Financial Services and Markets Bill

Lord Sharkey Excerpts

Committee stage
Thursday 23rd March 2023 Grand Committee

Moved by

[Lord Sharkey]

241G: Clause 76, page 89, line 32, at end insert—
“(3A) For each statutory instrument laid before Parliament in draft under this Act, if each House of Parliament passes a resolution that the regulations have effect with a specified amendment, the regulations have effect as amended.”Member’s explanatory statement
This would allow affirmative SIs generated by this Act to be amended by agreement of both Houses.

[Lord Sharkey (LD)]

My Lords, in moving Amendment 241G, I will also speak to Amendments 243A and 243B. The noble Baroness, Lady Noakes, has added her name to the last two; I am grateful for her support. I will speak first to Amendments 243A and 243B, then to Amendment 241G.

At Second Reading, I estimated—as did the noble Lord, Lord Hodgson of Astley Abbotts—that this Bill would generate at least 250 SIs. Many, if not all, of them would bring or have the potential to bring significant policy changes to the regulatory structures of our financial services industries. They would be able to do this without any significant scrutiny by Parliament. The parent Bill—this Bill—rarely sets out explicit policy changes; rather, it gives the Treasury powers to make policy changes when it has decided what those policies might be. Of course, this bypasses parliamentary scrutiny; it also, yet again, ignores the proper purpose and province of delegated legislation.

Amendments 243A and 243B propose a partial remedy. They would allow either House to insist on an enhanced form of scrutiny for SIs that it deems likely to benefit from more detailed examination and debate, as well as from recommendations to Ministers for revision. The usual SI procedures do not allow this. I think we would all accept—perhaps with the dutiful exception of the Minister—that neither the negative nor the affirmative procedure allows for proper and effective scrutiny. This is obviously true for the negative procedure but is also obviously true for the affirmative procedure. We cannot amend them and we do not vote them down.

The super-affirmative SI procedure, as set out in Amendment 243B, would allow a measure of real, detailed scrutiny; a means of hearing evidence; and a means of making recommendations to Ministers for revision. I should emphasise that the super-affirmative procedure does not produce a power to amend SIs; that remains exclusively with the Government. Paragraph 31.14 in part 4 of Erskine May characterises the procedure as follows:

“The super-affirmative procedure provides both Houses with opportunities to comment on proposals for secondary legislation and to recommend amendments before orders for affirmative approval are brought forward in their final form … the power to amend the proposed instrument remains with the Minister: the two Houses and their committees can only recommend changes, not make them.”


During the recent passage of the Medicines and Medical Devices Bill, the noble Baroness, Lady Penn, helpfully summarised the super-affirmative procedure, saying that

“that procedure would require an initial draft of the regulations to be laid before Parliament alongside an explanatory statement and that a committee must be convened to report on those draft regulations within 30 days of publication. Only after a minimum of 30 days following the publication of the initial draft regulations may the Secretary of State lay regulations, accompanied by a further published statement on any changes to the regulations. They must then be debated as normal in both Houses and approved by resolution.”—[Official Report, 19/10/20; col. GC 376.]

That is quite a good précis but it omits reference to the requirement to take account of any representations or recommendations made by a committee and of any resolution of either House. It also omits the requirement to say what these representations, resolutions or recommendations were and explain any changes made in any revised draft of the regulations.

It was during the passage of that Bill—the Medicines and Medical Devices Bill—that this House last voted to insert a super-affirmative procedure. Prior to that, according to the Library, the last recorded insertion was by the Government themselves in October 2017 in what became the Financial Guidance and Claims Act.

When not doing it themselves, the Government traditionally put forward any or all of three routine objections to the use of the super-affirmative procedure. The first is that it is unnecessary because the affirmative procedure provides sufficient parliamentary scrutiny. That is obviously not the case. The second is that the super-affirmative procedure is cumbersome. I take this to mean only that it is more elaborate than the affirmative procedure but that is precisely the point of it: it is necessarily more elaborate because it provides for actual scrutiny where the affirmative procedure does not. The third is that it all takes too long. This has force only if there is some imminent and necessary deadline but there is none in this case.

In a debate on the then UK Infrastructure Bank Bill, speaking about the super-affirmative procedure, the noble Baroness, Lady Penn, said:

“This procedure has rarely been considered the appropriate one to prescribe in primary legislation; where it has, the relevant instances have tended to be of a particularly substantive and wide-ranging sort.”—[Official Report, 4/7/22; col. 905.]


I am not sure that I entirely understand the Minister’s first point about prescribing in primary legislation, because that is the only place it can be prescribed, but I understand her second point. However, “particularly substantive and wide-ranging” exactly characterises the changes that SIs could produce in our financial services regime. That is why we propose the super-affirmative procedure.

Amendment 243B sets out the procedure for a super-affirmative SI. Amendment 243A simply says that either House may by resolution require any provision that may be made by the affirmative procedure to be made instead by the super-affirmative procedure. It is left to Parliament to decide which SIs merit the additional scrutiny.

On my Amendment 241G, 18 months ago, the SLSC and the DPRRC published simultaneous and powerful reports setting out in detail concerns that the balance of power has moved significantly from Parliament to the Executive. Part of the reason for this shift has been the abuse of delegated legislation. Cabinet Office guidance explicitly states that delegated legislation is not to be used for policy-making but is to be reserved for detailed proposals about how policy agreed in Parliament can in fact be made to work. This is not what happens. Skeleton Bills, their dependent SIs and Henry VIII provisions all essentially bypass parliamentary scrutiny.

The best current example of this kind of abuse of secondary legislation is probably the REUL Bill, which has been described as “hyper-skeletal”. It allows Ministers, via SIs and other mechanisms, to make, change or revoke policy without any meaningful parliamentary scrutiny. The Bill is a direct assault on Parliament’s interests and its constitutional role.

How could Parliament regain at least some element of effective scrutiny? Absolute rejection of SIs would probably not be desirable or workable but the ability to amend them in critical circumstances, where at issue was the whole notion of parliamentary sovereignty and effective scrutiny, may well be desirable. The SLSC report of February this year, Losing Control?: The Implications for Parliament of the Retained EU Law (Revocation and Reform) Bill, has this to say in its executive summary:

“We call for the Bill to contain an enhanced scrutiny mechanism that enables Parliament to decide that an instrument makes changes of such policy significance that the usual ‘take it or leave it’ procedures—even if affirmative—relating to statutory instruments should not apply but that a further option should be available, namely a procedure by which the Houses can either amend, or recommend amendments to, the instrument.”


What applies in the case of the REUL Bill applies to this Bill, too.

Amendments 243A and 243B, which I have discussed, would provide the powers to recommend amendments to the SIs generated by this Bill. The question of the ability to amend SIs is a bit more complicated. I asked the Library why it is that SIs are not currently amendable. There are two reasons. The first is that almost all Acts that provide for secondary legislation-making powers do not contain provisions that would enable associated instruments to be amended. In other words, to amend SIs, you would have to have the power to amend written into the parent Act. The House of Commons Information Office publication Statutory Instruments, revised in May 2008, explains this on page 5 in some detail.

The second reason is the absence of relevant parliamentary procedures that could enable amendment to take place. It is clear that it would be a nonsense to replicate all or any of the procedures used in amending primary legislation to amend secondary legislation. However, there is already a simple method for amending SIs that avoids this problem. It is set out in Section 27(3) of the Civil Contingencies Act 2004, which states:

“If each House of Parliament passes a resolution that emergency regulations shall have effect with a specified amendment, the regulations shall have effect as amended”.


Amendment 241G takes its text from the language of that Act. It simply says:

“For each statutory instrument laid before Parliament in draft under this Act, if each House … passes a resolution that the regulations have effect with a specified amendment, the regulations have effect as amended.”


The noble Lords, Lord Bridges and Lord Forsyth, used almost identical language in their Amendment 241F, which we debated on, I think, day 9.

--- Later in debate ---

[Baroness Penn (Con)]

The noble Lord, Lord Sharkey, I believe, referred to two pieces of work that looked at the wider concern around procedures when it comes to statutory instruments and the House’s involvement and ability to respond to them. I can talk only in relation to the Bill before us. Our approach is consistent with the policy approach to the regulation of financial services that the Government have set out and consulted on—the FSMA model. That delegates some policy-making both to the Treasury and then, significantly, to the regulators. In the context of the Bill, we are comfortable that our approach is appropriate to the model of regulation that we are advocating in these circumstances. I recognise the wider debate but, in the context of the Bill, we are confident that our approach is right and appropriate.

Coming to my noble friend’s specific question, I think the concern is around the definition of “securities” in the prospectus regime. The Government intend to include certain non-transferrable securities within the scope of the new public offer regime that is being developed as part of the review of the prospectus regime, which delivers on a recommendation of Dame Elizabeth Gloster’s review of the collapse of London Capital & Finance. We intend to capture mini-bonds and other similar non-transferable securities that may cause harm to investors if their offer is not subject to greater regulation.

The Government are keen to ensure that business that does not affect retail investors or is already regulated elsewhere, such as trading in over-the-counter derivatives, is not unintentionally disrupted by the reformed regime. We have been engaging with stakeholders on this point to understand the concerns of industry, and we are considering what changes we can make to the statutory instrument to address them.

The Government do not agree that the use of the super-affirmative procedure in this case is appropriate. Examples where it has been used include legislative reform orders made under the Regulatory Reform Act 2001 and remedial orders made under the Human Rights Act 1998. In both cases, the powers in question can be used very broadly over any primary legislation, due to the nature of the situations that they are intended to address. The delegated powers in this Bill are not comparable with these powers, and I have already explained how the powers over retained EU law are restricted and appropriately scoped. Therefore, in the case of the Financial Services and Markets Bill, we are confident that normal parliamentary procedures remain appropriate. I therefore ask the noble Lord, Lord Sharkey, to withdraw his amendment.

[Lord Sharkey (LD)]

My Lords, I am grateful to all noble Lords who have spoken in this short debate. I agree with the noble Baroness, Lady Noakes, about being able to amend SIs. It is a complicated and far-reaching issue and necessarily involves the House of Commons, but we need to find a mechanism for consulting all the interested parties and formulating a plan for reform. The Minister has not mentioned this, but, as I mentioned in my speech, this is to do with the balance of power between the Executive and Parliament. Many of our committees’ reports tell us in dramatic terms that the balance of power has recently shifted very significantly towards the Executive. To change that, we need to do something about our ability to scrutinise work that comes before us. That includes being able to amend it and not relying on a toothless system of negative and affirmative SIs, and it relies on being able to amend constructively regulations that might come before us.

As the SLSC said, it is clear that there is a need for such a mechanism to amend SIs and that finding a path to this fairly quickly is important. I agree with the suggestion by the noble and learned Lord, Lord Thomas, that here and now is a pretty good place to start thinking hard about what we do before we get to Report. It is true that the volume of skeleton Bills continues to increase, as does the abuse of delegated powers in a more general sense, and I cannot see it spontaneously decreasing, unless we do something about it.

As to Amendments 243A and 243B—the super-affirmative amendments—the case for them has been accepted by all speakers, except the Minister. We shall definitely want to revisit the issue on Report. In the meantime, I beg leave to withdraw the amendment.

Amendment 241G withdrawn.