King’s Speech

Viscount Trenchard Excerpts

Monday 13th November 2023 Lords Chamber

[Viscount Trenchard (Con)]

My Lords, it is indeed an honour and a privilege to have this opportunity to debate the gracious Speech, delivered last Tuesday by His Majesty. I thank my noble friend Lord Callanan for his comprehensive introduction to this day’s debate. I also congratulate my noble friend Lord Gascoigne and the right reverend Prelate the Bishop of Norwich on their excellent maiden speeches.

I know that I should not dwell on the trade Bill, which permits our accession to the CPTPP, but I believe our accession will have a positive effect on the economy and that it is therefore appropriate to mention it in today’s debate. As many noble Lords are aware, Japan is the largest economy in the CPTPP. Its Government have been strongly encouraging us to apply for accession for five years for geostrategic reasons, as well as to build on our bilateral comprehensive economic partnership agreement, which already provides a framework that should enable an increase in our trade with Japan. That trade and the economy will also receive a boost from our trilateral joint project, together with Italy, to develop and build a sixth generation fighter jet.

I believe that the Government’s recognition of the need to strengthen the UK’s energy security should also lead them to take advantage of an extremely attractive opportunity to collaborate with Japan and mitigate the huge disappointment that resulted from the cancellation of both Hitachi’s Horizon nuclear power station project at Wylfa, which would have provided 2.7 gigawatts of generation capacity, and Toshiba’s NuGen project at Sellafield Moorside, which was to have created 3.4 gigawatts of additional capacity. The opportunity is provided by Japan’s need to find an international partner to commercialise its high-temperature gas-cooled reactor technology. The UK was identified as Japan’s chosen partner for this more than four years ago, but the Government have put it on the slow train by classifying it as an advanced modular reactor, along with several other technologies that are still on the drawing board or at an earlier stage of development. This technology’s demonstrator has been running for more than 10 years in Japan and is inherently safe.

The gracious Speech heralds the introduction of the Offshore Petroleum Licensing Bill, which I welcome. However, the best and cheapest way to achieve energy security without unduly burdening families and businesses is not to spend more and more on subsidising wind projects, both offshore and onshore, the subsidies for which account for a growing proportion of our increasingly unaffordable electricity bills. The best way to provide much-needed relief to struggling households and businesses is to increase very substantially the future target of 24 gigawatts of nuclear generating capacity by 2050. That figure needs to be double or more. Why can we not be more like France in this regard? Great British Nuclear’s remit needs to be widened to encompass our total energy requirement, rather than just the electricity grid.

I am disappointed that there was no mention of our financial services industry, and no commitment to a smaller state and lower taxes, both of which are desperately needed. The Financial Services and Markets Act enables the Government to take advantage of our freedom to introduce a more agile, less cumbersome regulatory regime to restore competitiveness and growth to the UK’s financial markets. How do the Government intend to achieve that? There is no time to lose, as was well illustrated by my noble friends Lord Bridges, Lady Noakes and Lord Altrincham in their powerful speeches.

I welcome the Government’s commitment to invest more in our gallant Armed Forces. I hope my noble friend will explain in her winding-up speech how the rather lacklustre programme outlined in the gracious Speech will bring about the desperately needed growth and investment in the economy.

Financial Services and Markets Bill

Viscount Trenchard Excerpts

Report stage
Tuesday 13th June 2023 Lords Chamber

Moved by

[Viscount Trenchard]

120: Clause 78, page 90, line 34, at end insert—
“(4A) The Treasury must make regulations under subsection (3) so as to bring section 1 and Schedule 1 into force for the purposes of revoking, within the period of two months beginning with the day on which this Act is passed, the provisions mentioned in that Schedule connected with Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers.”Member’s explanatory statement
This amendment ensures that the retained EU Law which replaced the Alternative Investment Fund Managers Directive and associated legislation will cease to have effect no later than two months after the passage of the Bill.

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[Viscount Trenchard (Con)]

My Lords, I have tabled Amendment 120 in the same form as I tabled Amendment 246 in Grand Committee, and I am again grateful to my noble friend Lady Lawlor for adding her name in support of it.

I confess to having been rather disappointed by my noble friend the Minister’s response when she replied to that debate. She started by reminding the Committee that throughout this Bill the Government are seeking gradually to replace all retained EU law in financial services,

“so that the UK can move to a comprehensive FSMA model of regulation”.—[Official Report, 25/1/23; col. GC 68.]

She said that the Government were prioritising those areas that offer the greatest potential benefits of reform and mentioned three such areas: the Solvency II review, the wholesale markets review, and the listings review undertaken by my noble friend Lord Hill of Oareford. She provided some statistics which show that the UK is the world’s second-largest global asset management centre, with $11.6 trillion of assets under management, representing a 27% increase in the past five years. My noble friend rightly suggested that the asset management sector is in good health. However, I am bemused that she and the Treasury officials who advise her have already forgotten the controversy over the introduction of AIFMD. She suggested that the Government were not aware of any evidence that reform of the alternative fund sector is a widely shared priority across the sector. She specifically said that it is the Government’s intention to move all retained EU law in the financial services field into the FSMA model and that this will apply to this area too, but not as one of the first wave of priorities.

I agree that reform in the three areas that the Minister recognises as priorities is also a priority, but all of them are more complicated and I do not believe that any of them are candidates for complete revocation without partial replacement. She may remember that I have long advocated the abolition of the unbundling provisions for research contained within MiFID II and have argued for many of the recommendations made by my noble friend Lord Hill with regard to listings. From the beginning, the Solvency II regulations were inappropriate and disproportionately severe for the UK insurance market, many of whose participants believed that they were a deliberate attempt by the EU to damage the London insurance markets. However, none of those pieces of legislation are, in their entireties, candidates for revocation without partial replacement. But AIFMD is such a candidate.

My point is that this Bill is principally an enabling Bill, and it hardly revokes any EU law right away. However, AIFMD was universally resisted by the industry, the regulators, the Treasury and the Bank. It was foisted on us. It is unnecessary, so why do we not get rid of it now? We do not need further consultations on it. It has diverted many small asset managers away from the UK over the years, and the costs and burdens involved in compliance with it are completely disproportionate. Many innovative, so-called alternative strategies are developed by small companies, and I am aware of many that have failed to bring their ideas to market or have been forced to merge with another firm because of these regulations. As I explained in Committee, the motivation for the unexpected introduction of AIFMD was political, driven by French and German allies of Mr Manuel Barroso, who was seeking reappointment as Commission President. Charlie McCreevy, the Internal Market Commissioner at the time, was opposed to the measure.

I wish the Bill had been designed to abolish without delay not just AIFMD but parts of MiFID II, EMIR, et cetera. But AIFMD is the one piece of anti-UK bureaucratic red tape foisted on us by the EU, and more than two years have passed since the end of the transition period. It is depressing that my noble friend suggested that it will, in due course, be replaced rather than revoked. Those who are interested in the story should read A Report on Lessons Learnt from the Negotiation of the Alternative Investment Fund Managers’ Directive by Dr Scott James of King’s College London, prepared for the British Venture Capital Association.

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[The Parliamentary Secretary, HM Treasury (Baroness Penn) (Con)]

My Lords, I am afraid that, as my noble friend Lord Trenchard set out, his amendment has not changed since Grand Committee and neither has the Government’s response, which he so adeptly summarised on my behalf. We are not able to support the amendment for those reasons.

While I recognise all three of my noble friends’ strength of feeling on this issue, it is important that we do not inadvertently damage the UK fund sector or its access to international markets. However, I reinforce the Government’s commitment to revoking all EU law in financial services—but with prioritisation and process. I hope that all three of my noble friends will take heart from the fact that we are on the last amendment on Report and near the end of the process by which we can see the Bill on the statute book. We can then begin the process of the revocation of EU law and its replacement—or perhaps not, depending on the individual circumstances—with an approach that is guided by what is best for the UK and our financial services sector, to support growth in that sector and across the whole country. That is something that we can all support as a result of the Bill. I hope that my noble friend is able to withdraw his amendment.

[Viscount Trenchard (Con)]

My Lords, I thank my noble friend for her reply. I am slightly more reassured than I was by her reply in Committee. I nevertheless do not feel that she yet recognises the very clear point that this regulation was hugely controversial and was opposed by everybody involved in the financial services industry—there were no supporters of it. I am afraid that we have become rather inured to operating under it, but I can assure her that there are still very large sectors of the asset management industry that would be delighted if the Government would show that this is a priority area for revocation when she gets going with the job of revoking EU law and replacing it with a more reasonable UK-friendly alternative regime.

I thank my noble friend for her response. I also thank all those still in the Chamber for their patience in sitting here right to the end and sharing in this final amendment. I beg leave to withdraw my amendment.

Amendment 120 withdrawn.

Financial Services and Markets Bill

Viscount Trenchard Excerpts

Report stage
Tuesday 13th June 2023 Lords Chamber

[Lord Sharkey (LD)]

My Lords, I have added my name to Amendment 105 in the name of the noble Lord, Lord Moylan, and I congratulate him on his determination and persistence. I do not quite understand his dislike of Turkish barbers, but we can deal with that some other time.

His amendment’s simplicity and its direct modification of the regulation is an appealing approach, as is the absence of the word “review”. I was very pleased to see the government amendments in this group, chiefly because, of course, they are government amendments. I am very grateful for the Minister’s clear and long-standing commitment to resolving, or at least ameliorating, the problem. I have only a couple of observations about the government amendments.

The explanatory statement to Amendment 96 says that UK PEPs

“should be treated as representing a lower risk than a person so entrusted by a country other than the UK, and have lesser enhanced due diligence measures applied to them”.

The amendment itself, in proposed new subsection (3)(b), states that

“if no enhanced risk factors are present, the extent of enhanced customer due diligence measures to be applied in relation to that customer is less than the extent to be applied in the case of a non-domestic PEP”.

Neither of those offers a definition or sets an upper limit to what this lesser form of due diligence should be. Is that decision to be left entirely to the financial services companies? If it is, can we reasonably expect uniformity of definition and behaviour?

Why would we expect the banks to significantly change their current behaviour? Would it not be more likely that they will simply water down some minor aspect of the diligence they currently feel is due and carry on otherwise much as they do now? In a way, that is what is happening anyway. The banks mostly ignore the FCA’s current guidance, as set out in paragraph 2.35 of FG17/6. The FCA, in response to that, applies no sanctions. Nowhere in the government amendments is there mention of sanctions for non-compliance with the new arrangements.

Given the rather cavalier disregard some banks have displayed towards the current guidance, do we not need some sanction for future non-compliance, or a way of making the FCA properly enforce its own guide- lines? What use are guidelines if they are not enforced? I would be very grateful if the Minister could say how a workable definition of “lesser due diligence” is to be arrived at and how the new regime may be enforced.

[Viscount Trenchard (Con)]

My Lords, I declare my interest as a director of two investment companies, as stated in the register. I was interested to hear the remarks of my noble friend Lord Forsyth of Drumlean about American Express. He said that he had had a gold credit card with that company since 1979. Well, I had a gold card issued by American Express in 1978. I was very proud of having that card. I did not use it often, but it is one of those cards that clears automatically every month so there is no danger of running up unpaid debts and paying 20% or 30% interest.

In November 2021, I missed an email from them asking me for KYC information, including my passport details, proof of address and a utility bill, and I omitted to reply. I then got another email a month later—with no telephone call or letter through the post—saying that my account will be closed down. I telephoned them and, after waiting for three-quarters of an hour or so, I spoke to someone who agreed that they did not really need KYC information on me, but if I supplied it and uploaded it to their website, my account would not be cancelled, and all would be fine. I duly did that, but the account was still cancelled in about February 2022. I was not happy about this, because, as I said, I rather liked my gold card issued in 1978, so I took issue with them.

Over the past 15 months, I have spoken with them about six times; I have been on the chat function about six times. I now have two names of individuals and an email address I have been corresponding with, but my account is still cancelled—although they still send me a monthly statement through the post giving me a credit balance. I will print out the Hansard report of this debate and attach it to my next email to American Express, because I am not giving up on this.

[Lord Clarke of Nottingham (Con)]

I will not make a speech giving my experience of American Express, but it is remarkably like that of my noble friends Lord Trenchard and Lord Forsyth. I decided that I could not be bothered with such outrageous burdens being placed on me. Having had my card from some time in the 1970s, I have allowed them to cancel it. Having heard of my noble friend’s experience, I am rather glad that I just let it go and reverted to using my Barclays visa card on all occasions.

[Lord Naseby (Con)]

I will take my noble friends’ points further. My experience was identical to that of my noble friend Lord Forsyth. Frankly, I have cancelled the whole thing; Barclaycard does a far better job.

[Viscount Trenchard (Con)]

Both my noble friends have a much more sensible approach to this matter.

I echo the other remarks of my noble friend Lord Forsyth, whose Amendment 101 I was minded to support. I too am most grateful to my noble friend the Minister for listening to the opinions of your Lordships expressed in Grand Committee. I added my name to Amendment 227 in Grand Committee, tabled by my noble friend Lady Noakes. Her amendment was debated on 13 March alongside Amendment 215, tabled by my noble friend Lord Moylan and other noble Lords. I would have added my support to my noble friend Lord Moylan’s Amendment 105, but it was too popular and there was no room.

My noble friend the Minister will recognise the disproportionate difficulties which UK PEPs must endure as a result of the money laundering regulations 2017. On balance, I would have preferred to be excluded by virtue of being a UK citizen, but my noble friend has decided that exclusions will apply to domestic PEPs, which does not sound so nice, but will achieve the same outcome.

Unfortunately, it will take years for British citizens resident abroad who are connected to UK PEPs to be released from similar regulations in many different jurisdictions. For example, my son has found it impossible to be appointed as a bank account signatory in Taiwan and South Korea. However, my noble friend the Minister’s amendment should make the life of UK PEPs easier. I am interested to see whether, in a year’s time, the amendment proposed by my noble friend Lord Moylan will be the triumphant, most successful and best one of these. In any event, I am most grateful to her for taking up this point, as she said she would.

[Lord Eatwell (Lab)]

My Lords, we seem to be predominantly discussing personal experiences at the moment, so I declare an interest as the former chairman of the Jersey Financial Services Commission.

The definition of a politically exposed person in Amendment 96 refers to persons

“entrusted with prominent public functions by the United Kingdom”.

Presumably, that would not apply to the Crown dependencies, since they are not part of the United Kingdom. I think that this is a mistake; it should be corrected by the Government, given the important role many UK citizens play in the Crown dependencies and in the financial services industry in the Crown dependencies. Would the Minister agree to take this away and see whether the omission of the Crown dependencies is just an error that has been made in drafting this amendment.

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I have not made a long and impassioned speech about Ukrainian soldiers unnecessarily running around the battlefield in soft-skin vehicles. Nevertheless, these are exceptionally important defence and security matters. If the Minister does nothing about it, they will surely bite her or some other Minister, hard, at some point in the future. My question for the Minister is this: is it the settled policy of His Majesty’s Government that the complete integrity of the money laundering regulations is more important than facilitating the supply of armoured fighting vehicles to Ukraine? I beg to move.

[Viscount Trenchard (Con)]

My Lords, I declare an additional interest as stated in the register as a provider of geostrategic advice to Safe Security (SSL) Ltd. I will not repeat the arguments so well put by my noble friend Lord Attlee, who has given much voluntary military service over the years. I have added my name to my noble friend’s Amendment 98, but I also support both Amendments 99 and 100.

The Export Control Organisation at the former Department for International Trade grants export licences for controlled goods for military purposes. Its online export licensing system is called SPIRE. The organisation’s website states:

“We advise that you register your company on SPIRE, benefits include: More Control … Time Saving”.


I understand that it takes much time to obtain a SPIRE licence, but I am not convinced that it saves any time in carrying out this control business. It is of course right that companies wishing to receive licences to conduct this kind of business should be properly vetted and undergo the most stringent checks. However, once they have done that and been granted SPIRE accounts, why do they then find that the money laundering regulations prevent banks opening accounts in order to execute this kind of business under any circumstances?

In Committee, my noble friend the Minister acknowledged that

“the government process for the granting of export control licences focuses on the end use of goods rather than the source of funds paying for them”.

She told the Committee that the Treasury has

“engaged with the Export Control Joint Unit, the Financial Conduct Authority and other partners on this issue”.

She said that she was

“not aware of a systemic issue”,—[Official Report, 21/3/23; col. GC 297.]

but would “act to address it” if the Government identified one. I rather think there is a systemic issue here, because banks run a mile when anyone, particularly an SME, tries to open a bank account to do this kind of business. Banks are not aware of the SPIRE system and give absolutely no recognition to any licence granted under it to a prospective customer. The result of this, at least in some cases, is that the business is being carried out in other jurisdictions, such as Finland, that do not apply these regulations in such a stringent manner. This obviously deprives the Exchequer of corporation tax revenues and results in the official statistics understating the extent of British support for Ukraine.

This does not apply only to military equipment but includes the provision of vehicles to be used as field ambulances. I want to ask the same question of my noble friend the Minister as that asked by my noble friend Lord Attlee: do the Government think that absolute observation of the money laundering regulations is more important than permitting those who are licensed to do this business to do so?

[Baroness Kramer (LD)]

My Lords, we should thank the noble Earl, Lord Attlee, for raising a set of significant issues. I have no specialist knowledge in this area, but I am very well aware that SMEs generally are disadvantaged under our current framework arrangements. As the Minister will know, individuals and micro businesses—usually a small sole trader or somebody of that ilk—fall within the FCA’s regulatory perimeter, but the SMEs that have just been described fall outside of it.

Therefore, where there are gaps or where their treatment is completely inappropriate, they have nowhere to turn. In those circumstances, they face significant disadvantage compared to their competitors across the globe. So I hope the Minister will understand that this is a reflection—I think “tip of an iceberg” was the correct term—of something that is quite systemic in many different ways, and an area where the Treasury, and the regulators, need to focus attention.

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[Lord Davies of Brixton (Lab)]

My Lords, I support the amendment. We will return to these issues on Thursday, when we discuss the regulations in Grand Committee. However, it is worth mentioning to the House the clash today between this Bill and a meeting of the Economic Affairs Committee, of which the noble Baroness, Lady Kramer, and I are members. By chance, the committee was interviewing the Governor of the Bank of England. The issue of this arrangement arose, and the governor was quizzed on these very issues. It will be useful on Thursday to explore further why and how this action was taken. The governor provided a justification, but, in the light of his remarks, it will be worth while exploring these issues in more detail when we get the regulations.

[Viscount Trenchard (Con)]

My Lords, the noble Baroness, Lady Kramer, and the most reverend Primate have retabled as a single amendment—Amendment 106 —the two amendments that were debated in Grand Committee: Amendment 241C on ring-fencing, and Amendment 241D on the senior managers and certification regime.

As my noble friend Lady Noakes said during that debate, these amendments are trying to set in stone for all time the conclusions of the report of the Parliamentary Commission on Banking Standards. Times change, and I cannot support this amendment because it introduces an inappropriate degree of rigidity.

As my noble friend also pointed out, the lesson of the HSBC and Silicon Valley Bank episode was that the ring-fencing rules were not, after all, considered inviolable. It was necessary to provide HSBC with special statutory exemptions from the ring-fencing rules to enable it to acquire Silicon Valley Bank. That exemption has brought permanent changes to the ring-fencing regime for HSBC which affect it alone. Can my noble friend say whether that means it has a permanent competitive advantage over rival ring-fenced banks in the UK?

In any case, I rather doubt whether the introduction of ring-fencing has reduced the risks to which bank customers’ deposits are exposed. I disagree that it is therefore important to make it very difficult to weaken the ring-fencing regulations in any way. As I said in Committee, I worked for Kleinwort Benson for 23 years, for a further 12 years for Robert Fleming and then for Mizuho. All three banks operated both commercial and investment banking businesses. Internal Chinese walls between departments made it quite impossible for customers’ commercial banking deposits to be diverted to risky investment banking activities. As I said in Grand Committee, there is no positive correlation between the two cash flows of retail and investment banking. It follows that universal banks are in fact gaining diversification benefits. There is little global evidence that splitting up the banks has made them less likely to get into trouble.

Following the Lehman shock, is it not interesting that the US Government did not go for the reintroduction of a kind of Glass-Steagall Act? I am not convinced that ring-fencing is a good thing, and in general I am opposed to market distortions of this kind, which actually make the consumer less safe rather than safer. Ring-fencing also makes it harder for smaller banks to grow, because they must compete for a small pool of permitted assets against the capital of the larger banks. Will the Government conduct a review of the effectiveness of ring-fencing?

As for the senior managers and certification regime, I am sceptical as to whether it has been effective, because there is no hard evidence that it has been used as the stick that was originally intended. Most well-run banks operate in a collegiate manner, and I think it rather odd to attempt to attribute personal responsibility to managers and directors of banks for the decisions and actions of those banks, beyond the responsibilities that the directors carry in any event.

The SMCR has especially inconvenienced foreign banks operating in London. As an example, I refer to the Japanese megabanks. It used to be their practice to assign a very senior executive to London to take responsibility for all the bank’s activities in the UK and in most cases the whole EMIR region. Often, this might be the executive’s last major management position before retirement, and would typically be for two to three years leading up to his retirement date. Such executives have typically worked for 40 years or more for that bank and have managed regulated financial businesses in Japan for many years. However, the FCA has consistently been extraordinarily slow in approving those executives under the SMCR.

Therefore, the Japanese banks have given up on this strategy and feel compelled to appoint as head of their UK and EMIR operations not the person most appropriate for the job, but the most senior person who has already been working in London for three years or so, merely in order to meet the criteria of the SMCR regime. This has caused considerable inconvenience, because it is unreasonable to send a trusted senior executive overseas for five or six years in the last years of his active career, rather than a more reasonable stretch of two to three years. I know that the SMCR is much resented by Japanese and other foreign banks and I ask my noble friend if she will agree to conduct a review of how it is being implemented by the FCA.

[Lord Eatwell (Lab)]

My Lords, I must say that, listening to the noble Viscount, Lord Trenchard, just now, I think he has given strong arguments in favour of this amendment—strong because what the amendment asks for is accountability to Parliament on the performance of the ring-fence and the SMCR. If that accountability existed, the noble Viscount would have the opportunity to present his views in a framework, which might then have greater effect than, I am afraid, his speech had without such a mechanism.

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There will be no cost to the Government in ensuring that mortgage prisoners are treated in the same way as borrowers in the rest of the market. Taken together, these changes will tackle the harm being caused to mortgage prisoners and their families. It is surely time for the Government to acknowledge their moral obligation to help solve the problem they have created and do something to relieve the plight of mortgage prisoners. I beg to move.

[Viscount Trenchard (Con)]

My Lords, I am pleased again to support the noble Lord, Lord Sharkey, in his noble quest to protect mortgage prisoners, as I did when he tabled a similar amendment in Grand Committee.

I appreciated the commitment of my noble friend Lord Harlech in his winding up that the Government would consider the proposals of Martin Lewis, the LSE and the APPG on Mortgage Prisoners that have been put forward. As he said, mortgage prisoners are the forgotten victims of the financial crash. The banks were bailed out at the expense of these borrowers. Furthermore, the margins between the Bank of England base rate and typical standard variable rates have expanded by more than double.

The problem is that the unlicensed lenders that bought the mortgage books of this group of borrowers do not offer the fixed-rate products that are available to borrowers in the active market. I stress that my motive in supporting the noble Lord’s amendment is to support this group of genuine mortgage prisoners, who are unable to switch to a new fixed-rate mortgage despite having been up to date and not missed any payments.

The Government have acknowledged the detriment caused to mortgage prisoners. This Bill offers an opportunity to provide them with some relief from the difficulties that they are trying to cope with. I hope to hear from my noble friend some concrete plan to assist them as the Government have done for many disadvantaged groups—as a result of the Covid pandemic, for example. I look forward to the Minister’s reply.

[Baroness Bennett of Manor Castle (GP)]

My Lords, I rise briefly, having spoken on this issue both in Committee and back in the last financial services Bill, just to put a human face on this. In doing that, I remind the Minister of the representatives of the mortgage prisoners whom we heard from at the meeting in the Treasury a couple of months ago.

The face I have chosen to put on is that of 63 year- old Jacqueline Burns, who spoke to the I newspaper in April about what her life is like now that she is a mortgage prisoner. She said:

“I am cutting back on food because I can’t afford to eat … I am so stressed out right now, I am at the end of my tether”.


The story, as Ms Burns told the I, was that she bought her home in Cambridgeshire for £69,000 in 2006 from SPML, which was an arm of Lehman Brothers. Ms Burns remembers that the broker “was really nice” and “pushed me … towards SPML”. We can all probably imagine why that was. The situation in which Ms Burns now finds herself is that she is on the standard variable rate and owes £109,000; remember that she paid £69,000 for the house. Because of the rise in interest rates, her mortgage payments have gone up from £333 a month to nearly £700 a month. She simply cannot pay.

She is in this situation because of a failure of government regulation, and because of arrangements made by the Government that made a significant profit. There is a huge moral responsibility. If we think about the costs that must be being imposed on the NHS by people who eventually become homeless and need council homes et cetera, it is clear that the Government should look not just at their moral responsibility; they also need to ensure that people get a fair deal and do not end up—even if the Government are not thinking of anything else—costing the taxpayer a great deal.

Financial Services and Markets Bill

Viscount Trenchard Excerpts

Report stage
Thursday 8th June 2023 Lords Chamber

As I said, while reporting is being introduced around important matters, that is not the same as independent probing to find out about what is not reported. That independent probing, such as it is, will now be left to Parliament’s committees. I appreciate the amendments that the Government have offered, which will be talked about in the next group, but it is clear that if we are to do the kind of scrutiny that gets anywhere near that which I was involved in in the European Parliament, it has to be funded so that the committees can have expert assistance and not just one clerk. That is particularly relevant when we look at the committees in this House of Lords. We already have history here of requests for a sub-committee being declined because there is competition for such things. That has to be fixed. It is no good us having legislation changed to enable us to do scrutiny and then us being impotent to do it, either because there is something else that is sexier for a committee or because there are not the resources to fund it properly.

[Viscount Trenchard (Con)]

My Lords, I too thank my noble friend the Minister for again responding to the strong views expressed within your Lordships’ House and for introducing the amendments that she has. I also agree with what my noble friend Lord Holmes said.

I also thank the noble Baroness, Lady Bowles of Berkhamsted, for the introduction of my noble friend Lord Bridges’ Amendment 64 and the others in that group. I supported his amendments in Grand Committee and am pleased to do so again today. My noble friend set out with his usual clarity, as did the noble Baroness, why we should support these amendments, and I will not waste your Lordships’ time in repeating them.

As my noble friend Lord Forsyth of Drumlean said in Committee, in order for Parliament to be able to hold the Treasury and the regulators to account, it is necessary to have an independent source of information. The proposed office would provide that. It is also welcome that the main duties of the office will include a duty to prioritise the analysis of regulations that restrict competition, negatively affect competitiveness and add compliance costs.

I do not believe that the new office would be a regulator of the regulators. Rather, it would be a means to ensure that the regulators really do get on with the job on which they are behind schedule—the promise made in 2016, in the general election manifesto and many times since that we will take advantage of our regulatory freedoms to eliminate or simplify those regulations which do not suit our markets and which place a disproportionate burden on market participants. We should not do this at the expense of standards, but to recast the rulebook in common law style will make it much easier for firms to maintain the high standards on which the regulators, the Treasury and noble Lords will all insist. The proposed office would greatly assist in ensuring that this will happen.

I also note—although we will discuss this in the next group—that, ideally, the office would deal principally with a Joint Committee of both Houses rather than two separate committees which might compete with each other. That would double the work and the costs that the office and the regulators would have to bear in carrying out their duties.

I believe the creation of an independent office such as the one proposed would be more helpful than the creation of a multiplicity of panels, which may be set up by statute but remain panels of the entities of which they form part. These are also duplicated between the two regulators, which doubles the cost and time taken by the regulators, and by the relevant committees of your Lordships’ House, in discussing with them.

I hope my noble friend the Minister is prepared to consider further the creation of something which is truly independent of the regulators. I think we have too much legislation by statute to require entities to negotiate with panels of which they are a part, which conceptually I find rather odd in any case.

[Lord Vaux of Harrowden (CB)]

My Lords, this is the first of two groups that seek to improve the level of parliamentary scrutiny and accountability. Arguably, I think the groups are the wrong way around from a logical point of view, but we are where we are. We had long debates on this in Committee, and it was clear that accountability and parliamentary scrutiny was probably the single biggest issue on which Members from across the House felt that the Bill fell woefully short, particularly given the huge amount that is being transferred to the responsibility of the regulators by the Bill.

We heard in Committee of the need for three legs to the whole process of scrutiny and accountability: reporting, independent analysis and the parliamentary accountability elements. This group is about the second leg—the independent analysis that will support the parliamentary scrutiny and accountability. The Government have listened, and that is welcome, but I am sure I am not alone in finding what they have proposed to be rather thin gruel.

The Government have introduced a number of amendments which enhance the role of the various policy panels, in particular the cost-benefit analysis panel. These are welcome, but I am afraid they really do not go far enough. Other noble Lords, especially the noble Lord, Lord Holmes of Richmond, have tabled further amendments to enhance and support the role of the panels. Again, that is very welcome but not, I think, sufficient. Despite these improvements, the panels remain appointed by the regulators and are not genuinely independent.

I remain strongly drawn to the amendments in the name of the noble Lord, Lord Bridges of Headley, introduced by the noble Baroness, Lady Bowles, to which I have added my name, to create a genuinely independent office for financial regulatory accountability. As I said, so much responsibility is being handed to the regulators that it must make sense to have a genuinely robust system of oversight over the regulators, not just responding to consultations about proposed changes to regulations that the Government have put into the Bill but a much more holistic oversight of the whole regulatory direction—something that deals with what the noble Viscount, Lord Trenchard, referred to as the multiplicity of panels. We need to draw this all together, and we need to be much more forward-looking about the direction of regulation, rather than backward-looking as to what is proposed.

This is such an important matter and such a huge volume of work that, if we are to scrutinise it effectively, we need to have something such as the proposed office for financial accountability to enable parliamentary committees and others to carry out the meaningful scrutiny. The noble Baroness, Lady Bowles, talked about the need for resources; we will come on to that in the next group, but she is quite right. This would really help because, if the independent information were available to the committees, it would save them the job of doing all the sifting and all the rest of it, and they would be able to concentrate on the bits that really matter.

Even with the amendments proposed by the Government, I do not think that we get anywhere near that real scrutiny. I am sorry to hear that the noble Lord, Lord Bridges, does not intend to push these amendments; I would have liked him to do so and would have supported him if he had. I hope that he will continue to use his influence as the chair of the Economic Affairs Committee to push for a similar approach.

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[Lord Vaux of Harrowden (CB)]

My Lords, I added my name to the amendments by the noble Lord, Lord Forsyth, so I thought I would stand and associate myself completely with his comments. I am delighted that the noble Baroness has effectively accepted the proposal. I will add my voice to say this: the subject of financial services is so huge, complex and important that it really requires a dedicated committee, whether a Joint Committee or committee of this House, not just to be part of, say, the Industry and Regulators Committee or the Economic Affairs Committee. It is much too big a subject to be covered by a committee that is not dedicated to the subject—and, if you have a dedicated committee, it must be properly resourced.

The Government rightly say that this is a matter for Parliament, but let us be realistic: they have huge influence on what happens there. I really hope that the Government and whoever the powers-that-be in this House who make these decisions are—even as the chair of the Finance Committee, this is still slightly opaque to me—are listening. This is so important. We must go ahead and must resource it properly.

[Viscount Trenchard (Con)]

My Lords, I strongly agree with what my noble friend Lord Forsyth has said. I also put my name to his Amendment 25 and other amendments, and I think that he is entirely right.

I also thank the Minister for responding to the concerns expressed on all sides of the House and for recognising that the parliamentary oversight of the regulators may need to be done by a Joint Committee of both Houses. Like the noble Lord, Lord Eatwell, I had also noticed that the amendment says not “or” but “and”, so there is a danger that there might be three committees doing the same thing, which would treble the work required by the regulator and, presumably, by the witnesses and experts who would be called to assist.

Also like the noble Lord, Lord Eatwell, I had the experience of serving on the 1999 Joint Committee of both Houses. This was established by resolution of your Lordships’ House and another place separately but was effectively driven, or at least strongly encouraged, by the Government at the time. The noble Lord, Lord Burns, was a most effective chairman of the Joint Committee, and it was a pleasure to serve on it under his leadership. An added benefit of that Joint Committee was that it enabled noble Lords with an interest in financial services to work much more closely with Members of the other place and concentrated the expertise of both Houses in one committee. I agree with the noble Lord, Lord Eatwell, that it would be a seriously bad outcome were there to be two committees tasked with this huge job.

I also refer to what the noble Baroness, Lady Bowles, said. I was in Brussels at the same time that she was chairman of the ECON, the economic affairs committee of the European Parliament. I often visited the European Parliament at that time. I was struck by the large number of staff and the great facilities available to the committees to carry out their role of scrutinising the legislative proposals brought by the Commission. We have not experienced that burdensome type of work: in the past, under the European model, all our financial services regulation was in primary legislation. It will now be given to the regulators. We therefore need more resources than have been available to us to scrutinise and supervise them properly. This is really important.

Noble Lords should also be grateful to the Minister for restoring equality of involvement between another place and your Lordships’ House. I thought that this was an unfortunate precedent for this type of legislation, particularly as many noble Lords have recent and continuing involvement with financial services firms. I look forward to the Minister’s winding up.

Financial Services and Markets Bill

Viscount Trenchard Excerpts

Report stage
Thursday 8th June 2023 Lords Chamber

[Viscount Trenchard (Con)]

My Lords, I declare my interests as a director of two investment companies, as stated in the register. I agree to some extent with what the noble Lord, Lord Eatwell, said, but I am not sure I can agree that the United Kingdom’s financial markets are uniquely peculiar in any sense. It is true that we do not have such a large domestic hinterland as the United States, but compared with financial centres such as Switzerland and Singapore, we have a rather larger domestic hinterland. I do not think what he said is therefore so relevant as he perhaps believes.

Furthermore, I agree that our high standards and what used to be called “my word is my bond”, which was what I was taught on day one when I went to work for Kleinwort Benson in the City, are very relevant. We have always been proud, and rightly so, of the very high standards and honourable way, in the main, in which our financial institutions have conducted their business. Indeed, competitiveness of the market depends, to a degree, on maintaining those high standards. But competitiveness also depends on having clear, comprehensible and proportionate regulation, and in recent years our regulation has become too cumbersome, particularly after the FSA was split into two regulators. If you are a dual-regulated company, it is a nightmare to have to report much the same information but in different formats to the two regulators. This is why the time spent by executive committees of operating financial companies in the City is so greatly taken up by compliance, reporting and regulatory matters, rather than innovation and the development of new businesses to attract more international companies to do their business in London, thus providing more revenue for the Exchequer and more jobs for British people, and indeed for non-British people to come and work here.

I support the Government’s amendments to strengthen the reporting requirements of the regulators, and Amendments 40 and 41 tabled by my noble friend Lord Holmes of Richmond. I agree with those noble Lords who have thanked the Minister most sincerely for her response to concerns expressed across the House about accountability and scrutiny. However, the British Insurance Brokers’ Association has expressed concern that the Bill, as drafted at present, largely allows the regulators to decide how to fulfil the reporting requirements for the competitiveness and growth objective.

Clause 37 acts as a backstop that allows the Treasury to compel additional reporting. What assurances can the Minister give that the Government’s response to the ongoing consultation on the appropriate metrics for the regulators to publish will lead to concrete changes to which metrics are published, given that the Bill will have been passed by the time the Government respond to the consultation? Given that it will not be possible to include any details of specific metrics or how the Treasury will exercise its powers in Clause 37 in primary legislation, how can the Government ensure that the consultation will lead to a sufficient challenge to the regulators, allaying concerns about them marking their own homework in their reporting? Will the Minister also give assurances that the Government’s response to the consultation will reflect the parliamentary debate in this area, where noble Lords have consistently stressed the need for extensive metrics to be published by the regulators with regard to the new objectives?

[Lord Davies of Brixton (Lab)]

My Lords, I do not want to run the risk of repeating myself, but I have made plain in previous debates my concern about the inclusion of the competitiveness objective in this legislation. Just to be clear, I think it has no place, but I welcome these provisions that there should be a report on the competitiveness objective. My concern is that the wording does not get to the heart of the problem that I believe exists, which is the interaction between the competitiveness objective and the other objectives. My reading of the way this is worded is that the report just has to talk about the competitiveness objective and does not have to say how it affected the other objectives. Maybe the Minister in her reply could allay my concerns and make it clear that the regulatory bodies are required to look across the whole gamut of their obligations when reporting on the competitiveness objective.

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.

Financial Services and Markets Bill

Viscount Trenchard Excerpts

Report stage
Tuesday 6th June 2023 Lords Chamber

[Lord Sharkey (LD)]

My Lords, I shall speak first to Amendment 1 and then to Amendments 116 and 117. The Bill gives the Ministers and regulators power to shape our financial services regimes, but it does not allow for any meaningful parliamentary scrutiny of the changes that Ministers and regulators may introduce into law. This is another very clear example of what the noble Lords, Lord Hodgson of Astley Abbotts and Lord Blencathra, and their committees, warned about—the significant and continuing shift of power from Parliament to the Executive. The DPRRC report says in its introduction:

“We have concluded that it is now a matter of urgency that Parliament should take stock and consider how the balance of power can be re-set”.


It goes on to highlight the problem of what it calls

“Legislative sub-delegation of power: where ministers can confer powers on themselves or other bodies”,

which is precisely what this Bill is about. The report, called Democracy Denied?, goes on to say:

“we conclude that conferring legislative sub-delegation of power is potentially a more egregious erosion of democratic accountability than a simple delegation to a minister”.

The Minister is aware of these concerns. In our previous discussions, she has noted, by way of compensation no doubt, that there will be opportunities for Parliament to be consulted and for post-hoc accountability reviews. Neither of those things, desirable though they may well be, is a substitute for meaningful legislative scrutiny. This scrutiny is what Amendment 1 proposes to introduce, and I am very grateful to the noble Lords, Lord Hodgson of Astley Abbotts and Lord Lisvane, and the noble and learned Lord, Lord Thomas of Cwmgiedd, for adding their names to the amendment.

The amendment is based on the Amendment 76 of the noble and learned Lord, Lord Hope, to the REUL Bill, which your Lordships agreed to on 17 May by 231 votes to 167. This amendment was discussed at ping-pong in the Commons 10 days ago, and was rejected by the Government on three grounds. The first was that the Government do not accept the principle that Parliament should be able to amend statutory instruments. The second was that the scrutiny proposed would take up too much parliamentary time. The third is the really rather astonishing and disappointing view of the reach and capability of our Joint Committees. I shall not comment on that last point, except to say that it is obviously mistaken, as many of us here could attest.

The objection against taking up too much parliamentary time seems pretty odd, as scrutiny is obviously the essence of our role. In any case, that objection may, if one is charitable, have some force in the case of the monster that is the REUL Bill, but surely has none in the case of this much shorter and more coherent Bill.

As for the Government’s not accepting the principle that Parliament should be able to amend statutory instruments, that surely needs qualification. We have heard that qualification discussed in the preceding business. There are two examples of Acts of Parliament containing provisions for the statutory instruments that they generate to be amended—the Census Act 1920 and the Civil Contingencies Act 2004. Both those Acts allow for SIs to be amendable in the way that our Amendment 1 proposes, only by agreement of both Houses. There are no free-standing or wide-ranging powers.

The Government seem to be sticking to this rather confected set of objections to parliamentary scrutiny. Noble Lords who were here for the preceding ping-pong on the REUL amendments from the noble Lord, Lord Anderson, will have heard the repeated resistance to parliamentary scrutiny. That is despite the SLSC’s calling for the REUL Bill to contain

“an enhanced scrutiny mechanism that enables Parliament to decide that an instrument makes changes of such policy significance that the usual ‘take it or leave it’ procedures—even if affirmative—relating to statutory instruments should not apply but that a further option should be available, namely a procedure by which the Houses can either amend, or recommend amendments to, the instrument”.

The Bill before us is essentially a financial services carve-out from the REUL Bill and it suffers from the same lack of effective scrutiny provisions. What was necessary for parliamentary scrutiny of the REUL Bill is also necessary for this. Our Amendment 1 responds to the SLSC’s call. It brings in a sifting process. It allows a Joint Committee discretion over what constitutes substantial change to preceding retained EU law. It requires a debate on the Floor of each House if the Joint Committee makes a finding of substantial change or that there has been insufficient public consultation. It also allows SIs generated by the Bill to be amended if, and only if, both Houses agree. This is not a prescription for frequent and casual intervention but a narrowly drawn means of altering SIs on those rare occasions when both Houses find the case compelling.

The amendment returns a measure of meaningful parliamentary scrutiny to the Bill. It allows careful parliamentary scrutiny of proposed changes to our critically important financial services regime. Without it, there would be none; Ministers and regulators would decide, and Parliament would be bypassed yet again.

I turn to Amendments 116 and 117. These amendments, taken together, would allow either House to insist on an enhanced form of scrutiny for SIs it deemed likely to benefit from more detailed examination and debate, as well as from recommendations for revision. The usual SI procedures, as we all know, do not allow this and do not constitute parliamentary scrutiny in any meaningful sense: we cannot amend and we do not reject. The super-affirmative procedure set out in Amendment 117 would allow a measure of real, detailed scrutiny, a means of hearing evidence and a means of making recommendations to Ministers. It would not allow the amendment of SIs: that power remains exclusively with the Minister.

Identical amendments were debated in Committee. The noble Baroness, Lady Noakes, who is not in her place, added her name to the amendments and spoke in support; so did the noble Viscount, Lord Trenchard, and the noble and learned Lord, Lord Thomas of Cwmgiedd. The noble Lord, Lord Tunnicliffe, also not in his place, commented:

“If a piece of legislation is proposed and supported by the noble Lord, Lord Sharkey, the noble Baroness, Lady Noakes, and the noble Viscount, Lord Trenchard, you have to think that it is pretty wide-ranging—in fact, close to impossible”.—[Official Report, 23/3/23; col. GC 329.]


I think he meant that as a compliment, but it is not entirely clear.

The super-affirmative procedure is appropriate here because, for example, Clause 3 allows for very significant policy changes to be made that could be significant in the context of the restatement of EU law, as the noble Baroness, Lady Noakes, noted in the debate. The Minister thinks that the super-affirmative procedure is unnecessary and promises instead that

“the Government will seek to undertake a combination of formal consultation and informal engagement appropriate to the changes being made”.—[Official Report, 23/3/23; col. GC 331.]

That is not even a real commitment, with the phrase “will seek to undertake”, and it is certainly nothing close to meaningful parliamentary scrutiny. We need the super-affirmative procedure, and I commend these amendments to the House. I beg to move Amendment 1.

[Viscount Trenchard (Con)]

My Lords, I declare my interests as a director of two investment companies as stated in the register. I listened with interest to the noble Lord, Lord Sharkey, in bringing forward his Amendment 1 and other amendments. I feel strongly, as he has suggested, that what has been agreed for the REUL Bill should also be acceptable for this Bill. Indeed, one of my later amendments makes the same point. As he said, the Bill is in some sense a carve-out from the REUL Bill dealing exclusively with financial services. As for his other amendments, I will not repeat the arguments I made in Committee, but I look forward to hearing whether the Minister can give any greater assurance to the House today than she did at that time.

[Lord Hamilton of Epsom (Con)]

My Lords, I support Amendment 1. My noble friend Lord Hodgson of Astley Abbotts does not seem to be with us, but I have collaborated with him over the retained EU law Bill, and I know his views are that Parliament has been collectively losing control of its agenda and that parliamentary sovereignty has been undermined. He has been chairman of the Secondary Legislation Scrutiny Committee, and he notices that more and more business goes through both Houses under statutory instruments. That is not really what we should be going along with in either House, and it is disappointing that the other House does not seem to worry too much about the fact that it is losing its sovereignty and its power to control legislation. That seems to be a fact we have to deal with.

I have repeated this very often, but unlike most people in your Lordships’ House, I campaigned to leave the EU. I often wonder what would have happened if the people who were really concerned about the fact that we were getting all this legislation from the EU—inevitably, I accept—which we could neither amend nor reject knew that we would substitute it with stuff in respect of which the Executive are given all the power that had previously lain in Brussels. If we had campaigned in the country and told people that that was what was going to happen, I am not at all certain that the referendum would have been won by the leave campaign.

It strikes me as very odd that when we talk about taking back control, it seems to exclude Parliament. It does not seem to have a desire—particularly the other place—to actually take back control of legislation, which is what I think we should be doing. It is time we brought this to a halt. I do not have any great optimism that that is going to happen, but I would be more than happy to support the noble Lord’s amendment if he presses it to a Division.

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Moved by

[Viscount Trenchard]

3A: After Clause 6, insert the following new Clause—
“Report on retained EU law
(1) Within six months of the passing of this Act and every six months thereafter the Treasury must prepare a report containing, for each of the items of retained EU law listed in Schedule 1, whether it has been revoked and, if not, when it is expected that it will be revoked.(2) The report must be laid before each House of Parliament.(3) This section ceases to have effect after a report showing that all the items of retained EU law listed in Schedule 1 have been revoked.”Member’s explanatory statement
This amendment requires a progress report on the revocation of EU law covered by the Bill.

[Viscount Trenchard (Con)]

My Lords, Amendment 3A requires the Treasury to report every six months on the progress it is making in its challenging task of revoking, improving or retaining each of the items of retained EU law listed in Schedule 1 to the Bill.

This amendment and my other amendment in this group were originally tabled by my noble friend Lady Noakes, who is not in her place today. She is providing support to her husband, who is to undergo an operation this week, and she is unable to participate in our Report debates. Noble Lords on all sides of the House will miss her wise counsel and informed contributions to the Bill and to other Bills before your Lordships’ House. I am sure all will join me in sending our very best wishes to my noble friend’s husband for a successful procedure and a full recovery, and we look forward to welcoming her renewed participation in our work when she is able to resume her attendance.

In Grand Committee my noble friend moved an amendment that would, on 31 December 2026, have activated an automatic revocation of the legislation listed in Schedule 1 in order to incentivise the Treasury and the regulators to get on with the job. This would have been more consistent with the scheme of the retained EU law Bill as it was then drafted. Needless to say, my noble friend the Minister rejected the sunset clause and, during that debate, we learned that, while the Government have identified some priority areas, they have absolutely no plan or timetable for completing the task.

Noble Lords will be aware that my noble friend Lord Callanan indicated the Government’s support for my noble friend Lady Noakes’s recent amendment to the REUL Bill, which was adopted by your Lordships’ House at Third Reading. This requires reports on progress and future plans for retained EU law, until the Bill’s powers expire—at which point anything left remains on the statute book as assimilated law. The amendment also requires the Government to keep the retained EU law dashboard to be updated until 2026. These requirements seem to cover financial services legislation, so we shall have visibility of the status of that legislation and the Government’s plans until the last report under the retained EU law Bill, the report to 23 June 2026. In addition, there will be no obligation to update the dashboard after that date.

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[Baroness Penn (Con)]

My Lords, I join noble Lords in wishing my noble friend Lady Noakes and her husband well, and I look forward to her return to this House. As my noble friend Lord Trenchard noted, she worked with our noble friend Lord Callanan on amendments to the retained EU law Bill to introduce similar reporting standards to those in Amendment 3A. I can confirm that the reporting requirements in the retained EU law Bill already apply to the retained EU law repealed through Schedule 1 to this Bill, so the reports that the Government prepare under that obligation will include the Treasury’s progress in repealing retained EU law in Schedule 1.

I reassure my noble friends that through the Bill the Government are asking Parliament to repeal all legislation in this area, and we expect to commence it fully. The revocation is subject to commencement, and each individual piece of legislation listed in the Bill will cease to have effect only once the Treasury makes an SI commencing the repeal. As I noted in Committee, this is being taken forward in a carefully phased and prioritised way to deal with retained EU law, splitting it into tranches and prioritising areas that will provide the most concrete benefits to the UK. The implementation will take place over a number of years, which means that we are prioritising those areas with the greatest potential benefits of reform. We have demonstrated intent and action in this area. We have conducted a number of reviews into parts of retained EU law, including the Solvency II review, the wholesale market review and the UK listings review by my noble friend Lord Hill of Oareford, which my noble friend Lord Trenchard referred to in his Amendment 3B. The whole- sale markets review reform in Schedule 2 demonstrates the Government’s pace and ambition for reforming retained EU law, and that is very much the case.

I turn to Amendment 3B. Of course the Government must think carefully before choosing to replace EU law, and understand the impact of any replacement. The Government have consulted extensively on their approach to retained EU law relating to financial services, and there is broad consensus in the sector behind the Government’s plans, as I have already noted. However, I do not believe that an explicit mandatory statutory obligation to consult impacted parties is required. The powers in the Bill to designate activities under the designated activities regime are closely modelled on the secondary powers which already exist in FiSMA, especially the power to specify regulated activities. This existing power does not have an explicit statutory obligation to consult. I think the Government have already demonstrated that they will always consult when appropriate and will always approach regulating a new activity carefully. We can see this in the Government’s consultation on the regulation of funeral plans in 2019, and in draft legislation related to “buy now, pay later” published in February.

My noble friend Lord Trenchard referred to the listings review and implementing its results but, again, the Government have already consulted extensively. They launched a consultation in July 2021 that ran until September this year, and the proposals on listing reforms received broad support across the industry. The Government have already published a draft statutory instrument to illustrate how the new powers in the Bill could be used to bring forward a new regime in this area, so I believe that the Government have already demonstrated that they will consult properly when using the regulated activities order power. Therefore further amendments in this area are not necessary, so I hope my noble friend is able to withdraw Amendment 3A and will not move Amendment 3B.

[Viscount Trenchard (Con)]

My Lords, I thank all noble Lords who have taken part in this debate. In particular, I thank my noble friend Lady Lawlor for her support, and I entirely agree with what she said about the need to move back to our former common law-based approach. The noble Baroness, Lady Kramer, suggested that this would mean not just common law but going back to a simple, light-touch regulatory system. I am advocating going back not to a light-touch regulatory system but to a system based on common-law principles which also maintains the high standards for which the City is renowned across the world. Such a system is pursued also in the United States, Australia and many other countries with which we are doing more and more in financial services, including many CPTPP countries.

I am nevertheless grateful for the noble Baroness’s support, at least on Amendment 3B. I was not sure about the noble Baroness, Lady Chapman, but she was at least interested in both amendments and, I think, supported the need for increased accountability to Parliament.

I speak to the financial services industry and know many people in it. I have some outside interests, which I have declared, which involve me in it. I simply do not agree that all participants in the industry blame Brexit for the difficulties it faces. Rather, there are large parts of the financial services industry—in banking, insurance and asset management—which are waiting for us to reap the benefit of the upside of being free to develop our own regulatory regime. We have suffered the downside, which we knew would happen; we believe that reaping the benefits of the upside will be necessary to ensure that London can maintain its leading position. I very much hope that we can rely on the support of the parties opposite, as well as my noble friends, in seeking to ensure that that happens.

I am to some extent reassured by my noble friend the Minister’s words and her response to these amendments. She went further than I have heard her go before in saying that it is the Government’s intention to repeal all the EU retained law in—I think—Schedule 1, and that she has prioritised some areas. However, there are other areas that she has not prioritised. One of the those is the alternative investment fund managers directive and all its associated legislation, which was opposed universally by practitioners and—at the time—by the Treasury as well as by the regulators. Nevertheless, it was foisted on us by the EU for political reasons. I am very disappointed that few people in the Treasury seem to recognise how many small investment management companies have gone out of business or not succeeded in introducing new products because of the cost and burden of complying with this regulation. This is why, later in the Bill—I will not speak to it today —I have again brought back my amendment dealing with that issue. It is just one example of bits of EU legislation that, six years after the Brexit vote, I believe this Bill should deal with immediately.

I thank my noble friend for her partial reassurance and, in the circumstances, I am happy to withdraw my amendment.

Amendment 3A withdrawn.

UK-EU Relationship in Financial Services (European Affairs Committee Report)

Viscount Trenchard Excerpts

Wednesday 17th May 2023 Grand Committee

[Viscount Trenchard (Con)]

My Lords, I congratulate the noble Earl, Lord Kinnoull, on his expert introduction of this debate and on securing the time for it today. It was my privilege to serve under his chairmanship as a member of the committee that produced the report. However, it is a pity that we are debating it only now, 11 months after publication. Instead of debating this report, we should be debating our recently published report on the wider future UK-EU relationship, which your Lordships may have seen has been published.

Nevertheless, financial services are an important sector of our economy—one in which the UK’s global position is very strong. I will not repeat the statistics that the noble Earl has already provided but, for the EU, the financial services sector is only partially a Union competence, with member states retaining considerable freedom of action, particularly in the retail sector.

As we reported, there has not been much concern in the City about the lack of equivalence decisions by the EU. However, we noted that the agreement within the TCA that we would enter into a memorandum of understanding on regulatory co-operation has still not been realised. It was believed that the EU deliberately blocked progress on this. Indeed, there was a broad consensus among the witnesses who gave evidence to our inquiry that the approach adopted by the EU towards equivalence decisions has been political rather than technical, as the noble Earl mentioned. Our report urged the Government to step up political and diplomatic financial services engagement with the EU and we noted that both the EU and the UK have mechanisms for regulatory co-operation with the USA that they do not yet have with each other.

The adoption of the Windsor Framework was supposed to end the standoff with regard to signing the MoU, the content of which was agreed two years ago, and permit the parties to agree a date for signature. The Financial Times, no less, reported in March that the European Commission was then ready to sign it. Can my noble friend the Minister tell the House whether a signing date has now been agreed? If not, when does she expect that one will be agreed?

The Government’s response to our report highlighted the Financial Services and Markets Bill, awaiting Report stage in your Lordships’ House, and suggested that the Bill would

“deliver on the Government’s ambitious vision for the financial services sector to promote and enhance the UK’s position as a global leader”.

However, as several noble Lords and I argued throughout the Committee stage, it is somewhat under- whelming in its effect. Seven years on from the Brexit vote, we still have substantially all the cumbersome EU financial services legislation on the statute book. The future regulatory framework review was welcomed by the Government, who confirmed their view that the detailed regulatory requirements should be in the regulators’ rules and not in legislation. Parliament is not equipped to monitor and update large numbers of highly technical provisions in a flexible, market-responsive manner. As an example of this, the Treasury observed that the markets in financial instruments regulation sets percentage caps on how much trading volume can happen outside recognised trading venues.

As the City Corporation observed in its briefing provided by the Remembrancer’s Office, since the end of the transition period the Treasury has used its powers to onshore EU equivalence regimes in many areas. Nevertheless, the Government should continue to use these powers to find third-country services and persons equivalent, using a more outcomes-based approach, rather than the EU rules-based approach. The ongoing negotiations with Switzerland are also a good example of how we should pursue bilateral mutual recognition. I think that the corporation is right in its argument that the Government should seek, wherever possible, to embed the G20 endorsed deference model into its domestic regime and bilateral agreements, emphasising consumer choice and competition.

The Bill makes some much-needed changes, such as the Solvency II changes, to financial regulation straight- away, but it is disappointing that it is limited in scope. I have suggested that the Government should use the Bill at least to abolish the cumbersome and unnecessary alternative investment fund managers directive and all its derived legislation within two months of the passage of the Bill. When I worked in Brussels for EFAMA, my French and German colleagues thought that the EU should leave that market to London and not try to regulate it. It was one major piece of European legislation introduced in 2014 for political reasons, which was universally opposed by all British stakeholders, including industry, the regulators and the Government. We do not need to ask the regulators to consult on what might replace it. That would cost money and take time that we do not have. Does my noble friend not recognise that she needs to act fast and with more determination to achieve the Government’s aim to secure the City’s position as the leading global financial services market?

I am glad to note that the City also supports the views of many noble Lords that we need a Joint Committee of both Houses to provide oversight of what the regulators are doing with their new powers. Where I differ from the corporation’s view is that I think that this would be far more effective than enhancing the role of the Treasury Select Committee’s sub-committee, which has been set up for this purpose. To have one Joint Committee doing this work would avoid the duplication of time and effort that the regulators would have to spend if they were required to work with two different committees doing much the same thing. In any case, the oversight and supervision procedures contained in the Bill are unsatisfactory, especially from the point of view of your Lordships’ House.

I also ask my noble friend to look again at the sensible proposal by my noble friend Lord Bridges to establish an independent office for financial regulation, which would ensure that a new Joint Committee would be well equipped and informed to carry out its role efficiently. This would I believe be better than what the current Bill provides for. It requires the regulators to consult their own cost-benefit panels—it gives them a statutory duty to consult their own panels. If the panels are a part of each regulator, it is rather strange to legislate that they must consult a part of themselves. Again, a single, truly independent body, as proposed by my noble friend Lord Bridges, would surely work better than the two duplicated panels doing the same work. Indeed, the Bill is much longer than it would have been if we still had a single regulator, as provided for by FSMA 2000. That is because there are many sections which are repeated so as to place identical, or near identical, obligations on the FCA and PRA separately. It might have made sense, given that we are once again free to determine our own regulatory regime, to merge the two regulators back into a single FSA.

I worry that the new competitiveness objectives given to the regulators will not provide the needed growth and innovation because they are only secondary, and will not, in effect, be very different from matters to which they should “have regard” in forming that policy —but I hope that I shall be proved wrong.

I know that the senior leadership of the FCA is aware of the perception that much of the industry holds about it. I trust that its new chairman, Mr Ashley Alder, will be successful in beginning to change this perception. His experience as chief executive of the Hong Kong SFC and chairman of IOSCO will stand him in good stead.

The UK Listings Review, chaired by my noble friend Lord Hill of Oareford, identified several steps that the Government should take in order to arrest and reverse the recent decline of the competitive position of the London Stock Exchange. Our report endorsed the recommendation that the Treasury should make an annual “state of the City” report to Parliament. It is encouraging that the Chancellor, together with the City Corporation, has followed up on that. I look forward to other noble Lords’ contributions and the Minister’s reply.

Financial Services and Markets Bill

Viscount Trenchard Excerpts

Committee stage
Thursday 23rd March 2023 Grand Committee

[Baroness Noakes (Con)]

My Lords, I have put my name to two of the amendments tabled by the noble Lord, Lord Sharkey, in this group: Amendments 243A and 243B, which would require the super-affirmative procedure to be used. I have not added my name to Amendment 241G. I am in complete sympathy with the call for Parliament to be able to amend statutory instruments; I pay tribute to the work done by the committees chaired by my noble friends Lord Blencathra and Lord Hodgson of Astley Abbotts. They have highlighted the dangerous shift to skeleton legislation with the resultant reliance on secondary legislation, which has inflicted great harm on Parliament’s ability to scrutinise and hold the Executive to account.

On the other hand, I recognise that this is a large issue that needs to be taken forward at a high level within both Houses of Parliament, and also of course with the Government. I do not believe that this Bill is the right place to start that process, although I do believe that we need to find a way of progressing the dialogue to find a way forward. I am of course concerned about the parliamentary processes around the many statutory instruments that will come under the powers in this Bill. The super-affirmative procedure is certainly better than the ordinary affirmative procedure, which is why it has my support.

In adding my name to these amendments, I am in fact hitching a ride on them in order to raise some wider issues about the statutory instruments that will come forward once this Bill is made law. This is an issue that should probably have been debated earlier in Committee but I have only recently been made aware of it. I have given my noble friend the Minister only a very small amount of notice of the nature of my concerns; I accept that she may not be able fully to answer at the Dispatch Box today.

The amendments focus on parliamentary oversight of legislation being brought in by statutory instrument. What I think we have not focused on is whether there will be adequate consultation by the Treasury before the statutory instruments are laid in Parliament. Many of the statutory instruments will of course be uncontroversial in the sense that they will merely recreate the EU law in a UK-based framework for the rules that will then be made by regulators.

However, it is entirely possible, as the noble Lord, Lord Sharkey, said, that the statutory instruments will contain significant changes from EU law. Clause 4, which allows the restatement of EU law, can be used to incorporate changes to the law within the huge range of possibilities that are allowed for by Clause 2(3). There is no requirement in Clause 4 for the Treasury to consult anyone at all before laying these statutory instruments. This is in stark contrast to the regulators, who have very clear statutory obligations to consult in respect of any rules they will be laying under the terms of the statutory instruments that give them the power.

In addition to Clause 4—this is the actual example that has come to my attention—the Treasury might choose to use the new designated activities power in Clause 8 to set up the replacement regulatory regime under UK law. As with Clause 4, the use of the Clause 8 power does not require the Treasury to consult anyone at all. The example that has been brought to my attention concerns the prospectus regime. I am indebted to the briefing provided to me by a partner in one of the Magic Circle law firms.

As part of the Edinburgh package, the Government published a policy note and a draft statutory instrument on how they intended to replace the EU prospectus rules. Put simply, the designated activities regime will be used to create the new prospectus regime when the existing EU law is repealed. The publication of the draft statutory instrument and the policy note was well received because it allowed those who specialise in this territory to get to grips with the proposed legal framework. Although the policy note was clear that the drafting was not final, it was not clear whether there would be a proper consultation on the new regime.

By way of background, there was a policy intent to deal with the issue of mini-bonds in the light of the London Capital & Finance scandal; that policy is, of course, uncontroversial. The Government were clear in their policy note that they intended to affect retail investors only and did not intend to cover things that were regulated elsewhere. It appears, however, that the chosen vehicle of relevant securities, as defined in the draft statutory instrument, also captures things with no likely impact on the retail market, including—somewhat incredibly—over-the-counter derivates and some loans, securities and financial transactions. I believe that this analysis has been made available to the Treasury via various players in the wholesale financial markets.

Although I understand that communications are constructive, there is a fundamental problem emerging: the so-called illustrative statutory instrument now seems to have morphed into a pre-final document on which no formal consultation will be held. This is important, given the significant widening of the reach of the proposals, well beyond the existing prospectus regime. I would be grateful if my noble friend the Minister could set out how the Government see the next steps for the prospectus statutory instrument and whether formal consultation will occur. I hope that she will be able to respond not only on the particular issue of the prospectus statutory instrument but, more broadly, on the extent to which the Treasury will consult across the range of replacement EU law when it brings that law forward.

[Viscount Trenchard (Con)]

My Lords, I declare my interest as stated in the register.

I congratulate the noble Lord, Lord Sharkey, on finding a way to amend statutory instruments. If it really is possible to change what noble Lords have always believed about SIs, that is welcome news indeed. As the noble Lord says, this procedure would be used only on the rare occasions when your Lordships’ House or another place considered it vital.

I support the noble Lord’s Amendments 243A and 243B, to which my noble friend Lady Noakes has added her name. These would create a super-affirmative category of approval process, introducing a higher bar but only after a resolution is made by either House of Parliament. I also agree with the points made by my noble friend on the prospectus directive and other matters. I support all these amendments.

--- Later in debate ---

Moved by

[Viscount Trenchard]

246: Clause 78, page 90, line 32, at end insert—
“(4A) The Treasury must make regulations under subsection (3) so as to bring section 1 and Schedule 1 into force for the purposes of revoking, within the period of two months beginning with the day on which this Act is passed, the provisions mentioned in that Schedule connected with Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers.”Member’s explanatory statement
This amendment ensures that the retained EU Law which replaced the Alternative Investment Fund Managers Directive and associated legislation will cease to have effect no later than two months after the passage of the Bill.

[Viscount Trenchard (Con)]

I have tabled Amendment 246 to explore the Government’s willingness to move more quickly to take advantage of our new regulatory freedoms. I am grateful to my noble friend Lady Lawlor for her support as she added her name to the amendment. The alternative investment fund managers directive is perhaps the most striking example of an EU regulation that was imposed on this country in the face of strong opposition from the City, the Government and industry at the time. In 2008, Charlie McCreevy, then the EU’s internal market commissioner, assured the industry that the EU would not regulate the alternative investment funds industry, which should be left to member states to regulate or not as they chose. A 2014 report by Dr Scott James for King’s College London, sponsored by the British Private Equity and Venture Capital Association, tells the story of AIFMD very well.

Contrary to Mr McCreevy’s intention, Manuel Barroso, then president of the EU Commission, intervened in 2009 to push for an alternative investment fund managers directive in order to secure support, principally from France and Germany, for his reappointment as Commission president. The initial draft was therefore prepared without the usual preparatory work and led to harmonised regulations covering disparate organisations from the venture capital, private equity, hedge fund and property fund sectors, lumped together by the Commission as alternative investment funds. The Treasury’s initial response was weak, and the FSA was suffering from a lack of confidence and brain drain in anticipation of being broken up.

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[Baroness Penn (Con)]

My Lords, I would not want to pre-empt the approach for any specific area of regulation, but the principles on which we are seeking take forward this work are about looking at regulation and ensuring that we use the opportunities outside the EU to take the right approach to that regulation for the UK. My noble friend talked about the different perspectives taken by regulators in the different jurisdictions. That is right. The aim of moving from retained EU law is not simply to transcribe it into UK law but to ensure that it is well adapted to our own circumstances, too. However, I do not think that I can helpfully pre-empt the approach in each area in this debate, but only talk about some of those wider principles.

I was talking about the intention to move all retained EU law into the FSMA model. We have set out our priorities for the first areas in which we are seeking to do this. The Government have not to date seen evidence that the reform of the Alternative Investment Fund Managers Directive is a widely shared priority across the sector. However, the Treasury would of course welcome representations on this point. We are keen to engage further with industry and understand the sector’s priorities as we work to repeal retained EU law associated with alternative investment fund managers over the medium term.

The FCA also recently issued a discussion paper to consider whether wider changes to the asset management regime should be undertaken in future to boost UK competitiveness using the Brexit freedoms introduced by this Bill. This will allow the Government and the regulators to consider what replacement is appropriate for the legislation before commencing its repeal. For these reasons, I ask my noble friend to withdraw his amendment.

[Viscount Trenchard (Con)]

My Lords, I thank my noble friend the Minister for her reply, but I confess that I find it rather disappointing. I am grateful for the support that I received from my noble friend Lady Lawlor, who talked more than I had and expanded on what I had said about the emergence of the directive and the reasoning behind it at the EU level at the time. As she so well explained, the AIFMD system was always seen, not only at the outset but since then, to be unsuitable for the UK system.

My noble friend the Minister said that the Government have decided gradually to approach the question of repeal and reform of EU law—certainly, very gradually, I would suggest. As she rightly pointed out, this sector is hugely important and of huge value—she mentioned the figure of 122,000 jobs—to the City and the economy as a whole.

However, the Minister said that the financial services industry is underpinned by healthy and proportionate regulation, which I cannot agree with. I tried hard to explain the reasoning, as I understood it, for the introduction of this directive, and I tried to argue that it is not proportionate at all; it is widely regarded as being disproportionate.

The Minister said that there is no evidence of a widely held belief that the regulation underpinning this sector needs reform or revocation. I strongly question who she has been speaking to. In the last week, I have spoken to a very senior regulator of one of the Crown dependencies, who completely endorsed what I said: it is just not true to argue that this regulation is proportionate. The City has been hugely damaged over the years that the AIFMD regime has been in force. The Minister talked about 122,000 jobs, but how many more would there have been had we not, wrongly and unnecessarily, shackled this innovative sector of our financial services industry with this unnecessary, bureaucratic, cumbersome regulation, introduced entirely for political reasons?

I do not accept what the Minister said: that this would undermine the UK’s reputation. The UK’s present reputation, in the IOSCO and among other financial services markets, is that it has become steadily more bureaucratic. I talk to a number of other regulators, and I have technically been a regulator: I was the first non-Japanese to be appointed to the board of the Japan Securities Dealers Association, which has statutory, regulatory powers.

I very much hoped that the Minister would at least say that this is one sector where the Government recognise that there is disproportionate regulation, rather than argue that it is proportionately regulated, which I am convinced it is not. This would have been an opportunity to improve the City’s competitiveness. The listings review recently conducted by my noble friend Lord Hill of Oareford contains many instances of areas where the Government should move quickly. It is a pity that the Government are not using this Bill to move ahead immediately in areas where the case for further consultations is rather weak.

I hope that the Minister will bring back some better news when we next discuss matters such as this. In the meantime, I beg leave to withdraw my amendment.

Amendment 246 withdrawn.

Financial Services and Markets Bill

Viscount Trenchard Excerpts

Committee stage
Tuesday 21st March 2023 Grand Committee

[Lord Eatwell (Lab)]

My Lords, these three amendments project a peculiar background, which is an issue that this Committee debated in an earlier session—that of accountability. The first amendment of the noble Baroness, Lady Kramer, Amendment 216, is too detailed for primary legislation. On the other hand, I sympathise entirely with the noble Baroness’s goals. In a principles-based system, I would have expected these goals to be expressed in the principles and achieved by the rule-making regulator but, given the lack of accountability with which the Government seem so comfortable—I was impressed by the noble Baroness’s argument on Amendment 216—we cannot be confident that changes will be made at the necessary points. There is no vehicle for Parliament to ensure or inspect the rule-making of the regulators.

I think Amendment 216 is necessary because the Government are so weak on accountability. If we had strong accountability, whereby we could hold the rule-makers to account—both positively, in the sense that you are doing something that you should not be, and negatively, in the sense that you are not doing something that you should be—amendments such as this would not be necessary. Amendment 216 is necessary in the way so carefully described by the noble Baroness, Lady Kramer, simply because of the lack of accountability in the system.

This also applies to the other two amendments in this group. The noble Baroness, Lady Noakes, powerfully pointed out that, because of the peculiar circumstances in which it took place, the resolution of SVB UK required a relaxation of the ring-fence. I am entirely sympathetic with the goals of these amendments, which address the overall structure of the industry and therefore the overall risk appetite of this country for banking and financial services. That is what the ring-fence and the senior managers and certification regime are about.

The “but” is the important case highlighted by the noble Baroness, Lady Noakes, where some modification was necessary. If we had proper accountability, this could come to Parliament, which could then examine this example of relaxation to discuss whether it is appropriate to extend it to other banks, so that there is this mythical level playing field in the competitive relationships between them.

I am enormously sympathetic to the goals of these amendments: to the first because it is a practical issue of excessive risk-taking by insurance companies and, as we have seen, pension funds; and to the other two because they refer to the structure of risk which Parliament has decided is appropriate in this country’s financial services industry. It should not be modified wilfully—I am thinking of the marriage ceremony—and without due consideration of the consequences. Therefore, the Government would once again be well advised to reconsider the issue of accountability, which they have brushed away so casually, because it would provide the flexibility for Parliament to be involved in changing the risk appetite of the country as a whole.

[Viscount Trenchard (Con)]

My Lords, I again declare my interest as a director of two investment companies, as stated in the register. I will speak about all three amendments.

In Amendment 216 the noble Baroness, Lady Kramer, seeks to prevent a matching adjustment being applied to a portfolio of assets with a Standard & Poor’s rating of BBB or less. Does this mean a portfolio of assets comprising at least one holding of BBB paper, or a portfolio consisting exclusively of holdings rated BBB or worse? Either way, I welcome the Government’s proposal to remove the disproportionately severe treatment of assets with a credit rating of BBB or below, which will reduce the incentives for insurers to sell BBB assets in a market downturn. These reforms would encourage insurers to revise their investment strategies and risk appetites for investing in sub-investment grade assets, increasing funds available for investment in beneficial infrastructure projects, for example.

In any case—here I agree with the noble Lord, Lord Eatwell—is this attempt to constrain the powers of the PRA not too specific, and the kind of very precise regulation that we want to get out of primary legislation so that we can give discretion on this kind of thing to the regulators? I therefore cannot support this amendment.

I tremble in my shoes to disagree with the good intentions expressed by the noble Baroness, Lady Kramer, the noble Lord, Lord Tunnicliffe, and the most reverend Primate the Archbishop of Canterbury in seeking, in their Amendments 241C and 241D, to make it very difficult to weaken the ring-fencing provisions or change the senior managers and certification regime. It is clear that she and her co-signatories are among those who believe that the introduction of ring-fencing has reduced the risks to which bank customers’ deposits are exposed and that it is therefore important to make it very difficult to weaken the ring-fencing regulations in any way.

--- Later in debate ---

[Earl Attlee (Con)]

My Lords, in moving my Amendment 223, I will speak to my Amendment 241FB. They both deal with the unintended and undesirable effects of the anti-money laundering regime in the UK. I do not profess to have any expertise here; my relevant experience is in defence and security.

I fear that I am obliged to weary the Committee with a little detail. Russia has launched an unprovoked attack on Ukraine and, presumably, HMG have an absolute minimum strategic objective of preventing Ukraine being defeated. Failure to achieve this would result in significantly increased world insecurity and the need at least to double UK defence expenditure. EU and NATO Governments have been providing Ukraine with a range of armoured fighting vehicles—AFVs—through Government-to-Government arrangements. Armoured personnel carriers and armoured reconnaissance vehicles allow troops to move around the battlefield without unnecessarily falling victim to artillery or small arms fire.

To supplement Government-to-Government arrangements, the Ukrainians, through commercial agents and UK SMEs, have also been buying up privately and commercially owned AFVs in the UK. There are only a few businesses and individuals in the UK who can efficiently acquire and export these privately owned AFVs. They are generally small. To undertake this activity, they need to have the necessary technical knowledge, workshop facilities, ingenuity, innovation and contacts; have finance and premises; be seen as a fit and proper person to be granted an export licence for controlled goods on the military list; and, most importantly, be trusted by both Ukrainian buyers and UK private sellers.

The Committee needs to understand the facts of the real world. These small businesses simply do not have the resources to perform due diligence on Ukrainian businessmen and their intermediaries. Even if they could, the Committee will recognise that they would soon find red flags galore. However, the Government have the ability to check that the export of these AFVs is in line with their overall strategic objective.

The Export Control Joint Unit at the Department for International Trade grants export licences for controlled goods on the military list, among other things. So far as I can discern, it is doing a very good job. It is important to note that the Export Control Joint Unit has all the facilities of HMG at its disposal to determine whether military equipment should be exported to a certain customer or not. The money laundering regulations add nothing useful to this process.

I now turn to the mischief which my amendment seeks to address. During our debate on Ukraine on 9 February, I explained the problems that “Peter”—not his real name—is experiencing with the provision of banking services in the context of his exporting AFVs to Ukraine. I will continue to use his pseudonym for continuity reasons. I understand that Peter has export licences for around 100 AFVs and has already delivered a considerable number. Although the high street bank’s name is in the public domain, I will not name it, as it has done nothing wrong and has been extremely helpful. Apparently, in these circumstances, MPs will just get stonewalled by the banks, but I have very good relations with Peter’s bank.

On 20 December 2022, Peter’s bank wrote to him, closing his accounts with the bank without any explanation why. Peter was going to completely lose his banking services on 20 February. This would have put him out of business, as he cannot secure banking services from any other provider, and he would not be able to export any more AFVs to Ukraine. Other banks will not step in because they will have the same difficulties as Peter’s current bank. Peter’s bank made it clear to him that it was not prepared to discuss the matter further. This is standard practice, and I understand why. However, I have found out that the problem is that Peter’s current bank cannot accept the regulatory risk of supplying banking services involving large sums of money when Peter does not have the correct anti-money laundering systems in place. But even if he did, he would surely find red flags, as I have already mentioned, because he is dealing with Ukrainian businessmen. Fortunately, I managed to negotiate with the bank an extension to 20 March, which was yesterday.

Initially, I thought that the problem lay with an overzealous junior bank official and that a quick engagement at a senior level in the bank would get it sorted. I then discovered that it was a money laundering problem, as described, but the problem could be solved if a Treasury Minister wrote to the bank relaxing the money laundering regulations in a specific and minor way. I thought all this could be done discreetly and behind the scenes. How wrong I was. Ministers have refused to relax the money laundering regulations because, as I understand it, they believe that the complete integrity of the regulations is more important than facilitating the export of armoured fighting vehicles to Ukraine.

I repeat the question that I asked my good and noble friend Lord Ahmad on 9 February. Is it settled Government policy that the complete integrity of the money laundering regulations is more important than facilitating the export of armoured fighting vehicles to Ukraine? I look forward to the Minister’s reply. The reality is this: each and every additional armoured fighting vehicle that we send to Ukraine will give another group of Ukrainian soldiers protected mobility on the battlefield. Conversely, stopping the export of AFVs will result in avoidable loss of Ukrainian lives, which is quite immoral.

My Amendment 223 works by requiring Ministers quickly to amend the money laundering regulations so that banks do not have to suspend provision of banking services to SMEs that are exporting AFVs or other military equipment to Ukraine under a relevant export licence granted by the Export Control Joint Unit—in other words, a relaxation under very limited circumstances. Of course, my amendment is unnecessary because Ministers can simply write to the bank asking it to relax the money laundering regulations in the way that I suggest.

On my Amendment 241FB, during my investigations it became apparent that there is a wider problem with banks withdrawing provisions of financial services from aerospace and defence SMEs, for two reasons. The most important reason is again the money laundering regulations. In addition, there is a reluctance within some banks to have anything to do with the defence industry, particularly with things that go bang. However, these are highly regulated businesses, and they are dealing with other businesses and Governments, often outside the OECD. Thus the regulatory risk is far too high for the banks when the potential income is often quite small. It is simply not worth the bank’s while to accept the regulatory risk. I accept that my Amendment 241FB is imperfect and does not necessarily solve the problem. At this stage, it is only a probing amendment. I have been briefed by ADS Group, the relevant trade association, on this problem, and it is clear that it is a growing problem that will not go away.

On my Amendment 223, this is a serious and urgent matter. Clearly, the Minister intends to resist, or she would already have relaxed the regulations and saved a lot of the Committee’s time. I am afraid that thus far, I have not been able to generate much interest in this issue. His Majesty’s Opposition in your Lordships’ House do not appear to be very interested, and neither are the media. It does not currently look as if I will be able to win any Division at Report. In view of these circumstances, I was not in a position, nor was it my role, to seek a further extension of service from Peter’s bank when I could not offer any evidence that the policy was likely to be changed. As a result, Peter lost his banking facilities yesterday and will have to stop exporting AFVs to Ukraine. No one can step in, because they will experience the same problems.

The sense of the Committee will be unusually important on this occasion. Your Lordships can merely listen to an interesting debate or make it very clear to my noble friend the Minister that the Committee will not tolerate the money laundering regulations that are causing avoidable loss of Ukrainian lives by preventing the export of AFVs to Ukraine. I beg to move.

[Viscount Trenchard (Con)]

My Lords, I support my noble friend Lord Attlee in his amendment. His story about Peter reminded me that I have had considerable time-consuming discussions—not with my noble friend’s Peter, whose acquaintance I have not had the pleasure of making, but with another Peter. He is a person like Peter, a former military officer in the British Armed Forces of some distinction who now operates an SME and is closely connected with manufacturers of arms that the Ukrainians are importing from other sources and which they badly need, arms which our own Ministry of Defence is happy to assist in the Ukrainians receiving.

I have listened to my Peter—he is not called Peter; let us call him Jonathan—who has had a nightmare time. He is approved and holds an export licence with the SPIRE system in what is now the Department for Business and Trade; I think that the SPIRE system is the same as the export control system.

[Earl Attlee (Con)]

SPIRE is part of the Export Control Joint Unit.

[Viscount Trenchard (Con)]

Thank you. So, Jonathan is licensed—and has been for many years—with the SPIRE system, formerly under DIT. This means that the security services have carried out a considerable amount of due diligence on him. Nevertheless, he found it completely impossible to persuade any bank to open an account to handle the funds necessary to enable him to assist the Ukrainians in this way, not just at the working level. The moment you fill in a form that suggests any military connection in the goods, red flags fly and bells ring all over the place.

However, these anti-money laundering regulations are considered so important that it is difficult to find any way of obtaining exemptions to go round them, even in situations such as this. It is just a pity that, even at the senior director level, banks are completely prevented under any circumstances—even when the individual is approved under the SPIRE system, as my noble friend Lord Attlee explained. I have sympathy with and support his amendment.

[Lord Holmes of Richmond (Con)]

My Lords, I will speak to Amendment 238 in my name. Does my noble friend the Minister agree that “know your customer” and anti-money laundering—KYC and AML—are not working optimally? There is a plethora of examples that we could look at; I will not do so. The simple truth is that they are not fit for purpose and are not achieving their aims. They are not providing the environment that we would want to conduct our financial services in. Does my noble friend the Minister not agree, therefore, that it is high time we had a thorough review of the regulations to put in place a system that works and is inclusive, efficient and effective?

If we look at some of the practical elements, to put it in terms, is it not time that we stopped messing about with gas bills? That takes us to an amendment in a previous group on digital ID, which would go far in resolving many of the issues around KYC and AML. Does my noble friend the Minister not agree? The difficulties that we have heard about and which many members of the Committee may have experienced in all areas of the financial services landscape could be effectively resolved if we resolved the current situation with KYC and AML. It is resolvable; when she comes to respond, my noble friend the Minister could simply say, “I will resolve it”.