Financial Services and Markets Bill

Viscount Trenchard Excerpts

Report stage
Tuesday 6th June 2023 Lords Chamber

Moved by

[Viscount Trenchard]

8A: Clause 24, page 38, line 23, leave out “aligning with” and insert “having regard to”
Member’s explanatory statement
This amendment, and the amendment to Clause 24, page 39, line 2, in the name of Viscount Trenchard, amends the role of international standards in relation to the growth and competitiveness objective.

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[Viscount Trenchard (Con)]

My Lords, Amendments 8A and 8B were originally tabled by my noble friend Lady Noakes. In moving Amendment 8A, I remind your Lordships of the interesting debate on this matter in Committee on 1 February. I repeat that we are, in many fields, especially financial services, a leader in the formulation of international standards and best practice. The FCA says on its website:

“We contribute to and implement international standards, and supervise and enforce rules based on them in the UK”.


I believe that the UK’s influence in IOSCO, the recognised standard setter for securities regulation, has been enhanced now that we sit at the table in our own right, rather than as a member state of the EU. The same is surely true with regard to our influence within the International Association of Insurance Supervisors.

I support the new competitiveness and growth objective—although I think it should have been of equal importance with the regulators’ primary and operational objectives—but I continue to believe that it is rather curiously drafted. I am still not sure what the Government mean by

“aligning with relevant international standards”.

First, the word “relevant” is very subjective. We all know that there is often a lack of consistency as to what different people consider relevant. I already worry that the competitiveness and growth objective will be subjugated to the primary objectives, depending on which standards the regulators may choose to exempt them from the need to have regard to.

Secondly, surely the amendment is drafted in a way that gives too much weight to policies developed outside the UK, which are claimed by some to be international standards. Does my noble friend want to see a position where the PRA, for example, can ignore the secondary objective on the grounds that it is following international standards, where those standards are not core to the primary objective? International standards are a highly subjective concept and it is not at all desirable for the UK to have to adhere to everything that claims to be an international standard. The competitiveness and growth objective is already circumscribed by its status as a secondary objective. Using the PRA as an example, this means that it has only to,

“so far as reasonably possible, act in a way which … advances the competitiveness and growth objective”.

If the PRA considers that adherence to certain international standards is necessary, they are already covered by its primary objective. However, if an international standard is not necessary for the primary objective, why should such an international standard crowd out the competitiveness and growth objective?

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[Lord Eatwell (Lab)]

My Lords, I will address the amendments proposed by the noble Viscount, Lord Trenchard. In some way, they are part of the whole privileging of the competitiveness objective, but I do not want to talk about that. I will talk specifically about his concern about aligning with international standards.

I suggest that the success of the development of international financial markets since the 1970s has been predicated entirely on the development of an international regulatory system. It was first stimulated by the Herstatt Bank crisis in the summer of 1974, which led to the establishment of the Basel committee on settlement risk. Since then, we have developed a whole international financial infrastructure of regulation—the Basel committees, IOSCO and, most importantly today, the Financial Stability Board. That, by the way, was a British idea that has greatly aided the stabilising of international financial markets.

These committees, as the noble Viscount, Lord Trenchard, pointed out, are not part of any form of international law or treaty. They are what is known in the trade as “soft law”. They are laws that countries agree it is in their mutual benefit to align with, and failing to align is against the benefit of individual countries as well as of the system as a whole. It has been the judgment of His Majesty’s Government that it is in the best interests of the United Kingdom to align with international standards.

But there are other international standards with which we align. Take the Paris-based Financial Action Task Force. Would the noble Viscount, Lord Trenchard, suggest that we do not align with the international anti-money laundering police? It is essential that we agree to align with this framework of international financial regulation, which we have been such an important element in creating.

[Viscount Trenchard (Con)]

My Lords, I am grateful to the noble Lord for giving way, but I want to correct him for criticising me for opposing all international standards. The ones he has chosen to mention are not ones that I objected to specifically. I was just saying that in general international standards are not defined.

[Lord Eatwell (Lab)]

I suggest to the noble Viscount that, in fact, the whole corpus of international soft law on finance is generally known in the trade as the international standards, and those who work in the regulatory community would immediately relate to the proposals of those particular institutions. As the noble Lord pointed out, occasionally Basel standards have not been followed. This is true in the United States, where only international competitive banks follow Basel committee standards. The US has learned painful lessons over the last year or so with the collapse of Silicon Valley Bank and others that did not follow Basel standards. The relaxation of standards was one of the elements that led to that particular collapse. Alignment with international standards and the institutions which—I say again—Britain has done so much to help develop is an important part of the maintenance of financial stability in this country.

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[Baroness Penn (Con)]

It is a joint report from the City of London and the Government that provides analysis of a number of the areas that the noble Baroness covers in her amendment.

I was just moving on to the Financial Stability Report, which is published twice a year by the Bank of England’s Financial Policy Committee, setting out the committee’s latest view on the stability of the UK financial system and what the committee is doing to remove or reduce any risks to it and make recommendations to relevant bodies to address systemic risks.

I hope that noble Lords will agree, although I am sure that not all do, that a well-regulated and internationally competitive financial services sector is a public good for the UK and something that we should continue to support. I therefore hope that my noble friend Lord Trenchard will withdraw his amendment and that other noble Lords will not move theirs when they are reached.

[Viscount Trenchard (Con)]

My Lords, I thank all noble Lords who have taken part in this short debate. The noble Baroness, Lady Bowles of Berkhamsted, talked about the senior managers and certification regime. Does she know that the Japanese banks have given up sending senior directors to London because they cannot get authorised, so they have to promote people who are already in London? All three main megabanks are now doing that because they are so exasperated with the difficulty of getting their senior officers approved by the FCA.

I entirely agree with what the noble Baroness said about the problem of the uneven playing field between listed companies and listed investment trusts. That is an urgent problem that needs to be addressed now. The FCA, with its current culture, is just not responsive to that type of situation. Everybody is aware of that, and it is why some of us are pushing so hard for a more determined effort to change things. I think that if the competitiveness and growth objective had been given equal status with the stability objectives and the other consumer protection objectives, we might have got somewhere nearer that, but I know that not all noble Lords agree.

The noble Baroness, Lady Bennett of Manor Castle, and the noble Lord, Lord Davies of Brixton, supported Amendment 10 to leave out the competitiveness objective and Amendment 112 to reduce the size of the financial services sector. If you leave out the competitiveness objective, you will not have much of a financial services sector, so we would not need both amendments.

The noble Lord, Lord Eatwell, always speaks with great authority. We served together on the original Joint Committee on Financial Services and Markets under the excellent chairmanship of the noble Lord, Lord Burns, in 1999, and it was hugely successful. I take the noble Lord’s point, but I still do not think that we should be bound to align to an international standard just because it is a Basel committee standard; we should have to have regard to it. I say to the noble Lord, Lord Livermore, that some of the other jurisdictions that he mentioned do not subordinate their competitiveness objective to the main stability objectives.

I am grateful for my noble friend’s reassurance and beg leave to withdraw my amendment.

Amendment 8A withdrawn.