Financial Services and Markets Bill (Fourth sitting)

Debate between Peter Grant and Emma Hardy

Committee stage
Tuesday 25th October 2022 Public Bill Committees

[Peter Grant]

The amendment can be summed up in four words: “Hands aff oor Parliament”, whether that Parliament is the national Parliament of Scotland, Senedd Cymru or the Northern Ireland Assembly. Those who claim to respect the devolution settlement cannot do so with any credibility if they continue to give power to Ministers of the reserved Parliament to override decisions of the democratically elected national Parliaments of three of the four equal-partner nations in the Union. This is a power grab of the kind we have already seen in other EU withdrawal legislation. Some of those power grabs will now happen, because the House has voted for them, but that does not make them right or any less of an outrage against democracy. Amendment 36 must be agreed to for the Committee to be able to hold its head up in public and say, “We support democracy and we respect the devolution settlement.”

Amendment 37, although not technically a consequential amendment, is as close to one as makes no difference, because the wording that it would delete on page 11 would no longer be relevant if we agreed to amendment 36. It is my intention to press amendment 36 to a vote.

[Emma Hardy (Kingston upon Hull West and Hessle) (Lab)]

I hope that when the Minister responds to the debate on the clause, he will cover proposed new section 71R of FSMA 2000 before reaching the point mentioned by the hon. Member for Glenrothes. Subsection (1) of the new section is a Henry VIII power that allows the Treasury to amend legislation, including primary legislation. Will the Minister outline when, why and how the Government intend to use those Henry VIII powers, and what safeguards we have in the Bill against their abuse?

--- Later in debate ---

[Emma Hardy]

I want to add to the points made by my hon. Friend on our concerns around clause 12 and the independence of the Bank of England, given that the Treasury has such significant powers over it. I refer the Minister back to the evidence given by Sheldon Mills from the FCA. He said:

“I have worked in regimes with public interest tests. I ran the mergers division at the Office of Fair Trading and the Competition and Markets Authority, and my learning from that is that, if put in place, such a test should be used exceptionally and with care, and that there should be specificity about the matters of public interest—in this case, financial services—on which it would be used.”––[Official Report, Financial Services and Markets Public Bill Committee, 19 October 2022; c. 7, Q3.]

That is the FCA asking for specificity—it is easy for them to say—on exactly when the power would be used and when it would not be used.

Victoria Saporta from the PRA stated:

“A formulation whereby the Government can force or direct us to make or amend rules that we have already made, and that fall squarely within the statutory objectives that Parliament has given us, may be perceived as undermining operational independence and all the benefits that I talked about earlier.”––[Official Report, Financial Services and Markets Public Bill Committee, 19 October 2022; c. 7, Q3.]

Those were really stark warnings from two of our key witnesses from the FCA and PRA, talking about the difficulties they had with this specific clause and how this could be seen as undermining their independence.

Martin Taylor went further in his evidence, when I questioned him on these intervention powers. He said:

“One of the problems that led to the recent turmoil—a very English description of what has just happened—was that the Prime Minister and the former Chancellor chose not to subject the mini-Budget to the scrutiny of the Office for Budget Responsibility.”

He continued:

“However, international investors looking at London will have noted this and it has a bad smell, if I can put it that way.”

Later, he said:

“If you were in Singapore or New York, you might be more tempted to do that than you would have been a month ago. We should not do anything else to make this worse. Everything is being done by the new Chancellor to steady the ship…but moves like this proposed measure just go in entirely the wrong direction as far as I am concerned. I think it is very dangerous.”–– [Official Report, Financial Services and Markets Public Bill Committee, 19 October 2022; c. 76, Q149.]

Every single witness seemed to talk about the concerns they have over the level of intervention the Treasury could have over the Bank of England. I would like to hear reassurances from the Minister that he has been talking to the FCA, the other regulators and the markets about this. What reassurance can he give us that this is not HMT trying to again overrule our independent regulators?

[Peter Grant]

Again, I fully understand the intention behind these clauses and I am not minded to move against them, but I am a bit concerned by some of the interplay between the clauses. I asked the Minister what factors he thought might be taken into account in determining that a CCP is actually a systemic third country CCP, rather than an unsystemic one.

The Bill, on lines 39 to 42 on page 13, suggests that a systemic third country CCP is

“any third country central counterparty that the Bank has determined is systemically important, or is likely to become systemically important, to the financial stability of the United Kingdom.”

The word “systemically” is doing quite a lot of work in that definition. As far as I know, there is no definition of “systemically” in this Bill, or indeed anywhere else, so I am concerned about whether the wording of the clause is tight enough that everybody, including the Bank of England, knows exactly when it can use these powers and when it cannot.

That is important because of the difference that being designated a systemic third country CCP makes. Under proposed new section 300G to the Financial Services and Markets Act, the Bank of England can exercise most of the powers

“only by the application of corresponding rules”,

according to proposed subsection (1)(a). However, proposed subsection (1)(b) says

“except in the case of systemic third country CCPs…only so far as authorised by regulations made by the Treasury.”

That seems to mean that if the Bank of England forms the view that it is dealing with a systemically important CCP, it is free to act in a way that is not explicitly permitted by Treasury regulations, whereas if the Bank decides that it is not systemically important, the ability to act becomes more restricted.

Financial Services and Markets Bill (Third sitting)

Debate between Peter Grant and Emma Hardy

Committee stage
Tuesday 25th October 2022 Public Bill Committees

[Peter Grant]

If it became clear to the Treasury or the relevant regulator that crowdfunders were using funds for illicit purposes, rather than for genuinely good causes, I would expect the Treasury and the relevant regulator to step in. My amendment is designed to put primary legislation in place to allow the regulators to step in, and to allow the Treasury to take action, if it becomes clear that there is a problem, regardless of whether that is through crowdfunding or any other method of raising finance. The important part of the amendment is about finances being raised as a way of raising capital. The amendment does not in any way imply that it would cover, for example, crowdfunding for a good cause or to raise funds for someone who has had a serious accident. That would not be covered by the wording of the amendment.

I can understand the concerns, and I am quite happy if someone can come up with better wording—possibly in an amendment to a different piece of legislation—that achieves the aim of the amendment, but I am utterly convinced that there is a serious weakness in our current regulation. As currently worded, neither this Bill nor the Economic Crime and Corporate Transparency Bill will close down that loophole sufficiently.

At Blackmore Bond, the abuse that was taking place was stopped after it was too late. At Safe Hands Funeral Plans, the abuse that was taking place was stopped after it was too late and people had lost their money. The selling of mini-bonds to the general public, which is what Blackmore Bond was up to, is now outlawed, so action has been taken on that specific kind of abuse. Funeral plans are now regulated, so action has been taken on that specific kind of abuse. I do not want the regulator or the Treasury having always to see where the next specific company disguise is going to be, however; I want them to have the power to regulate based on how businesses take money from the general public.

With those comments, I look forward to hearing the Minister’s response. If he is not minded to accept the amendment, I hope that we can get an assurance that the intention behind it will be addressed at a later stage.

[Emma Hardy]

I have a general question on the clause and the designated activities regime. In the consultation response document produced by the Treasury—“Financial Services Future Regulatory Framework Review: Proposals for Reform. Response to Consultation” to be precise—some consultation respondents were concerned about what activities would physically be regulated, what constraints were to be placed on the powers of the Treasury and what the consequences for failing to comply with the regulator’s rules would be. I have not yet seen their concerns answered by the Minister. Will he address that?

Financial Services and Markets Bill (Second sitting)

Debate between Peter Grant and Emma Hardy

Committee stage
Wednesday 19th October 2022 Public Bill Committees

[Emma Hardy]

Q And do you think there is a risk that if the invention powers are left, they could be perceived by markets as a threat to the independence of the Bank of England or the PRA? We have seen such recent turmoil in the markets over concerns. Do you think it could have a similar impact?

Martin Taylor: One of the problems that led to the recent turmoil—a very English description of what has just happened—was that the Prime Minister and the former Chancellor chose not to subject the mini-Budget to the scrutiny of the Office for Budget Responsibility. Had they done so, the OBR might of course have objected to various parts of it, which is perhaps why they did not do so.

However, international investors looking at London will have noted this and it has a bad smell, if I can put it that way. I am not worried about the bond traders who price the market day by day. The volatility was extreme and very dangerous. It has been settled by the Bank for the moment, I hope. I am much more worried about the people running really big blocks of money—big foreign sovereign wealth funds or big institutional investors—who look at London and say, “Is it worth having an allocation to gilt-edged stock? Do we want to be exposed to sterling if this is the sort of thing that goes on?”.

These are the strangers on whose kindness Mark Carney told us we relied and we antagonise them at our peril. That is what worries me more than anything else: that we suppose that foreigners will always want to buy gilts. Why should they? You could run a huge international portfolio and have zero allocation to sterling at the moment. If you were in Singapore or New York, you might be more tempted to do that than you would have been a month ago. We should not do anything else to make this worse. Everything is being done by the new Chancellor to steady the ship—thank goodness—but moves like this proposed measure just go in entirely the wrong direction as far as I am concerned. I think it is very dangerous.

[Peter Grant]

Q How effective has the UK been at keeping dirty money out of the financial services sector?

Martin Taylor: I do not know. I probably have the same suspicions that you have. London has a huge financial sector and dirty money is easier to hide in places where there is lots of money than in places where there is not very much. I have never worked in, or with, the Financial Conduct Authority, but sometimes it gets blamed when things go wrong, which is a bit like blaming the police for crime, if you know what I mean. There is a lot of dirty money in the world and a lot of it will try to come here. I think the regulators do their best.