- Committee (2nd Day)
- 2:30 pm
- My Lords, the hybrid Grand Committee will now begin. Some Members are here in person, respecting social distancing, while others are participating remotely, but all Members will be treated equally. I must ask Members in the Room to wear a face covering except when seated at their desk, to speak sitting down and to wipe down their desk, chair and any other touch points before and after use. If the capacity of the Committee Room is exceeded or other safety requirements are breached, I will immediately adjourn the Committee. If there is a Division in the House, the Committee will adjourn for five minutes.I will call Members to speak in the order listed. During the debate on each group, I invite Members, including Members in the Grand Committee Room, to email the clerk if they wish to speak after the Minister, using the Grand Committee address. I will call Members to speak in order of request. The groupings are binding.Leave should be given to withdraw amendments. When putting the Question, I will collect voices in the Grand Committee Room only. I remind Members that Divisions cannot take place in Grand Committee. It takes unanimity to amend the Bill, so if a single voice says “Not Content” an amendment is negatived, and if a single voice says “Content” a clause stands part. If a Member taking part remotely wants their voice accounted for if the Question is put, they must make that clear when speaking on the group. We will now begin.Clause 2: Prudential regulation of certain investment firms by FCA rulesAmendment 10
- 10: Clause 2, page 2, line 28, at end insert— “(2) Schedule 2 does not come into effect until each House of Parliament has approved accountability arrangements for the powers conferred on the FCA in that Schedule.(3) Accountability arrangements under subsection (2) include arrangements for—(a) draft rules to be laid before each House of Parliament;(b) final rules to be laid before each House of Parliament;(c) opportunities for each House of Parliament to take evidence on the draft or final rules and to express an opinion on them;(d) the consequences of an expression of opinion by either House of Parliament.”Member’s explanatory statement This amendment would mean that the rule making powers given to the FCA in Schedule 2 can be exercised only when Parliament has agreed how accountability for those powers will be exercised by Parliament.
- My Lords, this is my first day in Committee and I place on record my interests as declared in the register, particularly my shareholdings in financial services companies.I am very grateful to the Committee for going so slowly on Monday and not reaching Amendment 10. As I think noble Lords are aware, I was in the Chamber and could not have moved it myself. I am grateful to the noble Baroness, Lady Bowles of Berkhamsted, and my noble friend Lord Holmes of Richmond; not only have they added their names to my amendments in this group but they were standing by to deal with them without me on Monday. Normal service is resumed and I can move my amendment myself. I shall also speak to Amendment 26 in this group.This is a fairly large group of amendments but its underlying theme is a search for the right balance between letting the specialist regulators get on with the job of regulatory rule-making and the role of Parliament in overseeing those regulators. My Amendment 10 to Clause 2 says that Schedule 2 to the Bill, which amends FiSMA to create rule-making powers for the FCA to undertake prudential regulation of investment firms, will not come into effect until each House of Parliament has approved accountability arrangements for those powers.Amendment 26 is drafted in identical terms but relates to the rule-making powers conferred on the PRA by Schedule 3, which deals with the capital requirements regulation rules.I make no attempt in these amendments to say what form of parliamentary accountability arrangements should be put in place, although the second part of my amendment says that accountability arrangements should include a number of things: arrangements for drafting the final rules being laid before Parliament; taking evidence on a draft of final rules and, importantly, Parliament expressing an opinion on them; and the consequences of any expression of opinion. On reflection, the drafting of my amendment is perhaps not clear enough as I was not intending to suggest that Parliament had to, for example, have the laying of draft rules as part of the accountability arrangements. I merely intended to indicate that it could have that as part of the arrangements.
- My Lords, my name is on eight amendments in this enlarged group. They cover different aspects of parliamentary accountability, although a common thread is Parliament’s right to information. Whether Parliament chooses a regime that scrutinises everything in detail or one which picks points of contention, and however it may develop over time, timely access to background and information is relevant.My Amendment 18 and its counterpart, Amendment 38, relate to keeping Parliament informed about the discussions between the Treasury and the regulator concerning equivalence. In Schedules 2 and 3 this Bill establishes that, when making rules, the FCA or PRA may consult the Treasury about the likely effect of the rules on relevant equivalence decisions.Parliament should be sighted of these considerations because they may affect the content and strength of rules and, as explained in the Government’s consultation, equivalence decisions may result in requirements being embedded in statutory instruments. Just as we used to have EU requirements in regulations, we may end up having equivalence requirements. There is nothing complicated about my amendment; it just says, “keep Parliament informed”. Unless Parliament establishes that right now, it will not exist.To illustrate this, I quote from the recent FCA consultation on investment firms which, like this Bill, front-runs the Treasury consultation. Paragraph 9.68 states:“we have discussed with HM Treasury the rules’ likely effect on relevant equivalence decisions. We are not expected under our new public accountability requirements to provide further detail on this.”I think we need to know something, and I hope the Minister will appreciate that too.I turn to my Amendments 19 and 39, which specify the level of detail that regulators’ explanations concerning compliance with statutory requirements should contain. I was provoked into tabling these amendments on reading the FCA’s explanations in its consultation. Although they gave a reasonable but qualitative explanation of its general approach to the Financial Services Bill, the statutory accountability statements were poor, containing nothing quantitative or illustrative. They consisted of “trust and believe me” statements littered with phrases such as “proportionality”, “business specific”, “bespoke” and “flexible”; no attempt was made to identify or quantify how that was done. Information would have to be extracted from the rest of the consultation and rules, if it were there at all; or—and this is the nub—we have to swallow that, as paragraph 9.71 states, it is left up to the
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- I turn now to the amendments on the broader parliamentary oversight regime. The amendment in the name of the noble Baroness, Lady Noakes, which I signed, lays out the starting principles. My Amendment 27 is about the middle game and draws attention to the regularity of, and entitlement to, information necessary to keep abreast of what regulators are doing and to acquire knowledge for effective scrutiny of the regulators’ rule-making, rather than having to accept a regulator’s say-so.
- The amendment of the noble Lord, Lord Tunnicliffe, deals with the endgame approval. The noble Baroness, Lady Noakes, has explained her amendments, which are a treasure of drafting, each point carrying a strong message. The first is, do not take Parliament for granted and legislate a new regulatory architecture that is only at the consultation stage without Parliament having its share in the new process. It is therefore reasonable that the schedules do not come into effect until Parliament has determined its share.
- The second message is that Parliament wishes to hold regulators to account and to be included properly and explicitly in consultation. I am really pleased to see recognition that Parliament must be consulted on draft rules as well as final rules. Put simply, it is not possible to get to grips with what is going on just at the very end.
- The third message is that there must be opportunity for each House to take evidence and express an opinion. I understand the expression “opportunity” to cover both significant and adequate time and significant and adequate access to information; otherwise, it is a fake opportunity.
- The fourth message is that there must be consequences when Parliament raises concerns. That might mean modifying rules; it might mean more explanation and that checking data is required; it might mean delay in implementation. That is for Parliament to choose, but I would certainly put delay in the toolbox.
- At the end of the day, however, the regulator must take responsibility for the rules and a parliamentary sign-off does not remove that responsibility. We need discussion of how much Parliament desires to check. The rules that Parliament will look at over time are extensive, ultimately encompassing and replacing all the policy and hard benchmarking that previously existed in statutory instruments from onshored EU legislation. It is not the Government’s intention to replace that layer in any substantive way. A few instances of “have regard” are the examples in the Bill, just like the suggestion in the HMT consultation, and some equivalence matters may creep into SIs. That format may technically be under consultation, but the Bill front-runs it, the regulators’ consultations front-run it and we know that it is going to happen. What we negotiate in the Bill will fix the path, so it is not the time to be faint-hearted or live on a promise. Parliament’s rights must be established.
- Coming to my Amendment 27, I have drawn attention to a range of things which do not all have to be done all the time if Parliament wishes to target, rather than be comprehensive, but the rights should be there. Proposed new subsection (1) concerns the quarterly provision of regulators’ reports and, as the noble Baroness, Lady Noakes, observed, before and after meetings of international standard-setting bodies. I put that in because that is how a lot of policy will be made—in the international standard-setting bodies—and then we will incorporate it under that cover. We will not have learned anything on the way about the thinking behind the policy.
- Proposed new subsection (1)(d) gives an entitlement to seek other reports, including the data necessary both to pursue incidents and to understand how rules have been calibrated. At present, neither industry nor Parliament has access to that calibration data. We may not want it all the time but on contentious points it should be possible to obtain it.
- Proposed new subsection (2) provides for appearance before committees when requested in connection with those reports, and that, where necessary, there can be confidential sessions. There are times, when a lot is happening, when meetings may need to be more frequent than at other times. This was the case in the EU when the whole tsunami of legislation and technical standards following the financial crisis was going on. I am a little concerned that there may be such a tsunami in the UK as the regulators absorb the onshored EU legislation currently in statutory instruments and convert it into rulebook form. That will need scrutiny, because it is the point at which most of the hard benchmarks for holding regulators to account that currently exist in legislation will disappear and be replaced by regulators’ own policy, and their own variable ideas.
- Proposed new subsection (3) provides for regulators seeking the views of Parliament before launching a consultation, when making rules, and regarding their business plan, new market activity and the regulatory perimeter.
- Proposed new subsection (4) covers the statutory panels of the regulators, and suggests some changes that might be helpful to make them more independent and less influenced by the regulators, who currently choose the members, set their remits and keep control of the information. Changes are necessary in the interests of transparency, and there should also be a dialogue between those panels and Parliament, and maybe with others.