Oral Answers to Questions

Debate between Bim Afolami and Richard Fuller

Tuesday 6th February 2024 Commons Chamber

[Richard Fuller (North East Bedfordshire) (Con)]

Last July, following a debanking scandal, I wrote to the Economic Secretary to the Treasury about the risks of implementing so-called diversity, equity and inclusion policies. Far from being inclusive, their implementation has often been divisive, yet Labour put such policies at the heart of its financing and growth strategy just last week. Will my hon. Friend assure us that he will give clear direction to the Prudential Regulation Authority and the Financial Conduct Authority to avoid all the risks of so-called DEI policies?

[Bim Afolami]

I thank my hon. Friend for his question. I am studying those policies carefully. I am concerned about certain aspects of what is proposed, and I will be discussing the matter with the PRA and the FCA to make sure that we have sensible policies on this matter.

Draft Public Offers and Admissions to Trading Regulations 2023 Draft Securitisation Regulations 2023 Draft Financial Services Act 2021 (Overseas Funds Regime and Recognition of Parts of Schemes) (Amendment and Modification) Regulations 2024 Draft Data Reporting Services Regulations 2023

Debate between Bim Afolami and Richard Fuller

Wednesday 17th January 2024 General Committees

[Bim Afolami]

I thank my right hon. Friend for that point, and I shall respond in the following way. Under the smarter regulatory framework, the broad approach is that Parliament—in this instance, this Committee—passes secondary legislation under the auspices of FSMA. Then, the detailed rulebook—which is, believe it or not, more detailed than this statutory instrument—comes in through the operation of the FCA. My right hon. Friend made a point about the consultation process. The consultation process can be long or short. I would expect that, as with various other measures under the Edinburgh reforms, the consultation process for statutory instruments as detailed as these will be quite short. We are looking for it to happen this calendar year. I do not want to be more precise than that, but I expect it to happen this calendar year.

[Richard Fuller (North East Bedfordshire) (Con)]

I want to follow up on the comment from my right hon. Friend the Member for East Yorkshire on the role of the FCA. The Minister will be aware of the concerns of Members on the Government Back Benches about the speed with which regulators perform their duties, how much we pass on to them, and how much we trust them to fulfil the will not just of Parliament but of our representatives. That applies to the FCA. I do not expect the Minister to comment on that directly, but can he assure the Committee that he will use his position to ensure that the FCA is kept on track in implementing the reforms at pace?

[Bim Afolami]

I will surprise my hon. Friend by commenting directly on what he has said. Like him, I have spent a long time thinking carefully about the role of the FCA and other regulators and the speed with which they discharge their duties. We give them a lot of work to do, but we also hope that that work is conducted as quickly as possible. The FCA has made improvements in that regard, but it is my job to ensure that it works as quickly as possible. When it comes to the Edinburgh reforms, under which these reforms sit, the Chancellor has been very clear that one of my key jobs is to deliver: not just to say that we are doing things, but to ensure that those things come into practice. I am very focused on that.

There are three types of DRSPs: first, approved reporting mechanisms, which report details about transactions in financial markets to the FCA on behalf of investment firms; secondly, approved publication arrangements, which publish trade reports to the public; and, thirdly, consolidated tape providers, which collate trading data from a variety of sources and publish it in a single live data stream. The draft regulations establish a new framework for the regulation of DRSPs, under which the FCA will make the detailed requirements in its rulebook, as we have discussed.

The instrument also delivers the Edinburgh reforms’ commitment to establish a regulatory framework for a UK consolidated tape. Currently, there are no consolidated tapes in this country, which means that market participants must go to various sources to get a cross-market view of trade data. That makes it expensive, burdensome and difficult for investors to access the data they need to make informed investment decisions in the UK. That is why, as part of the wholesale markets review, the Government consulted on legislative changes to facilitate the emergence of a consolidated tape in this country. There was broad support for the Government’s proposals, which this instrument delivers. A tape that collates data from multiple sources into one continuous live stream will make it easier for market participants to meet best execution requirements and manage risk. That will make UK markets more attractive and competitive.

The draft Securitisation Regulations 2023 establish a new legislative framework that replaces inherited EU law on securitisation. The introduction of the securitisation regulation in 2019 directly addressed financial stability deficiencies that arose after the global financial crisis. The Treasury conducted a review of the securitisation regulation in 2021. The review aimed to bolster securitisation standards, to increase investor protections, and to develop securitisation markets to facilitate real economy lending. The new framework established by the draft regulations will allow the financial services regulators—the FCA and the Prudential Regulation Authority—to make and further reform the firm-facing rules for securitisation with more agility and proportionality. The regulators will consider taking forward reforms in line with the outcomes of their own consultations and the 2021 Treasury securitisation review, which were received positively by industry.

The instrument also takes forward other reforms identified by the 2021 review. Those reforms include boosting the UK securitisation market’s competitiveness by no longer subjecting certain overseas firms to UK requirements when investing in UK securitisation. That will make overseas firms’ requirements more proportionate and increase their incentives to invest in UK securitisations, while also removing extraterritorial supervision issues for the regulators. I want the Committee to be clear on that point. The instrument also facilitates UK firms’ participation in international securitisation markets, which should benefit our industry.

The draft Public Offers and Admissions to Trading Regulations 2023 deliver a key recommendation—perhaps the key recommendation—from Lord Hill’s listings review to fundamentally overhaul the prospectus regime, and they mark a significant step in the Government’s reforms to make our capital markets more competitive. The current prospectus regulation, as outlined by Lord Hill and industry at length in his review, is inflexible and slows the raising of capital, which is the purpose of our capital markets. The instrument creates a new framework that requires companies raising capital to publish information that is relevant and useful for investors, while removing unnecessary barriers to such information. The new regime will mean that companies raising capital are required to publish a prospectus, except where they meet a series of exceptions—for example, where a security is traded on an exchange, or where the offer of securities is fewer than 150 investors. That means that, in practice, we are removing the need for a prospectus to be published in many situations. Just so that colleagues appreciate this, the purpose of that is absolutely not to reduce information for investors but to ensure that the right level of information is appropriate for the right type of investors for the right businesses.

The instrument also establishes a new regime for securities “admitted to trading’” on a regulated market or a multilateral trading facility, and creates a new regulated activity of operating an electronic system for public offers of certain securities that are above £5 million. By removing the €8 million threshold for a prospectus, which effectively acted as a blockage for certain private-capital raising, firms can raise larger amounts of capital more easily and more quickly.

That will allow firms raising money outside of capital markets—for example, through crowdfunding platforms, which has grown in popularity over recent years—to continue to do so, but do so in a more targeted way. The FCA will be given new rule-making responsibilities to set rules that apply directly to firms, such as when a prospectus is required. That will create a simpler and more effective regime.

I will now turn to the final instrument, the draft Financial Services Act 2021 (Overseas Funds Regime and Recognition of Parts of Schemes) (Amendment and Modification) Regulations 2024—I will take away from this the need to perhaps shorten the length of the names of such regulations.

This instrument amends the statute book to support the implementation of the overseas funds regime, which is a new route allowing overseas funds from equivalent countries or territories to be recognised for the purposes of marketing participation in such funds to UK retail investors. This instrument ensures that, where appropriate, funds recognised under the overseas funds regime are treated in the same way as other recognised funds. These changes are technical, but they are necessary to allow the overseas funds regime to operate as policy intends, ahead of the first funds being recognised under it. This will be critical to continue to support a competitive funds sector for UK investors.

In closing, the first three of these SIs replace key parts of assimilated EU law, putting in place new frameworks tailored to the UK as the Government deliver a smarter regulatory framework in financial services. The final instrument, as I have outlined, makes technical changes across the statute book to support the effective implementation of the overseas funds regime and the functioning of fund recognition. I hope that the Committee will join me in supporting these regulations, and I commend them to the House.

Corporate Insolvency and Governance Bill

Debate between Bim Afolami and Richard Fuller

2nd reading & 2nd reading: House of Commons
Wednesday 3rd June 2020 Commons Chamber

[Richard Fuller (North East Bedfordshire) (Con)]

I draw the attention of hon. Members to my entry in the Register of Members’ Financial Interests.

Mr Deputy Speaker, you know, as you have been listening to this debate, that many speakers have put this Bill in the context of the current economic situation and so perhaps I shall start by providing some of my own views. I am taken back not to when I gave my maiden speech, but to about 72 days ago when this House voted through the measures that have had the economic consequences that we are now debating how to mitigate. Seventy-two days ago, every single Member of this House—me included—supported or acquiesced in the measures that have destroyed parts of our economy and put many others on life support. So how should we come into this debate? We should follow the line that the Secretary of State took: he came here with a sense of humility that these were measures that the Government had to take. He came here not with hubris, but with humility, because I think he understood that the hands of politicians—of all of us—are all over the fact that so many hundreds of thousands of businesses in our country are facing such terrible times and that so many millions of people who are in employment, or who think they are in employment because they have been furloughed, are facing some severe economic consequences as a result.

It was our decision—the decision of every single Member of Parliament—to close the economy down, and we seek to excise from our collective memory the fact that there was any other choice. We say that we had to do it, there was no other option, but of course there were other options. Other countries have followed other paths. This was the path that every single Member of this Parliament chose, and we did it because we were frightened. We did it because we were uncertain. There is nothing particularly wrong with fear and uncertainty, but, my goodness, what a cost it will bring to our economy.

The Secretary of State was absolutely right to bring this Bill forward and to do it in such a humble way. What a shame it is, as I have sat here listening to the contributions of other MPs, that that humility has not been reflected in those contributions. No, having wrought this destruction on our economy, Members of Parliament now want to rush forward with their own ideas about how they can make the economy better, how they can make it greener, how they can level it up, and how they can give employees more rights. It is as if the parsecs of collective experience in this House of running businesses make us suitable champions for the economy of the future.

We should learn some humility. If there is one message that I have for the Government and for all politicians here it is to get your sticky fingers off British business. We should let the business leaders of this country find their way back. We should say that we are sorry for destroying lifetimes of work in a rushed decision to close down the economy. People who have been forced to see all their efforts come to nothing have spent every hour of those 72 days worrying about whether they can continue to employ their workers, and worrying about whether they can sustain themselves and their families. That angst and that anxiety stems from the decisions that we made in this House. Let us have some humility, let us follow the guidance of those on the Front Bench in this debate and let us not seek an opportunity for more political meddling in our economy as a result of what we have done. I am glad to have got that off my chest.

The corporate insolvency measures in the Bill seek to address this most extreme consequence of the actions we have taken, and therefore it is quite right that this is one of the first Bills the Government are bringing forward to deal with what the economy faces. I support the measures that the Government are putting in place. It is right to bring forward greater flexibility in the insolvency regime and, as many Members have mentioned, this has been welcomed across much of industry and the professional services, and has had plenty of time for discourse and debate.

It is also right that there should be a temporary suspension of insolvency laws to enable companies to trade through this emergency. I know from my own experience as a director that the issue of personal liability, particularly in relation to going concern, is one of absolute centrality to directors. As my hon. Friend the Member for Rugby (Mark Pawsey) mentioned, it is extremely difficult for many businesses to produce a forecast in such difficult times that will provide the certainty that the directors are actually producing a forecast that is real and achievable. Indeed, as many Members have mentioned, when it comes to banks and CBILS, banks themselves have found it very difficult to interpret the forecasts that companies are putting forward. As for the temporary easing of requirements, that seems to me to be a housekeeping exercise that the Government have judged adroitly and correctly.

I have some questions for my hon. Friend the Minister. The first is about the reputation of the UK as a safe haven for capital. We have had tremendous experience of attracting foreign investment, both in equity and debt. Is he assured that that reputation is going to continue? The efficient allocation of capital is a hallmark of an effective economy. Have the measures in this Bill been checked to ensure that all providers of debt financing to our businesses understand, accept and support the changes that he is bringing forward?

On the housekeeping measure of filing annual accounts, as the Minister will be aware, the availability of updated information is quite crucial for investors and others to make judicious decisions. Of course, there is always access to the private accounts of businesses, but in the public domain those evaluations are quite important. In his judgment about whether to extend that, he will certainly want to bear in mind the consequences for extensions of that particular aspect.

In his opening speech, the Leader of the Opposition—I do apologise; the right hon. Member for Doncaster North (Edward Miliband) used to be the Leader of the Opposition, but is now the Opposition spokesman on business—talked about some very important issues relating to the balance of rights, particularly with regard to employees and the protection of pension assets. This is something that I think the Government should consider. In fact, the shadow Secretary of State was kind enough to say that this is something the Government are considering, and I think it is right for all of us to consider what the impact of the pressure on employees will be. We saw during the urgent question earlier about the bare-knuckle behaviour of the management of British Airways that desperate situations sometimes bring forward desperate attitudes, and the long-standing rights that employees felt they had no longer seem to have any currency, so that seems very pertinent to this part of the Bill.

On the cross-class clampdown, the Government are bringing forward the ability for a court to decide whether a particular class of creditors who have not themselves agreed to a settlement should be forced to accept a settlement. We have no experience in this country—perhaps we do, and the Minister could tell me if so, but I am not aware of it—of courts being able to decide between the equitable rights of one class of creditors and those of another class of creditors in coming to a conclusion that is right for all in the round. What are the Government’s thoughts about what would be required from the courts in coming to those judgments? What is required in terms of disclosure from the courts that might be useful for the Government and the public to know? What is the Government’s view about whether there will be emerging patterns of response from the courts as they come to those intra-class decisions?

[Bim Afolami]

I have done several schemes of arrangement in my previous life, and know that the courts are very used to them. We are talking about an instance where a minority of creditors would effectively be outvoted by a majority agreeing to the scheme beforehand—something that currently requires unanimity. The difference between what we have now and where we are going is therefore not actually that significant, as long as an objective judgment can be made—judges can do that; they do it all the time in the High Court—as to the financial benefit, or lack thereof, of a particular scheme to a particular creditor.

[Richard Fuller]

I am grateful for my hon. Friend’s clarification, but my concern—I may well have read the Bill incorrectly—is that we are talking not just about majority or minority, but about where the majority or minority lies. At the moment, the majority has to be within every class of creditors, and there might be a disabusing minority within those instances. Under this legislation, an entire class of creditors could become a minority, and even though they all agree that they do not like the arrangement, for example, they will be forced to accept it. I think that that is a difference of approach. If we are giving that power to the courts, it is important for us and for the Government to be clear about the pattern that is likely to emerge, because in that respect the provision is different and new.

I think that the Secretary of State has answered my next question, but I will ask it again if I may. Will the clauses that are designed to be temporary measures sunset automatically without a subsequent affirmative statutory instrument proceeding in the House? Will they be subject to the negative procedure, or continue without an SI to cancel them? I would be grateful if the Minister could clarify that at some point, perhaps in his closing remarks if he has the time.

It is relevant to raise the issue of companies and sectors that may take time to recover, beyond the relevant period. I think that is addressed in Opposition amendments 3 to 6. What if the directors themselves cannot reach a clear judgment that fully escapes the risks of wrongful trading? What is the position of someone on a directorship in this situation who reaches a dissenting opinion to the majority of directors on the important issue of whether the organisation is able to continue trading? That is another issue of detail that the Minister may wish to address in Committee.

The impact assessment for the Bill does not appear to address the cost of debt from these changes, essentially assuming that changing what has historically been a situation that favoured senior debt to one that is a little bit looser between different classes of debt would have no impact on how much that debt might be priced at in the future. But it is my understanding that increasing risk on an instrument might cause an increase in the price on it. That may have been considered in the impact assessment and have been negligible, but it would be interesting to see what the Government have to say.

I am interested in what happens in the circumstances that arise under the chapter 11 equivalent proceedings when the Government are a debtor or a shareholder in a business. Do the Government have a voice that is different from any other creditor? The contribution of my hon. Friend the Member for Wimbledon (Stephen Hammond) was interesting in this regard, as he highlighted the part of the Bill where HMRC becomes a preferred creditor. Well, those of us who have had to deal with HMRC as a creditor in the past would not mark it down as one of the most amenable of creditors when it comes to its own interests, and that is putting it lightly. In fact, as we are seeing in this Parliament already, HMRC is acting, both in the Treasury and in general, somewhat as a bovver boy in British industry. It does not seem to like people who are self-employed and it certainly does not like people who have a loan charge. Now it seems to want to have priority in the debt structures of our companies. Where will its ambitions end? Where will this Government’s facilitation of the taxman’s ambitions end? As a Conservative, I would have hoped that they would have ended some time ago. Perhaps I can tempt my hon. Friend the Minister to comment on that.