Financial Services and Markets Bill

Committee (5th Day)

My Lords, if there is a Division in the Chamber while we are sitting, the Committee will adjourn as soon as the Division Bells are rung and resume after 10 minutes, but self-evidently we are not expecting a Division.

Clause 27: Review of rules

Amendment 78

78: Clause 27, page 40, line 14, after “rules” insert “or a thematic review”

My Lords, it is a pleasure to open day five in Committee on the Bill. First, I will relay apologies from my noble friend Lady Kramer, who is not in her place, having had knee surgery last week. She is recovering well and will return as soon as she has permission from her surgeon.

Several of today’s groups concern accountability, both how regulators are accountable to Parliament and then, as with this first group, what that accountability to Parliament means. Is it more than a hot-seat grilling every now and then? What happens to the output of that accountability?

Here I challenge the Government, who have made much of the regulators’ accountability to Parliament in the consultations but then, during the passage of the 2021 Act, said that that accountability has nothing to do with government. We can all see through that. The examples that the Government have set are: failing to reply to committee reports in the allocated time; failing to find parliamentary time for debates on committee reports; and even failing to attend Lords committees, including such important committees as the Economic Affairs Committee and the Industry and Regulators Committee, which engage in financial services matters, and on both of which I and other noble Lords present have served for many years—so we know what we are talking about.

The question is: do the Government want to be part of this scrutiny or not? Do they want the regulators and Parliament to form their own arrangements together and maybe gang up on the Government? I have had experience of organising that in order to challenge the European Commission, and I can see similar seeds being sown here. This is the last chance saloon for the Government to stand by their advertising on parliamentary scrutiny.

I have eight amendments in this group, but it is really four for each of the FCA and PRA instances. I can be brief on the detail. They all relate to the independent reviews of regulators’ rules that can be commissioned by the Government. Amendments 78 and 145 insert into the Government’s powers of review the possibility to seek thematic review as well as reviews of specific rules. They do not compel the Government to do this; it is an empowerment. The Government would still have control over what they choose to implement, but it seems a reasonable power to have. The noble Baroness, Lady Noakes, has supported this amendment so, to go by the commentary that has been made, if we two agree then there must be something in it. It may well be that a thematic review would in fact be more useful for general issues rather than having to identify specific rules, which might not be comprehensive. I would want this if I were the Government.

The noble Baroness mentioned Amendment 164 but I wonder whether she meant Amendment 146, because Amendment 164 is in a later group.

Yes, I think that is correct.

My Lords, I support Clause 27 and, in particular, its new Clause 3RC of FSMA, which allows the Treasury to require the regulators to review their rules. As the noble Baroness, Lady Bowles of Berkhamsted, said, I have added my name to her Amendment 78 because it is important to widen out the scope of the reviews which the regulators will have to carry out. I also support her Amendment 145 for the same reason and should have added my name to it as well, so that we cover both the PRA and the FCA.

A lot of the things that regulators do are grounded in the specific rules that they apply, which is the focus of new Clause 3RC, but it should also be possible for the Treasury to tell the regulators to review, for example, the cumulative impact of rules as they affect innovation or new market entrants or any particular segments of the financial services industry. The Bill as drafted simply does not give the Treasury that power.

My Amendment 79A in this group seeks to involve more parties in the review-initiation process. At the moment, it involves only the Treasury and the regulators. My amendment is designed for other voices to be heard and responded to by the Treasury; it would require the Treasury to “consider any representations made” by various sources. I have included all the statutory panels attached to the regulators, including those created by the Bill. These panels ought to have good insights into how the rules work in practice and their opinions on which should be reviewed should be heard, so my amendment says that the Treasury must consider representations from representative bodies, which would include all trade and consumer bodies involved in the sector.

My noble friend the Minister may well say that the Treasury will of course consider any representations made to it in respect of the review of rules and that it is quite unnecessary to put that into statute. I accept that, but only up to a point. The relationship between regulators and their sponsoring departments is often much too close and certainly has the potential to shut out anything that might be uncomfortable for either the regulators or the sponsoring department, or both. That is why the second leg of my amendment requires the Treasury to “inform the body” making the representations if it decides not to require a review.

My Lords, I will not make any specific comments on this group but I will comment on all that we are doing today—certainly the first three groups, all of which seem to me to have a common theme: the accountability of the Executive to Parliament. The degree of consensus between the amendments is almost historic. I said to my researcher, “I think I am in support of all today’s amendments.” She said, “You mean other than ours?”

Oh!

I will not get carried away—I will probably declare neutrality and opt out—but this issue is so important. I suspect that this Bill is much more constitutional than we expected when we first picked up the document. It is about filling in the space between primary legislation and secondary legislation in all these difficult areas relating to financial services. Members of the Committee have done a great job of putting together a series of proposals.

As far I can see, the proposals in this grouping are to use, in different ways, the age-old device of requiring reports. I can see the value of that. My own experience is that, because time goes on, they are not as effective as one might hope; however, once again, that is down to the membership of Parliament in particular. I support the general thrust of this group but I see it as part of our looking at the first three groups and, with or without the Government’s co-operation, working together after the end of Committee and before Report to try to achieve a common thrust that, if necessary, we can vote through in order to make the important step forward in the relationship between the Executive and Parliament that is so needed.

My Lords, the Government agree that the regular review of rules after implementation is essential to ensure that they remain appropriate and continue to have the desired effect.

The Bill makes a number of substantial changes to the regulators’ framework to ensure that such reviews will be an integral part of the regulators’ functions going forward. In particular, Clause 27 inserts a new provision into FSMA that will require the FCA and the PRA to keep their rules under review. To supplement this duty and ensure that there is a mechanism to require the regulators to conduct reviews of their existing rules where needed, Clause 27 also inserts a new power into FSMA for the Treasury to direct the regulators to review their rules where the Treasury considers it is in the public interest. Clause 46 inserts similar provisions into FSMA for the Bank of England in relation to its regulation of CCPs and CSDs.

I will speak first to Amendments 78 and 145 in the name of the noble Baroness, Lady Bowles. I assure her that the powers inserted into FSMA by Clauses 27 and 46 of this Bill already allow the Treasury to require these regulators to review a range of rules, entire regimes and interrelated rules, as appropriate, where that is in the public interest.

I turn next to Amendments 79 and 146, also in the name of the noble Baroness, Lady Bowles. In order for the Treasury to direct the regulators to review their rules, certain criteria must be met. One of the key criteria is that the Treasury considers the review of the rule or rules in question to be in the public interest. It will be important for the Treasury to work with parliamentary committees to understand the evidence base for whether it is in the public interest to exercise the power.

I am most grateful to my noble friend; I apologise for not having been able to attend all the Committee’s meetings. Can my noble friend help me by defining “public interest”—that is, how it will be defined?

I understand what my noble friend is getting at and think that, when each issue is put to the Treasury, it will consider whether or not it is in the public interest.

I think that is merely restating the problem. Could my noble friend have another go?

I will write with a full definition of what constitutes “in the public interest”.