Financial Services and Markets Bill

Lord Tunnicliffe Excerpts

Committee stage
Wednesday 1st February 2023 Grand Committee

[Baroness Kramer (LD)]

The noble Earl may find that this is already a requirement of the regulator, but this is not about that. If the amendment were taken in the way that I suspect the noble Earl reads it, I might feel reasonably comfortable with it. However, as we listened to the discussion, we saw where this was going. The noble Viscount, Lord Trenchard, captured that: the industry is looking at these kinds of amendments as a mechanism by which it can find leverage to enhance the status of the international competitiveness and economic growth objectives. If we could find a balance, in asking for the kind of language that the noble Earl, Lord Kinnoull, is after, but making sure that that does not become weaponised and potentially raises those objectives to an equal status to financial stability, I would feel much more comforted.

[Lord Tunnicliffe (Lab)]

My Lords, we are on day three of six. I cannot possibly envisage the seventh day, so I will make short speeches. Our amendments in this group are 118 and 119. Amendment 118 would give the FCA a duty to report on mutual and co-operative business models, covering how it considers the specific needs of credit unions, building societies, mutual banks, co-operative banks, regional banks, mutual insurers and co-operative insurers. Amendment 119 would do the same for the PRA.

Following Second Reading, I read the Minister’s letter on this topic with interest and was pleased with her assurances on the matter. However, a letter has little substance; virtually nobody knows about it, to start with. Therefore, as a minimum, I hope the Minister will repeat the assurances in that letter about mutuals, et cetera, and get them on the record in Hansard.

I hope the Minister will assure me that the department takes a keen interest in the growth of the mutual and co-operative sector. The UK has a smaller industry than some international economies, particularly in Europe. I would be interested to know what the direction of travel is in government on this. If we are committed to consumer choice and a diverse, dynamic financial services mix, a strong mutuals and co-operatives sector is surely an important part of it.

There are many amendments in this group and, in general, I like the direction they take. I hope the Government will look at the thrust of these amendments and, as the debate on the Bill develops, try to come back with proposals that take the best of them.

I am very interested in the introduction of the word “proportionality”. My career has been in aviation, in railways, in nuclear and, indeed, even in the military. Proportionality, done well, is undoubtedly the optimal way of introducing and managing regulation. Of course, it is a dynamic concept. As things change, if you really do believe in proportionality, your interpretation of proportionality has to change with the changing facts.

The problem with this is that it needs very able and mature regulators. That is why so much of safety regulation and, in a sense, financial regulation is prescriptive. One knows how to interpret prescriptive regulation: you do what it says and, when you cannot agree, you go to a court. I hope that we persist with proportionality, but I feel that we will need a very special regulator to do it. If that can be achieved, it will give a dynamism to the regulation in this Bill.

--- Later in debate ---

[Baroness Penn (Con)]

I believe I have just addressed Amendment 222. We are supportive of the establishment of regional mutual banks in the United Kingdom, but they are currently still establishing themselves and are not yet trading. So it is a little too early for us to report on the current regime and any possible limitations of it for regional mutual banks.

[Lord Tunnicliffe (Lab)]

Does the Minister intend to make any response on the concept of proportionality?

[Baroness Penn (Con)]

As the noble Lord himself noted, proportionality is already within the regulators’ objectives and operating principles. It is a concept that the Government support in how the regulators undertake their business. I believe that it is provided for within the current framework.

I hope, therefore, that the noble Earl, Lord Kinnoull, will withdraw his amendment and that other noble Lords will not move theirs.

--- Later in debate ---

I do not oppose the notion of the regulators being challenged more in court—I think a little bit of that would be quite helpful. The notion that no one in the industry wants to because they fear that they would then be discriminated against by the regulator is a bad thing. I asked the regulators in committee whether people who challenged would be penalised, and they categorically and absolutely said no, but I am not sure that the industry feels confident in that. That is sad, because sometimes you need a test, a challenge, and a little bit drilling-down by fresh eyes, and the judiciary are very good at doing that. However, neither do I think that we in this country want the situation that prevails in the United States, where every last little thing is subject to very expensive challenge, which our regulators are not funded to do. One judicial review would bust them. If you want such a proposal, the funding of the regulators will have to be much greater, much more as it is in the United States. I do not mind having a United States-type regulator. Every time I go there, I think I want one of them, because they can be very powerful, but we do not necessarily have the size of industry to be able to support that. I will listen with interest to further discussion of that, but I do not really see how we can get it to work in this formulation. I think it will only further embed some of what it is intended to be against—tick-boxes, instead of thinking about what you are doing. That is what I want industry to do—I want it to be thinking.

[Lord Tunnicliffe (Lab)]

My Lords—sorry.

[Baroness Kramer (LD)]

Thank you. We are desperately trying to work out what we do to remain winding speakers but, thanks to the flexibility, that is allowed in Committee. It disappears at Report, but it has been very useful.

I wanted to make a few comments because I want to ensure that we focus strongly on the issues raised by my noble friend Lady Bowles: looking at the international competitiveness objective through the lens of efficiency of the regulator. When I talk to the industry, its beef is typically not with the regulation but with the way it is applied. It is the endless paperwork, delays, time-wasting, and everything else. The amendments that she has tabled get us laser-focused on that and tell the regulator, “This is unacceptable. It may mean that you need more resources, but then open your mouths and ask for them, because I think you would find that Parliament would row in behind you to ensure that you have that capacity to deliver that effective, efficient regulation.”

I was slightly taken aback by the example of a one-week approval authorisation in the Bahamas only because I am very conscious that the 2007-08 crash was finally tipped over the edge by AIG, the major US insurance company, saved at the last minute by a bailout of $150 billion. It has rectified itself today. I would hope that our regulators would take more than four or five days to look at authorisation for company with the capacity to bring down a very large part of the world’s economy. I just turned pale for a moment. I hope that we will not take that as a continuing example.

I also do not see the regulators as typically capricious—inefficient, but not really capricious. I am therefore concerned about the amendments from the noble Lord, Lord Lilley, to the extent that they would remove agility. All of us who work in some way or other in relation to the financial services industry recognise that we are in a period of the most extraordinary change. Technology and globalisation are driving it, and all kinds of innovation are out there. We need a regulator that can cope with the pace of change that is taking place and does not come late to the table.

When I first got involved in politics, fintech was new. I remember asking every member of the fintech industry to meet me, and there were 12 people around the table. Now the leading figures associated with fintech would not fit in the Royal Albert Hall. That is brilliant—but I remember the difficulty then in trying to explain to the regulators that we needed a completely different regulatory environment, if fintech was going to develop. It wanted regulation. Being without regulation led the industry to fear that rogue players would suddenly enter that would disgrace the industry and cause a regulator to come on to its lawn with tanks blazing. There was a real desire to get appropriate and sensible regulation in place, but it had to be different and innovative and had to recognise the features of the industry.

When it comes to the word “predicted”, it seems to me that for a court it would be very hard to go through that kind of analysis, and to understand the business issues and the differences and risks in various industries, to understand whether or not predictability applied. When I looked at this issue, I thought, “My goodness, I bet this was drafted by lawyers because it looks rather like a lawyers’ charter.” I do not think that providing additional business to some of the law firms in the City is one of the purposes of the Bill. I have some real concerns, and they centre very much on that area. I hope we will think this through extremely carefully. Anyway, I consider that I have wound up, and I will sit.

[Lord Tunnicliffe (Lab)]

My Lords, we have no amendments in this group. I have listened to this interesting debate. It comes back to the classic dilemma in all parts of life, from family dilemmas right through to how you manage an industry, and it comes right to this proportionality issue. It is very easy to create rules so simple that you cannot see what they are trying to achieve. It is very idealistic to try to create some ideas that the industry should contain. I look forward to listening to the Minister’s reply, but I have enormous sympathy with her, and I hope she might perhaps give some thought to whether we might try to develop some mechanism between now and Report to see if we can create common ground on this extraordinarily important issue.

[Baroness Penn (Con)]

My Lords, the Government agree with noble Lords that the efficiency, predictability and proportionality of financial services regulation are a particularly important issue, and one that the Government and Parliament should continue to hold the regulators to account on. We have heard in this discussion many different approaches and ways of getting at this issue and seeking to advance it. I hope that in my response I can set out how the Government have had those concepts at the forefront of our mind when looking at the framework, and I shall seek to support the points that have been made by noble Lords today.

Put together, Amendments 46, 54, 57, 64 and 82 from my noble friend Lord Lilley seek to introduce a new effective for the PRA and the FCA relating to predictability and consistency. As I have said, the Government agree that predictability and consistency are an important component of an effective regulatory regime. As observed by IMF studies, when independent regulators make judgments on the design of regulatory standards, they are more likely to deliver predictable and stable regulatory approaches over time, and thus the centrality of the independence of our regulators at the heart of our regime seeks to support those objectives.

As we have discussed in previous debates, the FCA and the PRA are required to advance their objectives when discharging their general functions, as set out in FSMA. The Government’s view is that the regulators’ objectives should be focused on the core outcomes they should seek to achieve. The Government agree that, where possible, the regulators should advance their objectives in a predictable and consistent way. The framework already addresses this through the regulatory principles, as set out in Section 3B. These regulatory principles aim to promote regulatory good practice. The statutory requirement in FSMA for the FCA and the PRA to consult on rule proposals seeks to ensure that there is a predictable approach to rule-making. As part of this consultation, the regulators must explain why the making of the proposed rules advances, and is compatible with, their objectives as set by Parliament in legislation and how the proposals are compatible with their obligation to take into account the regulatory principles. These requirements are designed to ensure that consumers, market participants and wider stakeholders have a meaningful opportunity to scrutinise and feed into the development of regulator policy, guidance and rules. It also ensures that stakeholders are aware of planned changes to rules and can engage in their development.

In addition to seeking to introduce the new objective, Amendments 54 and 64 would also insert a provision that would prohibit the FCA and the PRA from taking retaliatory action against firms that challenge regulatory decisions. While I understand that firms may be concerned about how an appeal or judicial review may impact their relationship with the regulator, the Government consider that it would be wholly inappropriate for a regulator to treat a firm differently simply because it had chosen to challenge a decision. The Government would expect a regulator to respond to any such challenges appropriately and professionally. I am not aware of any evidence that the regulators have taken such alleged retaliatory action, and firms already have avenues available to them to contest and appeal enforcement decisions. The Government therefore do not believe that an amendment is required in this area.

Amendment 85 seeks to restrict the regulators from enforcing rules made at a “high level of generality”, except in certain circumstances. The FCA’s approach to regulation involves a combination of high-level principles and detailed rules. We discussed this balance and the benefits of those different approaches earlier in Committee and I am sure that we will continue to do so. Through its Principles for Businesses, the FCA aims to encourage firms to exercise judgment about, and take responsibility for, conducting their business in line with those principles. When conducting the future regulatory framework review, the Government reviewed over 100 responses to two separate consultations, which concluded that the provisions concerning enforcement and supervision remained appropriate. Enforcement decisions are specific to the firm and the rules concerned, and the FSMA model requires independent supervision and enforcement.

Amendment 85 would also require that regulator rules are interpreted according to common-law methods of interpretation. The Government are repealing the prescriptive provisions in EU law though this Bill so that they can be replaced with domestic legislation and regulator rules made under FSMA. I reassure my noble friend that it will be up to the UK courts to determine how that domestic legislation and rules are interpreted.

I turn to Amendments 70, 72, 74, 77A, 122 and 144, which in various ways aim to ensure that the regulators act proportionately. Again, I emphasise that the Government agree about the importance of proportionality and agree with the words of my noble friend Lord Holmes when he spoke to his amendment on this. A number of the regulatory principles already address the themes of good policy-making that these amendments seek to embed. These include principles of efficiency and economy, proportionality, and requiring the regulators, where appropriate, to exercise their functions in a way that recognises differences in the nature and objectives of different businesses subject to requirements imposed by or under FSMA. The Bill also introduces these principles for the Bank of England in its regulation of central counterparties and central securities depositories.

--- Later in debate ---

[Baroness Kramer (LD)]

My Lords, I start by speaking to my own two amendments in this group and will then move on to winding for the Liberal Democrats.

In a sense it is quite pertinent that I follow the noble Lord, Lord Sikka, because, as members of this Committee will know, I have some real concerns about the competitiveness objective and its effect and implications. It comes from people who are very much founded on the experience of the financial crash of 2007-08 and a fear at the time that lessons would be learned very briefly but the industry would very quickly push back as it is now, hoping that the crisis has been forgotten. I notice that all the speakers who are in favour of the competitiveness agenda seem very careful not to go back to that time, and they describe in some way why this is inherently different from then. If that cannot be done, or if they have all forgotten exactly what the experience was in that period, we are moving into difficult territory.

My amendments are quite specific and are very definitely probing—I hope that the Minister will disabuse me. When talking with a leading player in the industry, who was encouraging me to support the competitiveness objective, I took the government and regulators’ line: “It is a secondary objective—financial stability is clearly the priority.” I was told, “No, you haven’t read the Bill. You need to look at the section that refers to mutual recognition agreements. You have to read the two together. When you look at mutual recognition agreements, that gives us the leverage, combined with the competitiveness objective, to force the regulator to always adopt for the UK whatever is the standard that is embedded in that mutual recognition agreement.”

I am extremely troubled by that strategy, but from reading the language I can see where that thinking comes from. The attractiveness of the mutual recognition agreement to this individual was that it was an arrangement—in effect a treaty or an agreement—that was not negotiated by regulators. They might have a discussion with regulators and there might be input from regulators, but ultimately it was negotiated by businesspeople, and therefore that would be the guiding principle, not concerns about financial stability—those are not the concern of a trade negotiator—but arrangements, while measures within a trade negotiation contain a lot of compromises and trade-offs. This disturbs me hugely, and I would like the Minister to explain how those concepts and clauses work together. I was talking with someone who was using their imagination, but there was a lawyer present who was confirming what was being said, so I am really quite concerned about that interaction. We need to understand how that works as we proceed with this Bill.

I very strongly support my noble friend Lady Bowles. I am not going to repeat the arguments that she made, which were really important, but I want to pick up on the issue of relevant international standards. Like others, I am troubled by the idea that we might have slavish adherence to a set of rules that are made elsewhere, but on the other hand I am trying to trade off in my mind what we do if we do not have international standards in significant areas of financial services. We may say, as the Americans often do, that we know better than everybody else, that the way we structure our industry means that international standards do not really apply to us and that their capital requirement standards veer quite considerably away from the standards that were agreed at Basel and were largely adopted within the EU. But how do we turn to other places and say that they need to use international standards or that they should not fall below them if we say that that is allowed to us? I am trying to work my way through that thinking process because we live in a very globalised world.

The financial crash of 2007-08, which essentially exposed huge weakness, abuse and mismanagement in the UK, was triggered by events in the United States—the way in which subprime mortgages there had been packaged up and sold as collateralised debt obligations. As I mentioned earlier, subprime mortgages brought down the largest insurance company in the world, AIG, which was rescued by the American Government who, when Lehman Brothers began to collapse, said “Wait a minute. Enough. Suddenly we’ll have to rescue everybody if we’re not careful. We draw the line here.” The consequences reeled not so much through the United States but through the UK, exposing all our various weaknesses.

With this globalised world, what happens in one country, what is done by one regulator, impacts others. How do we manage this unless we have some sort of standing for international standards? I am not arguing against the amendment tabled by the noble Baroness, Lady Noakes; I am just saying that we somehow need to think this through, how it works, how we scrutinise it and how we consider it. It seems to me that it ought to be on only an exceptional basis that we decide that we do not apply those standards in the UK, but we need a mechanism for that and it seems to me that this should be largely something that Parliament determines, because it has significant consequences and would fit with much of the parliamentary accountability agenda that we have talked of today.

I want to pick up on the sustainability issue. Forgive me if I have the wrong person, because I had done that before, but I think it was the noble Lord, Lord Naseby, who mentioned sustainability and said, “How vague can you get?” As far as I remember, we have used sustainability in a lot of prior legislation, so I think there is a body of understanding. Some of the energy legislation that we dealt with certainly had the word “sustainability” in it, so there is a body of definition that sits behind that. I am one of those who would very much like to see sustainability attached to the words “economic growth”. I am not so concerned by the secondary economic growth objective, but I want growth to be sustainable. For me, that encompasses sustainability in every sense, both environmental—as it is often used—and economic.

As I say, I remain concerned about the competitiveness objective. We need to be very clear about its implications. If there are other levers that I have missed in the loan agreement that provide it in a non-obvious way with additional power and strength and the ability to get court rulings in its favour, I hope the Minister will explain them to us because I would find that very necessary for our future discussion.

[Lord Tunnicliffe (Lab)]

My Lords, I do not wholly associate myself or my party with my noble friend Lord Sikka’s comprehensive description of the finance industry, but I go back to one important area. I mentioned earlier that my previous career had a lot to do with safety. One of the things that it brought out was that people readily forget the catastrophic because the catastrophic occurs so rarely that attention drifts away and they get on with the day to day.

We broadly support the growth and competitiveness concept, although its impact will be modest. It would be a miracle if it added 1% per annum to the growth of the UK. If we read Alistair Darling’s autobiography—and yes, I am aware of the Mandy Rice-Davies test, “He would say that, wouldn’t he?” but it reads pretty convincingly—we see just how close we came to a totally catastrophic situation. It was only saved by a number of individuals, including Alistair and Gordon Brown, taking the very brave decision to do what had never been done before, which was essentially to throw the whole economy at a guarantee of the banking system. That is a pretty dodgy thing to do and, frankly, if you look at the timeline, it got very close to a catastrophic situation.

When one is looking at catastrophic risk—a low probability, perhaps, but catastrophic—you have constantly to bear that in mind. I do not think that the average practitioner in the finance industry works like that; I feel that day to day they are making trades and so forth. The sense of the primary objective is that that should be the salient thought behind all their decision-making: “We must not create another catastrophic situation.” To be fair to the Government, over the past decade or so quite a lot of sensible legislation has been introduced to protect ourselves from catastrophic risk. The Bank of England has a department working away at the regulation of financial institutions to make sure that they are orderly, safe and so on.

I have forgotten what the words are, but the concepts of stability, security and probity must be there in the primary objective and must be well-defined and clearly prime—the top objective. After that, competitiveness, growth and so on would be great.

Our Amendment 65 was a probing amendment and it has worked very well. The noble Baroness, Lady Noakes, assured me—perhaps the Minister will use similar words—that there is no question about the primacy of the objectives, that it is set in other rules and that if I looked at all the rules together, I would not be worried about it. I think that is basically what she said, and I hope it is right, because it is absolutely right that we bear in mind protection from catastrophic risk.

I note the assurances that the Minister gave in her letter following Second Reading, but I am still not clear about the specific mechanism whereby the primary objectives are expressly meant to take precedence in FSMA. To me, it appears that they are indeed split up, but there is nothing to define what it means to be primary. I may be wrong in that concern, and I am here to be persuaded that I am wrong. The more effort that is put into persuading me, the more will go on the record and form the environment in which financial services are delivered. I feel concerned that there is nothing in legislation, in the regulators’ rulebook or elsewhere to guarantee the primacy of the FCA’s and the PRA’s most important objectives. However, as I said, that is an open question, and this debate has been good.

Regarding the international dimension, I see the concerns being expressed about giving it too much primacy—although I do not want to use that word, because it has the wrong effect. My memory is useless but, about two years ago, we had what I will roughly call the Basel III Covid legislation. Many of us were there to debate it. If I remember rightly, it took out the EU law and made space for the regulators to create the situation we are talking about now. My recollection is that aligning with Basel III and the FSB—or whatever it is called—became an objective within that. I see the Minister is nodding, so my memory has some fragments of it.

Once again, it is clearly a good idea to be that bit looser if we are to be innovative. The probing worked brilliantly, as I far as I am concerned. The noble Viscount, Lord Trenchard, quite openly said that competitiveness and growth should be equal to the regulators’ concern about stability and safety. Arguably, that is a properly viewed position, but it is not my position. Failure must be avoided—not quite at all costs but, wherever there is a debate between bigger risk and modest profit, the bigger risk should be avoided.

[Baroness Penn (Con)]

My Lords, I will speak first to Clause 24 before turning to the other amendments in this group. The Government consider that, alongside their core responsibilities, it is right that the regulators can act to facilitate medium to long-term growth and international competitiveness, reflecting the importance of the sector as an engine of growth for the wider economy and the need to support the UK as a global financial centre. Therefore, Clause 24 introduces new secondary objectives for the FCA and the PRA to provide for a greater focus on growth and international competitiveness. This will ensure that the regulators can act to facilitate long-term growth and competitiveness for the first time.

For the FCA, this objective will be secondary to its strategic objective to ensure that markets function well and to its three operational objectives: to ensure consumers receive appropriate protection; to protect and enhance the integrity of the financial system; and to promote effective competition. For the PRA, this objective will be secondary to its general objective to ensure that UK firms remain safe and sound and its insurance-specific objective to contribute to the securing of an appropriate degree of protection for those who are, or may become, policyholders.

This is a balanced approach. By making growth and competitiveness a secondary objective, the Government are ensuring a greater focus by the regulators on growth and competitiveness. However, by making these objectives secondary, the Government are giving the regulators an unambiguous hierarchy of objectives, with safety and soundness and market integrity prioritised.

As set out in Clause 24(2) and (4)(b) and in paragraphs 215 and 216 of the Explanatory Notes, Clause 24 does not permit or enable the regulators to take action that is incompatible with their existing primary objectives. It is therefore clear that the FCA’s strategic and operational objectives and the PRA’s general and insurance-specific objectives are prioritised ahead of the secondary objectives in the regulatory framework. I hope that that provides further reassurance to the noble Lord, Lord Tunnicliffe, on his Amendment 65 that, in instances where the regulators’ primary and secondary objectives are incompatible, their primary objectives will take precedence over the secondary objectives.

I turn to Amendment 49, tabled by the noble Baroness, Lady Bowles, which seeks to ensure that, when facilitating the new growth and competitiveness objective, the FCA does not consider the financial services sector specifically. The Government are committed to ensuring that the financial services sector is delivering for businesses and consumers across the UK. It is therefore right that the objectives of the financial services regulators reflect the Government’s view that the UK financial services sector is not just an industry in its own right but an engine of growth for the wider economy. The Government are confident that the current drafting recognises that the levers with which the regulators can act are specific to the markets that they regulate—the financial services sector. We believe that this is a helpful clarification, and expect the new objectives to benefit the growth and competitiveness of the wider economy as well as of the financial services sector specifically.

I now turn to Amendments 51 and 60, tabled by the noble Baroness, Lady Bowles, concerning the efficiency of the regulators’ operations. I believe that we have discussed this in Committee before, so perhaps we will move on if the noble Baroness permits me.

That brings me to Amendment 48, also tabled by the noble Baroness Lady Bowles, which seeks to amend Clause 24 to include consideration of sustainability. The new secondary objective is clear that the regulators should seek to facilitate sustainable growth by specifically mentioning growth of the economy in the medium to long term. The Government do not want the PRA or the FCA to act in a way that benefits short-term competitiveness at the cost of long-term growth. However, the Government are aware that, increasingly, and particularly over recent years, “sustainable” has also been taken to mean green or environmental considerations by some stakeholders.

As discussed in previous groups, Clause 25 introduces a new regulatory principle to require the FCA and PRA, when discharging their general functions, to have regard to the need to contribute towards achieving compliance with the Government’s net-zero emissions target. Therefore, the current drafting of the objective is clear that economic growth should be pursued sustainably, and the Government are already strengthening the requirements for the regulators to consider environmental sustainability targets in undertaking their duties.

On Amendment 50, tabled by my noble friend Lord Altrincham, the Government agree that high-quality infrastructure is crucial for economic growth, boosting productivity and competitiveness. More than this, it is at the centre of our communities: infrastructure helps connect people to each other, people to businesses, and businesses to markets, forming a foundation for economic activity and community prosperity.

In the Chancellor’s recommendation letters to the FCA and PRA, of December 2022, he set out that the supply of long-term investment to support UK economic growth, including the supply of finance for infrastructure projects, was a key aspect of the Government’s economic policy to which the regulators should have regard. Therefore, the Government already expect that, when advancing their new growth and competitiveness objectives, the FCA and PRA should include investment in infrastructure among their considerations. There are a number of other aspects in this Bill, such as reform to Solvency II, which will remove barriers to private investment in infrastructure.

I turn to Amendments 47, 52, 58 and 61. Robust regulatory standards are the cornerstone of the attractiveness of the UK’s markets. Including a reference to international standards in the growth and competitiveness objective demonstrates the Government’s ongoing commitment for the UK to remain a global leader in promoting high international standards and maintaining its reputation as a global financial centre.

The noble Baroness, Lady Kramer, expressed the importance of those standards well. Many of the issues that regulators need to address require international co-ordination and co-operation. To address the Committee’s concerns, the Government also recognise that it will not always be appropriate to fully consider international standards—for example, if it is best for UK markets to go beyond the international standard or where nuances of the UK market mean that the international standard is not appropriate. Those international standards operate on a comply-or-explain basis, recognising that individual jurisdictions will sometimes need to tailor standards to their own markets.

No standard trumps the objectives, and the clause does not constrain pursuit of the objective in relation to standards that we have not signed up to or that the regulators do not think are relevant in pursuing their objectives. It is there to acknowledge the importance and role of international standards, but we appreciate this nuance, where we may need to look at those standards and either go beyond them or adapt them to the UK market. I appreciate that this is difficult to navigate, but I hope we have done so successfully.

I also reassure the noble Baroness, Lady Kramer, that the Government do not consider MRAs to be international standards. To expand on this further, we consider international standards to be those set by specific standard-setting bodies listed in the Financial Stability Board’s compendium of standards. These standards are internationally accepted as important for sound, stable and well-functioning financial systems, and include those from organisations such as the Basel Committee on Banking Supervision and the International Organization of Securities Commissions. To reassure my noble friend Lord Trenchard, we are using our seat on those organisations to influence those standard-setting bodies effectively.

Alternatively, MRAs are international agreements subject to international law and based on the principle of deference, where the UK and another country agree to mutually defer to each other’s regulatory, supervisory and enforcement regimes. MRAs are therefore simply a vehicle to recognise where another country meets equivalent regulatory standards to those already established in the UK. They provide a mechanism to reduce barriers to cross-border trade and facilitate greater market access between the two jurisdictions.