Financial Services and Markets Bill

Debate between Viscount Trenchard and Lord Stevenson of Balmacara

Committee stage
Wednesday 25th January 2023 Grand Committee

[Viscount Trenchard (Con)]

My Lords, I support all the amendments in this group introduced by my noble friend Lady Noakes, to many of which I have added my name. I do not need to repeat the arguments so powerfully put by my noble friend. Clause 8 amends FSMA 2000 through new Section 71K to create a designated activities regime, which allows certain activities related to financial markets to be regulated within a framework that is separate to the existing FSMA regime for authorised persons, while still being compatible with a comprehensive FSMA model. The intended purpose of the designated activities regime seems to be to enable the Government to perpetuate the various retained EU law regimes without adequate parliamentary scrutiny, particularly given earlier comments on the inadequate way in which we scrutinise SIs.

New Schedule 6B is an indicative list of designated activities. This regime may at first be used to replace the retained EU law being revoked under the Bill, but there is no apparent limitation to the Treasury extending it in future to new or different activities. The designated activities regime is almost completely unconstrained in scope and effect. As such, it could be used to ban all kinds of products and classes of provider, and/or to establish parallel licensing requirements for particular activities, for both authorised and unregulated firms. The Explanatory Notes to the Bill state:

“Initially, the government expects most designated activities to be activities which are currently regulated through retained EU law”,


suggesting that new designated activities may be introduced.

The market will be keen to ensure a level playing field for regulated activities among FCA-authorised, dual-authorised and unregulated firms. Can my noble friend the Minister confirm that FSMA 2000’s new Section 71N means that rule-making in relation to designated activities will be the sole competency of the FCA? Currently, the PRA and the Bank of England share regulatory responsibility with the FCA for a number of technical standards relating to the entering into of OTC derivatives, for instance. Additionally, if the requirements are set out in the FCA handbook for authorised firms and in separate instruments for unauthorised firms, there may be a risk of divergence and inconsistency.

I have tabled Amendment 35 as a probing amendment, on removing the admission of securities to listing on a stock exchange from the lists of designated activities. First, I would question whether listing should be a regulated activity at all, because many listings happen without an issue of new shares or other securities and may, for example, be undertaken by companies wishing to show that they are good corporate citizens that want their corporate information to be available to the public in the same way it is for other listed companies. This was certainly a major consideration when many major Japanese companies such as Toshiba, Fujitsu and Honda listed their shares on the London Stock Exchange in the 1980s and 1990s. They subsequently undertook capital-raising exercises involving the issuance of securities, but those were separate exercises. I see no reason why unregulated firms may not act as sponsors for stock exchange listings, and therefore would question why the arrangement of listings should be a regulated activity.

Do the Government intend as a matter of urgency to act on the recommendations in the listings review undertaken by my noble friend Lord Hill of Oareford? Does the Treasury intend to undertake a fundamental review of the prospectus regime, as recommended by the review? Does my noble friend agree with the recommendation that prospectus requirements should be changed so that, in future, admission to a regulated market and offers to the public are treated separately? Could she tell the Committee whether she thinks that the empowerment of the FCA through the designated activities regime will make stock exchange listings more expensive and cumbersome than they have become during the past 14 years, or less? In that time, as my noble friend Lord Hill pointed out, the number of companies listed on the London Stock Exchange has declined by 40%. I look forward to hearing the Minister’s comments.

[Lord Stevenson of Balmacara (Lab)]

My Lords, I shall speak to Amendment 32 in name, which is part of this group, although it points in a slightly different direction from the speeches we have just heard. I declare an interest, as I was chair of StepChange, the debt charity, in the period 2010 to 2014, although I have no current connection with it.

This is a probing amendment aimed at ensuring that a particularly egregious form of high-cost credit, log-book loans, issued under the bills of sale legislation dating from Victorian times, is afforded the customer protection measures rightly offered to consumers who use other forms of credit. In that sense, it needs an extension of the power discussed in this clause. To be clear, I would much prefer it if the Bills of Sales Acts of 1878 and 1882, and their related legislation, could be repealed. One way or another, I hope that some speedy action can be taken to resolve this issue. Such efforts appear to have stalled, despite a lot of work nearly a decade ago by the Treasury and the Law Commission.

Over the past few years, the Government and the FCA have been largely successful at clearing up the high-cost credit market. It is true that they had to be pushed to get started, and many noble Lords present may recall this House playing a significant part in focusing attention on payday loans, for example. But there are still issues to be addressed. The consumer duty is also a valuable step forward, and I hope that it will be a great success. At the same time, the introduction of statutory backing for the debt respite—the breathing-space regulations—and the forthcoming statutory debt repayment plan will offer immediate and effective help to the many hundreds of thousands of people who face unmanageable debts each year. The Government have done well in this area, and I commend them.

However, the current credit squeeze and cost of living crisis are going to exacerbate this situation. Indeed, if past history is a guide, logbook loans may well become as prevalent as they were in in 2014, when 52,000 bills of sale were registered in one year at the High Court. As I said, logbook loans are issued under bills of sale, which are governed by two Victorian statutes that I have already mentioned: the Bills of Sale Act 1878 had immediately to be amended, so there is also the Bills of Sale Act (1878) Amendment Act 1882. Basically, they allow individuals to use goods they already own as security for loans while retaining possession of the goods. This legislation is archaic and, in the words of the Law Commission,

“wholly unsuited to the 21st century.”

It went on to say that

“it causes detriment to all those who use it, including logbook lenders, logbook borrowers, business borrowers and third party purchasers.”

Nobody, it seems, has a good word to say for them.

This is all set out in a substantial Law Commission Report commissioned by HM Treasury in 2016. In that report, the Law Commission went on to point out the following. Most people who take out logbook loans are borrowers who already have difficulty in securing other forms of credit. Its research revealed that the term is usually six months to three years, while the interest rates ranged from 60% to 443% APR but were usually in the range of 120% to 187%—high-cost credit indeed.

There are complaints that some lenders use the threat of repossession of the goods to demand unreasonable and unaffordable extra payments, even when the loan is substantially repaid—something which is not permitted in, for example, hire purchase agreements. However, logbook loans lie outwith modern consumer protection legislation. It is true that the Financial Ombudsman Service may provide redress after the event, but the FOS is not able to prevent repossessions. There is no protection afforded to private purchasers who buy goods subject to a bill of sale, even if they act in good faith. Those who buy a second-hand car without knowing it is subject to a car-book loan face an unpalatable choice: pay off somebody else’s loan or lose the car.

The 1882 bills of sale legislation requires all bills of sale to be completed on a complex standard form and registered with the High Court, which uses a paper-based record system. Failure to comply with any of the documentation requirements carries substantial sanctions, not least being that the lender loses any rights over the goods or money owed to them. Those sanctions clearly would be out of scope if current consumer protection standards applied, but—

Financial Services Bill

Debate between Viscount Trenchard and Lord Stevenson of Balmacara

Committee stage
Wednesday 10th March 2021 Grand Committee

[Viscount Trenchard (Con)]

My Lords, I declare again my interests as stated in the register in respect of financial services companies. I am delighted to support Amendments 103 and 104 in the name of my noble friend Lady Neville-Rolfe. My noble friend is a champion of impact assessments and she speaks from experience. The impact of many financial services regulations on smaller firms has been very damaging. I mention just two examples. The unbundling provisions contained within the MiFID II directive, requiring asset management companies to pay separately for research, have been disastrous in their effect on smaller companies with interesting strategies, which have either been forced out of business or forced into mergers where their innovative strategies have not been taken forward. The effects have been less choice for customers and less coverage as a result of the significant reduction in the number of securities analysts, particularly those covering smaller and growth companies.

The effects were predictable, but ESMA ploughed ahead and the FCA acquiesced. It is small comfort now that ESMA itself realises that the unbundling provisions were a mistake, and may move to make changes, but much damage has been done. An impact assessment, such as recommended by my noble friend, would have avoided this.

I also mention the alternative investment fund managers directive. When I worked in Brussels as director-general of the European Fund and Asset Management Association —EFAMA—my French and German colleagues said that they did not think that the EU should move to regulate alternative funds; that was London’s market, and largely London’s alone. Furthermore, it was of interest only to professional investors, who did not need protection from investment risks. They thought that it would be wrong for the EU to try to regulate it. However, three years later, Michel Barnier, as Commissioner for the Internal Market, moved to introduce the AIFMD. Again we were overruled and reluctantly went along with it. An impact assessment might have encouraged the FSA to fight harder against it than it did.

For the reasons so well explained by my noble friend, I support her amendments and look forward to hearing the Minister’s reply.

[Lord Stevenson of Balmacara (Lab) [V]]

My Lords, I am pleased to be part of this debate, which is narrow in some senses but has the capacity to reach quite widely. It is narrow in the sense that it has been framed through Amendments 103 and 104, which I broadly support, about the need to try and get more of an impact assessment model into the way in which we review the changes that may come through as a result of the return to the UK of powers previously exercised at EU level. It also raises much wider issues, which I will come to before I end my short contribution to this debate.

I am sure that the case made by the noble Baroness, Lady Neville-Rolfe, is about good government. Better regulation was always part of the argument she used when she was a Minister. I well remember the discussions we had across the Dispatch Box about intellectual property, in both primary and subsequently secondary legislation. The material on this was much enhanced by the good work done by her civil servants in bringing forward some of the issues raised and trying to give them a quantitative—not just qualitative—feel when the debates were organised. A lot of the work that they do on better regulation does not get properly recognised, and this is a good opportunity to pay tribute to it. As an example, I particularly enjoyed the annual work that I was often asked to do in relation to the setting of the national minimum wage, now the national living wage. It was always accompanied by a formidable document, created mainly I think by the Low Pay Commission but endorsed by civil servants. It went into every conceivable aspect of the way in which the setting of a minimum threshold for wages would, or could, affect the labour market, with particular reference to women and other low-paid groups in society. It was always a red-letter day in my diary when I saw that coming up; I knew that I was going to be given a very meaty topic to research, read up on and debate. I enjoyed the debates that we had on that.

While I say yes to the thrust of what is being said here, and recognise the benefits that will come from good impact assessments, properly debated, particularly in relation to the regulatory framework in the Bill, I wonder whether there is a slight irony here. The substance of what the noble Baroness is saying in her amendment is that better scrutiny of proposals brought forward for legislation—and, of course, for secondary legislation —would happen if there were better impact assessments. I say in passing, and in reverse order, that a secondary instrument is very much a creature of the primary legislation that has preceded it. It is not uncommon to find in SI impact assessments binary choices, usually not very helpful in detailed essence. The proposition set up in the impact assessment is often, “What would happen if this legislation did not go through?” and then “What will happen when it does go through?” In other words, if there is a change in regulations, you impact; no change and you impact the change. You do not get a range of options.

Trade Bill

Debate between Viscount Trenchard and Lord Stevenson of Balmacara

Report stage & Report: 2nd sitting (Hansard) & Report: 2nd sitting (Hansard): House of Lords
Tuesday 15th December 2020 Lords Chamber

[Viscount Trenchard (Con)]

My Lords, I understand the arguments in support of these amendments, but I do not believe that it is in our interests to seek unduly to restrict the list of countries with which we may choose to enter into trade agreements. The more that we interact with and trade with less developed countries—those least able to comply with the climate obligations that we have undertaken—the more we will assist them to raise their populations out of poverty and become prosperous. It is only by becoming prosperous that they will be free to accord the same importance to emission reductions as we are able to do. Furthermore, how on earth can a Minister of the Crown make a statement to Parliament confirming that any agreement will not give rise to a net increase in greenhouse gas emissions? The expectations of the noble Lord, Lord Oates, and the co-signatories to the amendment are surely unrealistic.

Amendment 14 would be counterproductive and could limit the volume of trade with many developing countries, which would negatively impact their ability to introduce climate policies similar to our own. Amendment 21 is unnecessary and possibly counter- productive. We have rolled over continuity agreements with 59 countries, and none has eroded our domestic standards on the environment, food safety or animal welfare. I have not heard any noble Lord cite an example of a domestic standard that has been undermined or an international agreement not adhered to. In the case of food safety standards, it is for the Food Standards Agency to ensure that all food imports comply with the UK’s high food safety standards and consumers are protected from unsafe food. Decisions on those standards are a matter for the UK and are made separately from any trade agreements. We are a world leader in environmental protection, animal welfare and food safety. Could my noble friend confirm that the Government are committed to maintaining those positions and that he agrees that these amendments are unnecessary and inappropriate?

[Lord Stevenson of Balmacara (Lab) [V]]

My Lords, this has been a very good debate, and we have ranged far and wide across the issues raised originally by the noble Lord, Lord Oates, and picked up later by the noble Baronesses, Lady Boycott and Lady Bennett, with their amendment. The noble Lord, Lord Oates, makes good points about future trade agreements needing to tie us to the net-zero carbon and other environmental standards that we have and points out the need for consistency of government policy across all the areas involved, not least trade, to achieve that. We need to think very carefully about how our new trading agreements, which the Government are very keen to see signed, and which we support, will use the climate change focus as they move forward.

When the Minister responds, he will undoubtedly say that we have very high standards and will never negotiate them away, but he must admit that the Agriculture Act 2020 has a non-regression clause covering environmental issues. So we look to him to reassure us that our standards are high and will not be diminished, but also to say why he is not prepared to see these broader issues, such as the environment and others, included in the Bill, because that seems to be how the Government are thinking with this policy.

Other noble Lords who have spoken in the debate have argued that we should do more than simply respect our own standards in the trade agreements and deals that we want to do. The noble Baroness, Lady Boycott, was very strong on the need to live up to our role as a leading advocate of decarbonisation and to lead the way for others. Again, her argument was that putting that in the Bill would be key, since it would show the world not only that we have the arguments and are practising what we preach but that we have a proselytising role to play in relation to the wider world.

It was good to hear the noble Earl, Lord Sandwich, and the noble Lord, Lord Curry, supporting points that have been made in this debate—particularly the view of the noble Earl that there are very few doubters left in Parliament. He may be wrong about that; I think there are one or two scurrying around. He also points out that the department has a bit more to do before it is walking the walk. We should think about that. He made a good point about the recent agreement with Japan and the lack of alternative energy proposals within it. The noble Lord, Lord Curry, also made a good point about how not just farmers, whom he mentioned, but the wider public want the Government to reach further on this to find zero-carbon targets in all that they do—and that of course applies to imports.

I look forward to hearing the noble Lord’s response. He will understand that we think we will come back to this, perhaps not in the form of this amendment but on other related issues about non-regression of standards, as we progress through the Bill.