Bank of England Act 1998 (Macro-prudential Measures) (Amendment) Order 2021

Lord Tunnicliffe Excerpts

Thursday 8th July 2021 Grand Committee

[Lord Tunnicliffe (Lab) [V]]

My Lords, this is one of the first statutory instruments arising from the passage of the Financial Services Act 2021. As well as looking at the changes introduced by this instrument, this debate provides an opportunity to briefly discuss some of the wider issues arising from the new legislation.

This order provides an update to the powers of the Financial Policy Committee, so that it can direct the Prudential Regulation Authority on matters relating to certain holding companies. We welcome this extension of existing macroprudential measures and the various consequential changes in the instrument, which ensure consistency in terminology, application and so on. We also understand the Treasury’s desire, as stated in the Explanatory Memorandum, to bring this instrument into force as quickly as possible and minimise any gaps that may exist in the FPC’s current powers.

As the Minister outlined in his introduction, this instrument also makes changes to the total exposure measure, or the overall leverage ratio, the framework of which is being transferred from the retained Capital Requirements Regulation to PRA rules. This was discussed when the SI was debated in the Commons earlier this week.

The comments of the Economic Secretary, John Glen, were extremely helpful in outlining the process to date, as well as ongoing and next steps. It was particularly useful to have confirmation that excluding Bank of England balances will make no material difference to the leverage ratio—that is, the amount of capital that a bank is expected to hold in relation to its overall loan book. One area where the Economic Secretary’s answer was slightly less clear was on whether he foresees the UK changing capital requirements now that we are outside the EU. The answer provided, that the Government’s objective is to

“align to the highest global standards”,—[Official Report, Commons, Delegated Legislation Committee, 6/7/21; col. 7.]

did not directly address the question from Pat McFadden, the shadow Economic Secretary. Can the Minister shed some light on this today?

At the beginning of my speech, I forewarned the Minister that I would make some general points. I will turn to these now. The changes in this instrument are clearly the first of many. Implementation of Basel 3.1, coupled with the Government’s desire to transfer other measures from retained EU law to domestic prudential rules, will mean a steady stream of regulatory changes in the coming months.

The Treasury will no doubt have a document containing the target dates and absolute deadlines for enacting each of these changes, as well as an indication of which parliamentary procedure—if any—they will be subject to. Can the Minister commit to sharing this work plan, to ensure that colleagues who wish to do so can engage at an early stage?

Following on from that question, now also seems an appropriate time to return to one of the big debates from the passage of the Financial Services Bill. The regulators are, separately or jointly, consulting in a range of areas ahead of exercising their expanded rule-making powers. For example, the Financial Conduct Authority launched its consultation on a new consumer duty in May, fulfilling the first requirement of Section 29 of the 2021 Act. Although the Minister was not intimately involved in that Bill’s passage through your Lordships’ House, he will be aware of undertakings from the FCA and the PRA that they would engage with Parliament as part of their day-to-day work. Although the FCA approached me, is the Minister satisfied that consultation exercises and draft rules that have emerged since the passing of the Act have indeed been brought to the attention of relevant parliamentary committees?

Finally, although it may not be something he can provide in this debate, can the Minister give an update on the future regulatory framework review, which is considering issues such as accountability and scrutiny?