wisely. I am also not sure how the noble Baroness would define low-income communities. Our markets have been adversely affected both by the impediments to new authorisations and by unwarranted restrictions on the businesses of licensed banks. The result of this is often the reverse of what is intended, by dissuading new entrants from seeking authorisation, which negatively affects competitiveness and consumer choice.

--- Later in debate ---

[Baroness Penn (Con)]

I will absolutely take that back to the department, but I disagree with the noble Baroness that no action is happening on this issue. We talked about access to cash; that is being legislated for in the Bill. On access to low-cost finance, I have talked about the money that the Government have put in to pilot a programme of interest-free finance for those who are most vulnerable. We have talked about access to bank branches. I acknowledge that the initiatives on banking hubs have not been as fast as people would want, but they put forward a solution to an issue that we face. We agree that it is a common issue. I have given examples of what we are doing on digital inclusion. In a later group, we will discuss the importance of mental health. We have put in place the Breathing Space scheme for those who are in problem debt and have mental health problems.

Yes, there is a lot more action to take. I recognise the problem and I will take the noble Baroness’s words back to the department, but we are legislating on some measures in the Bill. I have set out very specific measures that we are taking in other areas. It does not mean that the job is done, but it does mean that action is happening.

[Lord Moylan (Con)]

My Lords, I am grateful to all noble Lords who have spoken in the debate and for the support that has been given generally for the amendments tabled. It is true that one or two noble Lords have quibbled about the detail of particular proposals in the amendments, but I think there was universal support for the general principles underlying them.

It falls on me briefly to deal with the quibbles raised by the noble Lord, Lord Davies of Brixton, because they were pointed directly at amendments in my name. First, he is right to say that over a period of 30 or 40 years there will be a large number of sociological and economic changes that might explain the appetite for different types of investment among the population at large, but surely he will accept that these are completely dwarfed and made irrelevant if the fact is that you are not allowed to purchase the investments in the first place. The object of the amendment here is to allow this to happen. If you have to put €100,000 on the table to buy a corporate bond, people are excluded in very large measure, and questions of their appetite for different types of risk simply do not arise. If there is routinely no retail element to a new issue of shares, retail investors will not be able to buy those shares, so that is that.

The noble Lord, Lord Davies, also picked me up on what I meant by regulated investments. It is true that if the amendment were to come back on Report, it should perhaps be drafted more carefully to say, “investments traded in regulated markets”. I accept that it might have been infelicitously drafted but, to give a more substantive answer, perhaps one should take a more apophatic approach and define what non-regulated investments are. They are things such as betting, spread-betting, contracts for difference and mini-bonds.

The noble Lord is concerned that putting your money into highly rated shares, corporate bonds or gilts might be a little risky and inappropriate for somebody setting aside money for the future, but he has not tabled the amendment that I would hope to see in that case that would have prevented them investing in all these different products, which are there freely available and which people invest in. As the noble Baroness, Lady Kramer, pointed out, the mini-bond crisis was about perfectly respectable people believing that they were investing in something that looked like a bond, when it was not at all, for a return that appeared attractive. If we do nothing for them and allow that, why are we worried about them investing in real bonds?

Finally, there is the question of whether by agreeing such an objective for the regulators they would in effect be giving advice. I simply refute that: to remove a barrier to investment is not to give advice. I do not know where the noble Lord keeps his money for a rainy day. Perhaps it is all in a savings account somewhere, but I would encourage him to think a little more broadly and to look upon various safe and regular opportunities that would be available to him for his spare cash if he were to swing in behind this amendment. I am sure he would benefit in many ways from that.

I turn briefly to the remarks of my noble friend the Minister. I am grateful to her for the encouragement she has given and will look carefully at what she has said. I am still not wholly persuaded that proceeding on the basis of the Treasury’s current work, rather than by way of legislation, is entirely the best way. I will consider whether these amendments, or one of them, might come back on Report.

On the broader question of the financial inclusion of people who are marginalised by the financial system—I hope I am not presuming too much if I speak for the Committee at large—my noble friend might want to reflect a little further on whether a process of engagement with noble Lords on all sides of the Committee who have brought these issues up would be beneficial between now and the issue returning on Report. I know that it is not in her personal nature to sound negative and unwelcoming, but her speech had that tone of saying that everything was a little too complicated and might have an unintended consequence. Well, anything might have an unintended consequence; by definition, one would not know. I wonder whether she might consider some process of engagement on the issue, because I think the feeling around the Committee is quite strong. With that, I beg leave to withdraw my amendment.

Amendment 55 withdrawn.

Financial Services and Markets Bill

Lord Moylan Excerpts

2nd reading
Tuesday 10th January 2023 Lords Chamber

[Lord Moylan (Con)]

My Lords, I was worried that my noble friend Lord Carrington of Fulham would take away the very last thing I might have said that has not already been said, but happily he has left a little scope for my contribution to the debate. I will start by saying something which has been widely said, by offering congratulations to all my noble friends who made their maiden speeches today and saying how welcome their contributions were, as their many contributions in future will be, adding to the quality of debate and the experience of your Lordships’ House.

There have been many points of consensus around the whole of the House as we have debated this, and I share those points. Among them is the astonishing lack of parliamentary scrutiny of what is in fact lawmaking. Whether this constitutes taking back control and whether it could be done better need to be explored in Committee. A second point of consensus is the need to ensure that a cash option remains available, not just for those who need it but for those who want to exercise it. There is broad consensus on that around the House. A third point on which there is consensus—I do not intend to put this too controversially—is that there appears to be a shared mild uncertainty around whether the current regulators are up to managing the new jobs that are about to be thrust upon them. That is something else that I am sure we will want to explore in Committee.

I would like to add one item, which I hope will command widespread support in your Lordships’ House. Over the last 20 or 30 years, retail access to regulated investments has practically dried up. It used to be the case that one could buy government bonds, gilt-edged securities, at the Post Office. It used to be the case that one could bid, non-competitively, for new issues of gilts through clipping a coupon in a newspaper—even the Daily Mail—and put one’s money into government bonds, as a safe, secure investment that one could hold over the long term. It used to be the case that new issues of equities were widely available to retail investors. All these had different risk profiles, but we need to trust that retail investors understand to a degree what they are doing—and they do.

Over the last few years, investors with money in their pockets which they would like to put into savings have been precluded by regulation from these markets and have instead put their money into dodgy schemes and things calling themselves bonds that have been marketed in a way that sometimes gives the impression that they are regulated by financial regulators. Sometimes there has been sufficient justification for that claim, such that we had to pass legislation only last year to authorise the Treasury to bail out the investors in one of the schemes—I believe it was called London Capital & Finance, but I may have that slightly wrong. We are saying that investors are going to be regulated out of nice, secure, sensible investments, but in effect encouraged to go into dodgy investments. It is all completely wrong.

A large part of it comes from the European Union’s prospectus directive. One thing it said was that, for investment in corporate bonds, the minimum denomination for a new bond issue has to be €100,000, and that denomination stays with the bond for the whole of its life. So unless you have a sum of roughly €100,000, you cannot buy. Most retail investors do not have that. The prospectus directive is included in Schedule 1 and is listed to go. It is vital that we put the retail investor at the heart of this.

Furthermore, treasurers are discouraged from giving a retail offer in new issues of equities because they have additional regulatory requirements to meet. We should be able to address those. All those things could be done if they were an explicit objective of the Bill and if the Government committed to doing them. The Investor Access to Regulated Bonds Working Group in the City has been talking to the FCA about this. The working group represents the industry; I have had some briefing from it, but have no interest to declare. There is a definite opportunity, but it needs to be taken up and pressed by the Government.

Finally, my noble friend Lord Forsyth of Drumlean mentioned the outrageous way in which politically exposed persons are dealt with in this country in the domestic regime. I put it to my noble friend on the Front Bench that this Bill, dealing as it does with financial regulation, would be the perfect mechanism for sorting out that problem once and for all, through any necessary amendments to primary or secondary legislation required, so that we cease to have the humiliating prospect of watching the Front Bench go off and beg the Financial Conduct Authority to treat us reasonably.

Defined Benefit Pension Funds

Lord Moylan Excerpts

Tuesday 1st November 2022 Lords Chamber

Asked by

[Lord Moylan]

To ask His Majesty’s Government what assessment they have made of (1) the extent of Liability Driven Investment strategies in the management of Defined Benefit pension funds, and (2) the consequences that may arise for (a) His Majesty’s Government’s ability to issue new gilts, and (b) the management of inflation.

[The Parliamentary Secretary, Treasury (Baroness Penn) (Con)]

Defined benefit pensions use liability-driven investment strategies to protect themselves from adverse interest rate and inflation movements. The Pensions Regulator estimates that 60% of defined benefit pension funds have LDIs. The Debt Management Office’s gilt operations are running smoothly, with good levels of demand; its 2022-23 financing remit will be revised alongside the Autumn Statement on 17 November.

[Lord Moylan (Con)]

My Lords, I welcome my noble friend back to the Front Bench. If the pension funds were entering into those risky strategies with a view to eliminating their exposure to interest rate changes, it did not quite work, did it? The Government need to sell gilts to borrow money for their activities. The Bank of England needs to sell gilts to start to reverse quantitative easing and to bear down on inflation. Both those activities were threatened by the sudden discovery of what can only be described as risky and dodgy investment strategies at private pension schemes a few weeks ago. So what I and other noble Lords would like to hear from my noble friend is that those financial positions have now been reversed out of by the pension funds—that they are not pursuing those strategies—so that this does not happen again, and the Government and the Bank can continue with their vital activities.

[Baroness Penn (Con)]

My Lords, LDI strategies can be used as a risk-management strategy for pension funds, and I would expect them to continue to do so. There were specific circumstances which the Bank stepped in to address. But my noble friend is right that it is important that we reflect on what happened to those particular funds in that period and make sure that the Bank of England and the Financial Policy Committee have the right oversight to ensure ongoing stability in these markets.