Financial Services Bill

Robert Neill Excerpts

2nd reading & 2nd reading: House of Commons & Programme motion & Programme motion: House of Commons & Ways and Means resolution & Ways and Means resolution: House of Commons
Monday 9th November 2020 Commons Chamber

[John Glen]

My hon. Friend has unrivalled expertise and tenacity in bringing these matters before the House. He is right that there is a challenge to examine the relative regimes for different sized banks and institutions. That is something that regulators, subsequent to this Bill, will need to look at—indeed, they are keen to look at it—and I would welcome my hon. Friend’s further interventions in discussions in this place as we move forward on that legitimate question.

Eight years ago, the world was shocked by the LIBOR scandal. As the House will recall, traders at multiple banks attempted to manipulate that crucial benchmark, which contributes to interest rates for everything from complex derivatives to mortgages. Since then, significant improvements have been made to the benchmark’s administration. However, the Financial Stability Board, an international body that monitors and makes recommendations about the global financial system, has stated that continued use of LIBOR and other major interest rate benchmarks poses a serious source of systemic risk. That is because the decline in the inter-bank lending market has meant that such benchmarks depend increasingly on the judgments of panel banks rather than actual transactions. UK regulators have been encouraging firms to gradually shift away from LIBOR and are at the forefront of the global response to the transition, so to ensure that that transition was orderly, the FCA agreed with the LIBOR panel banks that they would continue to contribute to the benchmark for a temporary period. However, that temporary period will expire at the end of 2021, and after that point there is a risk that the benchmark will become unrepresentative of the market that it measures, potentially leading to disruption.

While we want firms to take the initiative in migrating from LIBOR, we recognise that there are some contracts that cannot be realistically amended to achieve that goal, so clauses 8 to 19, along with schedule 5, will give the FCA the powers that it needs to oversee the orderly wind-down of critical benchmarks, including LIBOR, and clause 20 will extend the transitional period for benchmarks with non-UK administrators from the end of 2022 until the end of 2025. This will avoid difficulties for our firms while the Government consider any changes required to our third country benchmarks regime to ensure that it is appropriate for the United Kingdom.

I will move on to the second objective of the Bill: to promote openness to overseas markets. I am delighted that clauses 22 and 23, along with schedules 6 to 8, establish a framework to provide long-term market access between the UK and Gibraltar for financial services firms. As many will know, Gibraltar boasts an array of thriving businesses in the sector, many of which are UK household names, including Admiral and Hastings, to name just two. The new Gibraltar authorisation regime in this Bill delivers on an earlier ministerial commitment and recognises our long-standing special relationship.

[Sir Robert Neill (Bromley and Chislehurst) (Con)]

I refer to my entry in the Register of Members’ Financial Interests. May I say, as chair of the all-party group on Gibraltar, how delighted I am to see this in the Bill? I know that that is echoed by Her Majesty’s Government of Gibraltar and the whole Gibraltar community. The Government have made good on a promise and it is very welcome. The Minister is right to set out that some 20% of UK insurance contracts are written by Gibraltar-based insurers. Will he undertake that, as well as this important piece of legislation, we will now build on it with his colleagues in other Departments to develop a full free market—a free-trade area effectively—between the UK and Gibraltar in services and goods?

[John Glen]

My hon. Friend is absolutely right with that 20% statistic and to point to the extensive orientation of the Gibraltarian insurance industry towards the UK. Ninety per cent. of the business that it writes comes to the UK. He is right to say that this is foundational to a deepening relationship, and I will ensure that Gibraltarian firms can continue to access the UK market on the basis of aligned regulation and supervision. I look forward to listening to him, as we move forward, on further steps that he thinks would be appropriate.

The proposals will guarantee close co-operation between our regulators, and this measure highlights the spirit of openness that underpins our approach. The same can be said of clauses 24 to 26 and schedule 9, which make up the overseas funds regime. These measures will simplify the process under which overseas investment funds are marketed in the UK. Under the present system, the FCA has to assess the protection standards of every individual fund before allowing it to be offered to UK consumers. However, the Bill will allow the Treasury to give market access to entire categories of funds from other countries that have so-called equivalent regulatory standards to those in the UK. Funds in this group can then undergo a simpler application process, due to the confidence provided by their home regime, which will allow overseas investment funds to be marketed in the UK, maintaining the UK’s position as a global centre of asset management. There are currently over 9,000 funds that passport into the UK from the EU, and let me stress that the existing process will remain for funds that have not been declared equivalent.

[Sir Robert Neill]

I am grateful to the Minister for correcting me. Of course, my figure of 20% related purely to motor insurance policies; it is 90% for all Gibraltar-based insurance. Can he help me on the specific point of the overseas funds regime? It is widely welcomed in the sector that he will allow access for overseas funds that have not yet achieved equivalence, but can he help give some clarity on a matter that is of concern to some providers? What is the position if people have invested in the fund and for some reason equivalency is withdrawn? What would then happen in practical terms if, for example, additional money is invested in the fund after suspension? Can he help as far as that is concerned? It is important for many people.

[John Glen]

It would not be for me at this point to set out the deductions to be made on individual funds, but I would like to follow up with my hon. Friend formally on that matter, because a process is under way for that to be examined, and I am happy to engage with him further in due course.

I will move on to the importance of ensuring that the FCA has an appropriate degree of oversight over firms that could register under the regime. To my hon. Friend’s point, there is a tension between the objectives set in Parliament and the regulators’ judgment on the ground. We need to ensure not only that they are accountable, but that we have set the right prescription for the outcomes we wish to see.

Financial Services Bill

Robert Neill Excerpts

Report stage & 3rd reading & 3rd reading: House of Commons & Report stage: House of Commons
Wednesday 13th January 2021 Commons Chamber

I hope the Minister will examine those proposals urgently, because to be frank, if the Government do not set out radical policy options on how to tackle the tsunami of debt, we can wave goodbye to a recovery, and many people across Salford will have their lives destroyed. If these proposals were good enough to bail out the banks in 2008—and they were—they are good enough to bail out the people.

[Sir Robert Neill (Bromley and Chislehurst) (Con) [V]]

There are a lot of good things in the Bill that I welcome, and I refer to my entry in the Register of Members’ Financial Interests. I welcome the assistance given to financial services in Gibraltar, and I welcome a number of the technical changes to the operation of retained European law in relation to markets. I particularly welcome new clause 6, on FinTech, which is a really important growth sector for this country. Added to the listing regime changes in the Bill, this gives us the opportunity to encourage the bringing forward of initial public offerings of FinTech companies in the UK and to build a critical mass.

I have sympathy for new clause 4, but I do not want to pre-empt the work of the Law Commission. That said, the Government do have to act more swiftly and with more urgency in relation to reform of corporate criminal liability. It has been kicking around for a long time. The Justice Committee has heard compelling evidence on the need for reform. I do not accept the contention that there is a balance on this. The balance of evidence is clearly in favour of reform. Both the current and former directors of the Serious Fraud Office have highlighted the deficiency in criminal liability in this field, as have at least two former Attorneys General. I hope that as soon as the Law Commission reports, we will move swiftly to enact this reform, because we lag behind other jurisdictions in this regard.

The other area where I do not think it is necessary to legislate is progress on equivalence. Although we may not need to legislate, it is really important that the Government address this with urgency. Of course, as we build our way forward outside the EU it will not always be appropriate to follow everything by way of regulatory equivalence, but there are many instances in which it will be very much in the interest of the City and the broader financial services sector to do so.

In the immediate term, is important that we acquire further equivalence agreements with our EU partners; that is in the interests of both sides. Currently, we have a commitment to a memorandum of understanding by the end of March, but the EU says that it has no immediate plans for further equivalence discussions. That needs to be resolved. Although it does not require legislation, we need from Ministers greater commitment to resolving the issue. There has sometimes been a feeling that financial services are being taken for granted in the Brexit negotiations; that needs to be put to bed. Financial services are the jewel in the economic crown of this country and need to be front and centre of our ongoing economic policy.

[Florence Eshalomi (Vauxhall) (Lab/Co-op) [V]]

I wish to focus my remarks on amendments 1 and 2, tabled in the name of the Leader of the Opposition. As my right hon. Friend the Member for Wolverhampton South East (Mr McFadden) said, the amendments are desperately needed now to ensure that regulators must take into account the Government’s target of achieving net zero carbon emissions by 2050. I was therefore disappointed to hear from the Minister that the Government will not support the amendments but might “consider” the matter “in the future”. We cannot afford to wait. Climate emissions are cumulative, and a large part of the carbon that we produce today will stay in the atmosphere for hundreds, if not thousands, of years.

If we are serious about tackling the climate emergency and reaching our 2050 target, we must reduce our emissions as quickly as possible. The sensible and least-destructive way to do that is to start to adapt our economy now; the irresponsible thing would be to leave it too late, thereby making the inevitable economic adjustment more painful for everyone. Regulation is one of the most powerful tools in our box of options and will ensure that the whole financial sector is unified in its actions towards this really important goal and, most crucially, acts within a timeframe that reflects the climate emergency we face.

I do not want my two young children to ask me one day why I missed the opportunity to fight for a better, more sustainable future for them. That is why I will support amendments 1 and 2, and I urge all Members in the House to join me.