Financial Services and Markets Bill

Lord Thomas of Cwmgiedd Excerpts

2nd reading
Tuesday 10th January 2023 Lords Chamber

[Lord Thomas of Cwmgiedd (CB)]

I congratulate the noble Lord, Lord Ashcombe, on his maiden speech and in particular on drawing our attention to the importance of the insurance industry to London’s financial centre—which is often overlooked. I too welcome the Bill warmly and express my interest as chairman of the London Financial Markets Law Committee. I draw attention to that interest because, in the few minutes I have, I would like to ask some questions about the central issue in the Bill: the extent of delegation. How do we do it? How to we make it accountable? One must bear in mind that regulators have two functions. The first is to make law that is binding on us; the second is to interpret and enforce that law when there is a dispute.

I wish to ask four questions. First, are the powers that Parliament is giving to the regulators and delegating to them ones that they can exercise more appropriately than Parliament? The answer to that is generally “yes”, but when we look at certain detailed provisions we must ask: are they being asked to make political decisions—which would be wrong—or are we consigning decisions where we just have to hope that they do what they are asked because there is no accountability? The first question is intricately linked to accountability and a judgment on what is right.

Secondly, have we given the regulators a sufficiently clear mandate for the regulations they are to make? As the noble Lords, Lord Butler and Lord Sharkey, pointed out, there are some contradictions in the Bill. Should we examine those and give clearer guidance? We should not complain hereafter if they tell us, “We’re independent, go away”. Another question which particularly interests lawyers is: are we to give more clear direction as to the type and format of regulation? Are they to follow what has become the traditional European and, to an extent, British Government way of writing long screeds of guidance rather than following good, Victorian principles of short, clearly drafted legislation? It is a question we ought to ask ourselves. Vast rulebooks are a complete disincentive to proper regulation. The more we delegate, the clearer the answer to that question has to be.

The third question we have to ask ourselves is: are we sure that enforcement and punishment for breaches are sufficiently independent of the regulators that make law? When we make law, we do not interpret it or punish people for breaching it; we give that to independent people. The more power we give regulators, the more we have to be satisfied that the interpretation is independent. You do not want a rulebook where people turn around and say, “I know it’s not clear, but we know what it means because we wrote it”. That is bad lawmaking. Of course, if we have not got that bit right and we do not have proper accountability, there is another problem.

That ties in with the fourth question. We must ask, in respect of all these provisions: is there sufficient accountability to Parliament, to outside bodies or through an independent enforcement agency separate from the lawmaking part? Having spent much of my professional life dealing with the fallout of regulatory failure, I have no doubt that most regulators are competent and hard-working and that they try their hardest to achieve a good result. However, their life is extremely difficult and, if I were a regulator, I would welcome with open arms proper scrutiny. They need all the help they can get. If you are truly independent—having spent much of my life as a judge, I have had to be independent—you always welcome people who cast a critical eye from the outside. The regulators, therefore, ought to welcome scrutiny and not oppose it.