Debates between Lord Tunnicliffe and Baroness Penn during the 2019-2024 Parliament

Thu 23rd Mar 2023
Tue 21st Mar 2023
Thu 16th Mar 2023
Tue 14th Mar 2023
UK Infrastructure Bank Bill [HL]
Lords Chamber

Consideration of Commons amendments
Mon 13th Mar 2023
Tue 7th Mar 2023
Wed 1st Mar 2023
Mon 20th Feb 2023
Mon 6th Feb 2023
Wed 1st Feb 2023
Mon 30th Jan 2023
Wed 25th Jan 2023
Financial Services and Markets Bill
Grand Committee

Committee stage & Committee stage & Committee stage
Mon 18th Jul 2022
Mon 4th Jul 2022
UK Infrastructure Bank Bill [HL]
Lords Chamber

Report stage & Report stage
Tue 14th Jun 2022
UK Infrastructure Bank Bill [HL]
Lords Chamber

Committee stage: Part 1 & Lords Hansard - Part 1
Tue 14th Jun 2022
UK Infrastructure Bank Bill [HL]
Lords Chamber

Committee stage: Part 2 & Lords Hansard - Part 2
Mon 23rd May 2022
Wed 30th Mar 2022
Wed 30th Mar 2022
National Insurance Contributions (Increase of Thresholds) Bill
Lords Chamber

3rd reading & Committee stage & 3rd reading & Committee stage
Mon 28th Feb 2022
Mon 19th Apr 2021
Financial Services Bill
Lords Chamber

3rd reading & Report stage & 3rd reading
Wed 10th Mar 2021
Mon 1st Mar 2021
Mon 22nd Feb 2021
Financial Services Bill
Grand Committee

Committee stage & Committee stage:Committee: 1st sitting (Hansard) & Committee: 1st sitting (Hansard) & Committee: 1st sitting (Hansard): House of Lords
Thu 1st Oct 2020
Wed 23rd Sep 2020
Thu 30th Apr 2020

Amendments of the Law (Resolution of Silicon Valley Bank UK Limited) Order 2023

Debate between Lord Tunnicliffe and Baroness Penn
Wednesday 19th April 2023

(1 year, 3 months ago)

Grand Committee
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Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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My Lords, I am grateful to the Minister for introducing this order. I begin by reiterating the Labour Party’s thanks to the officials at the Treasury, the Bank of England and the regulators to secure a rescue deal for the UK arm of Silicon Valley Bank. While there will be important lessons to learn from SVB’s collapse, it was vital that swift action was taken to preserve financing for the life sciences and tech companies that will play such an important role in our future economic growth.

I also thank the noble Baronesses, Lady Kramer and Lady Noakes, for bringing out areas of concern, which I certainly have not seen raised in the same sharp relief. I hope that the Minister will be able to give us some feel as to the extent to which this reach of the ring-fence will be of significance or not, and, if it is significant, why it is intended to be made perpetual by a subsequent order. Equally, when we are discussing lessons learned, the noble Baroness, Lady Kramer, shone a light on the issue of the speed of collapse. The physical queues outside Northern Rock created time; today, very little time need be created between an area of significant concern turning into total collapse. I hope that the regulators, when doing a proper lessons-learned exercise on this will ponder on that point, to see what, if anything, we need to do to be better able to manage the rate of collapse that is potentially available.

The collapse of SVB was the catalyst for several other major events in the global financial system, including the very serious difficulties faced by Credit Suisse. In many senses, the UK regulatory system has functioned as hoped, which we welcome. It certainly makes the many hours spent on previous legislation worthwhile. Financial institutions and regulators in other countries have taken their own steps in recent weeks to deal with issues with entities in their own jurisdictions. The collective action seems to have calmed the markets, which is important for us all. However, I hope that the Minister can assure us that the Treasury, the Bank and the regulators continue to monitor the situation very closely, and that they stand ready to act, should that be required. With inflation still in double digits, and with the implications that is likely to have on interest rates in the short to medium term, will the Treasury finally commission a review of the risks that this could present to the financial system?

On SVB itself, the Government have thus far been unable to provide a proper justification for exempting the bank from ring-fencing requirements, which makes the four-year transition period turning into a perpetual one all the more puzzling. In another place, the Minister sought to reassure colleagues that they need not worry about the potential implications of this exception, as the number of SVB UK customers is low, particularly as a percentage of HSBC’s total client base. Is that really the most that the Treasury can say, or does the Minister have more to offer, given that this debate comes three and a half weeks after the Commons one?

Another question in that debate was on potential reform to ring-fencing requirements in this country. Andrew Griffith promised that

“there will not be any tinkering, but there might … be appropriate reforms”.—[Official Report, Commons, First Delegated Legislation Committee, 27/3/23; col. 7.]

I am not sure that those words are particularly reassuring. We expect news on those reforms in advance of the Autumn Statement, but can the Minister be a little more specific about dates and processes? How swiftly would any reforms be implemented once announced, for example? Will changes require primary legislation? If so, could this come in the Financial Services and Markets Bill, or would the Government bring forward a further Bill?

The action taken to protect SVB UK worked because it provided certainty. Customers of that bank knew within days that they would be able to continue their relationship with it, because of the acquisition by HSBC. However, in other areas, certainty is in short supply. The Prime Minister says he has a plan to halve inflation and bring interest rates down, but inflation remains in double digits and the Monetary Policy Committee is expected to announce a 12th consecutive rate hike. Under this Government, our economy is weaker, prices are out of control and never have people paid so much to get so little in return.

Baroness Penn Portrait Baroness Penn (Con)
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My Lords, I thank all noble Lords for their detailed questions on this statutory instrument. While everyone agreed that we reached a good resolution in this instance, it is absolutely right that we look at how it was delivered in detail and how we should reflect from this instance on the resolution regime in our wider regime. The noble Baroness, Lady Kramer, asked explicitly—but I think all noble Lords wanted to know—what the Government will do to ensure that we can learn lessons from the events around SVB UK. The Treasury and the Bank of England are working together to ensure that we properly reflect on these events and will consider how best to draw on the lessons learned and share them as needed in future.

The noble Lord, Lord Tunnicliffe, remarked on wider financial stability events, including Credit Suisse. I reassure him that the UK financial sector is fundamentally strong. The resolution of SVB UK on 13 March highlights how the resolution regime can be effectively used to protect UK financial stability. However, we continue to monitor the situation closely and remain in close contact with the Bank of England, the Prudential Regulation Authority, the Financial Conduct Authority and relevant foreign and international authorities. We are absolutely committed to protecting the stability of the UK banking sector, which is key for supporting economic growth and for the UK’s world-leading financial sector.

The noble Lord, Lord Tunnicliffe, also asked whether we would commission a review of the risks that higher interest rates pose to the financial system. I reassure noble Lords that the Bank of England already has in place processes to monitor and assess risks to our financial sector and banking system. In particular, each year, the Bank of England carries out a stress test of the major UK banks, which incorporates a severe but plausible adverse economic scenario. The 2022 stress test scenario includes a rapid rise in interest rates, with the UK bank rate assumed to rise to 6% in early 2023, as well as higher global interest rates.

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Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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In bringing this back to us, as the Minister will have to do for the second SI, and responding to these questions, can we have some analysis of the competitive advantage that HSBC will get out of this transaction?

Baroness Penn Portrait Baroness Penn (Con)
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That point was also raised by my noble friend, and I was hoping to come to it. Whether my answers mean that we will not have a further discussion on it either on the Bill or when the future SI comes forward remains to be seen. I shall try to address some of the points around the ring-fenced bank, the need to go down that route and whether SVB UK needed to be purchased by HSBC’s ring-fenced bank. That was a commercial decision made by HSBC, and it would not be appropriate for me to comment further on it.

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Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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Can the Minister confirm whether I have understood this correctly? My understanding was that we are assured that any impact on the ring-fence regime will be brought about through primary legislation.

Baroness Penn Portrait Baroness Penn (Con)
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It is important to distinguish between the near-term reforms that the Skeoch review recommended—I listed some examples of what can be taken forward through secondary legislation—and any more fundamental changes, which are the subject of the questions in the call for evidence, which would need primary legislation to be amended to take forward. So it is possible to make alterations to the ring-fence regime through secondary legislation; in fact, the Government have been quite clear about their intention to do so. We will consult on that before we do so, and we will set it out then. However, the call for evidence sets out more fundamental options, and that would require primary legislation. So there is a mix, but anything such as abolishing the ring-fencing regime, or other more fundamental changes, will be set out in primary legislation. I hope that provides sufficient clarity on that point.

The noble Baroness, Lady Kramer, asked about the interaction between SVB UK and its parent in the US. I will write to her on that subject. It was a UK subsidiary, was subject to UK regulation, and had its own requirements under that regulation. However, to provide absolute clarity on that point, I will write to her. I will also look back on this debate because it has been detailed and technical—as well as very important—and will endeavour, where I can, to improve on my answers to noble Lords in writing. However, there may be areas where there is nothing further to add, even if that is not to the satisfaction of noble Lords.

It is worth concluding on the more positive note that most noble Lords started with: that the outcome of the Government’s action, together with the Bank of England, to facilitate the sale of SVB UK protected its customers and UK taxpayers. It was a good result in that respect, but the Government will continue to monitor the financial system and consider ongoing events. The final note of reassurance I offer is that the Bank of England has confirmed that the UK banking system remains safe, sound and well capitalised. I beg to move.

Arrivals Duty Free at UK Airports

Debate between Lord Tunnicliffe and Baroness Penn
Thursday 30th March 2023

(1 year, 3 months ago)

Lords Chamber
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Baroness Penn Portrait Baroness Penn (Con)
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My noble friend is a persistent campaigner on this issue. He is right that, in leaving the EU, we were not able to maintain the previous policy of offering tax-free shopping to non-EU citizens only; it would have to be extended to all visitors, which would come with a significant cost. However, I reassure my noble friend that we keep all taxes under review, and we welcome representations to help to inform future decisions on tax policy.

Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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My Lords, the Government were slow to back the tourism sector during the coronavirus pandemic, U-turning on a special deal for airports and airlines and missing the opportunity to tie support to green initiatives. Their flip-flopping on the issue of tax-free shopping for international visitors and slowness on the issue of arrivals duty free have led many in the sector to question whether the Treasury truly understands the challenges that the industry faces. What plans, if any, do the Government have to bring forward a cross-departmental strategy for boosting British tourism?

Baroness Penn Portrait Baroness Penn (Con)
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My Lords, I reassure the noble Lord that the Government fully understand the contribution that tourism makes to our economy. To pick up his point about the Covid pandemic, through the pandemic the UK Government provided over £37 billion to support the tourism, leisure and hospitality sector in the form of grants, loans and tax breaks. Since then, the Government have contributed to various successful campaigns to stimulate recovery, including the £10 million National Lottery Days Out scheme and efforts by VisitBritain to deliver its international marketing campaign.

Financial Services and Markets Bill

Debate between Lord Tunnicliffe and Baroness Penn
Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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We do not have a fixed view on this proposal and therefore will listen to the response of the Government. At an individual level, when invited to pay my off-sets to British Airways, I am deeply suspicious of them making any useful contribution. My general view on this Bill is that good regulation is important, because the problem with the financial services industry is that any areas of weakness can escalate into a significant wider impact. I take the point that this area of activity will almost certainly expand and there is a good prima facie case that it should be regulated.

Baroness Penn Portrait The Parliamentary Secretary, HM Treasury (Baroness Penn) (Con)
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My Lords, the Government recognise the potential for off-setting to enable businesses to address emissions that cannot be reduced through decarbonisation strategies. As the Climate Change Committee has set out, they can play an important role in the transition to net zero.

Done well, and centred around high integrity, climate and nature off-sets through voluntary carbon credits can increase climate ambition, help mobilise finance to developing countries and provide a credible tool for the 1.5 degree transition. Done badly, and without integrity at their core, the potential for “greenwashing” clearly exists. Therefore, it is important that the voluntary carbon credits used by companies reflect genuinely additional removal of or reduction in greenhouse gas emissions.

The Government recognise that it is important to ensure the integrity of these markets if they are to play a role in mobilising investment. Concerns around the integrity of carbon and nature markets, from the supply of voluntary credits, their trading and green claims made by buyers through offsetting, must be addressed.

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Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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My Lords, I do not formally have a view on these amendments. It seems that they would have wide-ranging implications, and I shall consult with colleagues throughout Parliament about how we should come back to this issue. 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. Whether this is the right place to address this issue is a much bigger question than whether it is a good idea. It seems a pretty good idea, but I shall listen to the Minister’s response to the key point about the right place and the right mechanism.

Baroness Penn Portrait Baroness Penn (Con)
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My Lords, these amendments would introduce new parliamentary procedures when exercising the powers in the Bill, and the Government do not believe that they are necessary.

The Government have worked hard to ensure that every power in the Bill is appropriately scoped and justified. This was recognised by the DPRRC, which praised the Treasury for

“a thorough and helpful delegated powers memorandum.”

The DPRRC has not recommended any changes to the procedures governing the powers in the Bill. That may, in part, answer the question from the noble Lord, Lord Tunnicliffe, about the right place. I have worked on enough Bills to know that that is not a frequent conclusion from the Delegated Powers Committee.

This includes the powers in relation to retained EU law. While they are necessarily broad, they are restricted in a number of important ways. First, they are governed by a set of principles that are based on the regulators’ statutory objectives. Secondly, they are limited in what they can be used for. For example, they cannot be used to create new offences. Thirdly, the powers over retained EU law are strictly limited to a subset of legislation. They can be used only to modify or restate retained EU law in financial services legislation, as set out in Schedule 1. Finally, only a small amount of primary legislation is included in the scope of this power, and it is all listed in Schedule 1, Part 4.

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Baroness Penn Portrait Baroness Penn (Con)
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The intention is to allow for the restatement within EU law or to adapt it to a situation or circumstances within the UK. As I have said, in undertaking that work the Government will seek to undertake a combination of formal consultation and informal engagement appropriate to the changes being made. As set out in the Government’s policy statement on the repeal of retained EU law in financial services, the Government aim to balance the need to deliver much-needed reforms with the need to consult industry and stakeholders. They will take the decision on the approach to this on a case-by-case basis.

I wanted to address my noble friend’s specific question on the prospectus regime. The Government intend—

Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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Would the noble Baroness accept that we have heard that speech before? With every complex Bill where we have sought ways to have more control over statutory instruments, we get the same speech—that it has all been worked through, that the constraints are there and so on. Those of us who have to sit through statutory instruments are growing more and more uncomfortable at the increasing number of occasions when we want more involvement and commitment. We want a situation where some variation in the instruments would be possible and this is a way forward. It may not be the right way, but this is an area of powerful area in the House—the relationship between Parliament and the Executive.

Baroness Penn Portrait Baroness Penn (Con)
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The noble Lord, Lord Sharkey, I believe, referred to two pieces of work that looked at the wider concern around procedures when it comes to statutory instruments and the House’s involvement and ability to respond to them. I can talk only in relation to the Bill before us. Our approach is consistent with the policy approach to the regulation of financial services that the Government have set out and consulted on—the FSMA model. That delegates some policy-making both to the Treasury and then, significantly, to the regulators. In the context of the Bill, we are comfortable that our approach is appropriate to the model of regulation that we are advocating in these circumstances. I recognise the wider debate but, in the context of the Bill, we are confident that our approach is right and appropriate.

Coming to my noble friend’s specific question, I think the concern is around the definition of “securities” in the prospectus regime. The Government intend to include certain non-transferrable securities within the scope of the new public offer regime that is being developed as part of the review of the prospectus regime, which delivers on a recommendation of Dame Elizabeth Gloster’s review of the collapse of London Capital & Finance. We intend to capture mini-bonds and other similar non-transferable securities that may cause harm to investors if their offer is not subject to greater regulation.

The Government are keen to ensure that business that does not affect retail investors or is already regulated elsewhere, such as trading in over-the-counter derivatives, is not unintentionally disrupted by the reformed regime. We have been engaging with stakeholders on this point to understand the concerns of industry, and we are considering what changes we can make to the statutory instrument to address them.

The Government do not agree that the use of the super-affirmative procedure in this case is appropriate. Examples where it has been used include legislative reform orders made under the Regulatory Reform Act 2001 and remedial orders made under the Human Rights Act 1998. In both cases, the powers in question can be used very broadly over any primary legislation, due to the nature of the situations that they are intended to address. The delegated powers in this Bill are not comparable with these powers, and I have already explained how the powers over retained EU law are restricted and appropriately scoped. Therefore, in the case of the Financial Services and Markets Bill, we are confident that normal parliamentary procedures remain appropriate. I therefore ask the noble Lord, Lord Sharkey, to withdraw his amendment.

British Banking Sector

Debate between Lord Tunnicliffe and Baroness Penn
Tuesday 21st March 2023

(1 year, 4 months ago)

Lords Chamber
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Baroness Penn Portrait Baroness Penn (Con)
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My Lords, the Swiss authorities were in the lead in the solution for Credit Suisse but my noble friend is right that, given the significant presence of Credit Suisse in the UK, the Treasury has remained in close contact with the Bank of England and the Swiss authorities in recent days. We welcome the comprehensive set of actions set out by the Swiss authorities to support financial stability. The UK authorities are going to take a number of actions to support that action, including PRA plans to approve a change in control application for the Credit Suisse subsidiaries in the UK. The resolution of the Credit Suisse situation was for the Swiss authorities, but the UK remains in close contact.

Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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My Lords, we welcome the Bank of England’s swift action on SVB UK and its recent statements about the safe nature of the UK’s banking system. Nevertheless, events elsewhere, including those relating to Credit Suisse, are creating uncertainty in the global financial system. With this in mind, will the Treasury and the Bank of England commit to undertake a systemic review of the impact of interest rate rises and wider events in the system on our own financial sector and banking system?

Baroness Penn Portrait Baroness Penn (Con)
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My Lords, as with any major event, the Treasury will reflect on the lessons to be learned and how improvements can be made. I assure noble Lords that, each year, the Bank of England carries out a stress test of the major UK banks that incorporates a severe but plausible adverse economic scenario. The 2022 stress test scenario includes a rapid rise in interest rates, with the UK bank rate assumed to rise to 6% in early 2023. The results of that test are taken forward by the PRA in its supervision of the banks. The results will also be published this summer.

Financial Services and Markets Bill

Debate between Lord Tunnicliffe and Baroness Penn
Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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My Lords, I thank His Majesty’s Treasury for sharing its policy on the Edinburgh reforms last month. This Government, following their initial floating of the HMT intervention powers, have given parliamentarians serious cause for concern regarding their judgment. We should be slow to trust that they have the judgment and operational competence to implement the changes in the Edinburgh reforms safely and effectively. Could the Minister give an indication of the Government’s intentions and/or direction of travel concerning both ring-fencing and the senior managers and certification regime?

We heard from the Bank of England governor this week that the Government’s version of Solvency II reform increases risks for insurance firms by 200% more than the Bank’s preferred option. I think we are vindicated in our general concern about the Government’s gung-ho approach to financial stability. Sweeping changes to ring-fencing and the senior managers and certification regime are too important to be left to statutory instrument. The amendments from the noble Baroness, Lady Kramer, are sensible safeguards that the Government should consider thoroughly.

We have seen chaos in two banks this week—Silicon Valley Bank and Credit Suisse. What is the Government’s assessment of whether other systemically important banks are safe and sound? Did we see SVB and Credit Suisse coming? Did the regulators? What are they proactively doing to protect UK consumers and investors?

My view on Amendment 216 is not yet fully formed; I want further discussions with colleagues. I agree with the general view on Amendments 241C and 241D that the issue is really about scrutiny and accountability. In my view, it is impossible to argue that a relaxation of either ring-fencing or the senior managers and certification regime is other than very significant. The present method of accountability through an affirmative instrument is clearly insufficient and I commend the device of the noble Baroness, Lady Kramer, which she has included in these two amendments. The Government should support them.

Baroness Penn Portrait The Parliamentary Secretary, HM Treasury (Baroness Penn) (Con)
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My Lords, I will speak first to Amendment 216, which pertains to the Government’s announced reforms to Solvency II, made possible through the Bill’s revocation of retained EU law.

The Government are reforming Solvency II, the rules for prudential regulation of the insurance industry currently set by the EU, to reflect the UK insurance market’s unique features. These reforms will provide incentives for insurers to increase investment in long-term productive assets by more than £100 billion. They will also benefit consumers by increasing insurers’ ability to provide a broader range of more affordable products.

The Government have committed to make changes to the matching adjustment, an accounting mechanism whereby insurers can match their long-term liabilities with long-term assets and hold less money to pay out claims. These reforms will incentivise firms to invest significantly more in long-term productive assets such as infrastructure. This investment will support growth across the UK and the Government’s climate change objectives.

The noble Baroness’s amendment would instead result in a stricter treatment for some assets than under current rules. I reassure noble Lords that the Government’s reforms to Solvency II strike a careful balance between boosting growth across the economy and maintaining high standards of policyholder protection. Insurers will still be required to hold extra capital to safeguard against unexpected shocks, they will still have to adhere to high standards of risk management, and they will still be subject to comprehensive supervision from the PRA, our world-class independent regulator.

The noble Baroness, Lady Kramer, asked whether we would replicate the Canadian Government’s position with regard to pensions and insurance firms in this context. She referred to statements in the Budget about pension funds—although I think they were focused more on defined contribution pension funds than defined benefit pension funds. I do not know the detail of the specific Canadian regime, but the reforms proposed here do not pose risks to financial stability. As I said, each insurer must still hold enough capital to survive a 1-in-200-year shock over one year. Insurers will still have to adhere to the high standards of risk management. The Government and the PRA have announced a series of additional supervisory measures that the PRA will take forward to ensure that policyholders remain protected. For example, the PRA will now require insurers to take part in regular stress-testing exercises.

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Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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My Lords, on the digital pound, we support the Bank of England’s work exploring the potential benefits of a safe and stable central bank digital currency, but the Government’s overall approach to crypto remains unclear.

With the collapse of FTX, it is clear that crypto can pose a real threat to normal people in the real economy and therefore may pose a systemic risk in future. The approach HMT has taken to the digital pound is a welcome contrast to this Administration’s eagerness to lean into a crypto Wild West in the recent past. We need to get serious about attracting innovative fintech companies to the UK by safely harnessing the potential of new technologies. How will the Government do this?

On the amendments in general, the issue of accountability has come up once again. The concept of using primary legislation to have a check on these ideas is clearly practical and therefore very attractive, but it will have problems. If the Government would only embrace our concerns about accountability and come forward with a proper and comprehensive accountability structure, perhaps we would be able to develop a more sophisticated approach than the rather raw power of primary legislation. However, as a fallback it is very attractive.

Baroness Penn Portrait Baroness Penn (Con)
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My Lords, the Government have been transparent about their plans to enable the use of digital identities in the private sector, including in financial services, and we are committed to ensuring the scalability, flexibility and inclusivity of secure digital identities.

The Government initiated their digital identity programme following industry calls for the Government to take the lead in developing common standards for digital identity across the whole economy. We continue to believe that a whole-economy approach is the right way forward, and we are working with stakeholders to deliver this at pace.

For example, the UK digital identity and attributes trust framework has already enabled right to work, right to rent and criminal record-checking processes to be digitised, making these checks quicker and more secure. In addition, measures in the Government’s Data Protection and Digital Information (No. 2) Bill, which was introduced to Parliament on 8 March, go further by securing the reliability of digital identity services across the economy for those businesses and consumers who wish to use them. The Government also recognise that greater clarity with respect to how digital identity services certified against the digital identity and attributes trust framework support requirements under the Money Laundering Regulations will be key for market uptake. As set out in the Government’s 2022 Money Laundering Regulations review response, we have committed to considering this too.

I hope that I have reassured my noble friend Lord Holmes that the Government remain committed to enabling the use of secure, reusable digital identity products across the UK economy and that Amendment 218 is therefore not necessary.

Turning to Amendments 220 and 221, also from my noble friend, the Centre for Data Ethics and Innovation guidance has not been designed to form the basis of regulatory requirements relevant to financial services and is unlikely to address AI risks specific to that sector. Appropriating CDEI guidance for the basis of regulation that is aimed at the wider governance of AI through non-regulatory tools and industry-led techniques is therefore likely to lead to unintended consequences; however, I appreciate my noble friend’s point that he used the CDEI for illustrative purposes.

I assure my noble friend that the newly created Department for Science, Innovation and Technology is already developing a cross-economy, pro-innovation framework for AI regulation, underpinned by a number of cross-sectoral principles to strengthen the current patchwork approach to regulating AI directly. Further proposals for the new regulatory framework will be published in a White Paper in the coming weeks. Through our proposals for a new AI regulatory framework, we are building the foundations for an adaptable approach that can be adjusted to respond quickly to emerging developments. The vast majority of industry stakeholders we have engaged with agree that this strikes the right balance between supporting innovation in AI while addressing the risks.

Furthermore, the FCA, the PRA and the Bank of England recently published a discussion paper on how regulation can support the safe and responsible adoption of AI in financial services. Therefore, to avoid unintended complications with the use of digital identities and artificial intelligence in the financial services sector, I hope that my noble friend will not press his amendments.

Finally, I turn to the important topic of central bank digital currencies and Amendments 241F and 241FD, both ably introduced by my noble friend Lord Forsyth. The Government have been clear that they consider that Parliament will have a vital role to play in the future of any digital pound. As I set out to my noble friend Lord Bridges in a previous debate in the Chamber, when we discussed the findings of the report to which my noble friend referred, the Government expect to fully engage Parliament, including through any possible legislation, in an open and transparent manner to ensure that there is full and proper scrutiny of any proposals over the coming years. As the joint Treasury and Bank of England consultation paper published on 7 February set out, the legal basis for the digital pound will be determined alongside consideration of its design; this is the subject of ongoing work.

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Baroness Penn Portrait Baroness Penn (Con)
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These are some of the questions that we want to consider through the consultation that is currently open and any further work. That consultation recognises the financial stability implications of developing such a proposal; we will want to consider them as we take this work forward.

Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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I hope that the Minister anticipates consultation and research. To me, “consultation” means coming back to the industry. The industry comes from a perfectly respectable position but it is one position. We need basic research, modelling and all the various techniques to explore the potential risks.

Baroness Penn Portrait Baroness Penn (Con)
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The noble Lord is right that the public consultation phases of this work are one element of the work that will be done by the Treasury and the Bank of England in developing this concept. There are many other strands of work that will also be undertaken. As we discussed in the previous debate, any such project would be a significant infrastructure project with significant financial implications so we would need an appropriate approach acknowledging that.

We are at an early stage of this work. As I said, we have not taken the decision to go ahead with a CBDC but we think that there is sufficient evidence to justify further exploratory work. At this stage, it would be premature to include any provision in the Bill. I reiterate my previous statement that the Government expect to keep Parliament fully engaged in this work as it progresses. I therefore hope that my noble friend Lord Holmes will withdraw his Amendment 218.

Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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That word, “engaged”, flummoxes us all. We do not see a mechanism in our system. Will the Minister write to us and spell out what “engaged” means?

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Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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There is no official Labour Party position on this, but I feel enormous sympathy for the position of the noble Earl, Lord Attlee. I hope the Minister will take this away, not as a legislative proposal but as a problem to be solved, and ensure that it is considered at a very senior level in the Treasury.

Baroness Penn Portrait Baroness Penn (Con)
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My Lords, before I speak to his Amendments 223 and 241FB, I first thank my noble friend Lord Attlee for his engagement and for bringing to my attention the specific example he has raised today as context for his amendments. I commend his staunch support for Ukraine, and the Government remain fully committed to supporting Ukraine in the face of the relentless Russian bombardment.

I reiterate to the Committee that the money laundering regulations are a vital part of the UK’s comprehensive economic crime response. The regulations are designed to combat illicit finance but should not be barriers to legitimate customers, including those connected with the export of military equipment to the Ukrainian defence forces.

As the Prime Minister has set out, the Government are fully committed to helping Ukraine emerge from the war with a modernised economy that is resilient to Russian threats. Of course it is important that those contributing towards this are not prevented unnecessarily from carrying out their business, but this needs to be balanced with the existing controls which protect this country, and international partners, from risks of money laundering.

It is important that we do not take steps that might allow the money laundering regulations to be circumvented by bad actors, even in circumstances such as this. It is therefore right that financial services firms continue to be empowered to carry out their own, risk-based due diligence when financing the export of armoured vehicles or military equipment, or individuals who are engaged in the international defence industry.

The money laundering regulations are purposefully not prescriptive and are designed to allow firms to make their own decisions about how to comply, balancing their understanding of the risk with proportionality. The Government do not and will not involve themselves in commercial decisions of individual firms but we can be clear that, where all the correct licences are in place, the money laundering regulations should not be a barrier to the financing of legitimate export activity.

Defence Spending

Debate between Lord Tunnicliffe and Baroness Penn
Thursday 16th March 2023

(1 year, 4 months ago)

Lords Chamber
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Baroness Penn Portrait Baroness Penn (Con)
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An additional £24 billion is going in now as a result of the spending review 2020. The £11 billion announced at the Spring Budget includes £4.95 billion over the next two years. That does not include the spending on our commitments to Ukraine, which was £2.3 billion last year and will be £2.3 billion in the coming year.

Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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My Lords, we have got figures, figures and figures. There is only one crucial question. The Defence Secretary said in February that the Government

“have hollowed out and underfunded our armed forces”.—[Official Report, Commons, 20/2/23; col.65.]

Yesterday, some new funding was announced. Do the Government believe that yesterday really represents a reversal of the Secretary of State’s analysis and, crucially, is sufficient to secure Britain’s national defence for the future?

Baroness Penn Portrait Baroness Penn (Con)
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I think the Secretary of State for Defence has been very positive about the money announced at the Budget and previously, and this Government have overseen the largest investment in defence since the Cold War. The British Armed Forces remain among the best in the world; that is why we are a leading NATO partner. Over the last 10 years, the UK has been NATO’s second largest defence spender, after the US, and we spent almost as much on defence as 20 other NATO members combined. Future Soldier, the Army’s response to the integrated review, will deliver the largest transformation of the British Army in more than 20 years. As the threat changes, we need to change with it, and we have set out a plan to do so.

UK Infrastructure Bank Bill [HL]

Debate between Lord Tunnicliffe and Baroness Penn
Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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My Lords, I thank the Minister, both for her introduction today and for a helpful briefing held last week. When your Lordships’ House considered the Bill in the first half of last year, we were told that passing it should be a mere formality. The UK Infrastructure Bank was already operating, having made its first handful of investment decisions. The Bill was therefore essentially a technical exercise to give the organisation statutory underpinning. The Government resisted several sensible amendments, including one on worker representation on the bank’s board, partly on the basis that this legislation needed to be on the statute book quickly. I pause to note that the inclusion of a non-executive director at least moves in that direction. I thank the Minister, as I do for everywhere in the Bill where she has persuaded the Government to seek compromise.

However, in reality, it took some time for the Bill to get through the other place. The legislation having been introduced last July, Second Reading did not take place until November and Report not until last month. The delay was presumably the result of the Conservative Party’s summer of chaos, with a succession of Prime Ministers and Chancellors of the Exchequer, and—if I remember correctly—a short period when the noble Baroness was not a Minister on this subject. We are back to our familiar form. The extra time has seemingly allowed Ministers to reflect, in some areas at least, as evidenced by the various Commons amendments that we are debating today.

We welcome the clarifications around the definition of “public authorities” and the importance of costed plans should UKIB funds be used to support the work of water companies. The devolved provisions, which have facilitated the passing of legislative consent Motions—something of a novelty in recent years—are also welcome. We are also glad that the Minister and the Bill team have been persuaded of the merits of including nature-based solutions in the definition of infrastructure.

The noble Baroness, Lady Hayman, made a persuasive argument but, as we have often seen, that does not always lead to the Government making a concession. I pause again, however, to note, as happens with so many Bills, the extent to which she and her supporters are making incremental progress in embracing the green thrust. Even now, I have a bit of optimism that we might move quickly enough to save at least some of the planet that we now enjoy. It is good to see that thrust building on both sides of the House. I hope that in a couple of years the sides will change but, if one has that general direction in the membership and on the Front Benches, it is possible that we will get there. In another two years we may be passing green amendments that will amaze us when we look back five years, at when some official or other said, “You can’t put green in there because it is nothing to do with the Bill”. We have put green in here and have persuaded people that it is something to do with the Bill.

I understand the disappointment of the noble Lord, Lord Teverson, with regard to the circular economy, but that concept will become ever more apparent and he will no doubt have other opportunities to promote it.

I regret that the Government have overturned my amendment. Colleagues may think, “You would say that, wouldn’t you?”, but I remain unconvinced of the Government’s reasoning for removing their own levelling- up mission from the Bill. I reluctantly accept the offer to make changes to the bank’s framework document and articles of association after the Bill receives Royal Assent. It is not exactly where we want to be but it is a small step in the right direction.

Finally, we gladly accept the reduction of the interval between reports on the bank’s effectiveness. I was somewhat amused by this, as we were previously told that an interval of five years was simply not practical and could even somehow undermine the bank’s work.

Overall, while the Bill is a short, technical piece of legislation, the UK Infrastructure Bank could make a significant contribution to some of the big challenges that we face. We fully support the bank and, while there may be cause to revisit its mandate in the future, we wish it well in its work. Again we thank the Minister for her co-operation in bringing us to this consensus position.

Baroness Penn Portrait Baroness Penn (Con)
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My Lords, the Bill is mercifully short, so I shall also keep my remarks brief. I thank all noble Lords who have spoken today and who contributed when we took the Bill through its substantive stages in this House a while back. I reassure them that the time it has taken for the Bill to progress is not unusual: I was working on the skills Bill in this House, went off on maternity leave and was back in time for ping-pong, so it is not necessarily an unusual passage for a Bill in Parliament.

I reassure the noble Baroness, Lady Bennett, that the Government are committed to moving towards a more circular economy which will see us keeping resources in use as long as possible, extracting maximum value from them, minimising waste and promoting resource efficiency. I hope I made that clear in my opening remarks. When it came to including a legal definition of “infrastructure” in the Bill, that is where my remarks about the potentially imprecise nature of the terms lay, but it does not reflect a broader lack of understanding or commitment by the Government to that agenda.

I also reassure the noble Lord, Lord Teverson, that His Majesty’s Treasury is very much committed to ensuring that nature and climate change are on the agenda for the Government and that we meet our global goals, committed to both in terms of Paris alignment and the new framework agreed at COP 15 in Montreal at the end of last year. He knows better than most that we published the Dasgupta review that looked at the role of nature in our economy. We have had an amendment to the Bill today, and that commitment will be ongoing.

Most noble Lords were very kind in not replaying my words on the review period for the bank. All I can say is that it is always a pleasure to listen to the contributions of noble Lords and be persuaded of the art of the possible. I am pleased with the changes that we have been able to make to the Bill; I think these have shown how effective Parliament can be in scrutinising our legislation. The UK Infrastructure Bank has transformative potential, which I know is recognised and supported on all sides of the House. I beg to move.

Silicon Valley Bank

Debate between Lord Tunnicliffe and Baroness Penn
Tuesday 14th March 2023

(1 year, 4 months ago)

Lords Chamber
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Lord Fox Portrait Lord Fox (LD)
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My Lords, I thank the Minister for repeating the Statement, albeit in the graveyard shift: she could have got in a bit earlier. Having read through the details of the events of the last weekend, I can understand why the Statement veers towards the slightly triumphalist: the sale of Silicon Valley Bank to HSBC averted existential problems for a huge number of UK tech businesses, and I am sure the Minister and colleagues are pleased to have done this. We should congratulate the Treasury and the Bank of England, as well as Coadec, Tech London Advocates and BVCA on the industry side, all of which came together very swiftly over the weekend. But where do we go from here?

First, can the Minister confirm that there will be a full investigation, both to confirm how this happened and, more importantly, what lessons can be drawn? One lesson we can all observe is that bank runs in the social media age happen in hours rather than days: the speed with which the run on this bank happened points, I think, to future issues if we ever came to them. As we know, Silicon Valley Bank’s UK wing oversaw roughly £7 billion in deposits from 3,000 entities across the country’s important tech industries and, contrary to US reports, it was not ring-fenced from its US parent. My first specific question is how we ended up in a situation where a huge proportion of a vital sector of the UK economy was reliant on one regional US bank. I am sure the answer is not simple, but it is important. For example, accessing connections to venture capital may have led banks to SVB, but there is also evidence that the traditional UK banks just do not have the appetite to take up this kind of business. Where will the tech start-ups go now for funding, especially in an environment where capital is getting more scarce?

History tells us that, when interest rates rise as fast and by so much as they have during the past period, bad things nearly always happen. It is a near certainty that one of two outcomes will occur: recession or a bank crash—sometimes both. I am sure we all hope that the failure of SVB, the closure of Signature Bank and the Tory-created crisis in UK government bonds and the pension sector are just outliers and do not herald something worse. They may, indeed, be one-offs; however, it seems to me that the Government, the Treasury and the Bank of England have to err on the side of caution. Can the Minister assure us that the tone of this announcement does not indicate a sense in our financial institutions that their work is done?

The SVB crash epitomises the risks buried in our financial system as central banks rapidly lifted borrowing costs. SVB’s unhedged investments in long-term, fixed-rate, government-backed debt securities left it doubly exposed to rising interest rates because it reversed tech companies’ growth and hit the price of its securities. There may be other issues that unwind when investigation of this bank carries on—we will have to wait and see—but how did the US regulators miss the issue at the heart of SVB? Since the 2008 financial crisis, the focus has been on liquidity, although I would suggest that not even that has been particularly successful. Interest rates have grabbed little attention because they had not posed a significant threat in recent decades, but they do now.

Can the Minister confirm that the Government have asked the Bank of England to review the stress tests it conducts in order to take into consideration the rapid rise in interest rates? Can the Minister confirm that the tests will be extended into the so-called shadow banking sector, which is increasingly grabbing large slices of business traditionally carried out by banks? Can the Minister also assure your Lordships’ House that the necessary horizon scanning is under way?

I do not think anyone predicted the LDI issue in the autumn, and I do not think anyone pointed to a sector-focused regional bank like SVB being the source of a crisis. So where could the next crisis come from? I can offer three options in the current environment: insurance funds investing in illiquid assets; overvalued real estate; and private equity funds with opaque valuations. I am sure the big brains in the Treasury will be much better at navigating the complex and interwoven investment landscape and come up with a better list to enable them to avoid unpleasant surprises. Can the Minister confirm that there are people digging down into the systemic risks which are buried deep inside the highly complex finance systems and finance products that exist around the world today?

At the heart of this is also politics. Republicans have loosened US bank regulations in recent years and banks such as SVB had previously lobbied successfully to be excluded from the category of systemically important banks—that meant they faced lower capital and liquidity standards. We are not immune from the same political pressures in this country. The Edinburgh reforms announced late last year also point towards deregulation, not least in the plan to reform the ring-fencing regime for banks.

But more than that, and as the noble Lord, Lord Tunnicliffe, referred to, we can see this trend in the Financial Services and Markets Bill that is currently being debated by your Lordships. For example, Clause 24 in that Bill requires the FCA to help drive the international competitiveness of the economy of the United Kingdom, in particular the financial services sector—help drive the competitiveness of the economy. This creates a huge conflict of interest within the FCA, and in light of the SVB it looks at least questionable. Can the Minister confirm that this clause will be reviewed with a view to future amendment when the Bill comes back on Report?

Finally, after 2008 the Government and the financial sector all said “Never again”, and there were significant changes to the banking regulations; much of this was based on a report led by Sir John Vickers. Speaking today on the BBC, Sir John said that the country made advances in 2009 and we must not row back on these advances. He explicitly said that the Edinburgh reforms should be reviewed again and that ring-fencing should be maintained. I would remind the Minister that, failing anything better, the Government are the scrutiniser in chief, and the buck stops with the Government. Will the Minister listen to Sir John and halt the slide towards deregulation in this country?

Baroness Penn Portrait The Parliamentary Secretary, HM Treasury (Baroness Penn) (Con)
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My Lords, as noble Lords have recognised, the course of events over the weekend was a good outcome for the customers of Silicon Valley Bank in the UK and an example of the Bank of England, in consultation with the Treasury, using powers granted by the Banking Act 2009, as part of the post-crisis reforms, to safely manage the failure of a bank and, in this case, facilitate its sale, which has protected those customers and taxpayers. I add my thanks to both noble Lords’ to the officials in the Treasury and at the regulators who worked tirelessly through the weekend to grip the situation and prevent real jeopardy to hundreds of the UK’s most innovative companies.

The noble Lord, Lord Tunnicliffe, asked whether any assessment was made of the significant liquidity risks associated with SVB UK’s deposit base at the time its licence was granted. Those authorisation decisions are for the independent regulators to comment on. However, requiring SVB to subsidiarise meant that it was independently capitalised from its parent in the US and had its own liquidity buffers. That brought the firm into the scope of the UK’s resolution regime. Had SVB UK remained a branch, it would have been resolved by the US resolution authority as part of action taken with respect to SVB.

That distinction is important to make in relation to a few of the points from the noble Lord, Lord Fox, in looking at the potential differences between the regulation and the regime in the US and the regime in the UK. However, there is read-across between the two. That is why we have measures in place to ensure that banks that are of systemic risk to different jurisdictions have cross-jurisdiction oversight, and that regulators work together on these matters.

The noble Lord, Lord Tunnicliffe, also asked about the ring-fencing changes made to facilitate the sale. To ensure the sale could proceed, the Government used powers under the Banking Act to provide HSBC with an exemption to certain ring-fencing requirements. This was crucial to ensure that a successful transaction could be executed, that the bank had the liquidity it needs, and that deposits and public funds were protected. We broadened an existing exception in the ring-fencing regime, allowing HSBC’s ring-fenced bank to provide intragroup lending to SVB UK. This should facilitate the smooth operation of SVB UK. In addition, SVB UK, which is now a subsidiary of HSBC’s ring-fenced bank, is not subject to the ring-fencing rules.

Both noble Lords spoke about the importance of doing everything possible to ensure that there is confidence in the UK’s financial system. We absolutely agree with the importance of that, which is why the UK authorities took such swift and decisive action this weekend to facilitate the sale of the firm. The noble Lord, Lord Fox, noted how quickly events unfolded. It is certainly true that the timeline including the weekend gave the time and space for such a resolution to be found, but that only adds to the point about the speed at which these events can take place.

Both noble Lords also asked about the stress test system for banks and about launching a wider systemic review of the risks facing the financial sector, including non-bank risks. Of course, both noble Lords will know that that is the role of the Financial Policy Committee of the Bank of England, which is responsible for identifying, monitoring and addressing systemic risks to financial stability.

The FPC meets quarterly, following which a record of its discussions is published. It produces a biannual financial stability report setting out its assessment of the risks facing the financial system and its resilience. It looks at it for the non-banking sector, but also sets the scenarios and coverage used for stress tests within the banking sector. Those decisions remain with the Financial Policy Committee.

Both noble Lords also rightly pointed out that, while we reached a good resolution in this instance, it is of course right that we reflect on what happened and look at whether any lessons can be learned. I can confirm that the Treasury and the Bank of England are looking to work together to ensure that we reflect properly on the events in this case.

Finally, both noble Lords also referenced the reforms that we are currently taking through this House in the Financial Services and Markets Bill and through the wider Edinburgh reforms set out by the Chancellor in December. I assure all noble Lords that the Financial Services and Markets Bill introduces ambitious reforms for a financial services sector that will give the UK the ability to continue to grow and be internationally competitive with other markets, while adhering to the highest-quality regulatory standards. As my honourable friend the Economic Secretary to the Treasury said to the House of Commons yesterday, having good, healthy businesses that grow and are profitable is the best way to avoid jeopardy. The Bill and the Edinburgh reforms deliver that commitment. We are confident that our reforms will deliver a high-quality regulatory environment for our financial services sector in future.

Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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I know it is unconventional, but will the Minister advise us whether the lessons learned report is going to be published?

Financial Services and Markets Bill

Debate between Lord Tunnicliffe and Baroness Penn
Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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My Lords, this group of amendments has a general direction which may be supported. It would be much better if the Government were to come forward with proposals in that general direction and improve the situation.

I, too, however, feel that there is some moral hazard. The extent to which victims are compensated draws attention from the fact that this is serious crime which, as I understand it, is growing exponentially. I hope that in looking after victims, which I am broadly in favour of, we massively increase our efforts to prevent fraud in the first place. I do not have a simple solution to that, but it is my understanding that the relationship between a preventive resource in the police and the banks is, compared to the general application to prevent crime, disproportionately low. More resource has to be put into combating this frightening industry. There is a sense of almost moral decay that allows this virulent industry to continue to grow. I hope that, while responding to the concerns of victims, there is also feedback to the Government as a whole that we must find a way to get on top of this very unpleasant crime.

Baroness Penn Portrait Baroness Penn (Con)
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My Lords, I recognise the keen interest across this Committee in the provisions in the Bill to tackle financial crime and fraud more generally, and, in this group of amendments, on tackling APP scams specifically and the related work of the Payment Systems Regulator to introduce mandatory reimbursement. The noble Baroness, Lady Bowles, said that she hoped that the sense of the amendments could be taken forward, or that the Government could provide reassurance to noble Lords that it will. I hope to be able to do so.

Measures in the Bill not only enable the Payment Systems Regulator to act on APP reimbursement regardless of the method of payment used, but also have a specific requirement mandating, within a specific timeframe, that they are taken forward under Faster Payments. We have sought within the Bill both to provide further powers for the regulator and to specify that it needs to act within a certain timeframe on the form of payments, which currently represents the largest form of fraud, not only by volume—97% of payments by volume—but by value. The figures I have are that Faster Payments account for approximately 85% of the value. The noble Lord and noble Baroness also mentioned CHAPS. That is the next highest in value, but it is about 4%, so it is right that we prioritise action on Faster Payments first. That does not rule out further action on other forms of payment further down the line.

I appreciate that we often have a debate on what needs to be in a Bill versus powers that, in this case, we are giving to the regulators to make rules. We have also heard during this debate about fraud how dynamic that situation can be, so enabling the regulator to update its response to approaching these questions through its rules is the right approach in this situation.

None the less, a lot of detail of the Payments Systems Regulator’s approach is in the public domain, and I hope it would reassure the noble Lord, Lord Vaux, on a number of his amendments that the approach being taken is consistent with many of the recommendations made by his committee. Indeed, having its proposals out for consultation on how mandatory reimbursement should work has provided an opportunity for all interested parties to comment.

Turning to the specifics in the amendments and hopefully updating the Committee on work that the PSR is taking in relation to each, I begin with Amendments 202 and 207, tabled by the noble Lord, Lord Vaux, on the scope of the requirement on the PSR to mandate reimbursement. As I have noted, under this legislation the PSR could act in relation to any designated payment system, but with a specify duty on Faster Payments which, as I said, accounts for 97% of scams by volume today. We expect the PSR to keep under review the case for action across other designated payment systems, in collaboration with the Bank of England and the FCA.

In relation to Amendment 204, on issues that the PSR should consider as part of its approach, I assure the Committee that the PSR has set out how it has considered these issues in its consultation. For example, as discussed, the PSR is proposing that the cost of liability is split equally between the sending and receiving banks, recognising that both parties have a responsibility in preventing fraud.

On Amendment 205 on the publication of data, the PSR is currently consulting on a measure to require payment service providers to report and publish fraud and reimbursement data. I was surprised to hear Green support for league tables. I did not know that they were supportive of them on schools, but in this case that data is important and the transparency we are talking about helps noble Lords keep track of how effective these provisions are once they are implemented.

Amendment 206 is on a duty to review. The PSR regularly reports on the discharge of its functions through its annual report and has committed in its consultation to a post-implementation review of its action on APP scams, to assess the overall impact of its measures for improving consumer outcomes. The Government will also monitor the impacts of the PSR’s action and consider the case for further action where necessary. While the Government recognise the intention behind the noble Lord’s amendments, we do not think it necessary or appropriate to further circumscribe the actions of the regulator in primary legislation at this stage, given the extensive consultation the PSR has undertaken on this matter and its responsibilities and expertise in this area as the independent regulator.

On Amendment 203, tabled by the noble Baroness, Lady Kramer, and spoken to by the noble Lord, Lord Sharkey, the Government’s intention, as already expressed in the legislation, is to ensure that more victims of APP scams across the Faster Payments system specifically, and wider payments systems in general, are reimbursed, and to enable the PSR to act in this area. The Government recognise that no one sets out to be defrauded and that APP scams are, by their very nature, convincing and sophisticated.

None the less, we also recognise that many banks take action to engage with their customers ahead of making a payment, and that questions of liability can be complex. As the noble Lord, Lord Vaux, set out, a blanket approach to mandatory reimbursement raises questions of moral hazard and the potential for APP reimbursement fraud itself to become an area of difficulty. This is a difficult balance to strike. While this amendment is well meaning, it will not help achieve effective resolution in these cases. We are confident that the PSR has the appropriate objectives, expertise and powers to develop proposals for APP scam reimbursement that both ensure strong protections for victims and incentivise banks to engage effectively with their customers to prevent fraud. In its consultation on its reimbursement approach, the PSR stated its intention to require firms sending payments over the Faster Payments system to fully reimburse all consumers who are victims of APP scams, with very limited exceptions. The PSR considers that this will ensure that victims are reimbursed in the vast majority of cases. In that regard, the PSR has already signalled its intention to set a high bar for customer liability—higher than currently applies within the existing code of voluntary reimbursement.

We do not believe that this amendment will improve outcomes for customers beyond the provisions already set out in the Bill, and it could impede the work of the regulator, which has already consulted on the proposals. I hope that noble Lords genuinely feel reassured by the level of detail in which the PSR and the Government have thought through these proposals, and acknowledge the ability to have a dynamic response in this area. I therefore hope the noble Lord can withdraw his amendment.

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Baroness Penn Portrait Baroness Penn (Con)
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Okay—I was going to talk about the engagement that we have conducted so far and will continue.

My noble friend Lord Trenchard touched on my noble friend Lord Forsyth’s Amendment 234, but I am not sure whether anyone spoke to it specifically. In my response, I addressed the Committee’s desire to focus its attention on the statutory changes, and I am not sure we had a detailed discussion on the other proposals put forward here.

Noble Lords have made their position on the issue very clear. I hope that, to some extent, they have also heard the rationale for the Government’s approach and would agree with the desire to be in line with international standards in any action that we take in this area. As the noble Lord, Lord Tunnicliffe, said at the start of his remarks, we should bear in mind the context of the Government’s efforts, very much supported by this House—we are often pushed to go further by this House—in tackling issues of economic crime, which include money laundering. We have to recognise that London and the UK being such a centre for financial services, and the great benefits that that brings, also brings greater risks. It is right that we make sure that we have a regime that manages those risks as effectively as possible.

I shall write to noble Lords on the matters that I have mentioned, and any other matters in looking at this debate again, on which I can provide further clarity. I am sure that I will engage with noble Lords further on this issue ahead of Report.

Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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Would the Minister also engage with the banks and financial institutions to see whether they can improve their performance in being reasonable?

Financial Services and Markets Bill

Debate between Lord Tunnicliffe and Baroness Penn
Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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My Lords, this is a cross-party group on the environment. It has no amendments led by Labour, but I have signed Amendment 199 in the name of the noble Lord, Lord Randall, on outlawing someone carrying out a regulated commercial activity that directly or indirectly supports deforestation risk commodities, unless relevant local laws are complied with.

I pay tribute to the noble Lord, Lord Randall, and thank Global Witness for its support on this amendment. My party is committed to securing the highest sustained growth in the G7. That means modernising our economy and financial regulation. We cannot deforest our way to sustainable growth nor a robust financial system.

Leaders across the City of London, along with BNP Paribas, Legal & General, Unilever and Tesco, are supportive of the measure proposed by the noble Lord, Lord Randall. Sir Ian Cheshire, former chair of Barclays and head of the Global Resource Initiative task force, has written to the Minister to remind the Government that the task force concluded its work in May 2022 by reiterating the need for new legislation to provide due diligence obligations for financial institutions equivalent to those that will be in place on supply chain companies under the Environment Act 2021. The Minister has previously argued that enhanced risk reporting eliminates the need for this amendment but the GRI task force has already rejected that argument. Sir Ian’s letter put this issue to bed when he wrote that risk reporting mechanisms, such as the task force on nature-related financial disclosure and voluntary net-zero pledges, are insufficient to prevent deforestation financing.

This expert backing and the desire of the British public to eliminate the scourge of deforestation are key reasons why this amendment has such considerable cross-party support. It would allow us to be global rule-makers, not rule-takers, when it comes to our financial system; I urge the Minister to take it seriously. Beyond Amendment 199, this group contains a lot of common-sense amendments that highlight the expertise of this Committee.

Baroness Penn Portrait Baroness Penn (Con)
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My Lords, I welcome this chance to continue this Committee’s important debate on amendments concerning green finance. As I stated in a previous Committee session, the Government are committed to fostering sustainable finance in the UK and will shortly publish an updated green finance strategy to that effect.

I will speak first to Amendment 168 from the noble Baroness, Lady Worthington. It is of course correct that all models have their limitations in depicting the real world but the Bank of England’s models have considered the views of experts in the field; they therefore do not need to be directed to do so. The scenarios used in the climate biennial exploratory scenario, or CBES, were formed by the Network for Greening the Financial System, an international network of central banks in which the Bank of England plays a prominent role. The scenarios have been produced in partnership with leading climate scientists, leveraging climate-economy models that have been widely used to inform policymakers—not to mention being used by and continuing to be used by the Intergovernmental Panel on Climate Change. These scenarios are updated continually by the Network for Greening the Financial System, which also ran a public survey welcoming feedback on its most recent iteration of climate scenarios.

It is also not the case that CBES is the PRA’s only tool to manage climate risk. It is actively using its position as a supervisor to ensure that firms are not materially undercapitalised for climate risks, setting out its expectations in its supervisory statement published in 2019. Furthermore, the PRA is an active member of two of the leading international standard setters: the Basel Committee on Banking Supervision and the International Association of Insurance Supervisors. The Bank is actively participating in both forums to ensure that the regulatory frameworks for the banking and insurance sectors address potential gaps in the management of climate-related financial risks. This work will flow through to our domestic framework and at the same time ensure international co-operation on what is fundamentally a global issue.

I now turn to Amendment 199 in the name of my noble friend Lord Randall of Uxbridge, which is supported by other noble Lords in this Committee. The Government agree that the financing of illegal deforestation is a serious global issue that must be tackled. However, this amendment would involve implementing a new and untested regulation that would impose a broad supply chain rule on all regulated financial services firms. It would currently be very difficult, time-consuming and expensive for UK financial services firms to ascertain whether firms or products that they invest in are exposed to forest risk commodities in compliance with local laws.

In introducing this amendment, the noble Baroness, Lady Boycott, referred to the provisions in the Environment Act 2021. These provisions will apply to the supply chains of large UK corporates. However, UK-based banks and fund managers engage in lending and investment activities with companies in jurisdictions across the globe, not just commercial activity in the UK. There are currently no consistent, equivalent disclosure requirements to those that will be set out under the Environment Act 2021 in jurisdictions across the globe. Given that, capturing the activity of all of their customers and supply chains would not be as simple as adding an extra stage of disclosure to the regime set out in the Environment Act 2021, as had been suggested. However, I assure noble Lords that the Government are committed to addressing this issue and will work with the financial services sector and those with expertise in tackling deforestation to consider how we can make further progress.

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Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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My Lords, this is a key group for the Labour Party politically; it contains four of our amendments. Amendment 180 would require His Majesty’s Treasury and the FCA to publish a review of the need for

“access to essential in-person banking services”

and to ensure

“a minimum level of access”

to them.

Amendment 181 would require HMT to

“publish a policy statement setting out its policies in relation to the provision of essential in-person banking services, including … support for online banking, and maximum distances people can expect to travel to access services.”

I would be interested to know the Minister’s view on the reasonable distance for an elderly or disabled customer to have to travel to speak to someone from their bank.

Amendment 182 is perhaps the most important. It would compel HMT to

“guarantee a minimum level of access to free of charge cash access”.

Amendment 184 would require the FCA to

“monitor and report on levels of cash acceptance across the UK.”

I set out the crucial importance of free access to cash at Second Reading so I will not do so at length a second time; well, that is what it says here. Nobody has more interest in being speedy than me, or perhaps the Minister, because we have to be here for every minute of this Committee. We are almost in our 27th hour but this group is different from anything else that we have discussed. The rest of it—I cannot think of a polite way of putting it—is about activity that takes place for people like us. Quite a number of people work in the finance industry; we are looking at the nuances of it and how politicians should be involved.

However, the issue of cash is about our society. It is about the poorest and least competent people in our society. Technology has been a substantial disruptor. It is a disruptor that particularly applies to finance. It has allowed financial transactions to become extraordinarily efficient and has created a whole new customer base of people who are comfortable with technology. They have access to a whole new marketplace. We know that the dynamics of that have probably been benign for society.

However, the other problem is that it has created a divide in our society. I ran an organisation that used to have a lot of cash; I am all too familiar with the tremendous impact of approaching a cashless society. In all the knowledge in the world, the last bits are the most expensive bits. Yes, the cost of transactions goes up and so on and so forth, but we cannot afford to create the divide in our society that is emerging. We must support all parts of our society seriously. We must recognise that, in their lives, people sometimes need all banking services. We must recognise that some people simply cannot envisage how to budget without physically seeing it in separate pots. It is clearly a natural reaction if you are running out of money. You can see it there and have confidence because you know that, if you go into the grey world of accounts, banks, overdrafts, loans and things like that, all sorts of horrible things happen. For that group in society—it is probably 10% of our society so it is a substantial number of people—we must find a way of maintaining the public service. We must achieve a minimum service.

The noble Lord, Lord Blackwell, said what all providers of service say: if you are not ultra-efficient, you load the inefficiency costs on to other customers. It so happens that being ultra-efficient does not do much harm to your profit line either. Big businesses such as banks pursue the maximisation of shareholder value. It is in the law. They are supposed to do it, for Christ’s sake. We should not be surprised when they do but I rarely see them turning into charities. We have got to find ways. We do not have to keep all the branches open; even I can work that out. We have to be much more inventive in how we service this need, which is still large, but the way we must do that is by creating duties on the purveyors of financial services as well as rights and constraints.

It is proper for the law to create duties to look after the poorer members of our society. That is why so many people have said that it is important for a variety of needs—resilience and so on—that we maintain it. The banks must play their part. They have enjoyed massive exploitation—I do not use that in a pejorative sense—of information technology, probably more so than any other section of our society. They must recognise that there has to be a cross-subsidy in this situation because we must restore financial equity to all our society.

Baroness Penn Portrait Baroness Penn (Con)
- Hansard - - - Excerpts

My Lords, as we have heard in this debate, the nature of banking is changing. In 2021, 72% of people banked online, and 57% on their mobile phones. Meanwhile, 85% of payments were made without cash, up from 45% a decade earlier, and 86% of UK adults used contactless payments.

Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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Were 85% of the number of payments made without cash, or was it 85% of the value of payments?

Baroness Penn Portrait Baroness Penn (Con)
- Hansard - - - Excerpts

I will check for the noble Lord because I do not have that level of detail in my notes. They say that “85% of payments” were made without cash, not “the value of payments”, but I should double-check to clarify for him.

In the light of these innovations in the way that we bank, the Government recognise that it is incredibly important that people are not left behind—we have heard that in today’s debate. Many people still rely on physical services: in particular, millions of people still rely on cash and need access to withdrawal and deposit services.

Working with industry, the Government are already undertaking positive action to support cash access in this context. For example, existing initiatives subsidise free-to-use ATMs in remote and deprived areas. Following changes in the Financial Services Act 2021, there is a new ability to have cashback without purchase services, enabling withdrawals to the penny that people request. Communities can ask LINK to assess whether additional cash services are needed, with several major banks and building societies funding new shared services. As a result of that initiative, over 70 communities are due to get new cash deposit facilities.

In that context, it is important not to underestimate the significance of the provisions contained in the Bill. It is the first time, in UK law, that we are protecting people’s ability to access cash. The Bill provides the FCA, as the independent regulator, with the responsibility and necessary powers to ensure reasonable provision of withdrawal and deposit services.

In evidence to Parliament, the regulator said that it anticipates taking account of reasonable access to free cash services for personal customers—subject to due process, which includes a requirement to consult on its rules. In using its powers, the FCA will utilise the wealth of data that it has collected, including on access at the regional level, and it must have regard to local deficiencies in cash access services and the Government’s policy statement.

The noble Baroness, Lady Tyler, asked about the policy statement. It is currently being developed, and we expect it to be published after the Bill completes its passage. It is important that it takes into account the latest available data and evidence ahead of its publication.

I have clarification for the noble Lord, Lord Tunnicliffe, on the statistic that I used, so I shall not need to write. I can confirm that 85% of the number, not the value, of payments were made without cash.

Financial Services and Markets Bill

Debate between Lord Tunnicliffe and Baroness Penn
Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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My Lords, the most important thing to have come out of this debate, which is now in its fifth or sixth day—frankly, I have lost count—is that the regulatory environment lacks sufficient parliamentary scrutiny; there is enormous consensus about that idea. We have heard several solutions. At least three groups have touched on this issue, and I hope this is the last group to do so. I will go as far as saying that it is an interesting idea. I say that in the sense that I am representing His Majesty’s loyal Opposition, and at the moment we have some concerns about resource consumption, et cetera.

However, if we take all the ideas together, I am convinced that they can be moulded into an important step forward in involving Parliament, and involving sufficient resource to make that involvement effective. We should set about trying to do that. The noble Lord, Lord Turnbull, said this more elegantly than I will, but if you toss a bunch of amendments together and hope that they are internally consistent and capable of execution, you are kidding yourself. I fear that that is where we are at the moment. If we were to vote on all the amendments we have had over the last five days or so, that would not work.

What should happen now—it will be interesting to see whether it does, and I shall do all I can to encourage it—is that cross-party discussions take place, focused on taking the best ideas and putting them together in a way that will work and will have support. This has to be a coalition that is irresistible in the parliamentary process, and that is possible. When you look at that lot over there, this lot here and us, that is a hell of a force for the Government to try to ignore, so I hope we can find ways of bringing us together. I hope the Minister will want to join in that process at some point and will want to see whether we can achieve a consensus with the Government. I strongly advise her today not to close off options. Options have to be open to try to move into this area.

There seems to be a secondary area, which I will loosely call the Lilley area, about legal involvement. I clearly do not understand enough of what this is about; I suspect a lot of people do not. There is confusion and, from what I have heard experts say, it is a dangerous confusion. We should stick to that central issue of parliamentary scrutiny, properly supported to be effective—and the time has come.

Some of us slogged through a Bill, about a year and a half or two years ago—I am losing track of time—where we worked quite hard on this and made very little progress, as we got rid of all the EU rules and then put all the stuff in the hands of the regulators. Many of us felt uncomfortable that there was not more scrutiny, but we did not really come up with a solution. Clearly, we are in a solution-rich environment now; the trick is to bring it together into a solution that will work, and it must be done now. This is the last legislative opportunity, in my view, that we will see for some time, so I hope that cross-party discussions take place and that we can take a real step forward for the industry and for democracy.

Baroness Penn Portrait The Parliamentary Secretary, HM Treasury (Baroness Penn) (Con)
- Hansard - - - Excerpts

My Lords, I thank my noble friends Lord Bridges of Headley and Lord Lilley for tabling these amendments, and for their contributions to this discussion.

I will speak first to Amendments 160 to 166, tabled by my noble friend Lord Bridges. The Government agree, and have been clear, that more responsibility for the regulators should be balanced with clear accountability, appropriate democratic input and transparent oversight. The proposed creation of a new regulatory body to oversee the regulators—a so-called regulator of the regulators, although I know that my noble friend set out why he thought that term did not apply—raises further questions about how the accountability structures for the various regulatory bodies would operate. The Government would need to carefully consider how to ensure clear accountability to both government and Parliament under such a model.

The noble Lord, Lord Hunt, talked—it feels a long time ago—about the need for greater clarity on where accountability lies in this system. I am not sure whether it is clear that the addition of a further body to the system would provide greater clarity on where accountability lies.

Tax Credits, Child Benefit and Guardian’s Allowance Up-rating Regulations 2023

Debate between Lord Tunnicliffe and Baroness Penn
Wednesday 22nd February 2023

(1 year, 5 months ago)

Grand Committee
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Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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My Lords, I too thank the Minister for setting out these two instruments. I also thank my noble friend Lady Lister for her attention to the detail of these matters and to the ease with which an apparently rational change can compound itself through the complexity of the rules into extremely unhelpful marginal tax rates. I hope the Minister will give her some comfort that there will be some review in the foreseeable future of the very high marginal tax rates emanating from these complex rules.

The Minister outlined an increase in tax credits, child benefit and guardian’s allowance of 10.1%—that is, CPI inflation between September 2021 and September 2022. While acknowledging that further instruments are to come on other social security benefits, I will make some general points about the current economic context and the Government’s approach.

Families across the country have faced an incredibly difficult time of late, with household bills climbing significantly. Although there has been energy support for low-income households, there has not been equivalent help as they face soaring food, phone and broadband bills. Food inflation has been running at far higher than 10% for many months, leading many households to cut back and to a worrying number of parents skipping meals to provide for their children.

The Government’s reluctance to commit to the usual uprating process when asked has caused a significant amount of anxiety for social security claimants across the country. For months, successive Prime Ministers and Chancellors—we have had many of each—ducked the question and even floated alternatives such as lower percentage increases or lump-sum payments. We are glad that the current Chancellor finally did the right thing, but I hope the Minister will acknowledge that months of indecision were not helpful for household planning or people’s mental health.

The second instrument gives effect to the annual re-rating of national insurance contribution rates, limits and thresholds. Although the Autumn Statement fixed many of those rates limits and thresholds at the 2022-23 level, some of them—class 2 and class 3 contributions—were increased by 10.1%. This will bring tens of thousands of individuals into national insurance by the 2027-28 tax year. However, the Government have not been prepared to specify what the practical impact will be. The statutory instrument’s Explanatory Memorandum refers to a small tax increase in cash terms but, with household budgets as stretched as they are, any increase is likely to cause concern. This was the subject of a debate in another place, but Minister Atkins was unable to provide a figure. Can the Minister do so today?

We do not oppose these measures, so I will not detain the Committee any longer. However, once again, I hope that the Minister will acknowledge that the Government could have provided certainty sooner. Let us hope that they do better later this year.

Baroness Penn Portrait Baroness Penn (Con)
- Hansard - - - Excerpts

My Lords, I thank both noble Lords for their contributions to today’s debate.

I am glad that the noble Baroness, Lady Lister, recognised the significant uprating of child benefit brought forward in these regulations. I note her point about the overall value of child benefit if you look at it over a longer time period. Child benefit is one of many ways in which the Government support families with children. Over the same period, we have introduced other significant measures, such as free school meals for infants and 30 hours of free childcare.

On the figures and analysis that the noble Baroness brought forward on the child benefit high-income charge, I am afraid that I cannot confirm them as they go beyond the scope of the regulations we are discussing, but I will take her comments back to the Treasury and ensure that they are considered properly.

Financial Services and Markets Bill

Debate between Lord Tunnicliffe and Baroness Penn
Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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My Lords, I hope I will be forgiven for not going through my various amendments. Their essence seems to be in the general direction of this group of amendments and I think it highly likely that, between now and Report, the supporters of this group will knock together a cohesive set of amendments to achieve our common objective. I know that the noble Lord, Lord Forsyth, finds it painful but we are agreeing with each other on this group.

One of the problems of society is that people grow old in waves. We are already running out of people who have forgotten about the last financial crisis. It was by a hair’s breadth that the economic system in the world did not fail. It took some brave decisions, in this country in particular and in the United States, to save the world from an economic catastrophe. This is different from the Intelligence and Security Committee but in no way is it less important. It is crucial to this nation.

We are suggesting that we in this House should be a backstop. That is not particularly surprising because that is what we do all the time. When the Government do not have a working majority, I believe that they are much more alert to what happens in this House because, suddenly, they are all there, they have their majority, they have got something through the House of Commons but then it runs into the Lords and new questions are asked. People spend a lot of time worrying about particular points. Yes, our role is a backstop, but we could not be one as the Bill is drafted at the moment because it sees two levels: the House of Commons level and the House of Lords level. This Bill brings us into parity of access. It is not nearly as comprehensive as the proposal from the noble Baroness, Lady Noakes, but it is a basic matter of equity to bring this on to a level playing field.

My next point concerns the issue of volume. The volumes will be very significant. One of the best things that the House of Lords does is its committees, where people actually put the time in. I really am quite pleased that I avoided becoming an MP. I only aspired to it before I knew what it was all about. Once you are an MP—I hope that ex-MPs will interrupt me if I am wrong—the first thing it is all about is getting re-elected. That requires a lot of work in the constituency and all that sort of thing. That is all part of the democratic process but the volumes need the sort of people who are in this House—as the noble Baroness, Lady Bowles, said, they almost self-select—to put the effort and energy in.

Scrutiny is not a negative process. Too often, in the way we run bits of society, it is a single heroic leader passing down the rules, but very good organisations encourage dissent in their top teams—not external dissent but internal dissent where people ask, “Do you really mean that? Have you thought through the consequences of that?” The effect of those processes is extremely benign. Either things get changed for the better or people understand what they are saying better and are able to present it better. Scrutiny is an extremely positive thing.

The mood that has got us here today has been around for years, I would say. We need a discontinuity; this group of amendments is the minimum discontinuity that I believe this House will tolerate. We will all be working across the House over the coming weeks to put together something that cannot be resisted. I hope that the Minister does not floor us by coming forward us early on in discussions with some sensible concessions to embrace the direction of this group.

Baroness Penn Portrait Baroness Penn (Con)
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My Lords, first, I will briefly speak to the government amendment in my name in this group—I feel I should—before turning to the substantive measures raised by the debate.

Amendment 151 corrects a minor drafting error in Schedule 7 to the Bill. The current drafting requires the PSR, when notifying the Treasury Select Committee of consultations, to set out how the proposals are compatible with the regulatory principles. However, the Financial Services (Banking Reform) Act 2013, which established the PSR, requires it to have regard to its regulatory principles. The Government are therefore bringing forward this amendment to Schedule 7 to align this Bill with that Act. The amendment also aligns the requirements on the PSR with those imposed on the FCA and the PRA through Clause 36 of the Bill.

I turn to the amendments tabled by my noble friend Lord Forsyth and the noble Lord, Lord Tunnicliffe. Through FSMA and, in respect of the PSR, as I just noted, FSBRA 2013, Parliament sets the regulators’ objectives and gives them the appropriate powers to pursue those objectives. I therefore agree with this Committee that Parliament has a unique and special role in relation to the scrutiny of the FCA, the PRA, the PSR and the Bank of England.

I also agree that effective parliamentary scrutiny provides a valuable service for consumers, firms and the regulators themselves. It can help ensure that the regulators’ resources are appropriately targeted to consider appropriate democratic policy input from Parliament and bring important public policy considerations into focus.

I recognise noble Lords’ point that regulators in this sector are in a somewhat unique position and the approach that we take to financial services regulation is somewhat unique in the level of delegation that we give regulators in their rule-making. The Government’s approach, through our FRF consultations and this Bill, is an attempt to recognise that somewhat unique position and role of regulators in this sector, their wide remits and their position as independent public bodies that are accountable to Parliament.

As I mentioned in the debate on the previous group, I will set out the rationale for the Government’s approach in the Bill and our consultations. Our intention is to ensure through the Bill that the Treasury Select Committee has access to the information needed to best scrutinise the work of the regulators. The requirements for the regulators to notify the TSC in Clause 36, and the PSR in Schedule 7, are in line with requirements elsewhere in FSMA that establish the TSC as the main committee for financial services business. This is intended to support more effective accountability and scrutiny of the regulators by Parliament as a whole.

The Bill requires that notifications sent to the TSC must be made in writing. As is usual practice, the Government expect this correspondence to be published. It will therefore facilitate broader awareness of the regulators’ consultations and enable relevant Lords committees to consider the matter. The clauses also require the regulators to respond in writing to formal responses regarding their consultations received from any parliamentary committee. The Government recognise the significant interest of this House and Committee in ensuring that all committees conducting regular scrutiny of financial services are adequately notified of the regulators’ consultations to ensure that they have the information required to conduct that scrutiny.

As I said in the previous debate, parliamentary scrutiny is first and foremost an issue for Parliament to consider. It is not for the Government to determine the best structure for ongoing scrutiny of the financial services regulators, but we do have a role in setting out the suitable mechanisms by which the regulators must give Parliament the appropriate opportunity to scrutinise the work of the regulators in taking forward their functions. I would like to reassure noble Lords that the Government have heard the points made in the debates today and that ahead of Report we will carefully consider the views expressed today.

I recognise the level of consensus among speakers in this Committee. My noble friend picked up my point and said that there was not a range of views on this issue. In the debate on the previous group—and we have touched on it in this debate—in some respects we are talking about the establishment of a Joint Committee of both Houses. If you look across both Houses, there is a range of views about how this should be taken forward. I will listen very carefully to the views of this Committee as we conduct our scrutiny of the Bill at this end—in our House—but, when I made that point, I was maybe pointing to the whole of Parliament, not just our end of it.

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Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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My Lords, I think I want to commend the Government on actually bringing in the concept of cost-benefit analysis panels. Generally speaking, the amendments in this group elaborate on that and probably make them better balanced. I will certainly be interested to hear the Government’s reaction to them.

We have Amendments 131 and 140 here, which would require the FCA and the PRA respectively to put on their CBA panels

“at least three individuals with experience and expertise in the field of economic crime, with one drawn from the public, private and third sectors”

and to consider

“any economic crime risks posed”

by any new rules they propose. These amendments have come from thinking at the other end and from the organisation Spotlight on Corruption. I thank it for contributing its expertise, and Emma Hardy MP for pursuing the amendments in the Commons.

These amendments are part of our overarching push to highlight the Government’s weaknesses on economic crime, mainly fraud. There are serious concerns from consumers and stakeholders across the board about the slowness of regulators in preventing and tackling the vast amount of economic crime in the system. The size of the prize is vast. Money laundering is estimated to cost the UK £100 billion a year and fraud costs us £137 billion a year. The regulators need to do much more. I hope the Minister will agree that having panel members with specific expertise in economic crime is one way to ensure this, given the perverse ingenuity of the criminals they are up against.

Baroness Penn Portrait Baroness Penn (Con)
- Hansard - - - Excerpts

My Lords, perhaps it would be helpful to start with a bit of context behind the Government’s approach to the statutory panels and the new cost-benefit analysis panel established in the Bill. I will then turn to the specific amendments.

The FCA and the PRA are required by FSMA to maintain statutory panels as part of their general duty to consult. As noble Lords have noted, these panels play a vital role in supporting the PRA and the FCA in developing regulatory proposals. As noble Lords have also noted, robust cost-benefit analysis—CBA—is an important part of the regulators’ policy-making process. It helps the regulators to understand the likely impacts of a policy and determine whether a proposed intervention is proportionate.

Respondents to the October 2020 future regulatory framework review consultation recognised the value of cost-benefit analysis but expressed some concern about the rigour and scope of the regulators’ analysis. Several respondents also supported enhanced external challenge as an effective way to improve the quality of the regulators’ cost-benefit analyses. Clause 41 addresses these concerns by introducing requirements for the FCA and the PRA each to establish and maintain a new statutory panel to support the development of their CBAs. Clause 47 includes a requirement for the Bank to consult the PRA cost-benefit analysis panel in relation to its FMI functions, while Schedule 7 includes a requirement for the Payment Systems Regulator to consult the FCA cost-benefit analysis panel. The new CBA panels will have a crucial role to play in providing challenge to regulatory proposals and ensuring sufficient scrutiny of the regulators.

I turn first to Amendments 123, 129, 130, 132, 138 and 139, tabled by my noble friend Lord Holmes, and Amendments 125, 126, 134 and 135, tabled by my noble friend Lord Lilley. The Government agree that the composition of the regulators’ panels is important for ensuring that they can effectively fulfil their role as a critical friend to the regulators. In particular, the Government consider that the CBA panel should benefit from those with experience of working in authorised firms.

During the debate in the Commons, the importance of ensuring that the regulators’ statutory panels, including the new CBA panels, are made up of a diverse range of independent experts was highlighted. In response, the Government introduced Clause 44, which requires the FCA, the PRA and the PSR, when appointing persons to their statutory panels, to ensure that all members are external to the FCA, the PRA, the Treasury, the PSR and the Bank of England. The regulators’ existing panels are currently made up of external members so this requirement will ensure that the approach is standardised and maintained on a long-term basis. In addition, the Government expect the FCA and the PRA to publish responses to the CBA panel’s representations at appropriate intervals, although it would not be appropriate to fix in legislation specific deadlines for independent regulators that may not be deliverable in practice.

Turning to Amendments 131 and 140 from the noble Lord, Lord Tunnicliffe, I assure the Committee that the Government are committed to tackling economic crime, as we have discussed in previous debates. This is also a priority for the regulators. For example, since 2015, the FCA has prioritised its strategy to ensure that firms take adequate steps to prevent them being used for financial crime.

Section 1D of FSMA sets out the FCA’s market integrity objective while subsection (2)(b) makes it clear that, in advancing that objective, the FCA must ensure that the financial system is

“not being used for a purpose connected with financial crime”.

The Government therefore expect that consideration of economic crime will feature in the regulators’ considerations when conducting a CBA. This is reflected in the FCA’s existing published guidance for CBA, which sets out that, when considering the rationale for a regulatory proposal, it should be clear what type of market failure or harm it seeks to address—including, for example, economic crime.

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Baroness Penn Portrait Baroness Penn (Con)
- Hansard - - - Excerpts

There is ongoing work to look at that question. There has been an interim finding, as it were, setting out a number of recommendations. At the moment what they do not do, in my understanding, is set out the need for increased or different powers. But the noble Lord makes the correct point that we then need to understand whether those powers were used in the most effective way to prevent something like this from happening in the first place. The point I was seeking to make was that, so far in its work in reviewing what went wrong and why, it was not a question of a lack of powers or the inability in its remit to make certain recommendations. That is not to say that that work has concluded or that all the action that we need to take after reflecting on what happened has concluded either.

I was talking about the FPC’s powers and responsibilities to look at risks emanating from all parts of the financial system, including non-bank finance. It has the powers to recommend and, under Section 9H of the 1998 Act, also to direct the FCA and PRA to implement certain measures as specified by Parliament in order to further its objectives. Furthermore, as the IMF noted last year, UK authorities have often taken the lead in international efforts to improve the surveillance of risks beyond the banking sector.

In dealing with Amendment 159, looking at the risk from the non-banking sector in terms of financial stability and echoing my words to the noble Lord, Lord Vaux, the Government’s position is not that those risks are all fine, managed and under control. It is that the FPC has the powers it needs to deal with those risks where it can at a domestic level. In the Chancellor’s annual remit letter to the FPC, he reiterated the importance of prioritising work with international partners to address the vulnerabilities associated with non-banks. The FPC welcomed this recommendation. I say to the Committee that we agree that this area has been identified for more work at an international level but, alongside this co-ordinated international work, the Bank will continue to take unilateral action to reduce domestic vulnerabilities where it is effective and practical to do so.

Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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Will the FPC go out of its way to seek out risks—not risks known at the moment or even evolving risks, but the possible risks that could lead to a catastrophic effect?

Baroness Penn Portrait Baroness Penn (Con)
- Hansard - - - Excerpts

My understanding is that that is what the FPC does. One of the mechanisms by which it does it is through its stress tests; it operates regular stress testing of the banking system and has also undertaken stress tests of the non-bank system. For example, in the latest Financial Stability Report in December 2022, it included a specific chapter on market-based finance. In 2023 it will run for the first time an exploratory exercise to test the resilience of the financial system against a scenario focused on the risks associated with market-based finance. This is one route by which it seeks to explore and seek out what those risks could be, to help inform understanding of those risks and future policy approaches that should be taken to mitigate them.

As I have said, much of the work needs to take place at an international level, but I accept the point made by the noble Baroness, Lady Bowles, that we also need to take unilateral action at home to reduce domestic vulnerabilities where it is effective and practical to do so. That work is ongoing.

I hope I have dealt with the noble Baroness’s amendments and reassured noble Lords that the Government are conscious of the risks—including systemic risks—that can be posed by the non-banking financial sector. With the FPC, we are undertaking further work to ensure that we can better understand and explore those risks, and take domestic action where possible to mitigate them, but also lead the work internationally to ensure a co-ordinated response.

Energy Profits Levy

Debate between Lord Tunnicliffe and Baroness Penn
Tuesday 7th February 2023

(1 year, 5 months ago)

Lords Chamber
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Baroness Penn Portrait Baroness Penn (Con)
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I can reassure my noble friend that the Government have been engaging with the sector, including independent, smaller oil and gas companies. We have included the investment allowance precisely to try to strike the right balance between funding cost of living support while encouraging investment to improve our energy security. My noble friend is right that we should look at the carbon intensity of production here in the UK versus the carbon intensity of importing gas from elsewhere.

Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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My Lords, between them, Shell and BP have made profits of £55 billion, and over the same period the net yield—that is, the gross yield from the tax minus the allowance for investment—is about £1 billion. Despite the incentives, I have not heard of any increase in planned investment and, as the noble Lord, Lord Deben, pointed out, BP has slashed its emissions targets. Is this the outcome the Government planned, or did they get their sums radically wrong?

Baroness Penn Portrait Baroness Penn (Con)
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I am sure the noble Lord would not want to conflate the global profits of those firms with the profits they have derived from their UK oil and gas production. As I have said, those are subject to a tax of 75%. We expect the combined tax take from North Sea oil to be £80 billion over the coming years. We think it is right that we have the investment allowance. The sector is made up of many different players and supports 117,000 jobs, around a third of which are in Scotland—jobs I would have thought Labour would want to support.

Financial Services and Markets Bill

Debate between Lord Tunnicliffe and Baroness Penn
Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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My Lords, it is obvious that there is a problem, because virtually everybody has spoken to a problem and said that it must be addressed. It seems to me that the speech the Minister just made was that it is all right, because all these things that the Government are going to do will make it all right. The beauty of the amendments that have been put forward is that somebody is expected to do something. If government has such an important role, who in government will be personally responsible for delivering the improvement that we all seek?

Baroness Penn Portrait Baroness Penn (Con)
- Hansard - - - Excerpts

In government, the Financial Inclusion Policy Forum is jointly chaired by my honourable friend the Economic Secretary to the Treasury and a Minister from the DWP; I will confirm who to noble Lords, because I would not want to get it wrong. That is the forum by which the Government drive the work and bring other actors into this space to co-ordinate on issues.

We recognise financial exclusion and the need to promote financial inclusion as an important area of policy work. We recognise some of the gaps raised today. I would point noble Lords towards progress that is being made in some areas.

We have also heard today about a changing landscape and how we will need to continue our work to keep up with it. As use of cash changes, we are legislating to protect access to cash, but we also need to consider how we can promote digital inclusion, so that, as services move online, people can access them in the same way as they have been able to previously.

The point of difference is not whether there is a problem but whether it is for the Government to lead on co-ordinating the response to that programme, with an important role for the regulators, or whether it is the regulators that should have more emphasis on driving this work.

Central Bank Digital Currencies (Economic Affairs Committee Report)

Debate between Lord Tunnicliffe and Baroness Penn
Thursday 2nd February 2023

(1 year, 5 months ago)

Lords Chamber
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Baroness Penn Portrait The Parliamentary Secretary, HM Treasury (Baroness Penn) (Con)
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My Lords, I apologise for the delay; I was just organising my responses to the many questions raised by a short but expert list of speakers on this debate. I thank all noble Lords who have spoken today and thank the Economic Affairs Committee for its work in producing this really valuable report. A considerable amount of ground has been covered today and I will try to address specific points raised by noble Lords in my response.

Before I do, I might speak a little about the ambitions that lie at the root of this policy. We are living through a pivotal time for the future of money and payments. Rapid innovation is bringing fresh opportunities and considerations for individuals, industry and policymakers alike. As noble Lords are aware, like many countries around the world—as pointed out by the noble Baroness, Lady Kramer—the UK is actively exploring the potential role of central bank digital currencies. The Treasury and the Bank of England are working closely together to consider our next steps.

This work is a key part of a broader government agenda to ensure that the UK remains competitive and at the forefront of payments innovation. I have to disagree with the noble Lord, Lord Tunnicliffe, in his assessment of this issue. He pointed to creating a regulatory landscape for fintech. That is what we have done and continue to do through, for example, the Financial Services and Markets Bill that most of us are also debating on Mondays and Wednesdays. This is a key part of that landscape too and we need to be future facing when it comes to this issue.

The noble Baroness, Lady Kramer, pointed to the potential benefit of a CBDC in providing a better basis for cross-border payments, and I have talked about its importance in remaining competitive and looking at payments innovation. To try and answer the first question put to me by my noble friend Lord Bridges, at its heart, the question of a CBDC is about maintaining access to central bank money. This is available through cash, but that landscape is changing.

I also acknowledge at this point the concerns raised by the noble Lord, Lord Desai, about the implications of this work for access to cash. Key to our considerations will be ensuring that financial inclusion is at the heart of any technical design decisions on CBDC and we will also be considering the role a CBDC could play in increasing access to digital payments. Again, the noble Baroness, Lady Kramer, highlighted some ways in which that could be the case.

We acknowledge the importance of cash to many households across the country at this time, in particular more vulnerable households or those who may be more financially excluded. That is why we have taken action to legislate to protect access to cash. Again, that is going through in the Financial Services and Markets Bill that this House is currently considering.

With all that said, we have not yet decided whether to introduce a CBDC—a digital pound—in the UK, and we will engage widely with stakeholders on the benefits, risks and practicalities of doing so. The design of any UK CBDC is subject to further work, and a forthcoming Treasury and Bank of England consultation, due in the coming weeks, will set out some of our more detailed thinking. Crucially, any future decision will be based on a rigorous assessment of the benefits and what it means for public policy objectives.

Delivering a UK CBDC will require a carefully sequenced plan of work, which will span several years. The consultation will set out the Treasury and Bank of England’s assessment of the case for a digital pound. It will also set out further detail on the “platform model” proposed in the Bank’s 2020 discussion paper. This would mean that a CBDC would exist as a complement to cash and bank deposits, leaving a substantial amount of retail-facing business to the private sector.

If there is a decision to proceed, a development phase would follow the consultation. This would include the publication by the Bank of England of a technical specification. It would involve in-depth testing of the optimal design for, and feasibility of, a UK CBDC. Following this, a decision would be taken on whether to move into a subsequent build and testing phase, with the earliest date for any launch in the second half of the decade. We believe that this is an ambitious, yet feasible, timeline towards delivery and, as I have said, extensive stakeholder engagement and consultation will be crucial in making the decision to move to each stage of the timeline towards new issuance.

To address another question from my noble friend Lord Bridges around the role of Parliament in that process, we expect Parliament to be fully engaged through any possible legislation in an open and transparent manner to ensure that there is full and proper scrutiny of any proposals in coming years. My noble friend also asked about the work the Treasury and Bank of England have done on disintermediation and whether I could rule out the digital pound being interest bearing. Those are two of several risks and questions that need consideration in the design choices. The macroeconomic effects of a CBDC will be contingent on some of those design choices. For example, an interest-bearing CBDC could allow for more effective monetary policy transmission, while a non-interest-bearing CBDC could make the zero lower bound more binding, therefore reducing the strength of monetary policy. That is something that the Government and the Bank of England have not reached a decision on yet.

As also pointed out, one of the main potential macro risks could be that of bank disintermediation. In an illustrative scenario, the Bank estimated that the cost of credit could rise as a result of consumers reallocating from commercial bank retail deposits into a CBDC. This scenario was theoretical, and the Bank maintained that it was difficult to forecast with any certainty the extent to which a CBDC could cause bank disintermediation. The design choices of a CBDC could be used to reduce some of these macroeconomic risks. Specifically, holding limits and decisions on whether a CBDC would be interest bearing are features most likely to have an impact on this. So the potential effects of a CBDC on the macro economy are broad, and we fully acknowledge that. The Bank and His Majesty’s Treasury are working closely together to gain a clearer understanding of the potential impacts.

On privacy and security, maintaining user safety and privacy is of the utmost priority as the Government and the Bank appraise the case for a CBDC. Indeed, the UK, through its G7 work, has been clear that rigorous standards of privacy, accountability and transparency on how information will be used are essential for any CBDC to command trust and confidence. Fundamentally, the Government recognise that financial innovation must be safe and secure in order to benefit and win the trust of consumers, businesses and the wider economy alike.

My noble friend Lord Bridges and the noble Lord, Lord King, mentioned the benefits of a retail CBDC versus a wholesale CBDC. The Bank and the Treasury have chosen to explore a retail CBDC in light of the potential benefits I touched on before, including providing digital access to central bank money in a digital payments environment and greater efficiency and resilience in payments. With regard to a wholesale CBDC, as the noble Lord, Lord King has pointed out, banks already have access to electronic central bank money in the form of reserves, and that has been available for decades.

We are open to exploring innovative ways in which wholesale firms can use central bank money, and HMT and the Bank are working together to continue exploring the case for new and improved ways of facilitating wholesale settlement. There are three ongoing initiatives that we consider are likely to provide similar benefits to any wholesale CBDC. First, the Bank is already renewing its wholesale payments system, the real-time gross settlement system, which will improve the efficiency and resilience of domestic wholesale payments being made as well as offering increased interoperability.

Secondly, last year the Bank of England created a new omnibus account to enable private sector innovation in wholesale payments. These new accounts were announced by the former Chancellor in Fintech Week in April 2021 and will allow firms to create innovative wholesale settlement solutions of their own, docking into the Bank’s balance sheet to provide them. Thirdly, the Treasury has proposed a new sandbox for the use of distributed ledger technology in financial market infrastructures, a measure that we are taking through the Financial Services and Markets Bill. That will support firms wanting to use new technology to provide FMI services such as the settlement of securities.

My noble friend Lord Bridges asked about the cost of a CBDC and who will pay, and the noble Lord, Lord Tunnicliffe, asked how many people are working on the current project and what it will cost. The Economic Secretary has been clear that a UK CBDC is a major national infrastructure project, so the Government acknowledge that it is a significant undertaking. It will cost money to develop, although I am not in a position today to say how much as we are still in the early R&D phase of our work. Many government innovations to modernise come with a cost, and the upcoming consultation aims to ensure that genuine public discussion has taken place on both the potential benefits and the cost. While I cannot provide the noble Lord, Lord Tunnicliffe, with specific figures—if I can, I will write to him with them—that is the point on which I would close this debate. One of the UK’s strengths is remaining at the forefront of innovation.

Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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The Minister assured us that there would be parliamentary involvement in the introduction of any CBDC. Does that mean she is assuring us that it will involve primary legislation?

Baroness Penn Portrait Baroness Penn (Con)
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I believe we need to understand better the design and shape of a CBDC, but I am trying to give the strongest possible assurance on that point while not knowing the answer to some of the questions that will be in the forthcoming consultation.

As I was saying, one of the UK’s great strengths is remaining at the forefront of innovation. The landscape is changing quickly in this area and we are open-minded as to the right way to proceed. Many of the points raised in the Select Committee’s excellent report are exactly those we want to continue to consider in a very public and open way through the forthcoming consultation, and through collaborative work between the Treasury, the Bank of England and many other public organisations, so that we can get the answers right to many of the important considerations that need to be made. I do think this work has value, and it is important to ensure that we remain at the forefront of some of these areas. I commend that position to the House.

Financial Services and Markets Bill

Debate between Lord Tunnicliffe and Baroness Penn
Baroness Penn Portrait Baroness Penn (Con)
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I believe I have just addressed Amendment 222. We are supportive of the establishment of regional mutual banks in the United Kingdom, but they are currently still establishing themselves and are not yet trading. So it is a little too early for us to report on the current regime and any possible limitations of it for regional mutual banks.

Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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Does the Minister intend to make any response on the concept of proportionality?

Baroness Penn Portrait Baroness Penn (Con)
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As the noble Lord himself noted, proportionality is already within the regulators’ objectives and operating principles. It is a concept that the Government support in how the regulators undertake their business. I believe that it is provided for within the current framework.

I hope, therefore, that the noble Earl, Lord Kinnoull, will withdraw his amendment and that other noble Lords will not move theirs.

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Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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My Lords, we have no amendments in this group. I have listened to this interesting debate. It comes back to the classic dilemma in all parts of life, from family dilemmas right through to how you manage an industry, and it comes right to this proportionality issue. It is very easy to create rules so simple that you cannot see what they are trying to achieve. It is very idealistic to try to create some ideas that the industry should contain. I look forward to listening to the Minister’s reply, but I have enormous sympathy with her, and I hope she might perhaps give some thought to whether we might try to develop some mechanism between now and Report to see if we can create common ground on this extraordinarily important issue.

Baroness Penn Portrait Baroness Penn (Con)
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My Lords, the Government agree with noble Lords that the efficiency, predictability and proportionality of financial services regulation are a particularly important issue, and one that the Government and Parliament should continue to hold the regulators to account on. We have heard in this discussion many different approaches and ways of getting at this issue and seeking to advance it. I hope that in my response I can set out how the Government have had those concepts at the forefront of our mind when looking at the framework, and I shall seek to support the points that have been made by noble Lords today.

Put together, Amendments 46, 54, 57, 64 and 82 from my noble friend Lord Lilley seek to introduce a new effective for the PRA and the FCA relating to predictability and consistency. As I have said, the Government agree that predictability and consistency are an important component of an effective regulatory regime. As observed by IMF studies, when independent regulators make judgments on the design of regulatory standards, they are more likely to deliver predictable and stable regulatory approaches over time, and thus the centrality of the independence of our regulators at the heart of our regime seeks to support those objectives.

As we have discussed in previous debates, the FCA and the PRA are required to advance their objectives when discharging their general functions, as set out in FSMA. The Government’s view is that the regulators’ objectives should be focused on the core outcomes they should seek to achieve. The Government agree that, where possible, the regulators should advance their objectives in a predictable and consistent way. The framework already addresses this through the regulatory principles, as set out in Section 3B. These regulatory principles aim to promote regulatory good practice. The statutory requirement in FSMA for the FCA and the PRA to consult on rule proposals seeks to ensure that there is a predictable approach to rule-making. As part of this consultation, the regulators must explain why the making of the proposed rules advances, and is compatible with, their objectives as set by Parliament in legislation and how the proposals are compatible with their obligation to take into account the regulatory principles. These requirements are designed to ensure that consumers, market participants and wider stakeholders have a meaningful opportunity to scrutinise and feed into the development of regulator policy, guidance and rules. It also ensures that stakeholders are aware of planned changes to rules and can engage in their development.

In addition to seeking to introduce the new objective, Amendments 54 and 64 would also insert a provision that would prohibit the FCA and the PRA from taking retaliatory action against firms that challenge regulatory decisions. While I understand that firms may be concerned about how an appeal or judicial review may impact their relationship with the regulator, the Government consider that it would be wholly inappropriate for a regulator to treat a firm differently simply because it had chosen to challenge a decision. The Government would expect a regulator to respond to any such challenges appropriately and professionally. I am not aware of any evidence that the regulators have taken such alleged retaliatory action, and firms already have avenues available to them to contest and appeal enforcement decisions. The Government therefore do not believe that an amendment is required in this area.

Amendment 85 seeks to restrict the regulators from enforcing rules made at a “high level of generality”, except in certain circumstances. The FCA’s approach to regulation involves a combination of high-level principles and detailed rules. We discussed this balance and the benefits of those different approaches earlier in Committee and I am sure that we will continue to do so. Through its Principles for Businesses, the FCA aims to encourage firms to exercise judgment about, and take responsibility for, conducting their business in line with those principles. When conducting the future regulatory framework review, the Government reviewed over 100 responses to two separate consultations, which concluded that the provisions concerning enforcement and supervision remained appropriate. Enforcement decisions are specific to the firm and the rules concerned, and the FSMA model requires independent supervision and enforcement.

Amendment 85 would also require that regulator rules are interpreted according to common-law methods of interpretation. The Government are repealing the prescriptive provisions in EU law though this Bill so that they can be replaced with domestic legislation and regulator rules made under FSMA. I reassure my noble friend that it will be up to the UK courts to determine how that domestic legislation and rules are interpreted.

I turn to Amendments 70, 72, 74, 77A, 122 and 144, which in various ways aim to ensure that the regulators act proportionately. Again, I emphasise that the Government agree about the importance of proportionality and agree with the words of my noble friend Lord Holmes when he spoke to his amendment on this. A number of the regulatory principles already address the themes of good policy-making that these amendments seek to embed. These include principles of efficiency and economy, proportionality, and requiring the regulators, where appropriate, to exercise their functions in a way that recognises differences in the nature and objectives of different businesses subject to requirements imposed by or under FSMA. The Bill also introduces these principles for the Bank of England in its regulation of central counterparties and central securities depositories.

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Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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My Lords, I do not wholly associate myself or my party with my noble friend Lord Sikka’s comprehensive description of the finance industry, but I go back to one important area. I mentioned earlier that my previous career had a lot to do with safety. One of the things that it brought out was that people readily forget the catastrophic because the catastrophic occurs so rarely that attention drifts away and they get on with the day to day.

We broadly support the growth and competitiveness concept, although its impact will be modest. It would be a miracle if it added 1% per annum to the growth of the UK. If we read Alistair Darling’s autobiography—and yes, I am aware of the Mandy Rice-Davies test, “He would say that, wouldn’t he?” but it reads pretty convincingly—we see just how close we came to a totally catastrophic situation. It was only saved by a number of individuals, including Alistair and Gordon Brown, taking the very brave decision to do what had never been done before, which was essentially to throw the whole economy at a guarantee of the banking system. That is a pretty dodgy thing to do and, frankly, if you look at the timeline, it got very close to a catastrophic situation.

When one is looking at catastrophic risk—a low probability, perhaps, but catastrophic—you have constantly to bear that in mind. I do not think that the average practitioner in the finance industry works like that; I feel that day to day they are making trades and so forth. The sense of the primary objective is that that should be the salient thought behind all their decision-making: “We must not create another catastrophic situation.” To be fair to the Government, over the past decade or so quite a lot of sensible legislation has been introduced to protect ourselves from catastrophic risk. The Bank of England has a department working away at the regulation of financial institutions to make sure that they are orderly, safe and so on.

I have forgotten what the words are, but the concepts of stability, security and probity must be there in the primary objective and must be well-defined and clearly prime—the top objective. After that, competitiveness, growth and so on would be great.

Our Amendment 65 was a probing amendment and it has worked very well. The noble Baroness, Lady Noakes, assured me—perhaps the Minister will use similar words—that there is no question about the primacy of the objectives, that it is set in other rules and that if I looked at all the rules together, I would not be worried about it. I think that is basically what she said, and I hope it is right, because it is absolutely right that we bear in mind protection from catastrophic risk.

I note the assurances that the Minister gave in her letter following Second Reading, but I am still not clear about the specific mechanism whereby the primary objectives are expressly meant to take precedence in FSMA. To me, it appears that they are indeed split up, but there is nothing to define what it means to be primary. I may be wrong in that concern, and I am here to be persuaded that I am wrong. The more effort that is put into persuading me, the more will go on the record and form the environment in which financial services are delivered. I feel concerned that there is nothing in legislation, in the regulators’ rulebook or elsewhere to guarantee the primacy of the FCA’s and the PRA’s most important objectives. However, as I said, that is an open question, and this debate has been good.

Regarding the international dimension, I see the concerns being expressed about giving it too much primacy—although I do not want to use that word, because it has the wrong effect. My memory is useless but, about two years ago, we had what I will roughly call the Basel III Covid legislation. Many of us were there to debate it. If I remember rightly, it took out the EU law and made space for the regulators to create the situation we are talking about now. My recollection is that aligning with Basel III and the FSB—or whatever it is called—became an objective within that. I see the Minister is nodding, so my memory has some fragments of it.

Once again, it is clearly a good idea to be that bit looser if we are to be innovative. The probing worked brilliantly, as I far as I am concerned. The noble Viscount, Lord Trenchard, quite openly said that competitiveness and growth should be equal to the regulators’ concern about stability and safety. Arguably, that is a properly viewed position, but it is not my position. Failure must be avoided—not quite at all costs but, wherever there is a debate between bigger risk and modest profit, the bigger risk should be avoided.

Baroness Penn Portrait Baroness Penn (Con)
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My Lords, I will speak first to Clause 24 before turning to the other amendments in this group. The Government consider that, alongside their core responsibilities, it is right that the regulators can act to facilitate medium to long-term growth and international competitiveness, reflecting the importance of the sector as an engine of growth for the wider economy and the need to support the UK as a global financial centre. Therefore, Clause 24 introduces new secondary objectives for the FCA and the PRA to provide for a greater focus on growth and international competitiveness. This will ensure that the regulators can act to facilitate long-term growth and competitiveness for the first time.

For the FCA, this objective will be secondary to its strategic objective to ensure that markets function well and to its three operational objectives: to ensure consumers receive appropriate protection; to protect and enhance the integrity of the financial system; and to promote effective competition. For the PRA, this objective will be secondary to its general objective to ensure that UK firms remain safe and sound and its insurance-specific objective to contribute to the securing of an appropriate degree of protection for those who are, or may become, policyholders.

This is a balanced approach. By making growth and competitiveness a secondary objective, the Government are ensuring a greater focus by the regulators on growth and competitiveness. However, by making these objectives secondary, the Government are giving the regulators an unambiguous hierarchy of objectives, with safety and soundness and market integrity prioritised.

As set out in Clause 24(2) and (4)(b) and in paragraphs 215 and 216 of the Explanatory Notes, Clause 24 does not permit or enable the regulators to take action that is incompatible with their existing primary objectives. It is therefore clear that the FCA’s strategic and operational objectives and the PRA’s general and insurance-specific objectives are prioritised ahead of the secondary objectives in the regulatory framework. I hope that that provides further reassurance to the noble Lord, Lord Tunnicliffe, on his Amendment 65 that, in instances where the regulators’ primary and secondary objectives are incompatible, their primary objectives will take precedence over the secondary objectives.

I turn to Amendment 49, tabled by the noble Baroness, Lady Bowles, which seeks to ensure that, when facilitating the new growth and competitiveness objective, the FCA does not consider the financial services sector specifically. The Government are committed to ensuring that the financial services sector is delivering for businesses and consumers across the UK. It is therefore right that the objectives of the financial services regulators reflect the Government’s view that the UK financial services sector is not just an industry in its own right but an engine of growth for the wider economy. The Government are confident that the current drafting recognises that the levers with which the regulators can act are specific to the markets that they regulate—the financial services sector. We believe that this is a helpful clarification, and expect the new objectives to benefit the growth and competitiveness of the wider economy as well as of the financial services sector specifically.

I now turn to Amendments 51 and 60, tabled by the noble Baroness, Lady Bowles, concerning the efficiency of the regulators’ operations. I believe that we have discussed this in Committee before, so perhaps we will move on if the noble Baroness permits me.

That brings me to Amendment 48, also tabled by the noble Baroness Lady Bowles, which seeks to amend Clause 24 to include consideration of sustainability. The new secondary objective is clear that the regulators should seek to facilitate sustainable growth by specifically mentioning growth of the economy in the medium to long term. The Government do not want the PRA or the FCA to act in a way that benefits short-term competitiveness at the cost of long-term growth. However, the Government are aware that, increasingly, and particularly over recent years, “sustainable” has also been taken to mean green or environmental considerations by some stakeholders.

As discussed in previous groups, Clause 25 introduces a new regulatory principle to require the FCA and PRA, when discharging their general functions, to have regard to the need to contribute towards achieving compliance with the Government’s net-zero emissions target. Therefore, the current drafting of the objective is clear that economic growth should be pursued sustainably, and the Government are already strengthening the requirements for the regulators to consider environmental sustainability targets in undertaking their duties.

On Amendment 50, tabled by my noble friend Lord Altrincham, the Government agree that high-quality infrastructure is crucial for economic growth, boosting productivity and competitiveness. More than this, it is at the centre of our communities: infrastructure helps connect people to each other, people to businesses, and businesses to markets, forming a foundation for economic activity and community prosperity.

In the Chancellor’s recommendation letters to the FCA and PRA, of December 2022, he set out that the supply of long-term investment to support UK economic growth, including the supply of finance for infrastructure projects, was a key aspect of the Government’s economic policy to which the regulators should have regard. Therefore, the Government already expect that, when advancing their new growth and competitiveness objectives, the FCA and PRA should include investment in infrastructure among their considerations. There are a number of other aspects in this Bill, such as reform to Solvency II, which will remove barriers to private investment in infrastructure.

I turn to Amendments 47, 52, 58 and 61. Robust regulatory standards are the cornerstone of the attractiveness of the UK’s markets. Including a reference to international standards in the growth and competitiveness objective demonstrates the Government’s ongoing commitment for the UK to remain a global leader in promoting high international standards and maintaining its reputation as a global financial centre.

The noble Baroness, Lady Kramer, expressed the importance of those standards well. Many of the issues that regulators need to address require international co-ordination and co-operation. To address the Committee’s concerns, the Government also recognise that it will not always be appropriate to fully consider international standards—for example, if it is best for UK markets to go beyond the international standard or where nuances of the UK market mean that the international standard is not appropriate. Those international standards operate on a comply-or-explain basis, recognising that individual jurisdictions will sometimes need to tailor standards to their own markets.

No standard trumps the objectives, and the clause does not constrain pursuit of the objective in relation to standards that we have not signed up to or that the regulators do not think are relevant in pursuing their objectives. It is there to acknowledge the importance and role of international standards, but we appreciate this nuance, where we may need to look at those standards and either go beyond them or adapt them to the UK market. I appreciate that this is difficult to navigate, but I hope we have done so successfully.

I also reassure the noble Baroness, Lady Kramer, that the Government do not consider MRAs to be international standards. To expand on this further, we consider international standards to be those set by specific standard-setting bodies listed in the Financial Stability Board’s compendium of standards. These standards are internationally accepted as important for sound, stable and well-functioning financial systems, and include those from organisations such as the Basel Committee on Banking Supervision and the International Organization of Securities Commissions. To reassure my noble friend Lord Trenchard, we are using our seat on those organisations to influence those standard-setting bodies effectively.

Alternatively, MRAs are international agreements subject to international law and based on the principle of deference, where the UK and another country agree to mutually defer to each other’s regulatory, supervisory and enforcement regimes. MRAs are therefore simply a vehicle to recognise where another country meets equivalent regulatory standards to those already established in the UK. They provide a mechanism to reduce barriers to cross-border trade and facilitate greater market access between the two jurisdictions.

IMF Economic Outlook

Debate between Lord Tunnicliffe and Baroness Penn
Tuesday 31st January 2023

(1 year, 5 months ago)

Lords Chamber
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Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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My Lords, in another place, the Minister seemed to insist that the IMF forecast was somehow a British success story, because any recession caused in large part by the chaos of the September mini-Budget may be shorter and shallower than previously thought. Britain has huge potential but, under the Conservatives, ours is the only G7 economy still below its pre-Covid level. If growth is the Government’s number one priority, why is the UK forecast to be outgrown by sanction-hit Russia? If, as Ministers like to claim, this is all the result of global events, why has the IMF said that we are falling even further behind our international competitors?

Baroness Penn Portrait Baroness Penn (Con)
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I must correct the noble Lord on the cause of the disappointing figures for growth this year that we have seen. The IMF emphasises that Russia’s war in Ukraine continues to weigh on economic activity, and the UK’s relatively high dependence on natural gas and, simultaneously, a near-record tightness in our labour market are dampening our outlook.

The noble Lord asked why the UK economy had not recovered to pre-pandemic levels. If we exclude the public sector, the private sector has recovered to above its pre-pandemic level and is in line with other major European economies. There is a difference in the way that the UK estimates its public sector output compared to many other countries, and the ONS has said that international comparisons are difficult to make.

On the point about the optimism that my honourable friend expressed about the UK economy, the Government make no apologies for pointing out our underlying strengths. Last year’s growth rate was uprated by the IMF to one of the highest in Europe, and if we look over the cumulative period 2022 to 2024, growth is predicted to be higher than in Germany and Japan and similar to that of the US. That will happen if we stick to our plan for growth and tackle inflation.

Financial Services and Markets Bill

Debate between Lord Tunnicliffe and Baroness Penn
Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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My Lords, I am impressed by the arguments made by the noble Baronesses, Lady Bowles and Lady Kramer. To me, the fundamental issue seems to be the asymmetry in both power and information between those who have been defrauded and the fraudsters. These amendments are a useful vehicle to try to adjust that asymmetry, at least in part. I look forward to the Minister’s response and hope that she says something positive.

Baroness Penn Portrait The Parliamentary Secretary HM Treasury (Baroness Penn) (Con)
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My Lords, tackling fraud requires a unified and co-ordinated response from government, law enforcement and the private sector to better protect the public and businesses from fraud, reduce the impact of fraud on victims and increase the disruption to and prosecution of fraudsters.

As the noble Baroness, Lady Bowles, explained, Amendment 38 targets fraudsters; the Government strongly agree with the spirit of it. However, strong punishments for those carrying out these acts already exist under the Fraud Act; also, the police and the National Crime Agency already have the powers to investigate fraud, with the FCA providing strong support. That is why we are ensuring that the police have appropriate resources to apply the existing powers to identify and bring the most harmful offenders to justice, including through severe penalties for those who target some of the most vulnerable in society. The Home Office is investing £400 million in tackling economic crime over the spending review period, including £100 million dedicated to fraud.

As the noble Baroness noted, although FSMA does not provide the FCA with an express power to prosecute fraud, it is able to prosecute fraud if it furthers its statutory objectives. The FCA continues to pursue firms and individuals involved in fraud; most of this work is against unauthorised activity operating beyond the perimeter, which is where the FCA sees most scam activity occurring. As at the end of September 2022, the FCA had 49 open investigations, with 217 individuals or entities under investigation.

In its 2022 strategy, the FCA outlined and emphasised its broad existing remit in relation to reducing and preventing financial crime, including fraud; it also recognised the important role that it plays in tackling this issue.

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Baroness Penn Portrait Baroness Penn (Con)
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I agree with the noble Lord. We can expect it soon—or imminently; I could use a variety of different descriptors, but it will be sooner than “in due course”.

Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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I hope the Minister will appreciate the utility of publishing it before Report.

Baroness Penn Portrait Baroness Penn (Con)
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I note the noble Lord’s point about the timing of that.

The noble Lord, Lord Hunt, mentioned resources. I repeat that additional resources have gone into tackling economic crime—£400 million during the spending review period, including £100 million dedicated specifically to fraud.

In its 2022 strategy, the FCA outlined and emphasised its broad existing remit in relation to reducing and preventing financial crime, including fraud, and recognised the important role it plays in tackling this issue. This existing remit allows the FCA to take proactive steps to tackle fraud and wider financial crime while driving a whole-system approach with relevant stakeholders.

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Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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My Lords, once again, the arguments for these amendments seem quite persuasive, and I look forward to the Minister’s reply. Having probably been responsible for this legislation in the past—since I failed to duck most of it—I cannot remember for the life of me why SMEs are excluded. Before addressing the amendments, I would be grateful if the Minister could explain the thinking behind the law as it stands.

Baroness Penn Portrait Baroness Penn (Con)
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My Lords, Amendment 40 intends to offer additional regulatory protections for businesses taking out finance. I hope this, in part, addresses the question of the noble Lord, Lord Tunnicliffe: the Government are committed to regulating business lending only where there is a clear case for doing so. Bringing SME lending into regulation would risk increasing costs for banks and alternative finance providers, which would in turn be passed on to businesses in the form of higher fees and interest rates. This could negatively impact the price and availability of credit for small businesses.

However, the Government see a case for regulation where that asymmetry which we have talked about is at its greatest. At the moment, loans of £25,000 or less to the smallest businesses are already regulated as consumer credit agreements under the Financial Services and Markets Act 2000. This captures over 60% of all UK businesses and aims to protect them where there is the potential for detriment in their dealings with banks and alternative finance providers.

Even for medium and larger firms outside the perimeter, multiple protections are already in place which, in some instances, act as a de facto extension to the regulatory perimeter, without the associated costs that formal regulation would bring. Over 99% of UK businesses can access independent dispute resolution through either the Financial Ombudsman Service or the Business Banking Resolution Service. I note the comments from the noble and learned Lord, Lord Thomas of Cwmgiedd. Alternative dispute resolution services provide a form of access to businesses that can be less costly to them. On his specific question about the views of regulators on the regulatory perimeter, I will write to both the noble and learned Lord and the Committee.

Furthermore, a recent FCA investigation found that many lenders, particularly large banks, extend regulatory protections to many or all of their unregulated business relationships. All the major bank lenders are signed up to a voluntary industry code, the Standards of Lending Practice, which contains clear guidance on best practice and can be considered by the Financial Ombudsman Service when adjudicating a business’s complaint against a financial institution. This achieves many of the same outcomes as extending the regulatory perimeter, so many loans that are not captured by consumer credit regulation nevertheless benefit from effective protections.

Given these factors, at this time, the Government do not believe that there is a clear and proportionate case for bringing business lending into regulation. I should be clear that we are open to considered, evidenced arguments on specific regulatory questions related to SME lending. That is why we have invited views on it as part of our ongoing consultation on the reform of the Consumer Credit Act.

Amendment 219 seeks to ensure that SMEs are given rights of action against firms that breach the FCA handbook. Currently, a breach of the FCA handbook may not be actionable by an SME in court—as noted by my noble friend. However, as I have already said, the Financial Ombudsman Service provides consumers and small businesses with a route to raise complaints against firms. This is an alternative to going through the courts, which can be expensive for the parties involved and delay redress. The Financial Ombudsman Service is required to decide cases on the basis of what it considers is fair and reasonable, in all the circumstances of the case, including whether there has been a breach of FCA rules.

Since 2019, SMEs with an annual turnover of up to £6.5 million and fewer than 50 employees have been able to take cases against financial services firms to the Financial Ombudsman Service. All firms regulated by the FCA are required under the FCA’s rules to co-operate with the ombudsman, which includes complying with any decision that it may make.

Since 2021, SMEs with a turnover of between £6.5 million and £10 million can also raise complaints about firms to the British Banking Resolution Service. This is a voluntary body set up and funded by banks to provide an alternative dispute resolution service without the need for litigation or external legal support. Given that more than 99% of UK businesses can access independent dispute resolution through either the FOS or the British Banking Resolution Service, it is unnecessary to provide for a right to take civil action in the courts for a breach of the FCA handbook.

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Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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The Minister’s argument seems to be about the cost of introducing regulation—that there is a big black cloud that means they cannot do it—but I have not heard any figures. Can she find an estimate of the cost of introducing the sort of regulation envisaged under the amendments and send us all a letter when she has?

Baroness Penn Portrait Baroness Penn (Con)
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I will write to the Committee with that information, where it is available. I will also write to the Committee on the point about the proposal to change SME definitions.

Those were all the points—

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Baroness Penn Portrait Baroness Penn (Con)
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My Lords, as I was saying, we can also simplify the way in which information is provided to consumers throughout the lending process, which can be both inefficient and ineffective. This reform will also allow us to review retained EU law in the Act and amend regulation to better suit UK businesses and consumers.

Given that this work is at an early stage of policy development, the Government believe that it would be premature to consider legislative changes at this stage. I heard what my noble friend said about introducing more parliamentary scrutiny into her amendment but I am not sure that that would be sufficient to address the fact that we are not yet at the stage where we can bring forward our proposals and legislate on this issue.

On Amendment 212, the Government are working at pace to regulate buy now, pay later products, recognising the risks they may pose to consumers. We are now drafting secondary legislation and intend to consult on it very shortly. Subject to the outcome of the consultation, the Government aim to lay regulations later this year.

Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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I just point out to the Minister that “later this year” could be December. I hope the Government have a rather more optimistic view than that.

Baroness Penn Portrait Baroness Penn (Con)
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I would like to share the noble Lord’s optimism. We need to have the consultation on the secondary legislation, which we are expecting very shortly, and then progress as quickly as we can to lay the regulations after we have completed that consultation. I completely accept the point from the noble Lord and the Committee more widely that there is a desire for swift action in this area. We understand that there are concerns about the pace of the delivery of this secondary legislation. This is a new and developing market, and it is important to get the regulation right. We need to ensure that it is proportionate and that lenders can continue to offer a useful form of interest-free credit to consumers responsibly.

While work continues to bring this fully into regulation, I should stress that buy now, pay later borrowers already benefit from wider consumer protection regulation. This includes standards on advertising, rights concerning the fairness of contracts and regulations to protect consumers from unfair commercial practices. However, to reiterate, I reassure the noble Lord, Lord Tunnicliffe, and other noble Lords in the Committee that they can expect to see draft legislation very soon and that we are committed to progressing this as quickly as we can.

I therefore hope my noble friend Lady Noakes will withdraw her amendment and that the noble Lord, Lord Tunnicliffe, will not move his when it is reached.

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Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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My Lords, the debate this afternoon, not just on this group, has been around how this Bill will influence the future. One of the advantages of being old is that you do not have to look too far, because you know where you are going to be. That is not true for our grandchildren. The present progress on the environment is painfully, frightfully slow. All the stuff I read says that, if there is not a change—if not in direction, then in the commitment and energy we put in—the future for our grandchildren will be very grim.

The other thing that has come out of this debate is the recognition that we have to move beyond carbon. If we crack net-zero carbon by 2050 and do nothing else for all the parts of the green world—the world that should be green—then we will live on a virtually lifeless planet, and we will have lost so many things. There are so many other issues that have to be taken into account in shaping the world of the future.

What does that have to do with financial services? Some may argue that financial services are just about making money and so on, but the way in which people in the past have chosen to make money has had a profound effect on societies—some good, some pretty frighteningly bad—and financial services and the way society develops are intertwined.

I do not support all the amendments in detail in this group, but their direction surely speaks to the fact that financial services will influence the future. The hopeful thing about financial services is that they will be provided by young people. They will not be young when they get around to doing it, but they are young now, and young people grasp this crisis much better than we do. One or two of us in this Room are young but, in general, it is the teenagers and the 20 and 30 year-olds who are really taking this issue on board. They will be the investors and shareholders of the future, so it is right that, in this Bill, we give them the best possible basis for their desire to create a greener world. It has to be a global solution—they will want that to happen.

Our effort, Amendment 208, may be a good vehicle. The Government said that they will publish an updated green finance strategy, relating in particular to a green taxonomy and sustainability disclosure requirements. The concept of a green taxonomy will have the same impact that universal financial reporting standards have had in improving the clarity with which you can look at enterprises. While it remains unregulated, the statements that companies make—especially those that are true—are diluted by the fact that nobody understands the terminology. Only when we bring the descriptions together—at least nationally and ideally internationally—will we start to shape the way that society develops and allow finance, which is so important in creating direction, to play its part.

I commend Amendment 208 to the Committee. Ideally, we should be going with the grain, because Ministers are committed to producing a financial strategy. We are told over and over again in some places—including, I believe, in the other place—that we might expect it imminently. Can we have some clarity about the Government’s commitment? I hope that in doing that, they will see the importance of a green taxonomy and that we can get this in hand and play our small part in what it is not overstating it to call saving the planet.

Baroness Penn Portrait Baroness Penn (Con)
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My Lords, the Government recognise and understand the importance of supporting the growth of sustainable finance in the UK. Indeed, it is because of the importance that Parliament, the Government, the regulators and industry have collectively applied to these issues that London ranks, once again, as one of the leading centres in the world for green finance in the Z/Yen global green finance index. The Government are committed to further strengthening the UK’s financial services regulatory regime relating to climate, which is why Clause 25 introduces a new net-zero regulatory principle for the FCA and the PRA.

Amendments 44, 53, 56, 62 and 68 seek to go further by introducing a secondary objective for the regulators to facilitate alignment of the UK economy with commitments outlined in the Climate Change Act and the Environment Act 2021. Similarly, Amendment 69 seeks to extend the new net-zero regulatory principle to also include nature, and Amendment 69A seeks to oblige the financial services regulators to have regard to a range of environmental concerns beyond the net-zero commitment.

It is important that we consider the regulators’ objectives, secondary objectives and regulatory principles in the round. The FCA and the PRA are required to advance their objectives when discharging their general functions. The FCA’s strategic objective is to ensure that relevant markets function well. Its operational objectives are to secure an appropriate degree of protection for consumers, to protect and enhance the integrity of the UK financial system and to promote effective competition in the interests of consumers. The PRA’s general objective is promoting the safety and soundness of PRA-authorised persons. It also has an insurance-specific objective of contributing to the securing of an appropriate degree of protection for those who are, or may become, policyholders. The PRA also has a secondary objective to facilitate effective competition.

As we have discussed, the Bill provides a secondary growth and competitiveness objective for both the FCA and the PRA. The Government consider that alongside these core responsibilities, it is right that the regulators can act to facilitate medium to long-term growth and international competitiveness, reflecting the importance of the sector as an engine of growth for the wider economy and the need to support the UK as a global financial centre. This proposal received broad support through the FRF review consultation.

These objectives are underpinned by a set of regulatory principles which aim to promote regulatory good practice and set out the considerations that the FCA and the PRA are required to take into account when discharging their functions. The regulators’ primary focus must be to ensure the safety, soundness and integrity of the markets they regulate. While the Government expect that regulators will play a crucial role in supporting the achievement of the Government’s net-zero target, it is not their primary responsibility given that many of the levers for change sit outside financial services regulation.

Having said that, we should not underestimate the significance of Clause 25, which will embed in statute consideration of the UK’s climate target across the full breadth of the regulators’ rule-making and therefore support the Government’s action and ambition to transform the UK economy in line with their net zero strategy and vision.

As noble Lords have noted, the legislation creates a clear hierarchy. However, it is not simply the case that issues relating to climate change will be addressed only through the new regulatory principle. The Government’s view is that consideration of climate is already core to the regulators existing objectives: both safety and soundness for the PRA and market integrity for the FCA.

The Government expect that this will also be the case for their new secondary growth and competitiveness objective. Indeed, the recent recommendation letters from the Chancellor to the FCA and the PRA, published as part of the Edinburgh reforms, set out the Government’s view that delivering net zero is part of the wider economic policy objective of achieving strong, sustainable and balanced growth. This means that the new regulatory principle will ensure that where there are broader issues relating to climate change that are not captured within their existing objectives, the regulators will be required to give them specific consideration, where appropriate, in taking forward their general functions.

Regarding consideration of nature issues, the Environment Act 2021 provides a framework for setting the definitions of the Government’s future targets in this space. Noble Lords will recognise that work is ongoing to understand the interaction between these targets and the work of the financial services regulators, which is not yet clear. The Government consider that it would therefore not be appropriate to place such a requirement within the FiSMA regulatory principles without this clarity. However, I reassure noble Lords that there are clear examples of how the FCA and the PRA are supporting the Government’s work on nature under their existing objectives.

The Government and the financial services regulators are active participants in the work of the Taskforce on Nature-related Financial Disclosures, which aims to help organisations to report and act on evolving nature-related risks. The UK is its largest financial backer. We are also committed to the International Sustainability Standards Board process, which will deliver a global baseline of sustainability disclosures that meet capital market needs, while working to decrease systemic environmental risk. These standards are expected to address aspects of the natural world beyond greenhouse gas emissions. The Government will continue to consider bringing these standards into any UK disclosure framework as they achieve global market consensus.

Wagner Group: Sanctions Regime

Debate between Lord Tunnicliffe and Baroness Penn
Thursday 26th January 2023

(1 year, 6 months ago)

Lords Chamber
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Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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My Lords, I will not refer to the particular case in the Question because it is clear that I would get the unhelpful answers tendered in the other place. However, we have two evils and a question of process. First, while it may be right for sanctioned individuals to use frozen funds to defend themselves, it cannot be right to use such funds to attack the free speech of others. Secondly, it cannot be right that if you have enough money you can, through the courts, suppress the free speech of others. What are the Government doing urgently to address these issues? Finally, in the other place the Minister said that decisions on legal fees are “largely taken by … officials”. Largely but not wholly means that there must have been others. Who are they?

Baroness Penn Portrait The Parliamentary Secretary, HM Treasury (Baroness Penn) (Con)
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My Lords, to try to take the noble Lord’s questions on directly, the Government condemn the use of strategic lawsuits against public participation, commonly known as SLAPPs. The Prigozhin case can be characterised as a SLAPP, which is an abuse of the UK legal system. We are committed to introducing targeted anti-SLAPP legislation to stop Russian oligarchs corrupting our legal system. The reforms will include a statutory definition of SLAPPs, an early dismissal mechanism and costs protection for SLAPPs cases.

When it comes to the sanctions and licensing regimes, where there are derogations set out in the sanctions regime and the conditions of those derogations have been met, licences may be authorised. There is a specific derogation for legal expenses which is judged on the cost of those expenses, not the merits of any legal case. None the less, I agree with the point that the noble Lord has made: we need to take action in these cases, and the Government are committed to doing so.

On other licences for legal fees, this is a derogation that applies across the sanctions regime so there will be multiple licences issued. There is a general licence available for legal fees and that decision is, on the whole, taken by officials rather than Ministers.

Financial Services and Markets Bill

Debate between Lord Tunnicliffe and Baroness Penn
Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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My Lords, I too thank the noble Lord, Lord Sharkey, for tabling his amendment and provoking this discussion. It is interesting to find such a wide consensus on the general direction. I support the general direction which has emerged in the debate, but I question whether this is the right solution.

Nobody could be more sensitive to the meaningless process of the scrutiny of affirmative SIs; I have done hundreds over the years. It is a very nice little club. It is usually me and the Minister—and, I have to admit, the Liberals often provide the third person in the room, as it were. It is ridiculous at that level. There is a great attraction in saying that the House should consider secondary legislation as a whole and produce some solutions, but the problem is that that would take for ever.

We have a particular issue with secondary legislation in this Bill. As those of us who ploughed our way through the last financial services Bill will remember, there is a big chunk of EU legislation which, whether we like it or not, went through the democratic process in Brussels and was then put into UK law. That has been, effectively, removed and in this Bill we are creating the processes to substitute it. We are pretty well agreed that substituting 500,000 pieces of law—whatever the figure is; I do not know—through primary legislation is impossible, and that it has to be done by secondary legislation. However, because that intermediate level of legislation is so important, we must, for the purposes of financial services regulation, have a better scrutiny process than we do at the moment.

As the noble Baroness, Lady Noakes, pointed out, she, a number of other noble Lords and I have tabled a lot of amendments and we will have a good discussion. I see myself working with others, both in this Room and further afield, to see whether we can produce a consensual set of amendments to improve scrutiny in this area. In the meantime, I hope the Minister will listen to this debate and those that will follow and see whether the Government can come up with their own proposals to address this problem of scrutiny. Whether we like it or not, it is unfortunate that when the amendments we pass in this House get to the other end, they get chopped. If we can achieve some sort of consensus with the Government, that would be the best way through. If we cannot, I think we have to send something pretty powerful back to the other place, saying that this scrutiny process must be improved.

As an aside, I think it was yesterday when my colleagues at the other end said they had done an SI. I asked, “How long did you take?”, and of course the answer was, “Under 10 minutes”. Their level of scrutiny is worse than ours. At least we make useful points—not that anybody really listens to them.

I am pretty agnostic about the amendments in the name of the noble Baroness, Lady Noakes. My experience of deadlines is that they are real only in retrospect: you know of a deadline for real only when you have passed it. If you motor up to an impossible deadline—which is what these amendments may produce—you introduce a law to change it. I can see the benign nature of her intent but not what good it would do, in practice, somehow to punish an organisation that has missed a deadline by saying, “You won’t be able to make the rules, but we have to make the rules because we need the rules,” and so on. I am not going to get carried away about it, but I am not that seized of it.

The Minister will no doubt give us an appropriate assurance about her bucketful of amendments—that they are technical, minor and all that sort of thing—and I will listen. One is left wondering how many amendments will emerge from down the side of the sofa between now and Report, and even perhaps thereafter, because it seems there has been a failure to find all these amendments by the due date for the original procedures in the Commons. It is unfortunate that so many were missed that they have to be introduced now, but we will have no opposition to them.

Baroness Penn Portrait The Parliamentary Secretary, HM Treasury (Baroness Penn) (Con)
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My Lords, I will speak first to Amendments 1, 244 and 245, before turning to the government amendments in this group.

With respect to Amendment 1, the Government are seeking the agreement of Parliament to repeal all retained EU law in financial services so that the UK can move to a comprehensive FSMA model of regulation, whereby the independent regulators make rules in line with their statutory objectives as set by Parliament and in accordance with the procedures that Parliament has put in place.

As the noble Lord, Lord Sharkey, noted, it is not the Government’s intention to commence the repeal of retained EU law in financial services without ensuring appropriate replacement through UK law. That commitment was made by the Economic Secretary to the Treasury, including to the Treasury Select Committee and, as the noble Lord noted, in our memo to the DPRRC. His Majesty’s Treasury will commence a revocation only once appropriate secondary legislation and rules are in place.

Parliament will therefore play a key role in scrutinising any replacement secondary legislation. Where the Treasury replaces retained EU law through the powers in the Bill, this will almost always be subject to the affirmative procedure, with some limited exceptions specified in the Bill.

I recognise the wider debate in the House of Lords about secondary legislation and its scrutiny. I will resist the invitation from my noble friend Lord Naseby for this Bill to be the place where we address that wider debate. I point out to noble Lords that, in its report on the Bill, although the DPRRC did not bring to the attention of the House the delegated powers related to retained EU law, it did report on one specific issue regarding hybrid instruments, which I will respond to shortly. The committee commended the Treasury for

“a thorough and helpful delegated powers memorandum.”

That is not to say that the question of parliamentary scrutiny of the provisions in the Bill and the regulations that will be made under it is not important. I know that we will return to it many times during this Committee.

The Government have made efforts to set out how the framework provided by the Bill will work in practice. As part of the Edinburgh reforms, the Government published their approach in a document entitled Building a Smarter Financial Services Framework for the UK, which makes it clear that they will carefully sequence the repeal to avoid unnecessary disruption, and there will be no gaps in regulation. The Government have also recently published three illustrative statutory instruments under the powers in the Bill to facilitate scrutiny of the powers under which they will be made in Parliament.

It is also worth noting, as the noble and learned Lord, Lord Thomas of Cwmgiedd did, that large parts of retained EU law will be replaced by the regulators through their rules. The regulators have the tools and expertise to make rules at pace, in line with their statutory objectives, within a model of appropriate parliamentary scrutiny and oversight. Clause 36 of the Bill supports Parliament in that scrutiny and oversight, requiring the PRA and the FCA to notify the Treasury Select Committee when they consult on rules and to respond to any representations made by that Committee. That is a specific element of the provisions to which we will return at a later stage in Committee.

Ahead of considering the Bill, the Treasury Committee itself considered the appropriate model for parliamentary scrutiny of regulatory rules, concluding that effective scrutiny of regulatory proposals should be carried out through a targeted approach, with Parliament scrutinising proposals in more detail where there is a public interest in its doing so. The Government consider that the provisions of the Bill are consistent with the recommendations of the Treasury Committee.

I turn now to Amendments 244 and 245 tabled by my noble friend Lady Noakes. I can assure her that the Government intend to act at pace to complete the repeal and replacement of retained EU law, but we must also act in a way that allows everyone to adapt to the new model. That will often require the regulators to make replacement rules, which must be done in line with the appropriate procedures for consultation and engagement, as noble Lords have pointed out. As my noble friend Lady Altmann pointed out, there is a balance to be struck between the pace at which we undertake that work and the proper processes for consultation and scrutiny that that will need to be subject to.

Alcohol Duty Bands

Debate between Lord Tunnicliffe and Baroness Penn
Thursday 12th January 2023

(1 year, 6 months ago)

Lords Chamber
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Baroness Penn Portrait Baroness Penn (Con)
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My Lords, I am sure we have taken that into account in looking at this work, and that we work closely with the Department of Health and Social Care on it. Another aspect of the reforms we are bringing forward is to provide draught relief to allow pubs and other venues to be more competitive with off-licences and supermarkets selling alcohol.

Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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My Lords, I am sympathetic to the Minister answering this Question: she is the victim of a bizarre system of government. Surely this is at least 50% a health issue. The decision-making should certainly rest within the Department of Health, and the Chancellor of the Exchequer should not be deciding what sin and health are about—he should be worried just about the Exchequer.

Baroness Penn Portrait Baroness Penn (Con)
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I reassure the noble Lord that if he looks at the consultation we did on the new duty rates, he will see that public health is at the heart of our approach. However, we need to balance public health objectives with, for example, the impact on businesses. For instance, Scotch whisky is an incredibly important industry in Scotland, and there are new breweries all across the country which are big economic success stories. We need to have a balance between those two approaches.

Financial Services

Debate between Lord Tunnicliffe and Baroness Penn
Wednesday 11th January 2023

(1 year, 6 months ago)

Lords Chamber
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Baroness Penn Portrait Baroness Penn (Con)
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The access-to-cash provisions in the Bill will require the FCA to consider access to cash at both a local and national level, so it will take geographic factors into account. That is also taken into account through LINK’s maintenance of the ATM network, which considers how far people might have to travel to access cash and what is reasonable.

Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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My Lords, is the Minister claiming that progress on this matter is rapid enough? It seems to me that the general view in the House today is that it is not. If she is saying that the legislation is sufficient, surely, the implication is that the regulator is not doing its job well enough.

Baroness Penn Portrait Baroness Penn (Con)
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My Lords, there is always more to do. For example, I referred to the rollout of Post Office banking hubs. They may have been slower than expected to get off the ground, but just recently we have seen a large number of new hubs announced. That is an example of improvement in these areas. As I have referred to, we think we need more legislation, so we have measures in the Bill on access to cash to further strengthen that.

Russia: UK Companies

Debate between Lord Tunnicliffe and Baroness Penn
Thursday 8th December 2022

(1 year, 7 months ago)

Lords Chamber
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Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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My Lords, having reviewed the record of the exchange in another place on this issue, I was struck by the near unanimous condemnation of the Government’s position on this matter. The Minister’s refusal to comment on or act in response to British businesses that continue to operate in Russia is unacceptable. As Russian missiles continue to rain down on Ukraine’s energy infrastructure, an already cold winter is becoming even more difficult for the Ukrainian people to endure. With the Prime Minister seemingly in listening mode these days, will the Minister and her Treasury colleagues go to Mr Sunak and encourage him to speak out against British businesses that have opted to profit from Putin’s war?

Baroness Penn Portrait The Parliamentary Secretary, HM Treasury (Baroness Penn) (Con)
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My Lords, my right honourable friend the Prime Minister, when Chancellor, called on and welcomed UK firms who had taken the decision to divest from Russia in the wake of the invasion of Ukraine and said that we would welcome further such decisions from those companies. In terms of the Government’s actions, we have imposed the widest set of sanctions in our history against Russia, which limits the space for companies to operate in Russia, targeted at degrading the Russian war machine and also more broadly degrading its economic ability to continue this war. The noble Lord mentioned the condition of Ukraine’s infrastructure and the attacks on it by Russia in recent weeks. My right honourable friend the Foreign Secretary announced that we are looking to support energy generation in Ukraine in response to those attacks.

Cross-Government Cost Cutting

Debate between Lord Tunnicliffe and Baroness Penn
Tuesday 6th December 2022

(1 year, 7 months ago)

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Baroness Penn Portrait Baroness Penn (Con)
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I always welcome helpful advice. However, I am not sure that I can take it up in this case.

Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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My Lords, even though markets have stabilised somewhat in recent weeks, our borrowing costs are extraordinarily high. Debt payments are second only to spend on health and social care. Most straightforward efficiency savings have already been implemented, meaning that the Government may have to spend now to achieve savings later. What would that mean for the Chancellor’s fiscal rules, which have already been broken 11 times in 12 years?

Baroness Penn Portrait Baroness Penn (Con)
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My Lords, initiatives to spend to save were included in the different departments’ spending review bids and they are welcomed by the Treasury. Increased evaluation of policy and programmes allows us to divert resources to where they can make the most difference. Another example of spending to save in SR 2021 was putting more money into the Supporting Families programme. That was informed by a strong evaluation which showed that those targeted interventions up front for families experiencing hardship delivered savings in terms of the number of children entering care and the number of adults and juveniles entering the criminal justice system. It is really hard to deliver spend-to-save measures, but where they work, they can be a really effective tool for delivering better public services for less money.

Money Laundering and Terrorist Financing (High-Risk Countries) (Amendment) (No. 3) Regulations 2022

Debate between Lord Tunnicliffe and Baroness Penn
Tuesday 6th December 2022

(1 year, 7 months ago)

Grand Committee
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Baroness Penn Portrait The Parliamentary Secretary, HM Treasury (Baroness Penn) (Con)
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My Lords, these regulations provide the legislative framework for tackling money laundering and terrorist financing and set out various measures that businesses must take to protect the UK from illicit financial flows. Under these regulations, businesses are required to conduct enhanced checks on business relationships and transactions with high-risk third countries. These are countries identified as having strategic deficiencies in their anti-money laundering and counterterrorist financing regimes that could pose a significant threat to the UK’s financial system.

This statutory instrument amends the money laundering regulations to update the UK’s list of high-risk third countries. It adds the Democratic Republic of the Congo, Mozambique and Tanzania to the list and removes Nicaragua and Pakistan. This is to mirror lists published by the Financial Action Task Force, the global standard setter for anti-money laundering and counterterrorist financing.

This is the sixth time we have updated the UK list to respond to the evolving risks from third countries. This update ensures that the UK remains at the forefront of global standards on anti-money laundering and counterterrorist financing. In 2018, the Financial Action Task Force assessed that the UK has one of the toughest anti-money laundering regimes in the world. The UK was a founding member of this international body, and we continue to work closely and align with international partners such as the G7 to drive improvements in anti-money laundering and counterterrorist financing systems globally.

FATF has identified that the Democratic Republic of the Congo, Mozambique and Tanzania must each make a range of domestic reforms to address their non-compliance with FATF standards. These include improving their understanding of risk, increasing the effectiveness of their domestic supervision, supporting money laundering investigations and prosecutions and more effective implementation of sanctions.

FATF found that Pakistan and Nicaragua have made the necessary domestic reforms to improve their compliance with FATF standards, which have been confirmed through on-site visits to both countries. In its October public statement, FATF expressed concern at the potential misapplication of FATF standards by Nicaragua, resulting in the suppression of Nicaragua’s non-profit sector. Therefore, although Nicaragua has been removed from FATF’s list, FATF will continue to monitor this issue to ensure that Nicaragua’s oversight of the non-profit sector is risk-based and in line with FATF standards.

Lastly, this high-risk third country list is one of many mechanisms that the Government have to clamp down on illicit financial flows from overseas threats. We will continue to use other mechanisms available to respond to wider threats from other jurisdictions, including applying financial sanctions as necessary.

This amendment to the money laundering regulations will enable them to continue to work as effectively as possible to protect the UK financial system. It is crucial to protect UK businesses and the financial system from money launderers and terrorist financers. I therefore hope that noble Lords will join me in supporting these regulations. I beg to move.

Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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My Lords, I am grateful to the Minister for introducing the latest iteration of the Financial Action Task Force’s list of high-risk countries. As she outlined, this is a routine piece of secondary legislation. These Benches are pleased to support its passage.

I want to pick up on a couple of outstanding questions from the Commons debate on this instrument, which took place on Monday. The Minister’s colleague, Andrew Griffith, noted that the

“removal of Nicaragua and Pakistan does not bring to an end any monitoring of those countries, which are covered by a much broader set of arrangements.”—[Official Report, Commons, Delegated Legislation Committee, 5/12/22; col. 6.]

He talked of an “ongoing duty of care” to fight money laundering but did not go into any detail about what that looks like. My understanding is that the duty of care has often been found wanting. Does the Minister agree with that assessment? If so, what work is under way to strengthen the current arrangements? I appreciate that she may not be able to answer that today, so I would be happy for her to write with further details.

My colleague, Tulip Siddiq, raised the Government’s plans to make future versions of these statutory instruments subject to the negative procedure. We appreciate that parliamentary time is finite and that there is an ever-growing body of secondary legislation for us to consider, in part because the Government keep presenting skeleton Bills full of broad delegated powers. The Commons Minister committed to writing with details of how the Government will ensure that Parliament gets the information it needs to discharge its rightful job of scrutinising such decisions. Will the Minister see that such information is passed on to interested parties in this House?

We came across this problem before with the end of EU laws coming to some extent almost between affirmative and negative regulations. That was in the middle of the pandemic, so it got lost there, but there is a need for something more consultative than the negative procedure. The problem with negative procedures is that they are almost invisible. Unless the Secondary Legislation Scrutiny Committee picks up on them, it can be difficult to realise that the instruments are there. If the Government are to introduce a propensity to use negative procedures more, and we can obviously see some sense in that, I hope they will make sure that they have a rethink about how such negative instruments are brought in front of this House in particular.

Finally, I note that Gibraltar continues to feature on the list, despite assurances that the authorities there are making good progress on implementing FATF’s recommendation. Is the Minister able to offer any further comments on that?

Baroness Penn Portrait Baroness Penn (Con)
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I thank the noble Lord for his questions. I can probably expand on my answers in writing, if needs be. On his point about the procedure used for future updates to this list and parliamentary scrutiny of that, I will certainly ensure that any response from my colleague—I believe the EST took this debate—is copied to Members of this House and answers those points.

In this area, future updates to the list will continue to mirror the findings of FATF as an international standards-setter where it has identified countries as having weak anti-money laundering controls. FATF’s decision-making process is underpinned by a robust technical methodology and has a high level of scrutiny of the multilateral process, which the UK is involved in at all stages. We are committed to continue to provide written updates to Parliament on the outcomes of each FATF plenary, as these inform the list.

On this measure, we consider that the procedural change will have quite limited impact, given Parliament’s full support on all updates to the list so far. We can consider the attendance at this debate as perhaps an indicator of that, but I take the point that updates may not always be uncontroversial. Ensuring that Parliament is kept up to date with the outcome of FATF meetings, from which we derive our list, might be a good way to ensure that parliamentarians feel that they are kept abreast of the changes that might then flow through the negative statutory instrument procedure.

On Nicaragua and Pakistan having been removed from the high-risk third country list and the ongoing monitoring in these areas, I mentioned that the Government have concerns about allegations of misuse of AML powers by Nicaragua. We have agreed that Nicaragua should report in February to FATF members on how it is applying anti-money laundering powers proportionately to charities and civil society organisations. We will consider that report and next steps at the time.

In relation to both countries, the list of high-risk third countries is only one of many measures used to combat illicit finance. There are many other measures available to the Government. I am not sure that that completely answers the noble Lord’s point, so I will make sure I read Hansard and write with any further points that I should make.

Financial Inclusion in England

Debate between Lord Tunnicliffe and Baroness Penn
Wednesday 30th November 2022

(1 year, 7 months ago)

Lords Chamber
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Baroness Penn Portrait Baroness Penn (Con)
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My Lords, financial education in England is covered within both the citizenship and mathematics curricula. The Money and Pensions Service has also published financial education guidance for both primary and secondary schools in England to support school leaders and education decision-makers to enhance the financial education currently delivered in their schools. More broadly, after Covid and other disruptions there has been a commitment by this Government not to make any changes to the national curriculum for the remainder of the Parliament.

Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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My Lords, access to bank accounts and other financial services is vital, but so is better protecting people from financial scams and fraud. The Government currently have the economic crime Bill, the Financial Services and Markets Bill and the Online Safety Bill before Parliament; we will shortly see a data Bill too. Can the Minister assure us, perhaps in writing, that the final versions of these Bills will include clear and consistent measures to tackle the scams and other forms of fraud that blight so many people’s lives?

Baroness Penn Portrait Baroness Penn (Con)
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The noble Lord is right to point to the range of Bills before Parliament that will address this issue. We will not be able to address fraud and scams through financial services regulation alone. For example, many fraudsters access people through online platforms, so we need to look at that approach too. Those Bills will contain measures to tackle this, and the Government are also committed to bringing forward a fraud strategy that will bring together work from regulators, government and law enforcement to get a grip on this issue.

Financial Services (Miscellaneous Amendments) Regulations 2022

Debate between Lord Tunnicliffe and Baroness Penn
Tuesday 15th November 2022

(1 year, 8 months ago)

Lords Chamber
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Baroness Penn Portrait Baroness Penn (Con)
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My Lords, I thank all noble Lords for their contributions to this debate. With this SI, the Government aim to remedy technical deficiencies identified in financial services legislation arising from the UK’s withdrawal from the EU. Nevertheless, a number of pertinent questions were asked.

To give the noble Lord, Lord Jones, a better picture of Gibraltarian firms operating in the UK and their involvement in our financial services sector, data from the Government of Gibraltar highlights that approximately 95% of Gibraltar’s financial services business is with the UK. From the other end of the telescope, around 29% of motor insurance policies in the UK—some 8.5 million—are provided by Gibraltar-based insurers. According to 2022 data from the FCA, over 100 Gibraltarian firms are operating in the UK, including insurance firms, banks, asset managers and e-money firms. The number of firms that might be affected by this SI is roughly 18, but in practice we think it will be fewer. Although there is large-scale involvement of Gibraltarian firms in UK financial services, the impact of this SI would be more limited.

The noble Lord, Lord Tunnicliffe, asked whether this SI will assist Gibraltar in getting off the high-risk list from the FATF. This statutory instrument will not have a direct bearing on Gibraltar’s status in that respect. The UK is a supportive and strong member of the FATF and the Government are committed to making the UK a hostile place for illicit finance and economic crime. We are also committed to supporting Gibraltar to achieve full implementation of the FATF standards by addressing the weaknesses in its regime to tackle illicit finance.

The noble Lord also asked how different the regulation of financial services firms in Gibraltar will be compared to the regulation of financial firms in the UK—for example, in Birmingham. As members of the EU, Gibraltar and the UK implemented the same EU rules on financial services, so we start from the same place. The current temporary regime maintains market access on that basis while we implement the new regime provided for in the Financial Services Act 2021. That will require alignment with UK law and practice. In effect, firms in Gibraltar and the UK will be subject to the same rules under the new system.

Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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The same rules and the same regulators?

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Baroness Penn Portrait Baroness Penn (Con)
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I will double-check that for the noble Lord. I believe so, but I would prefer to write and confirm it.

In the noble Lord’s precis, he asked whether this simply extends the status quo for two years. Yes, that is the correct interpretation of this SI. The noble Baroness, Lady Bowles, asked whether we are in a process of extending it in another two years, and then another two years after that. The Financial Services and Markets Bill, which has just finished Committee in the other place, has introduced a permanent equivalence regime to allow the Treasury to recognise STS-equivalent securitisations issued by firms in other countries. The temporary recognition of EU STS will help bridge the gap until we can undertake assessments under this new regime in the Bill currently going through. We have a plan and the legislation is passing; we fully expect that the extension to 2024 would be the last such extension and that we would have a new regime up and running by that point.

The noble Baroness asked about the regulation of these firms in the intervening period. I will write to her on that point to ensure that I do not get anything wrong, and I will also write to the noble Lord, Lord Teverson, on his question. To reassure the noble Baroness, looking at the data in terms of the specific regulations in this area, about five Gibraltar firms could fall within the scope of the 0.1% reporting threshold in the short selling regulation, the SSR. We are giving the regulators here the power to change that threshold to align with the EU. It is a small number. No Gibraltar PRIIPs manufacturers operate in the UK, so the power we have to change the provisions there currently would not bite. Five Gibraltar firms in the UK are using branch passports under MiFIR. I know that does not directly answer the noble Baroness’s question, so I will write to her. However, to give a sense of the scale of the gap—if there was any such gap—we believe it to have been small.

Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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Will the Minister ensure that all letters are copied to all participants?

Baroness Penn Portrait Baroness Penn (Con)
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I will ensure that all letters are copied to all participants in the debate and placed in the Library of the House.

UK Green Taxonomy

Debate between Lord Tunnicliffe and Baroness Penn
Thursday 3rd November 2022

(1 year, 8 months ago)

Lords Chamber
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Baroness Penn Portrait Baroness Penn (Con)
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My Lords, that commitment has not changed. On the importance of retaining our leadership position on green finance for London as a financial centre, I completely agree with the noble Baroness: that is why we have been so ambitious in this area. We have taken a number of steps to ensure that we lead the way, and we work with our international partners to bring them along with us. When we chaired the G7 last year, we got commitments on sustainability disclosure requirements, for example, from all the G7 Finance Ministers. So we are not just leading the way; we are also trying to bring other countries with us.

Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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My Lords, for the avoidance of doubt, I have already welcomed the noble Baroness back to the Front Bench. The concept of a green taxonomy is of value to investors assessing how green a company is—that is almost self-evident. It is also of value to companies because it protects them from litigation accusing them of greenwashing. A number of actions are occurring around the world in which companies are being sued for overpromising on greenwashing. To be really valuable, however, the taxonomy needs to be international. What progress is being made on gaining international consensus?

Defined Benefit Pension Funds

Debate between Lord Tunnicliffe and Baroness Penn
Tuesday 1st November 2022

(1 year, 8 months ago)

Lords Chamber
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Baroness Penn Portrait Baroness Penn (Con)
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My noble friend is absolutely right that there can be risks to financial stability from non-banking actors in the financial system and that they are not subject to the same regulations. He is also right that addressing some of these risks cannot be just through domestic action but must also be international action, and that is something the UK is advocating for.

Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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My Lords, I welcome the noble Baroness, the Minister now, back to her seat and look forward to many one-to-ones. Financial regulators in a number of European countries have taken steps to increase surveillance of derivative-linked funds used by UK pension schemes. That is an attempt to promote international financial stability following the post mini-Budget market turmoil. Having witnessed recent events, does it remain the Government’s intention to water down UK regulators focused on stability by introducing a statutory requirement to prioritise competitiveness?

Baroness Penn Portrait Baroness Penn (Con)
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I thank the noble Lord, and all noble Lords for their welcome back, but I have to disagree with the noble Lord’s interpretation of the provisions in the forthcoming financial services Bill. Financial stability will remain at the core of our system, but I do not think it is wrong to also recognise the importance of competitiveness in that system.

Crypto Asset Technology

Debate between Lord Tunnicliffe and Baroness Penn
Thursday 21st July 2022

(2 years ago)

Lords Chamber
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Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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My Lords, during the SI debate earlier this week, the Minister and I discussed the need to better regulate crypto assets, particularly in relation to money laundering. In her answers today, she seems to accept that cryptocurrencies potentially facilitate money laundering. Does she not feel that this is very important and must be gripped quickly?

Baroness Penn Portrait Baroness Penn (Con)
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I absolutely agree with the noble Lord about the importance of ensuring that crypto assets cannot be used for money laundering or, for example, for the avoidance of sanctions when it comes to Russia and its invasion of Ukraine. That is why we have brought it within our anti-money laundering regime. We have extended the scope of those rules. The SI that we were debating this week is part of the action to do so. We will also continue to work internationally on the regulation of crypto assets, because that action is needed to ensure that other jurisdictions cannot become areas where people use crypto assets for illicit finance.

Private Equity: Economic and Social Risks

Debate between Lord Tunnicliffe and Baroness Penn
Thursday 21st July 2022

(2 years ago)

Lords Chamber
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Baroness Penn Portrait Baroness Penn (Con)
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My Lords, I congratulate the noble Lord, Lord Sikka, on securing this debate. Private equity is a salient issue for the UK economy, and it is important for us to recognise both the benefits that private equity investment can bring and the risks that can occur alongside it. I thank the other two noble Lords for their constructive contributions to the debate.

I will politely disagree with the noble Viscount, Lord Chandos, on his remarks about the Conservative Benches. I look to the Cross Benches and the Liberal Democrat Benches; even our Green representative is not here. I agree with the noble Lord, Lord Tunnicliffe, that attendance tonight probably has more to do with the timing of the debate than other events going on at this moment. However, I welcome the noble Viscount’s glass-half-full attitude to private equity investment.

The UK is proud to be home to businesses of all shapes and sizes, in every region of the country, and across a variety of sectors. Each of those companies will require different growth strategies for their business that reflect their individual strengths. Private equity plays a valuable role in providing companies with the capital to achieve that. It can also help to ensure that innovative companies are able to weather disruption and continue their long-term growth trajectory to reach their full potential.

Private equity can unlock funding for firms that would not be able to easily access public markets, a vital source of support for both early-stage businesses and businesses that are struggling temporarily, and can enable them to grow into thriving firms. In 2021, businesses backed by private equity and venture capital directly contributed £102 billion to the UK economy, representing 5% of UK GDP. As firms thrive, that benefits the British people both as consumers and as employees of these firms. On jobs, private equity-backed businesses employed 1.9 million workers last year, meaning that 6% of the total jobs in the UK are supported by private equity-backed businesses.

The Government recognise the risks that can come with this form of financing. Private equity has a responsibility to represent the long-term interests of the businesses in which they invest. When mismanagement of a business occurs, it is important that those in the business’s senior management can be held accountable. In order to ensure that this can happen, directors of UK companies owned by private equity firms are subject to the same duties and obligations as other directors. They must comply with the duty to promote the success of their company in Section 172 of the Companies Act. They must exercise reasonable care, skill, diligence and independent judgment, and they must comply with insolvency law. To ensure that any payments to shareholders are legal and sustainable, any dividends and other distributions to shareholders of these companies can be made only out of realised profits.

Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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The argument is that there are all these laws to protect everybody. Has any action been taken against any private equity firms for disobeying any of these laws?

Baroness Penn Portrait Baroness Penn (Con)
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I will have to check that point for the noble Lord and get back to him in writing. From memory, action has been taken but I would want to check whether it was specifically against private equity companies or private equity-backed companies, rather than more broadly. I will also acknowledge, later in my speech, that there are instances where the laws and regulations have not always worked well, and where there is more progress to be made, such as in our audit reforms.

In addition, many private equity firms have voluntarily taken action to improve their disclosures by signing up to Sir David Walker’s Guidelines for Disclosure and Transparency in Private Equity. Private equity-backed companies above a certain size that volunteer to sign up to these guidelines agree to disclose information comparable to that published by listed companies in the FTSE 250. These regulations and guidance aim to ensure that private equity firms’ involvement in UK companies is in the best interests of the company and its employees in the long term. To further support this, the Government have reviewed the legislation on limited partnerships and intend to introduce measures in this parliamentary Session that will increase the transparency of the ownership and activities of these structures.

Transparency is important, and it is vital that investors and all those who depend on the largest companies can rely on the information they publish. That is why the Government are taking further action in this area, which aims to protect the UK economy against risks to jobs, pensions and suppliers from unexpected company collapses. Under the Government’s recently announced audit and corporate governance reform plans, the definition of a public interest entity will be expanded to cover virtually all types of company with a turnover of more than £750 million and more than 750 employees. This means that large private equity-owned companies will be subject to enhanced disclosure obligations relating to resilience and other matters. They will also be subject to stronger audit rules and the new, strengthened regulator will have powers to sanction directors for breaches of duties relating to reporting and audit.

As a result of these audit and corporate governance reforms, private equity-backed firms will have to publish information about the risks they face and the steps they have taken to prevent fraud, and disclose their realised profits and losses which are the basis for dividend payments. The Government recognise that instances of asset stripping do occur, to the detriment of creditors, employees and wider stakeholders. That is why, in 2018, the Government committed to delivering new powers to better enable insolvency practitioners to reverse transactions that have unfairly extracted value from companies prior to formal insolvency proceedings. The Government’s reforms will enhance the transparency requirements for our largest companies as well as the tools our insolvency practitioners can access. This is designed to ensure that large UK firms will not be able to dish out dividends when they are on the brink of collapse.

To address the point made by the noble Viscount, Lord Chandos, about the creditor hierarchy for small traders, the hierarchy that currently exist in insolvency law—

Money Laundering and Terrorist Financing (Amendment) (No. 2) Regulations 2022

Debate between Lord Tunnicliffe and Baroness Penn
Tuesday 19th July 2022

(2 years ago)

Grand Committee
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Baroness Penn Portrait Baroness Penn (Con)
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My Lords, I begin by emphasising that this Government recognise the threat posed by economic crime to the UK, and we will continue to do whatever it takes to combat money laundering and terrorist financing at home and abroad. The UK has played a pivotal role in tackling illicit finance internationally by building political commitments, championing global standards as a founding member of the Financial Action Task Force and pioneering domestic powers, which are being replicated around the world. The international standards set out by the FATF are at the heart of the UK’s approach to fighting money laundering and terrorist financing. We are also clear that global leadership must be underpinned by strong domestic action.

Although our domestic action must be strong, it must also be proportionate to ensure that we minimise the burden on legitimate customers and businesses. In January 2020, we transposed the EU’s fifth money laundering directive, which provided for the addition of art market participants, letting agents and crypto asset businesses to the regulated sector and set out discrepancy reporting requirements to ensure the accuracy of the UK’s beneficial ownership registers. We also made separate changes to the money laundering regulations earlier this year in relation to high-risk countries and trusts. These changes give us the opportunity to debate the latest economic crime risks and help us target strategies to better protect the UK from overseas illicit finance flows.

Despite that progress, we know that there is more work to be done to deter money laundering and terrorist financing actively and effectively in the UK in a way that is proportionate and manages burdens on businesses. As part of that work, we are making further necessary updates to the money laundering regulations through the secondary legislation we are discussing today.

It is vital that AML regulation keeps pace with the rate of technological change so that no part of our financial system is prone to exploitation by criminals. This instrument therefore extends FATF recommendation 16, known as the travel rule, for crypto asset firms. The travel rule requires that information on the identity of the originator and beneficiary of a transfer of funds or assets is sent and recorded by the firms making the transfer. This means that transfers of crypto assets will become subject to the same rigorous AML requirements as bank transfers, allowing money laundering and terrorist financing to be detected and investigated effectively.

We are also closing the gap in the regulations by requiring proposed acquirers of already-registered crypto asset firms to notify the FCA ahead of such acquisitions, allowing it to object to such acquisitions or changes in control before they take place. This will stop unregistered firms gaining access to the UK market, ensuring further robustness of the regulations. We would like to implement this important change at the earliest opportunity, 21 days after the SI is made.

This instrument also makes several other discrete, targeted changes which are intended to ensure that the regulations are aligned with the updated risk assessments and new international standards. I will highlight just a few of them. For example, to ensure we are aligned with FATF standards on proliferation financing, this instrument will introduce a requirement for supervised persons and the private sector to identify and assess the risks of potential breaches, non-implementation or evasion of the targeted financial sanctions related to proliferation financing. Her Majesty’s Treasury will also be required to carry out further national risk assessments of proliferation financing, and financial institutions and relevant persons must complete proliferation financing risk assessments and take steps to mitigate risks identified.

This instrument will go further by strengthening and clarifying how the AML regime operates, and by ensuring that the UK’s AML supervisors have the right powers available to respond to new and emerging threats. That is why the instrument will also expand the requirement in the regulations to report discrepancies between the information gathered by regulated firms and that held at Companies House, both in the course of ongoing business relationships and in respect of entities in scope of the new register of overseas entities. Not only does this change address concerns raised by industry that the discrepancy reporting provision in the regulations provides insufficient clarity but it will enhance the accuracy and integrity of the companies register, closing a clear gap in the current system.

We are also amending the definition of a trust and company service provider, or TCSP, to cover the formation of all business arrangements, not just companies, that are required to register at Companies House and ensure that customer due diligence must be conducted on these business arrangements when they are the customers of TCSPs. This change will support the objectives of BEIS-issued proposals on limited partnership reform and improving the transparency and integrity of the companies register.

It is also important that we improve the information and intelligence-sharing gateway in the regulations, which was an important focus in the first economic crime plan and a key ask from industry. Therefore, we are expanding the information-sharing gateway to allow for reciprocal sharing from relevant authorities, including law enforcement, to supervisors. We are also expanding the list of relevant authorities in the regulations explicitly to include key government agencies, such as Companies House. This instrument also makes several technical and clarificatory changes to the regulations, to ensure that they are up to date and continue to work in the best way possible.

Noble Lords will be aware that the Secondary Legislation Scrutiny Committee raised the regulations as an instrument of interest in its sixth report, published on 30 June. Noble Lords will have hopefully also had sight of the statutory instrument’s impact assessment, published on 14 July. Unfortunately, the impact assessment received a red rating from the Regulatory Policy Committee. Despite this, I support the SI proceeding given the time-sensitive nature of some of these measures and the impact of choosing not to address the loopholes and changes in risk where we have identified them. Her Majesty’s Treasury is undertaking further analysis this summer to improve the data available for future impact assessments.

I thank noble Lords for their examination of this important legislation and hope they will join me in supporting the instrument. I beg to move.

Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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My Lords, I am grateful to the noble Baroness, Lady Penn, for introducing this SI, following last week’s postponement. Let me say from the start that we support these revisions to the money laundering regulations, or MLR. Any proportionate measures that strengthen our hand in the fight against illicit or terrorism financing are a good thing.

It could be argued that some of these measures should have been introduced earlier. In recent months we have discussed the Government’s mixed record in relation to tackling money laundering and fighting financial crime. However, rather than trying to score political points today, I instead wish to ask the Minister a series of questions about the Treasury’s approach.

First, can the Minister tell us about the process underlying the accompanying impact assessment? She very kindly wrote on 14 July to inform me that the assessment had been rated red, or “not fit for purpose”. Nevertheless, the Treasury wanted to push ahead with the debate as planned. Despite that correspondence saying that the IA had been published online, I was unable to find it on the legislation.gov.uk website last Wednesday afternoon. This debate was therefore delayed. This may be a fairly minor concern in the grand scheme of things, but legislative processes are important.

Although we have concerns about the IA achieving a red rating, we will nevertheless support the regulations’ passage. As I said earlier, many of these changes are sensible and technical updates. The technical nature of the money laundering regulations, however, gives rise to another question. The success—or otherwise—of MLRs relies on formal guidance for individual sectors. These documents need to be updated and get final approval from the Treasury before dissemination. When is that process expected to begin and how long is it likely to take?

Turning to other issues, could the Minister go into a little more detail on the Government’s approach to crypto assets. It seems sensible to extend the so-called travel rule, as well as the power of the Financial Conduct Authority in relation to annex 1 companies dealing with crypto assets. Since the Russian invasion of Ukraine, we have seen the exploitation and movement of crypto assets as a means of circumventing international sanctions. We are also seeing more and more criminal funds funnelled into different forms of digital assets, as there is a perception that using such avenues carries significantly less risk of intervention by law enforcers and regulators. If the new measures help to tackle these realities, that is welcome, but does the Minister agree that the need for wider regulation in this area is becoming ever more urgent?

The previous Chancellor was a big supporter of crypto. He stated his ambition for the UK to become a “global hub”—indeed, this will be the subject of a Question on Thursday. Can the Minister confirm that the new Chancellor shares Mr Sunak’s enthusiasm, or are we likely to see a change in both ambition and regulatory direction?

We are, of course, in the midst of a wider review of the UK’s anti-money laundering regime. According to the Explanatory Memorandum, that review is

“intended to shape the UK’s broader direction on AML for the coming years”.

If I am not mistaken, completion of that review was expected in June. Can the Minister confirm that it was completed as planned and, if so, might she be able to commit to a timescale for the publication of its outcomes?

Given the UK’s participation in the Financial Action Task Force, just how much flexibility do the UK Government have? We are free to deviate from the FATF in instances where there is minimal risk, but will the Government want to threaten getting a cleaner bill of health as part of the body’s 2025 UK review?

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Baroness Penn Portrait Baroness Penn (Con)
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My Lords, I thank the noble Lord for his questions. I will attempt to answer them now as best I can so that, hopefully, we can both enjoy a quieter Summer Recess. If I do not manage to, I will write on the outstanding ones.

He asked first about the process underlying the impact assessment. The Treasury sought to collect quantitative data on the costs and impacts of the proposed amendments to the money laundering regulations through extensive stakeholder engagement and the SI’s consultation period, but it did not obtain as much data as anticipated. Further attempts were made by officials to gather urgent evidence to rectify some of the data gaps that were identified, but unfortunately efforts were limited by the need to deploy resource on to pressing issues arising from the Russian invasion of Ukraine.

I am assured that the impact assessment was published on legislation.gov.uk on 14 July and on the GOV.UK page, where the consultation and government consultation response for the instrument were also published. I have not navigated those websites myself, so they are perhaps not as user-friendly—

Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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I wonder whether the Minister could accede to my ageing years and inability to get these funny things out of that funny website and just send them to me.

Baroness Penn Portrait Baroness Penn (Con)
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I will happily do that. Skipping ahead slightly to the money laundering regulations review that the noble Lord referred to, the Government published their review on 24 June, which I will send to the noble Lord along with the impact assessment I referred to. On that review, the report sets out the future direction of anti-money laundering policy, including reforms to the UK’s supervision regime and potential changes to the money laundering regulations to ensure that they remain proportionate and effective.

The noble Lord asked about guidance. The guidance to support firms in their compliance with the money laundering regulations, as he noted, is drafted by sector- specific expert bodies and then approved by the Treasury. Updates to the guidance to reflect the changes brought in by this SI are already under way. The Treasury will commence its approval process to ensure accuracy and consistency once it has received that draft guidance. I do not have an end date for the process but I can reassure the noble Lord that it has already begun.

On crypto, I cannot speak for the new Chancellor, but I can speak for the Government’s position in terms of both being ambitious for the UK as a market for crypto currency but within that making sure that it is well regulated. Those two things go hand in hand. We will see measures in the forthcoming financial services and markets Bill relating specifically to the regulation of stablecoins, which are a form of crypto, as well as further consideration from the Government about the wider regulation needed in that area.

The Financial Action Task Force is the international standards setter for anti-money laundering and counterterrorism financing. Where members do not sufficiently meet their obligations to implement FATF standards, they are publicly identified by the FATF and subject to enhanced monitoring. All FATF members must report three times a year on the measures they are taking to protect against money laundering. As an FATF member, we are committed to maintaining those standards, particularly post EU exit, where the FATF is the international standards setter in this area. As I referred to in my opening speech, some of the measures here address some points from the FATF on proliferation financing.

The noble Lord asked about progress on implementing the economic crime Act part 1 and the register of overseas entities. During the Bill’s passage through Parliament, the Government undertook to deliver the register as soon as practicable. The three UK land registries, together with Companies House, have been working at pace to ensure that we can get the register up and running as quickly as possible and that it works as intended. We had statutory instruments laid before the House in June and further regulations approved by the House last week. The register is planned to begin operating over the summer, with further instruments to underpin the register’s operation made in the autumn.

On the economic crime Bill part 2—to use its unofficial name—I reassure the noble Lord that my noble friend’s commitments still stand, and I believe that we expect to see the Bill introduced to Parliament shortly after the Summer Recess, which I think would still count as “early in the Session”.

The powers of Companies House to investigate are narrowly defined under current legislation. Funding was allocated at the spending review to improve data-sharing capabilities and develop a system to verify identities of directors and deploy machine learning to identify suspicious activity. However, we need to go further through reforms proposed in the new economic crime Bill. That is why noble Lords have pressed us so hard on its introduction.

This is a complex area of law. The Companies House reforms amount to the largest change to our system of setting up and operating companies since the companies register was created more than 170 years ago, so we need to ensure that the proposals are effective and work coherently. As I said, the Government intend to introduce this legislation shortly after the Summer Recess.

I hope that I have addressed the noble Lord’s points. I owe him a letter containing the documents we discussed anyway. If I have not addressed any of his points, I will make sure that they are included there. I commend these regulations.

Economic Downturn

Debate between Lord Tunnicliffe and Baroness Penn
Monday 18th July 2022

(2 years ago)

Lords Chamber
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Baroness Penn Portrait Baroness Penn (Con)
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I reassure noble Lords that they will not have to wait at all. We are investing in skills across the range of our workforce to ensure that those who are out of work, or in work where they could be making better use of their skills, can find those opportunities. We need to encourage people back into the workforce—for example, older workers who moved out of the workforce during the pandemic—and we need to use migration in a targeted way to ensure that we get the right skills that this country needs.

Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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My Lords, media reports suggest that Ministers are to launch a multibillion pound business loan scheme in an attempt to counter a looming recession. Can the Minister confirm whether an announcement will be made to Parliament before the Summer Recess? Can she also confirm what measures, if any, are being put in place to avoid the level of fraud seen under the Covid support schemes?

Tax Cuts: Fiscal Impact

Debate between Lord Tunnicliffe and Baroness Penn
Wednesday 13th July 2022

(2 years ago)

Lords Chamber
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Baroness Penn Portrait Baroness Penn (Con)
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My Lords, the Government have taken a number of initiatives in the areas that my noble friend refers to, including the reform of business rates and looking at an online sales tax. She is right that, as our economy changes, we must always look at how our tax system can keep up with it. On tax cuts, the most recent tax change brought in by this Government happened this month, the largest ever increase in a personal tax starting threshold, which took an additional 2.2 million people out of paying class 1 and class 4 national insurance contributions.

Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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My Lords, the Government argue that rising inflation is a global challenge. However, the IMF and the OECD have warned that when put alongside comparable economies, the UK carries a much bigger risk of persistent high rates. This is bad for household budgets and consumer confidence. What is it about 12 years of Conservative control of the economy that has left us in this position?

Baroness Penn Portrait Baroness Penn (Con)
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The noble Lord will know that it is international factors that are driving high rates of inflation, including supply chain disruption after the pandemic and the war in Ukraine. However, he is right that the UK has a combination of factors. It is more exposed to higher energy prices than economies such as the US and it has a tighter labour market than fellow European countries. These put us in a slightly different position. However, people should be reassured that the Government are absolutely determined to tackle inflation. We have a plan that will bring it back under control.

Financial Inclusion

Debate between Lord Tunnicliffe and Baroness Penn
Monday 11th July 2022

(2 years ago)

Lords Chamber
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Baroness Penn Portrait Baroness Penn (Con)
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I agree with my noble friend’s sentiments. As he pointed out, a cut to the taper rate of universal credit is essentially a tax cut for those on the lowest wages, and it makes sure that the incentives are aligned for them to take on more work and bring home more money. So I totally agree with him, but I cannot speculate on any future policies in that direction.

Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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My Lords, I congratulate the noble Lord, Lord Holmes of Richmond, on his tenacity on this subject, which has made this fact stand out to me: 22% of adults have less than £100 in savings. They are not just unlucky; they are victims of the policies of firms, ranging from car parks to banks, to reduce costs and hence make more profit. We need a comprehensive and holistic approach, and the Government are going some way down that road, but the Financial Inclusion Commission wrote to Mr John Glen, setting out a comprehensive way forward, including the concept of a “have regard” duty on the FCA. Is that letter being responded to, and how does it fit in with the Government’s general approach?

Baroness Penn Portrait Baroness Penn (Con)
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My Lords, I am sure that that letter will be responded to, although I take this opportunity to pay tribute to the work of my honourable friend John Glen, to whom the letter was addressed, as Economic Secretary to the Treasury. He has done a huge amount in post to promote financial inclusion, and I reassure noble Lords that that work will continue. For example, the FCA has consulted on its new consumer duty. The noble Lord referenced those who do not have access to savings. Of course, the Government have the Help to Save programme to ensure that those who are on lower incomes get more support to save so that they have a financial buffer for when times are tough.

Financial Services Act 2021 (Prudential Regulation of Credit Institutions and Investment Firms) (Consequential Amendments and Miscellaneous Provisions) Regulations 2022

Debate between Lord Tunnicliffe and Baroness Penn
Tuesday 5th July 2022

(2 years ago)

Lords Chamber
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Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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My Lords, I thank the Minister for introducing these regulations. They build on the Financial Services Act, which was generally not contentious legislation. Arguments took place about the transparency of rule-making by the regulators, but the introduction of the investment firms prudential regime and several other changes were seen as sensible steps forward.

One suspects that the forthcoming financial services and markets Bill will be slightly more controversial. Much media speculation about the forthcoming Bill suggests that it will simply deregulate, rather than regulate in a smarter way. Our departure from the EU undoubtedly presents opportunities for our world-leading financial services sector. However, we must not put the stability of the sector at risk in the pursuit of relatively marginal gains. Many of the protections put in place after the 2008 global crisis were sensible. Financial institutions have become accustomed to them. They provide confidence to customers. When we see the Bill, I hope that they will not have been swept away. That would expose the Government and the public to unnecessary risk.

Turning back to the regulations before us today, I am pleased to say that we are generally supportive. They contain largely technical amendments to ensure that IFPR, Basel III bail-in procedures and securitisation regulations operate more effectively in the UK context. We have played a leading role in developing many of these policy frameworks at the international level, whether as an EU member state prior to our exit or as a member of other organisations and committees.

Can the Minister comment on how the Treasury and regulators will be assessing and reporting on the impact of the various changes once they have taken full effect? What, if any, role will there be for Parliament, beyond the day-to-day work of Select Committees, for example, as these impacts become apparent? Can she also comment on the anticipated timescale for the implementation of Basel III.1? We expect consultation on the final part of the framework shortly, but can she confirm whether it is the intention to implement reforms alongside international partners? If that is the case, what would happen if another key jurisdiction, such as the European Union, were to postpone its implementation date?

I turn to other areas covered by the regulations. Can the Minister comment on what work is being undertaken to assess the impact of current bail-in procedures and thresholds on mid-tier and challenger firms? UK Finance has called for changes to the threshold for smaller banks, as well as a sliding scale depending on institutions’ total assets. Is the Treasury looking at these suggestions in partnership with the regulators? Might we see something on this topic in the forthcoming primary legislation?

Finally, this statutory instrument corrects a number of deficiencies in retained EU law that were not identified during earlier tidying-up exercises. There is a consistent theme across different policy areas: departments prioritised changes to the retained law that were day-one critical, setting aside less fundamental tweaks until appropriate vehicles became available. Should we expect further corrections to retained EU law in future SIs, or is the Treasury confident that all deficiencies have now been captured? Have there been any practical issues for either the regulators or the financial institutions as a result of the failure to correct deficiencies in a more timely manner? How do these amendments fit into the Minister for Government Efficiency’s drive to repeal vast swathes of retained EU law?

In this field, many instruments contain essential technical information. They were not, as is often stated, forced upon us; rather, they came out of processes led by UK Ministers. With that in mind, can the Minister confirm whether the Treasury has been given any targets to reduce the volume of its retained EU law by the Cabinet Office? If so, what will that process look like?

Baroness Penn Portrait Baroness Penn (Con)
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I thank noble Lords for their contributions today and will address the points raised by the noble Lord, Lord Tunnicliffe, in his constructive speech.

The noble raised the forthcoming financial services and markets Bill. I will be absolutely clear that the Government are committed to maintaining high standards of regulation, while ensuring that rules are appropriately tailored to UK markets.

In assessing the two provisions this SI covers, the regulators have published a full cost-benefit analysis of the impact of their rules, which have applied from 1 January this year. It will be up to the PRA and FCA to consider whether any further tweaks or changes to the regimes are needed, now they are fully in force.

Parliament’s role has been to scrutinise the draft rules when they were published for consultation. Parliament is of course entitled to ask questions of the PRA and FCA in relation to the two prudential regimes.

In the future regulatory framework review consultation, the Government proposed measures setting out clearer requirements on when and how information should be provided to Parliament by regulators to support effective accountability and scrutiny. Once the reforms proposed in the FRF review are legislated for through the upcoming Bill, the measures will apply to these and future regimes. I am sure we will have much more discussion of the Government’s proposals when that Bill reaches this House.

With regards to the timescales for implementing the Basel 3.1 standards, as the noble Lord, Lord Tunnicliffe, mentioned, the PRA is expected to publish a consultation paper on its proposed implementation of the reforms in the fourth quarter of this year. That consultation will include a proposal for Basel 3.1 rules to take effect from 1 January 2025, which would align the UK’s implementation of the final set of reforms with the EU’s.

I recognise the noble Lord’s concerns around disjointed global timelines. International alignment will be critical to the effective implementation of Basel 3.1, and it is important that jurisdictions co-operate on this to ensure that disruption to firms is minimised and to maintain a level playing field. By proposing a timeline similar to the EU’s, the PRA has already signalled a willingness to align implementation with other major jurisdictions. The PRA can set its timeline only on the basis of what it knows at present. As more information becomes available, for example on the US or EU timelines, it can of course reconsider.

The noble Lord, Lord Tunnicliffe, mentioned the impact of current bail-in procedures on mid-tier and challenger banks. The Bank of England considered this as part of its review of the MREL framework last year and published its updated statement of policy in December. The Government are pleased that the Bank’s updates include a glide path that will provide more advanced certainty for firms, and a longer, more flexible transition period to meet MREL. I am also pleased to see the Bank is exploring how to improve depositors’ outcomes in insolvency and, subject to the outcomes of that work, considering whether it could significantly raise or remove the transactional accounts threshold.

As the noble Lord will be aware, the Bank has a set of statutory objectives and powers to ensure that resolution maintains critical banking services while protecting financial stability and public funds. The Treasury has worked closely with the Bank on its MREL review, and the Government are content that the Bank’s proposed changes to the framework for setting MREL ensure that the policy continues to provide appropriate protection for financial stability and public funds, while ensuring a proportionate approach to growing firms.

Working from Home

Debate between Lord Tunnicliffe and Baroness Penn
Monday 4th July 2022

(2 years ago)

Lords Chamber
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Baroness Penn Portrait Baroness Penn (Con)
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I would absolutely echo my noble friend’s language around balance, and he has mentioned some of the other benefits of hybrid working that we have discussed. Each government department sets its own hybrid working policy. The Treasury, for example, expects staff to work 50% of the time in the office and the remaining time at home over a two-week period. I think that strikes a balance.

Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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My Lords, flexible working is one of the many issues that could and should be included in an employment Bill. That legislation has been promised for years, but still we wait for the Government to bring forward proposals. With these questions becoming more urgent, why did the Government opt against including that Bill in the recent Queen’s Speech?

Baroness Penn Portrait Baroness Penn (Con)
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My Lords, I am afraid that I am not sure I can add to any previous answers on the employment Bill, except to say that we are still committed to bringing one forward when parliamentary time allows. However, progress on our Good Work agenda does not need to wait for the Bill: we have made progress on a number of initiatives, either through secondary legislation or policy changes, and we will continue to look for those opportunities to make progress on that agenda.

UK Infrastructure Bank Bill [HL]

Debate between Lord Tunnicliffe and Baroness Penn
Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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My Lords, I am grateful to all noble Lords who have spoken in this important debate. I am particularly grateful to the noble Baroness, Lady Bennett, the noble Lord, Lord Ravensdale, and the right reverend Prelate—who is not present—for their support in tabling Amendments 4 and 5. Those texts are similar in intent to my Amendment 12, and those colleagues made a powerful case for tightening up the bank’s second objective.

I thank the noble Baroness, Lady Kramer, who joined the noble Lord, Lord Ravensdale and the noble Baroness, Lady Bennett, in signing Amendment 12, which I shall turn to now. The Government say their absolute priority is to deliver their levelling-up agenda. Ministers say they will use every tool available to them to ensure left-behind communities can catch up economically, compared to London and the south-east. However, anybody reading the Bill would be hard-pressed to identify that intent. Yes, the bank should be operationally independent from government, but that does not mean it cannot support the levelling-up agenda in its day-to-day work.

Amendment 12 would, in essence, place the first mission from the Government’s recent Levelling Up White Paper in the Bill. The amendment would not prevent the bank from acting in a manner that deviates from that mission. It will be free to invest in climate-related schemes or projects in wealthier parts of the UK; that would remain the bank’s prerogative. However, the amendment would introduce a general requirement for the bank to have regard to the public interest in targeting funds in a manner that will improve productivity, jobs, pay and living standards.

The Government say they want to create good jobs, lift people’s pay and improve life chances. However, at the same time, Ministers are slashing the size of the Civil Service and washing their hands of responsibility for pay negotiations in sectors where the Government have a direct interest. We still await an employment Bill that has been promised for many years. That Bill was not deemed a big enough priority to be included in the Queen’s Speech, meaning many workers will lack important statutory rights.

The aforementioned White Paper mentions that by 2030, the Government want to see the gap between the best and worst performing regions of the UK narrowing. We want to see that gap close, too, but let us be realistic: it will require concerted action, not just warm words.

The year 2030 is not very far away. Let us consider the current economic context: the economy is on the brink of recession and is forecast to flatline in 2023. The cost of living crisis is squeezing household incomes to an extent not seen for decades. There is not a huge amount of time to turn this picture around. If we are to do so, we need urgent action to create secure, well-paid jobs, and the bank can help only if it is explicitly encouraged to do so.

Amendments to the framework document or strategic steer are not enough to target the bank’s mind or provide comfort that the Treasury is sufficiently invested in following through with its stated ambitions. It is regrettable that the Government have not brought forward their own amendment at this stage in proceedings. We have pushed for this in meetings with the Minister but have not succeeded.

We will listen carefully to the Minister’s response today but feel that this is an important issue which deserves to be in the Bill. Unless the noble Baroness is able to commit to an amendment at Third Reading, I am minded to test the opinion of the House when Amendment 12 is called.

Baroness Penn Portrait Baroness Penn (Con)
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My Lords, I will first take Amendment 2 from the noble Lord, Lord Sharkey, which, as he explained, seeks to probe our use of “and” in the activities of the bank to see whether it must meet both objectives or just one. As we discussed previously, the bank’s two objectives—to help tackle climate change and to support regional and local economic growth—are both stand-alone but complementary objectives. I can confirm that the Bill’s drafting does not mean that a project must meet both of those objectives but rather that over the breadth of its activities the bank must meet both.

The bank can invest in projects which meet only one of these objectives, so long as supporting a project to deliver regional and local economic growth does not do any significant harm against the bank’s climate objective. The bank wrote to noble Lords with further detail on the “do no significant harm” policy on Friday.

To address the noble Lord’s two specific questions, there is no reverse or equivalent “do no significant harm” policy for climate change investments with regard to local and regional economic growth. However, in reality we do not consider the bank likely to invest in something harmful to economic growth given the need to crowd in private capital and be additional, in line with its investment principles. The bank will create its own framework for assessing what “do no significant harm” means, drawing on best practice from around the world.

Amendments 4 and 5 from the noble Baroness, Lady Bennett, and the noble Lord, Lord Ravensdale, attempt to define levelling up within the local and economic growth objective of the bank. I reiterate why we have taken the approach that we have. The Bill sets the foundation on which the bank will operate. The specificity of how the bank’s objectives will be achieved will be contained in the framework document and in the strategic steer and strategic plan. This is the appropriate use of primary legislation, which can be a blunt and inflexible tool. Specificity in the Bill must be backed up with detailed and precise drafting, and a number of the aspects which we will discuss today are not easily defined. Failure to do this unnecessarily increases the risk of legal challenges which the bank will face, and that increased risk could result in the bank having a decreased risk appetite for investment.

That is why we have taken the approach we have done with the objectives. We have kept the high-level principles in legislation and supplemented those with additional information in the strategic steer and the framework document. The definition of local and regional economic growth is addressed in the first strategic steer, issued by the Chancellor in March, which stated that a focus on geographic inequality must be a priority for the bank. It also pointed to the Levelling Up White Paper to set out the missions with which the bank should align itself when considering investments. We could not do something like that in the Bill.

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Lord Tunnicliffe Portrait Lord Tunnicliffe (Lab)
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My Lords, I am grateful to the noble Lord, Lord Sharkey, and the noble and learned Lord, Lord Thomas, for tabling the various amendments in this group. I was pleased to sign Amendment 18, which would increase transparency relating to Treasury directions. The Minister and her officials have offered several helpful assurances on this subject during discussions between Committee and Report. I am grateful for those assurances, but I am not convinced that they go far enough. As with the earlier group on job creation and levelling up, this may be another area where the Treasury leans on the framework document as the preferred way forward. If that is where we end up after the Bill has been considered in another place, so be it, but there is merit in this House taking a view on transparency safeguards today.

Sadly, we have become all too familiar with non-legislative commitments or safeguards being flouted. By strengthening Clause 4, we can at least ensure that the bank will have a voice if there are concerns around the Treasury’s use of its powers. Accordingly, if the noble Lord, Lord Sharkey, divides the House on this issue, he will have our support.

Elsewhere, I appreciate the wish of the noble Lord, Lord Sharkey, to see the regulations under Clause 2 subject to a form of super-affirmative procedure. However, this concern was not raised by your Lordships’ Delegated Powers and Regulatory Reform Committee, and we will of course debate relevant regulations if and when they are brought forward in the future. The noble and learned Lord, Lord Thomas, has tabled a number of amendments in this group, and I hope that the Minister will be able to provide a comprehensive reply.

As with so many other pieces of Whitehall legislation, there is a clear overlap with devolved competence, and the Government will therefore have to seek consent Motions. I have huge sympathy for Amendment 21, which seeks to ensure formal consultation with the devolved authorities in certain circumstances. While the Government will dispute this, they have a poor and arguably worsening record in engaging with colleagues in the devolved nations. However, I am not convinced that an amendment to the Bill would change that, or that Conservative MPs will defy the Whip when the Bill is considered in the Commons. I hope this is an area where the Minister can provide strong, non-legislative commitments. Crucially, the Government must then follow through on them.

The union is at least fragile, and the way these relationships are conducted can add to that fragility. It is crucial on this occasion that the Government do everything they can to overcome the present concerns on this matter.

Baroness Penn Portrait Baroness Penn (Con)
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My Lords, Amendment 13 in the name of the noble Lord, Lord Sharkey, seeks to make the bank’s delegated powers subject to the super-affirmative procedure. As indicated in Erskine May, the super-affirmative procedure has been deployed for secondary legislation where an exceptionally high degree of scrutiny is thought appropriate. This procedure has rarely been considered the appropriate one to prescribe in primary legislation; where it has, the relevant instances have tended to be of a particularly substantive and wide-ranging sort. The noble Lord, Lord Sharkey, gave us an example but I had another: the Legislative and Regulatory Reform Act 2006, where the super-affirmative procedure was used to regulate significant powers under which Ministers could amend legislation to remove regulatory burdens. It cannot be said that amending the bank’s activities or the definition of infrastructure reaches the threshold of requiring the super-affirmative procedure. I have noted comments from noble Lords, but I also draw to their attention the Delegated Powers and Regulatory Reform Committee’s response to the Bill, which stated:

“There is nothing in this Bill which we would wish to draw to the attention of the House.”


On the other amendment from the noble Lord, Lord Sharkey, in this group, Amendment 18 on the power of direction, I recognise that there has been some concern about the wording in the framework document in relation to the issuing of directions. In particular, there were concerns that the Treasury would be able to “gag” the bank. That is clearly not the intention, and I have taken away the wording in section 15 of the framework document to make it clear that Her Majesty’s Treasury is not able to prevent publication of a written direction or any reservation notice in respect of that direction.

It is incumbent on the Treasury to meet its obligation to publish the direction and any associated reservation notice as soon as appropriate. Of course, there can be circumstances in which the publication of a written direction or any associated reservation notice needs to be delayed for reasons of national security or commercial sensitivity. An example of this occurred, in relation to a similar power in a different circumstance, during the sale of British Steel Ltd, where the Secretary of State directed the Permanent Secretary to continue an indemnity with the official receiver but delayed publication during negotiations with Jingye, despite value-for-money uncertainties, as to publish at the time would likely have undermined the rescue deal due to commercial sensitivity concerns. However, I will be clear with the House that if publication of a written direction were to be delayed for reasons of commercial sensitivity or national security, we would ensure that it was sent to the chair of the Public Accounts Committee immediately and on a confidential basis.

I hope that I have addressed the points made by the noble Lord, Lord Sharkey. However, to be absolutely clear, and maybe to go further than I did in our previous discussions, we will amend the framework document to be clear that where a direction is issued, an accompanying reservation notice “must” be published—rather than “may”—and, to further clarify, the content of the direction and reservations must be published rather than the fact of their existence. I hope that that provides further reassurance to noble Lords on that matter.

The amendments to Clause 3 in the name of the noble and learned Lord, Lord Thomas, seek to ensure that the bank’s framework document is updated to reflect any strategic steer, and that any revised framework document will be laid in Parliament. In maintaining the bank’s framework document, the Treasury will follow the guidance set out in Managing Public Money. This guidance states that framework documents should

“be kept up to date as the partnership”—

between a department and its arm’s-length body—

“develops.”

The Treasury will update the bank’s framework document as needed to follow this guidance. As has already been noted, the Treasury is currently reviewing the framework document and will publish a new version once the Bill has passed, which will include changes brought about by this House; for example, the clarification which I mentioned earlier in relation to the bank’s ability to publish a reservation notice if the Treasury subsequently issues the bank with a direction, and, in reference to an earlier debate, the clarification of the second objective in local and regional growth relating to levelling up and regional inequalities.

On the publication of framework documents, Managing Public Money is clear. Any revised framework documents should be published and laid in Parliament. Further, the Chief Secretary to the Treasury laid a Written Ministerial Statement today where he set out that all departments should lay their framework documents in Parliament. This has put the question of publication beyond doubt.

On whether the bank’s framework document should be updated to reflect the content of the strategic steer, I think that in that respect I differ in opinion from the noble and learned Lord, Lord Thomas. Managing Public Money sets out that framework documents should contain information on purpose, governance and accountability, decision-making, and financial management. It does not specify that they should contain information on current policy steers or priorities.

The bank’s framework document and strategic steers fulfil very different purposes; the framework document providing an agreement to govern the relationship between the bank and the Treasury, and the strategic steer providing an opportunity for the Government of the day to provide steers on current priorities and policy emphases. That does not mean that there will never be circumstances in which the framework document is updated. I have already told the House that we will reflect on the wording in the framework document on the regional and local economic growth objective. However, I do not think that the framework document needs updating every time a strategic steer is issued. It should be updated only when necessary, to provide for continuity and to avoid creating unnecessary resource burdens. The noble and learned Lord, Lord Thomas, would be inventing a new process for the framework document, when there is already a process set out in Annex 7.2 of Managing Public Money.

On this, I also refer noble Lords to the strategic steer issued by the Chancellor in March. This provided a steer on priorities for the bank in light of the situation in Ukraine, and the recently concluded environment review, as well as other priorities for the bank to reflect in its first strategic plan. None of this information impacted the high-level framework under which the bank operates, as set out in the framework document, and therefore a mandatory update to the framework document would have been unnecessary. However, the strategic steer must be reflected in the bank’s strategic plans. This is provided for in the Bill.

Amendment 21 seeks to bring a consultation process on the use of some of the powers in the Bill with the devolved Administrations. I appreciate the intent, but this will cut directly across the negotiations that we are having with the devolved Administrations on the legislative consent process. This was brought up in Committee and I explained then that the normal practice is to bring forward any amendments required for a legislative consent Motion in the second House, which for this Bill would be the Commons. It would not be appropriate to accept this amendment until we have begun those negotiations with the devolved Administrations in earnest.

I hope that I can reassure noble Lords by saying that we have begun those discussions with the devolved Administrations in a positive fashion. Engagement with the devolved Administrations on the set-up of the bank was also positive. They all support the establishment of a national infrastructure bank. The bank has also been developing its own relationships with the devolved Administrations and their respective institutions, such as the Scottish National Investment Bank. The bank has now also completed deals in all four nations.

The tone and tenor of the bank’s relationships with the devolved Administrations and their respective institutions, and the way that the bank has gone about its business so far, give noble Lords in this House quite a bit of reassurance, I hope, about the collaborative approach that the bank has taken so far and intends to take in future. Therefore, I hope that the noble Lord, Lord Sharkey, feels able to withdraw Amendment 13.

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Baroness Penn Portrait Baroness Penn (Con)
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My Lords, I speak on this group with some trepidation; I hope I do not show the lack of humility that the noble and learned Lord, Lord Thomas, has accused my department of. I will stand up for the Treasury: in my dealings with this group of public servants, they have been bright and suitably humble, trying to work in the best interests of the country.

I will take the amendments in reverse order. The amendment tabled by the noble and learned Lord, Lord Thomas, as he explained, seeks to ensure that the bank’s board has the necessary expertise to deliver on its objectives. He is right to focus on the importance of the bank’s board in steering this nascent institution to deliver on its two wide-ranging objectives across the whole of the UK.

I reassure noble Lords that the bank’s board already contains a wealth of experience in infrastructure finance, policy-making, economics and green investments, across the public and private sectors. Collectively, its members have worked at similar national organisations, such as the Canada Infrastructure Bank, the UK Green Investment Bank and UK Export Finance, as well as leading financial services firms and central government departments. John Flint, the bank’s CEO, was chief executive of HSBC, and Annie Ropar was the CFO at the Canada Infrastructure Bank. So, in its infant form, it has already attracted some high-quality individuals to work there.

The bank’s non-executive directors were recruited in line with the guidelines set out by the Office of the Commissioner for Public Appointments, and were selected based on the skills they could bring to the board to deliver on the bank’s mandate. These appointments could be audited by OCPA in due course. OCPA’s guidelines include a principle of merit, which means

“providing Ministers with a choice of high quality candidates, drawn from a strong, diverse field, whose skills, experiences and qualities have been judged to meet the needs of the public body or statutory office in question.”

As I have said in previous groups, in drafting this Bill, we are seeking to create a high-level framework within which the bank can operate, while providing for the longevity of its objectives. Therefore, given that appointments are already recruited in line with OCPA’s guidelines, which we expect OCPA to review and which include a principle of merit, I do not think it is necessary to add greater specificity to the Bill on this point. Including these provisions could be overburdensome and prevent the bank and Treasury hiring the most appropriate people for the roles.

I spoke about the recent appointments in Committee, so do not propose to do so in detail again, but I would be very surprised if the noble and learned Lord, Lord Thomas, could find much fault with the appointees. He has also expressed an interest in the representation of the devolved Administrations and, as he spoke about on the previous group, in making sure that the board and the bank command the confidence of all four nations in the UK. As I said to him before and will happily say again, commanding that confidence is central to how the bank has gone about its business. The skills of the board will adequately represent the needs of all four nations, although, as I said on the previous group, specifics in that area are not necessarily a discussion for now, as they are part of the process of legislative consent. I therefore hope that the noble and learned Lord does not move his amendment when it is reached.

The amendment of the noble Lord, Lord Tunnicliffe, seeks to ensure that the bank always has a representative of the workers on its board. The UK Corporate Governance Code already states that a company should have one or a combination of a director appointed from the workforce, a formal workforce advisory panel or a designated non-executive director to facilitate engagement with the workforce. It also states that, if the board has not chosen one or more of these methods, it should explain what alternative arrangements are in place and why.

I give the noble Lord my absolute reassurance that the bank will comply with the UK Corporate Governance Code; however, as I have said, it is a nascent institution, with its board appointments made and the non-executive directors joining only recently. The bank has not yet had the opportunity to determine how it will meet this specific provision. It is currently establishing its governance and will report on its progress in its annual report and accounts. The noble Lord can expect an update there.