There have been 14 exchanges between John Glen and Anneliese Dodds
|1||Mon 16th March 2020||
|2 interactions (2,686 words)|
|2||Wed 12th June 2019||
Local Bank Closures
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|3||Tue 26th February 2019||
Financial Services (Implementation of Legislation) Bill [ Lords ] (First sitting)
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|4||Mon 25th February 2019||
Exiting the EU (Financial Services)
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|5||Mon 18th February 2019||
Exiting the European Union (Financial Services)
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|6||Wed 13th February 2019||
Securitisation Regulations 2018
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|7||Mon 11th February 2019||
Financial Services (Implementation of Legislation) Bill [Lords]
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|8||Tue 1st May 2018||
Sanctions and Anti-Money Laundering Bill [Lords]
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|9||Tue 6th March 2018||
Sanctions and Anti-Money Laundering Bill [ Lords ] (Fifth sitting)
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|10||Tue 6th March 2018||
Sanctions and Anti-Money Laundering Bill [ Lords ] (Sixth sitting)
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|11||Thu 1st March 2018||
Sanctions and Anti-Money Laundering Bill [Lords] (Fourth sitting)
|19 interactions (3,875 words)|
|12||Tue 27th February 2018||
Sanctions and Anti-Money Laundering Bill [ Lords ] (First sitting)
|2 interactions (417 words)|
|13||Tue 16th January 2018||
Oral Answers to Questions
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|14||Mon 15th January 2018||
|2 interactions (1,412 words)|
Thank you, Madam Deputy Speaker—that was slightly unexpected, but I am sure it reflected this wide-ranging and well-subscribed debate. We have heard some excellent maiden speeches. I wish I could praise them more fully, but it was wonderful to hear from the new hon. Members for Burnley (Antony Higginbotham), for Don Valley (Nick Fletcher), and for Great Grimsby (Lia Nici). I wish them every success in this place.
As my hon. Friend the Member for City of Chester (Christian Matheson) said, this was a Budget of two halves—a response both to coronavirus and to longer-term issues—but we needed an emergency Budget even before coronavirus came along. I am afraid I cannot agree with the rosy description the Minister gave of our economy at the start of the debate. Sadly, before the current crisis began, our economy was flatlining. We had three months of 0% growth up to January, we have had the lengthiest squeeze on living standards in this country since Napoleonic times, and we have had the slowest recovery from an economic crisis for 100 years.
We needed an emergency response in this Budget for the long term as well as the short term. I will talk about where there are some questions about the short-term response, but we broadly agree with the direction of travel and will work with the Government on those issues. However, we really need to see the long-term response. I hope we will have more detailed discussions about that, particularly once the present crisis has passed.
There has been much debate in the last few hours about public services. A number of Members talked about the new investment coming in, but a number also mentioned confusion about testing. We got more clarity during the course of the afternoon, but I make this plea to the Government: it is critical to have transparency. It was clear, at least in what I heard from the Health Secretary, that policy has been driven to an extent by the availability of testing. If that had just been made clearer earlier, we would have avoided much unnecessary confusion. We also learned today that the NHS will be required to identify and contact individuals who will need to self-isolate. I know many GP surgeries are doing that already, but we must recognise the hours that that mammoth task will take up.
Surely we also need more detail on international action. We heard the Health Secretary say today that every effort is rightly being made to bring on new ventilator capacity, for example. Can we have more detail about what work is being undertaken with other countries so we do not have an unseemly scramble for resources that are so desperately necessary in our country and others?
There was much discussion, too, about social care. As my hon. Friend the Member for Coventry South (Zarah Sultana) rightly said, we are in a difficult situation already when it comes to our social care services, with 500,000 fewer people receiving publicly funded care now than back in 2010. We did not have specific information about how social care organisations—not necessarily the small and medium-sized enterprises, which might be covered by other schemes—will be supported. A number of those bodies are already in financial difficulties. How will they be supported? We need that information.
On business support, the Health Secretary said he had his “eyes wide open” to the economic consequences of this crisis. His eyes are wide open, but he needs to take more action, given the dawning realisation of the potential impacts, which were described eloquently by my hon. Friend the Member for Vauxhall (Florence Eshalomi). Many of us share her concerns—including, it appears, Paul Johnson from the IFS, who stated today that the support so far is insufficient. We need answers to questions such as, what will be the role of the British Business Bank? What will be the precise co-ordination between banks? We know the Government are working with them, but what exactly will be done?
Critically, we also need answers about insurance. I was pleased to hear that the Economic Secretary is talking to the insurance industry but, first, we really need to understand when and if the Government will state explicitly that it is necessary to close facilities such as pubs, restaurants and leisure facilities. We know that, lacking footfall, they will practically close, but they will not be covered by insurance. Please—we need more information about that. As the hon. Member for Meriden (Saqib Bhatti) said, please can we ensure that this coronavirus is recognised for insurance purposes and push the companies to do that?
Then, of course, there are questions about support for individuals. There is a debate about sick pay tomorrow, when I am sure many Members will mention, as others did today, the need for short-working arrangements. That was mentioned by the right hon. Members for Tunbridge Wells (Greg Clark) and for Dumfriesshire, Clydesdale and Tweeddale (David Mundell), my hon. Friend the Member for Birmingham, Erdington (Jack Dromey) and the right hon. Member for Wokingham (John Redwood). He is not a man with whom I am always in perfect agreement, but he was absolutely right to point out the need for those arrangements. Germany is looking at introducing them again, as it did during the financial crisis, and Ireland is already shifting towards a similar position. As my hon. Friend the Member for Brentford and Isleworth (Ruth Cadbury) said, we seem to be a bit behind the curve when it comes to the international response in that regard, particularly in comparison with France.
There are also many questions about social security, which is essential in a situation where, as my hon. Friend the Member for Oldham West and Royton (Jim McMahon) said, so many people are a payday away from poverty. We heard many questions about help for the self-employed, which was mentioned by the right hon. Member for Epsom and Ewell (Chris Grayling) and my hon. Friend the Member for Manchester, Gorton (Afzal Khan). Simply saying that people can go on to universal credit or employment and support allowance, with all the issues we know they have, just is not good enough. As my hon. Friend the Member for Kingston upon Hull West and Hessle (Emma Hardy) said, unless we deal with income maintenance now, we will make the economic contraction even sharper than it needs to be.
There was much discussion today about housing. My hon. Friend the Member for Mitcham and Morden (Siobhain McDonagh) pointed out the dire impact of overcrowding in trying to deal with this crisis. I understand discussions about mortgages are going on and that there will be guidance on rough sleeping, but we need clarity on exactly what is going to change. Are the Government going to work with courts on evictions, foreclosures and so on?
Questions were raised about support for older people and whether the free TV licence would be provided for over-75s. What exactly is the action on free school meals going to be? It is good that the Government are talking among themselves—the Education Secretary talking to the Health team and so on—about free school meals, but what action will be taken? When will our devolved Governments know exactly which funds will be available? Just always saying, “We’ll get that information later” is not good enough.
The same situation applies to local government. As mentioned so many times, including by my hon. Friend the Member for Enfield, Southgate (Bambos Charalambous), there is no clarity yet about when public health allocations will become clear. We heard in the debate that local authorities will have even more responsibilities, for example, for burials in some aspects. Their rent will be diminished through the housing revenue account. It was telling that the Secretary of State said that help for charities would need to come from clinical commissioning groups, not local authorities. That perhaps reflects how hollowed our local authorities are, but how will the national volunteer effort, which we heard about again today, be delivered if it is not with the support of local authorities?
The Minister said at the start of the debate that we should be fighting this war while we are planning the peace. Then let us learn the lessons. We need to recognise how our response is being made harder because of changes that have occurred over recent years. My hon. Friend the Member for Ellesmere Port and Neston (Justin Madders) listed the many sad, historic NHS waiting list records we have recently reached. We did not have any reference, in introductory speeches, to the health inequalities data that have come out recently, and we did not have reference to the crises in mental health and other areas. We needed a long-term plan for social care before this crisis. We needed the 100,000 staff we are missing from our NHS before this crisis. We are asking those staff to make extraordinary efforts. They have a sense of grim determination, passion and commitment to do the right thing, but we should never, ever again be asking them to do the right thing with so few resources after 10 years.
It is a pleasure to speak with you in the Chair, Ms Ryan, in this interesting and well-informed debate, and to sit across from the Minister. I was starting to get withdrawal symptoms because there have not been many statutory instruments recently, although I am sure the Government will rectify that.
I congratulate the hon. Member for Moray (Douglas Ross) on securing this debate, as I know that the issue has seriously affected many of his constituents and local businesses. For those without an intimate knowledge of north-east Scotland, let me underline that the communities we are talking about are often far apart. They either have next to no public transport, or it is of poor quality and very expensive. Local facilities are therefore incredibly important.
As the hon. Member for Motherwell and Wishaw (Marion Fellows) rightly said, we had a debate on a similar topic just a few days ago. It was mentioned that in certain circumstances an ATM might close on a high street that still has a number of different facilities. We are not talking about that in this debate; we are talking about situations where few facilities are available. This is not about duplication; it is often about the last services moving away. As the hon. Member for Strangford (Jim Shannon) said, this is about social and rural isolation.
High street banks are an essential part of our financial infrastructure and they help to support local economies and communities. The bank branch network has been shrinking at an accelerating pace. Many statistics have already been given, but the UK has lost nearly two-thirds of its bank and building society branches over the past 30 years. In 2018 and 2019, banks and building societies will have closed, or planned to close, a total of 1,080 branches, and 3,318 branches have shut in the past four years. Banks have been closing at a rate of nearly 70 a month. Overall, a fifth of the population lives more than two miles from their nearest branch—and a good deal further away in some of the situations that have been mentioned.
The debate has focused particularly on Scotland, where there have been a large number of closures, with RBS alone closing more than 200 branches—a 70% reduction in just five years. There have been similar developments across the country. In the north-west, 425 bank branches have closed since 2015, and even in the south-east—I represent a south-east constituency—more than 410 branches have closed since 2015, including one in Headington in my constituency. Such closures occur everywhere, and they often have a particularly significant impact on the most disadvantaged people.
The recent debate on the Treasury Committee’s report on consumer access to financial services emphasised the importance of local banks at a time when many people are not able to access basic financial services. That disenfranchises them from many different activities.
Research shows that in 2006-07, more than 1 million people had no access to a bank account in their household. Although that fell to 660,000 in 2012-13, it increased to 730,000 in 2013-14. We are going in the wrong direction in terms of access to basic financial services. We need to be clear that in many cases the process is leading to people who are already digitally excluded being financially excluded. That point was very well underlined by the hon. Member for Berwickshire, Roxburgh and Selkirk (John Lamont).
There are also impacts for businesses, particularly small and medium-sized businesses. A YouGov poll showed that more than 68% of SME customers said that a branch was important, and 66% said they needed the bank branch because of the need to discuss issues face to face. The Federation of Small Businesses has done some interesting work on this. The situation in Lossiemouth when the town ran out of cash has happened in other places as well—it is not the only instance of that occurring. As the right hon. Member for Dwyfor Meirionnydd (Liz Saville Roberts) said, bank branch closures put a burden on businesses and organisations. Sports clubs were mentioned. They might be collecting a large amount of cash and want to be able to get rid of that cash to a bank branch, but they are not able to.
Worryingly, the situation is also leading to issues with SME lending. For example, the British Bankers Association pointed out that bank branch closures dampen SME lending growth by 63% on average in postcodes that lose a bank branch. That figure rises to more than 100% when an area loses its last bank in town. This is not just about inconvenience. It is a much bigger issue for many businesses, and is arguably part of the reason why we have not seen investment come back to the level we want.
The Opposition acknowledge the importance of dealing with this issue and have set out plans for a radical shake-up of the UK banking system, which needs a change to the law so that banks cannot close a branch where there is a clear local need. We believe that the duties of the Financial Conduct Authority need to be broadened, and that amendments are needed to the Financial Services and Markets Act 2000—particularly part 4A, which authorises banks to carry on regulated activity: the banking licence.
We would seek to amend the process substantively. I was pleased to hear a number of Members mention that, including the hon. Member for Stirling (Stephen Kerr). I will not go through all the details on how it should be amended, as others need to speak, but it is important that we see meaningful consultation. The hon. Member for Caithness, Sutherland and Easter Ross (Jamie Stone) also rightly underlined the fact that local authorities are often not part of the process, but they need to be.
The hon. Member for Moray and many other Members referred to the role of the post office network. There are strong grounds for believing that that role can be boosted, but not simply through it becoming the default option for offering services without any extra support. That is simply not sustainable. The Labour party has commissioned research to look at how a proper postbank network could be set up, how it could be financed and how it could operate. I hope the Government will look at that. The current approach is just not working, and we cannot rely on sub-postmasters who are already overburdened to deliver the services. A big part of the answer has to be to boost credit unions, as mentioned by the hon. Member for Ayr, Carrick and Cumnock (Bill Grant). I know the Minister is interested in that, but we need to do more.
As the debate has highlighted, it is becoming increasingly clear that we need to take action to deal with the shrinking bank branch network. The Government need to do more to invest in our communities and to support local high streets. Strengthening their approach to bank branch closures would be a straightforward way to deal with a number of issues. We need to take immediate action to preserve and build on our banking infrastructure to create a system that works and that serves a diverse range of customers and communities.
I rise to support the Opposition’s new clause 2, which is similar in intent to the SNP’s amendment 10. I would like to associate myself with many of the comments by the hon. Member for Glasgow Central. It is a pleasure to follow her in this debate. Labour’s new clause 2 is broader in scope than amendment 10, but it pushes in the same direction.
Our new clause would require the Treasury, prior to making any regulations under this Bill, to publish a report on the impact of the provisions of those regulations. In particular, we specify that the report should cover the following aspects: first, the impact of the provisions on households at different levels of income; secondly, the impact of provisions on people with protected characteristics as defined in the Equality Act 2010, with which I am sure we are all familiar; thirdly, the impact of the provisions on the Treasury’s compliance with the public sector equality duty with which I am sure, again, Members are familiar; and finally, the impact of the provisions on equality in different parts of the UK and different regions of England. The new clause underlines the pressing need for a greater understanding of the impact of legislation such as this on the real economy and on the people who work within it and are impacted by it.
Throughout this process, the Opposition have been concerned about the lack of impact assessments being provided for different pieces of legislation, yet even when they have been provided to us, they have often been highly restricted in scope as well as often arriving late in the day. Often, the main element receiving consideration within the impact assessments has been the familiarisation costs to business of the different measures. That has rightly been criticised by my hon. Friend the Member for Wallasey (Ms Eagle), and indeed last night by the Chair of the Treasury Committee. They both pointed out that the formula for calculating even familiarisation costs is highly mechanistic, relying solely on an assessment of the time spent reading each word of the new regulations, rather than a proper consideration of the level of impact of new regulations on different business practices, for example. Indeed, the Chair of the Treasury Committee has suggested that a better approach might be to ask firms for an assessment of what their adjustment costs will be, then produce a proxy based on that assessment. That could be a sensible way forward. I appreciate that the formula is currently set across Government, rather than just by the Treasury, but surely the area needs to be considered in a much broader context. We have tried to broaden the debate by specifying the elements that need to be taken into account in assessing the Bill’s impact, in line with our general approach to economic decision making.
Financial regulations often come across as a very rarefied area, but we all know that, as my hon. Friend the Member for Colne Valley pointed out, the consequences of getting them wrong can be enormous, especially for specific groups. Whether or not we agree—personally I do not—that cuts to social security were necessary to reduce the deficit that had been created by measures that followed the financial crisis, the burden of those cuts has clearly had an uneven impact on different groups.
The areas of regulation covered in the Bill could have highly disparate impacts. Arguably, the process of financialisation and the intensification of investment banking compared with relationship banking—boring banking, as we might call it—have helped to fuel the imbalance in lending. Over recent years, there has been an enormous move in the UK banking system away from loans to small and medium-sized enterprises and towards loans for real estate. That process has been much more marked outside London and the south-east—it has had a regional impact. The Bill covers some of the instruments that were involved in that process. Capital requirements also have an impact on the structure of banking and its regional distribution, so it is very important that we consider the issues properly.
Finally, I have a question for the Minister about his understanding of the impact of the better regulation provisions. I had assumed all along, as I am sure many other hon. Members did, that those provisions would not apply to this process, given the Government’s stated intention not to water down regulations. As hon. Members will be aware, the better regulation approach specifies “one in, three out”: for every new regulation introduced, three regulations must go. The same issue came up in a debate last night on a very different subject, albeit one that also related to no deal: the REACH etc. (Amendment etc.) (EU Exit) Regulations 2019, the no-deal provisions on the registration, evaluation, authorisation and restriction of chemicals—another incredibly complex body of legislation.
We do not have a clear answer from the Minister on the matter, so I would appreciate his assurance that the better regulation provisions will not apply to the process. If they did, it would counteract any claims made in this Committee or elsewhere that there would be no watering down. The issue is particularly relevant to new clause 2, because the better regulation process focuses only on the costs to business; it does not consider the costs, from a regional perspective, of not regulating, or the potential countervailing benefits to other groups. I have been informed that the better regulation provisions will not be applied to Grenfell-related fire safety regulations. Will the Minister confirm that they will not apply to this process, either?
If we suddenly find that the “one in, three out” provisions apply in this case, we will be in very different territory. There will be even more need for a proper impact assessment, because to an extent it will counteract some of the mechanistic impacts of the “one in, three out” process.
Break in Debate
I beg your pardon, Sir Edward, but I would like to ask for the Chair’s clarification if I may. We wish to clarify whether it is the case that as clause 1 was ordered to stand part of the Bill, new clause 1 falls, and that that is why we have not had a vote on it. Is that the case?
It is a pleasure to be here today and to have the opportunity to speak on these important provisions. Of course this is not the first time that I have sat across from the Minister—mainly in Committee Rooms—to discuss delegated legislation relating to no-deal provisions for financial instruments, but I am pleased that at least this debate is taking place in the Chamber.
I am grateful to Chair of the Treasury Committee, the right hon. Member for Loughborough (Nicky Morgan), for writing to the Leader of the House and the Economic Secretary to the Treasury to help secure this debate. It will not come as a surprise to Members that I robustly agree with the points she made in her letter about why this instrument merits a debate on the Floor of the House, given, as she says,
“the wide-reaching scope of powers that are being provided to the regulators.”
The Opposition made the same point in their request for a debate on the Floor of the House on the markets in financial instruments directive—MiFID—SI back in November. MiFID is a cornerstone of the regulatory architecture of UK capital markets, numbering tens of thousands of pages and enshrining important retail market protections. Yet that request was denied, and the Opposition made very clear at the time their objections and their concerns about the democratic implications of that. So although I am pleased that we now have the opportunity to participate in a wider debate about another significant item of regulation, it is not before time, and I wish that the Government had heeded our calls earlier.
We are now three months on from that MiFID SI and, thus, significantly closer to the potential reality that these items of legislation may end up on the statute book. We are now barely one month away from 29 March, yet we are still without a ratified EU exit deal. Therefore it is more important than ever that this legislation is properly scrutinised, as, unfortunately, the likelihood that it might be used increases. Tomorrow, myself and a number of colleagues currently in the Chamber will discuss the Financial Services (Implementation of Legislation) Bill in the Public Bill Committee. That Bill handles the EU regulations currently in train that will be implemented over the next two years. It worries the Opposition deeply that we are entering into a patchwork of regulation on financial services. We have debated dozens of SIs that allocate new powers to different institutions, including the FCA, the PRA, the Bank of England and the Treasury, yet we have no central means of assessing those new powers and what they look like in the round. Instead, they must be pieced together across different items of legislation, which is extremely challenging from a scrutiny perspective and risks clashes and inconsistencies. Should we crash out without a deal, it will be even more difficult, given the overall context, to keep track of which body was empowered to do what and for how long.
That is especially relevant when it comes to the instrument we are discussing today. The Financial Services and Markets Act 2000, like MiFID, is a sprawling piece of financial regulation that touches on many different areas of the market. It therefore impacts significantly on the powers that regulators will need to take on functions from the EU. It also interacts in several different ways with the overall programme of no-deal secondary legislation, most notably with the temporary permissions regime, as the Minister acknowledged. So, first, may I ask him to clarify why this instrument has been scheduled quite so late in the process, when we are just a month away from exit? What financial institutions require at this point more than anything is certainty. Leaving such a linchpin of UK markets until the eleventh hour seems as though it will place unnecessary stress on UK financial services firms, given that policies such as the temporary permissions regime were determined earlier in the process, in recognition of the time they would need to be implemented. The Treasury’s own estimate, in its impact assessment, of the number of firms that will need to familiarise themselves with this instrument, is 59,200. So this is significant pressure to place on a large number of firms so close to exit day, especially as the instrument outlines conditions that must be met by exit day.
For example, the instrument stipulates new rules for firms that are already in the process of making a part 7 insurance transfer between UK and EEA entities, with onshoring legislation introducing a savings provisions in relation to insurance business transfer schemes. But for it to be available in the two years following exit—as the Minister rightly said, to shadow the approach that would have been taken if we had a proper implementation period—an independent expert required for the transfer must have been appointed by exit day and a transaction fee must have been paid to the PRA. Can the Minister confidently say that firms that are impacted are aware of this and will have sufficient time to carry it out, given how close we are to exit day?
The Opposition’s other concern is the sweeping bestowing of yet more powers on to the regulator, without sufficient checks and balances. We have repeated our issues with that on numerous occasions in Committee. Although we have been told by the Government that these instruments do not represent policy judgments, in our view deciding where to allocate powers, along with their extent and duration, is intrinsically a policy judgment. Simply substituting the FCA for the European Securities and Markets Authority, and the Treasury for the European Commission, is not a straight swap. The two European institutions interact in a different way from the FCA and Treasury, with different checks and balances. These issues need proper discussion and scrutiny.
The impact assessment provided by the Treasury for this Bill maps out how regulators will be able to execute these new powers. It states that
“to apply the power, the relevant regulator will need to make a ‘direction’ which should be brought to the attention of the affected firm or group of firms. Before making a direction, the regulator will need to consult other regulators where the other regulator’s functions may be affected by the direction. The regulator will also need to consult HM Treasury. Directions will be published by the regulators unless doing so would adversely affect their statutory objectives.”
So we have here a mapping out of the intra-regulatory consultation, but where is the wider consultation that will take place with the affected firms and other stakeholders before proceeding? We are informed about this being “brought to the attention” of these bodies, not about a consultation. The Minister’s comments on that were slightly vague. He was talking about the whole package of financial services legislation, rather than about this specific aspect. Our concern is that this sounds like a power to make regulations simply via public notice, with limited accountability and recourse.
I am grateful for the time the Minister and his team have taken to brief me throughout this process. Nevertheless, we would be failing in our duty as the Opposition if we did not highlight our serious concerns about the use of the SI process to prepare us in this way. Some colleagues here today will have heard us list those objections in Committee previously, but to reiterate: we believe the magnitude and volume of changes proposed should have been consolidated into one piece of primary legislation that could have been better scrutinised. Indeed, at the session last week in the other place on subordinate legislation transparency and accountability, the Conservative peer Lord Lexden voiced the Committee’s concerns about the number of drafting errors in instruments. That is surely an indication that the scale of this project was too large. I must praise the Minister’s candour in acknowledging that there were drafting mistakes in this SI. As he knows—he has kindly taken on board this fact—I have identified a drafting error in one of the SIs that was presented to us. I do not believe this is the Minister’s fault, nor do I believe it is the fault of his civil servants, who are working enormously hard on this package of legislation. It is, however, an indicator of the fact that those who believe that preparations for no deal can be simple are kidding themselves and do not understand the magnitude of the task. We simply do not understand what issues we may be storing up for the future, especially as the consequences of a no-deal Brexit, in which this legislation would be used, are so hard to predict. I can only hope that we do not find out. The Opposition will do everything in our power to prevent a no-deal outcome, despite the Prime Minister’s reckless running down of the clock by postponing the meaningful vote yet again just yesterday.
First, may I associate myself with the heartfelt tributes that have been paid to my hon. Friend the Member for Newport West (Paul Flynn), and I express my sympathies to his family?
We are here to discuss two no-deal statutory instruments appertaining to financial services. Members will be aware that the Conservative Government refused to allow a debate on the Floor of the House about arguably the most significant such SI—the one concerning the markets in financial instruments directive, which was sufficiently complex to require a Keeling schedule. The Government did agree to a recent debate on an SI concerning securitisation, but of course that was not a no-deal SI, and the debate only happened when the Opposition prayed against the SI. Members may be forgiven for scratching their heads about why the Conservative Government have adopted such a different tactic this time; I am sure Members can come to their own conclusions on why this debate is taking place on the Floor of the House today.
These statutory instruments make provision for a regulatory framework after Brexit in the event that we crash out without a deal. The volume of such legislation is deeply concerning for accountability and proper scrutiny. The Government have assured the Opposition that no policy decisions are being taken as part of the no-deal process. However, establishing a new regulatory framework inevitably involves matters of judgment and raises questions about resourcing and capacity. Secondary legislation ought to be used only for technical, non-partisan and non-controversial changes, because of the limited accountability it normally allows; instead, the Government continue to push through far-reaching financial legislation via this vehicle.
As legislators, we have to get this right. The regulations could represent real and substantive changes to the statute book, and as such, they need proper and in-depth scrutiny. I am slightly surprised to see some Government Members shaking their heads at the idea that we need appropriate scrutiny. It is incredibly important, and in the light of that, the Opposition would like to put on record our deepest concerns that the process regarding regulations in the event of no deal is not as accessible and transparent as it should be.
The rationale for these SIs is preparation for a no-deal Brexit—something that continues to be retained on the table by the Conservative Government despite clear evidence of the harm that that is doing to our economy. Last week in this Chamber, I mentioned the concerning slowdown in growth rates and the shift into recession of our manufacturing sector. The financial sector has not been immune; quite the opposite. As many Members will know, Ernst and Young has created what it calls a Brexit tracker, which monitors the public statements of more than 200 of the biggest financial services companies operating in the UK. As of January this year, the tracker showed that more than a third of the financial services companies that were tracked indicated that they are considering moving or have confirmed that they will move some of their staff or operations outside the UK. As we consider these two financial services SIs, we must reflect on why the current Government continue to retain the so-called option of no deal, especially given that the House has emphatically shown its opposition to such an outcome.
The first SI appears to cobble together three sets of legislative changes to a variety of parent legislation. The Minister, as he always does, made a valiant attempt to present a coherent case, but we are talking about three different sets of changes. As with other SIs that the Opposition have contested, the parent legislation includes primary legislation, not least, as the Minister acknowledged, FSMA. Yet again, we see here the operation of Henry VIII powers.
In connection with that, I note that as of last Thursday, 288 changes have been made to FSMA as part of the preparation for no deal. That is an enormous number of changes to primary legislation, and it has been delivered in a completely piecemeal manner. We have no indication of when Government will present us with a finalised and integrated version of the new no-deal legislation, coupled with the primary legislation that it amends. Perhaps the Minister, in his concluding remarks, can tell us whether his Department has such an overview and, if so, whether it would be willing to share it with the House and the public so that we can better understand what the financial services regulatory system would look like in the event of no deal.
The explanatory notes for the regulations were truly a masterpiece of the kind we have come to know well from no-deal SIs. I note that Her Majesty’s Treasury uses the crystal mark on some of its documents. I am sorry to speak so bluntly, but HMT would perhaps have done well to use the crystal mark’s drivel detector—its words, not mine—on the explanatory notes. All they did was to list the bits of legislation that were being changed. In no case did they explain why, aside from maintaining that doing so was necessary to address deficiencies. Yet again, we find questionable decisions being taken with no explanation.
Not all the changes in the regulations appear even to relate to the EU. For example, there are changes relating to disclosure requirements and to the Panel on Takeovers and Mergers—in regulation 2—but there is no indication why those changes have been made. Again, definitions are changed, such as that for short selling regulation information, but it is not clear whether that definition will be replaced elsewhere or, indeed, why it had to change in the first place.
Perhaps most worryingly, we see yet again a shift away from EU requirements, which suggests that these measures are potentially going beyond direct transposition and instead diluting existing provisions. For example, the wording of one article of the EU regulation on short selling and certain aspects of credit default swaps—sorry, that is not a lovely name to pronounce—is amended from “shall, where possible” to “may”. From my reading, the amended provisions relate to the obligation to liaise with third countries concerning the identification of where shares are traded, but it is not clear why that obligation should be watered down. There is a similar change to the 2014 market abuse regulation, where “shall, where necessary” is altered to “may”. It appears that the UK’s co-ordination with non-EU countries and its relations with the EU27 are being altered through these measures. The withdrawal Act does not provide the authority to do that.
The Minister appeared to suggest that this was to do with the exchange of confidential information and that we needed to have a different process. Surely, however, there are different ways of responding to the issue; there could have been measures in this legislation to deal with the problems and to ensure that information was appropriately guarded against anybody who might use it in an inappropriate way. However, we do not have that; instead, we have these provisions, with no explanation why.
Relatedly, there is no clear indication of the process to be used to determine which countries might be chosen for the conclusion of disclosure agreements mentioned by the Minister, or of the process required for those agreements. I absolutely agree with the point made by the hon. Member for Aberdeen North (Kirsty Blackman). Obviously, she was referring to the overall import of these regulations, but there are other ambiguities about timing. When it comes to the conclusion of disclosure agreements, does the process have to be completed by exit day? If it does, has that process started? If it has started, on whose authority has it started? Presumably, it is not the authority of this House. In addition, it would be helpful to understand why the Government have decided to follow a bilateral approach, rather than one that might have been integrated, with an integrated disclosure agreement that could have been signed with the European Securities and Markets Authority.
Finally, we are again informed that an impact assessment has not been conducted on this instrument, even though the explanatory memorandum states that there has been engagement with relevant stakeholders concerning the SI. It would be helpful if the Minister provided further details about that engagement.
Let me move now to the Money Market Funds (Amendment) (EU Exit) Regulations 2019—I will just talk about MMFs from now on. Obviously, the regulations are intended to implement the EU’s MMF regulation of 2018. As described by the Minister, that regulation was intended to make money market funds more resilient against disturbances in the financial markets, reduce the risks of runs in the markets, limit cross-border contagion and improve investor protection. That regulation immediately applied to new MMFs, from July of last year, but it came into practice for existing MMFs very recently—just last month. I will not go into all the details of the use of MMFs, but I would just add charities to the list the Minister talked about—there are a number of different bodies that use these funds.
The process of creating the regulation was led by a UK Labour MEP in the European Parliament, Neena Gill. As many Members may be aware, the process was controversial; it was not entirely straightforward, and there was huge debate about whether the UK should exactly follow the US approach or not. There was a lot of scepticism about whether the system of MMFs, in and of itself, should be encouraged. Many have described it as a system of shadow banking, because of its relative lack of transparency.
As with other SIs tabled by the Government, there are a number of problems with this legislation. First, it provides a new definition of money market funds that is arguably circular. It describes them as
“instruments normally dealt in on the money market which…satisfy…Article 2a(1)”
of the regulation. That is quite a different approach from the one taken by the EU, even back in the days of the Committee of European Securities Regulators. Before ESMA was created, there was an inclusive list of activities that would lead to classification as an MMF. A different approach is taken here.
Secondly, again as with other pieces of no-deal financial services legislation, there is no indication why and how the FCA, in particular, is meant to adopt the regulatory approach suggested in this SI. Regulation 6 provides it with the power to regulate MMFs, but without explaining how that will impact on its existing activities. The Minister intimated the different kinds of activities that the FCA will have to take on as part of this process, but they are very onerous. Just in relation to reporting templates, ESMA produced a 135-page report after consultation with stakeholders about what should go into those templates. I assume that similar levels of detail might be required for the FCA. This will not be a light-touch area to move into. Again, there is a lack of clarity about the extent of industry consultation on this SI.
As has often been the case with these SIs, we have had some rather strange throwaway comments in relation to this SI. The guidance accompanying it states that it does not include provisions that may be necessary to ensure Gibraltarian financial services firms can have continued access to UK markets in line with the UK Government’s statement in March 2018 and other provisions dealing with Gibraltar more generally. It also says that, where necessary, provisions covering Gibraltar will be included in future SIs. Does that mean that provisions for Gibraltar should have been covered but that there just was not time to consider them properly, or is there a procedural reason why they are not covered here? Again, will we need an omnibus SI at some point covering regulatory arrangements for Gibraltarian financial services?
I am really pleased to see the Minister nodding, and I look forward to his explanation of why this has been an issue.
Above all, we see secondary legislation being used expansively here, with no overall indication of how it will interact with other pieces of secondary legislation and, indeed, primary legislation. There appears to be no rhyme or reason why the Conservative Government wish certain SIs to be taken on the Floor of the House and others to be taken in Committee—aside, that is, from a desire to fill the timetable for this week, after their mismanagement of the Brexit process. Issues of such importance as our nation’s financial stability and resilience surely deserve better than this.
I beg to move,
That the Securitisation Regulations 2018 (S.I., 2018, No. 1288), dated 3 December 2018, a copy of which was laid before this House on 4 December 2018, be revoked.
These regulations are not labelled as no-deal preparatory regulations, but they are being pushed through via a statutory instrument in the middle of a series of about 70 Brexit-related statutory instruments relating to financial services, including one relating specifically to the operation of the securitisation regime. The matters raised by this instrument require more debate and scrutiny than they have been afforded. It is for that reason that we asked for this debate on the Floor of the House.
As the Minister will be aware, the official Opposition also requested a debate on the Floor of the House about the transposition of the markets in financial instruments directive no-deal regulations via an SI. Those regulations were so complex that they required the production of a Keeling schedule, yet they were pushed through as a negative SI without any broader debate. This SI may be less wide-ranging than the other one but, like it, it is focused on the aspects of the financial system that precipitated and amplified the 2008 financial crisis.
Securitisation refers to the pooling of different kinds of loans or debts and their repackaging into a single financial product that is sold to investors. The use of complex, opaque securitisations—particularly those linked to the US sub-prime housing market—has been viewed as a key element in transporting the negative impact of the credit crunch through the financial system into the heart of major financial institutions. It is therefore essential that any legislation proposing changes to the regulation of securities be carefully reviewed.
The regulations have three main causes of concern. First, schedule 1 amends primary regulation—the Financial Services and Markets Act 2000. Schedule 1(8) nullifies the effect of section 399 of the Financial Services and Markets Act and disapplies section 402. Delegated legislation generally should not be used to amend primary legislation. Otherwise, it would allow the exercise of what lawyers and judges have disparagingly described as Henry VIII clauses. Put simply, primary legislation that has been drafted and reviewed by Parliament as a whole should not generally be revoked through statutory instruments. It might be argued that these regulations are part of a broader package of delegated legislation bringing in a new regime, but any regime of financial regulation is best set out in primary legislation. The Opposition made that point only two days ago in the debate on the transposition of so-called in-flight EU financial services legislation.
The EU securitisation regulations are wide-ranging. For example, they impose a number of requirements on institutional investors to carry out due diligence before investing in a securitisation position. They relate not only to individual decisions about specified positions, but to the creation of new procedures for monitoring compliance and stress-testing. They also introduce numerous requirements for transparency for securitisation, requiring the originator, the sponsor and the securitisation special purpose entity to designate one of their number to provide details of the securitisation, either to a repository or on a website. Finally, they provide preferential treatment to so-called simple, transparent and standardised securitisations, enabling them to be discounted for the purpose of allocating credit margins.
A core element of STS securitisation is the retention by originators, sponsors and original lenders of a 5% stake in the securitisation, described colloquially as “skin in the game”. Those involved must also follow certain transparency and due diligence requirements. As such, although the regulation does to an extent consolidate existing legislation, it also significantly loosens the burden of capital retention for banks using STS securitisations compared with the previous situation. Some stakeholders felt that reigniting the use of securitisation through this legislation would help to promote liquidity and boost economic activity, given that it, in effect, allows higher levels of borrowing by the economic actors whose debt is repackaged in the securitisation. However, many others point to the potential dangers this poses for financial stability if unsafe, non-transparent and overly complex securitisations are allowed to fall within the STS bracket. This is especially the case given the reduced capital requirements to balance off the default risk from STS securitisations. I hardly need to remind this House of the problems caused to the sustainability of financial institutions and the subsequent calls made on the taxpayer due to insufficient margin being held by the banks against the risks they held.
Secondly, these provisions amending primary legislation affect the criminal offences that are on the statute book. The legislation permits the use of sanctions for cases of negligence and intentional infringement, for example, fraudulent reporting of STS status. In addition, however, the provisions alter existing offences. The regulations appear to say that section 399 of the Financial Services and Markets Act 2000, which establishes an offences of misleading the Competition and Markets Authority, does not apply. In addition, paragraph 8 of schedule 1 prevents the FCA from instituting proceedings for money laundering and insider dealing. It is not clear why, on the basis of this statutory instrument alone, this needs to follow from the parent legislation. Why, if we are reading this complex statutory instrument right, does it abolish the offence of misleading the CMA and prevent the FCA from instituting proceedings for money laundering and insider dealing? What problem are these provisions addressing? Why are these changes being achieved through this piece of secondary legislation? We hope that we can receive some clarification on these points. If we cannot, these provisions would appear to be troubling. Because of the impact on people’s liberties and the overall balance of offences on the statute book, which surely should be as public and accessible as possible, criminal offences should not be altered by delegated legislation in this manner.
Thirdly, and finally, these regulations transfer significant powers to the FCA to supervise compliance. It might be said that the FCA is the orthodox body to develop financial regulation and to ensure compliance with it, but there is a need for full debate about the allocation of responsibility for supervision and compliance. The original EU regulation provides no obligation for the FCA to be designated as the competent authority, so this is a political choice. It is also not clear, on the basis of this statutory instrument, whether the FCA has sufficient resourcing and capacity to carry out these tasks. It is not optimal or desirable for these powers to be transferred via a statutory instrument.
These powers are, of course, complicated by the interaction of this SI with the no-deal SI related to securitisation, which transfers the responsibility of the European Systemic Risk Board, for assessing and mitigating systemic risk, to the “competent authorities”. The latter are, as I understand it, here designated as the Prudential Regulation Authority, the FCA and the Bank, with systemic risk here identified as
“a material risk to the financial stability of a financial institution or to the financial system as a whole”.
Under this approach, the FCA would also be able to permit re-securitisation for specified legitimate purposes, an important exception to the general ban imposed from this legislation on re-securitisation. The general ban prevents the underlying assets of a securitisation from being themselves already securitised assets—this is one of many activities that produced the highly complex and opaque securitisations linked to contagion during the financial crisis. As part of these regulations, the FCA would be responsible for ensuring that those engaged in a securitisation complied with the relevant transparency requirements. It is especially important that these kinds of regulatory developments receive scrutiny, given the content around elements of the securitisation package and, in particular, whether it is sufficiently stringent. What became known as “skin in the game” was set in the regulation at 5% of risk to be retained across each mode of risk retention, despite calls for a higher level from many quarters. Indeed, many actors within the EU questioned whether securitisation should be encouraged in the first place through the creation of the STS designation. Given that the resultant regulations were a balance between very polarised positions on this subject, it is essential that we properly scrutinise the transposition of these measures into UK law. For that reason, we have prayed against these measures being transferred purely through an SI process.
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If I may, I will start my remarks with a brief observation. Far too often in this House, I have heard hon. Members suggest that the financial crisis was somehow the result of the then Government’s policies. I am very pleased to have heard the opposite from the Minister today. In fact, it was the correct interpretation of what precipitated the global financial crisis, which did indeed, as he intimated, begin with the sub-prime mortgage collapses in the United States and then spread through the financial system, particularly through the use of complex financial instruments.
I am very happy for the Minister to agree with what I am saying.
(1 year, 7 months ago)Commons Chamber
It is my understanding that there was significant challenge from my party in the other place, and in fact changes were made, including for example a clearer indication of the circumstances under which those adjustments could be made by the Government. Initially that was very open-ended, but we supported and pushed for much more clarity on that. We would have liked to have seen change in other areas, and perhaps clarification in additional areas. We have not had that, however, which is why it is necessary to oppose the Bill at this stage.
Finally, this legislation is of course only required because of the Conservative Government’s recklessness in persisting with a commitment to keep no deal on the table, as rightly underlined by the hon. Member for Glasgow Central (Alison Thewliss). We have seen very clearly today from the preliminary estimates of GDP growth for the final quarter of last year how this determination to prioritise ideology over national interest is harming our country. The contribution to GDP from business investment was negative for the fourth quarter in a row; that is a clear sign that uncertainty surrounding the Government’s Brexit strategy is acting as a real drag on the economy. The construction sector actually contracted this quarter, and after two consecutive quarters of negative growth, the UK manufacturing sector sadly is now officially in recession. So 2018 had the worst annual GDP out-turn since the then Chancellor’s disastrous 2012, and economists are forecasting that even worse could well come.
The flight into the buffers that would be represented by a no-deal Brexit is still being countenanced. Any responsible Government would take that plane off the runway once and for all.
I shall speak to amendment 21 and new clauses 8 and 13. I will try to be disciplined, as the Minister was, by keeping my remarks as brief as possible, but I would state that while many of us feel that we have seen some progress in terms of transparency for overseas territories, we need a much broader programme of reform so that we stamp out dirty money from the British financial system.
While the Minister referred to amendment 21, he failed to grasp its significance and intention. As with other Brexit-related Bills, the Opposition have many concerns about the wide-ranging powers that this Bill gives to Ministers, and in particular the way in which it gives Ministers the ability to amend, repeal or revoke legislation through regulations without appropriate scrutiny. We frequently cited Lord Judge in Committee, but it is appropriate that I do so one last time in this Chamber. He was very clear about the dangers of this power. As he said, it gives Ministers
“‘regulation-making powers for this, that and the other’”.
He is a very learned person and, as he put it,
“the secondary will override the primary.”—[Official Report, House of Lords, 17 January 2018; Vol. 788, c. 718-19.]
I do not think that many Government Members could disagree with that. Clearly this is an excessive power. It is not justified by the need for speed, for reasons that were well rehearsed in Committee.
The Government have yet again today maintained that these powers are for the sole purpose of combating money laundering and maintaining a sanctions regime, but we heard just a few moments ago that these issues can be highly contentious. There can be different points of view within our parliamentary system on these matters, and that must be reflected in an appropriately inclusive parliamentary procedure.
The Committee advocated by Her Majesty’s Opposition is necessary precisely because the European Scrutiny Committee will not be operating in its same form after we leave the EU, and our sanctions policy will not be derived from the EU once we have left. That is surely the whole point, so we will need another body that can conduct that scrutiny. We will not want Members turning up on an ad hoc basis to a secondary legislation Committee ill briefed, ill prepared and not expert about the topics at hand. That is why we are making our call, and the arguments for such a body are self-explanatory.
The Minister is being generous. He has kindly set out for us a three-year timetable, adding on a couple of years before that when Government committed to this. Is he aware of the Private Eye map, which has been in existence for some time? Through civil society and journalistic activity, Land Registry and Companies House data were put together and a map produced. That appears to have been done quite quickly.
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I beg to move, That the clause be read a Second time.
It is a pleasure to serve under your chairmanship, Dame Cheryl, and in rather warmer circumstances than the last time. New clause 9 seeks to create an offence if a relevant body failed to put in place adequate procedures to prevent a person associated with it from carrying out a money laundering facilitation offence. New clause 15 creates a process for disqualification for those at the top level who have failed to prevent money laundering.
I will deal with each new clause in turn and then speak briefly about the overall regulatory context, which creates a necessity for these new approaches. First, on new clause 9 and the failure to prevent the facilitation of money laundering, there are many problems with the existing system. The FCA has found weaknesses in governance and long-standing and significant under-investment in resourcing for control systems, even in the sector that is actually regulated for money laundering. I will talk about some of the problems there later on.
Many of those who investigate in this area find that rules are intermittently enforced, penalties are low and senior executives face few personal, financial or reputational consequences. It is constructive to compare some of the penalties that have been levied in the UK with those levied in the US. As I understand, the largest fine levied in the UK for anti-money laundering or sanctions offences—the Minister may contradict me if I am wrong—was levied against Coutts & Co for £8.75 million. That is six hundred times less than the penalty that was levied by the United States on BNP Paribas for sanctions-related offences.
It would be helpful to know under which pieces of legislation those fines were levied, because I am uncertain whether they were directly under money laundering legislation. I will come back to that, particularly in relation to some of the outcomes of some parliamentary questions that I have asked to try to dig into this and find out what prosecutions have been enabled by existing legislation.
I am grateful for the information that the Economic Secretary has provided; however, there is still a lot of concern about banks’ and others’ ability to root out money laundering and the facilitating of money laundering. The FCA found—admittedly, in 2014—that there was
“significant and widespread weaknesses in most banks’ anti-money laundering systems and controls”.
That is revealed in the case of HSBC. Many members of the Committee will know that it was involved in a money laundering scandal that led to the US fining it £1.2 billion. There was a large investigation into that matter in the United States Senate, where it was said that our UK-based bank had been a conduit for
“drug kingpins and rogue nations”,
including Mexican drug cartels and North Korea. In fact, that case has been referred to already in this Committee.
Particularly worryingly, a congressional report found that George Osborne and the Financial Services Authority—now the FCA—corresponded on numerous occasions with their US counterparts about the case; in fact, they urged a less aggressive judicial approach on the US side. Apparently, the congressional report said that the UK interventions played a significant role in ultimately persuading the US Department of Justice not to prosecute HSBC. I find it quite concerning that the UK actually argued against measures being taken by other countries to try to deal with this problem.
We were hoping to have some change; the Serious Fraud Office has called for the broadening of existing economic offences to cover a kind of umbrella approach, also to cover failure to prevent. It thinks that that would be helpful to hold large companies to account criminally across the board. At the moment, we have the ability to prosecute the failure to prevent bribery and corruption, but those activities are rarely committed in isolation from instances of money laundering by corporate entities. Therefore, it seems to make sense to try to extend corporate liability to money laundering. That would push in the same direction as existing pieces of legislation. Of course, the Bribery Act 2010 created a new offence of corporate failure to prevent. I believe that Act was put in place because of the same kind of repeated criticism of the UK regime that we have seen in relation to money laundering. We also now have the offence of failure to prevent criminal tax evasion in the Criminal Finances Act 2017. Surely there is now a strong case for an explicit reference to failure to prevent money laundering.
Many of us thought that we were not going to have to push for a separate offence of money laundering because we were to have an umbrella approach. In May 2016, the Government committed to consult on a broad offence of failure to prevent economic crime, which would cover fraud, false accounting and money laundering. In January 2017, the Government downgraded that commitment and instead published a call for evidence on whether there was a case for economic crime corporate liability law reform.
As I understand it, the call for evidence closed in March 2017. I have not yet seen the results of that call for evidence. It would be helpful for the Minister to let us know the outcome of that call for evidence, the main findings and how the Government have decided to act on them. Will they introduce the umbrella offence or create a discrete offence, as we are asking for? Because we think we need action now. That is new clause 19.
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I am grateful to the Economic Secretary for those helpful explanations and clarifications. Despite his useful response, however, there are a number of areas where I am unclear. First, I appreciate that he has probably anticipated this question, but the Committee may ask why it has taken Government a whole year to assess the responses from their consultation on economic crime. Government frequently work at a far faster pace than that. He said that we will have the analysis of those consultation responses in due course. It would be helpful to know more about why it is taking so long for Government to analyse them.
Secondly, the Economic Secretary spoke about the requirement for all regulated firms to ensure that their policies, controls and procedures are appropriate to prevent money laundering, but there is a question about who assesses that and whose responsibility that is. That takes us back to the issue about there being myriad professional bodies, which all operate subtly different approaches towards regulation in this area. As I said, I appreciate that OPBAS has been created to try to draw them together, but I do not think we heard exactly what the status of that office is—I was trying to concentrate on what the Economic Secretary was saying. I have seen different descriptions of it as a team, an office and an organisation. It would be helpful to have a clearer indication, particularly because those professional bodies are, as I understand it, required to contribute financially to OPBAS, so a number of them are keen to understand what is happening with it. Furthermore, HMRC is not a member of it, as I said before, so the concern about a lack of regulatory co-ordination persists.
Finally, the Economic Secretary referred approvingly to the senior managers regime that has been brought in since the financial crisis, which looks like a positive step initially—of course, the HSBC problems occurred following that. In any case, as I understand it, the actual operation of this new regime and its extension are quite different from, for example, what was recommended by the Parliamentary Commission on Banking Standards. Under this approach, the burden to show that senior managers failed to take appropriate steps will be on the regulator, rather than the senior managers themselves.
That is different from the approach taken in many other areas, including road traffic, health and safety at work, the Bribery Act 2010—which the Minister referred to—terrorist legislation, the Misuse of Drugs Act 1971 and so on. It would be helpful to understand why, with the extension of this regime, the burden of proof has essentially now been placed on the shoulders of the regulator, rather than the shoulders of the managers.
Question put, That the clause be read a Second time.
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I am grateful to the Economic Secretary for those clarifications. He made several helpful points, but some concerns remain. He mentioned the FATF process, which the Committee has discussed previously, and seemed to suggest that we should not make alterations in this area of anti-money laundering activity because of the ongoing FATF assessment. Of course, that argument could stop action in any other area, because the FATF is looking at anti-money laundering and anti-corruption provisions across the board, so it is not clear that it is completely convincing. Furthermore, I understand that representations have been made to the FATF as part of its review that change is needed in this area, which suggests that the argument is the other way round. The Economic Secretary also suggested that there would be a much higher cost for those that want to incorporate through a TCSP. In practice, as I understand it, the cost may not be substantial—only a couple of pounds more in many cases.
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We tabled the new clause because ineffective anti-money laundering supervision has a clear and obvious link with inadequate compliance and with low and poor-quality reporting of suspicious activity to the National Crime Agency. Research by a number of non-governmental organisations, particularly Transparency International, has indicated serious failings in the current framework for supervising money laundering compliance in the UK, especially with respect to trust and company service providers.
Under the Money Laundering Regulations 2017, only TCSPs carrying on business in the UK—that is their formulation in the legislation—have to register with an anti-money laundering supervisor and comply with MLR 2017. That means of course that TCSPs with no UK presence can incorporate UK companies without any oversight from an AML supervisor. They do not have to comply with UK standards for money laundering checks. We have seen a number of clear examples—I will talk about some in a moment—where that has allowed non-UK TCSPs to incorporate UK companies that have subsequently been used in large-scale money laundering schemes. I think many of the concerns raised a moment ago around undercutting existing legislation and the lack of a fair playing field for UK TCSPs come up again in this regard.
In 2012 the International Consortium of Investigative Journalists showed how a number of UK individuals offering company services had moved their base of operations outside our country but continued to form, and act as nominee directors for, UK companies. There are two examples that are particularly important. The first is Jesse Grant Hester, who was originally from the UK and who moved to Cyprus to form Atlas Corporate Services Ltd before moving to Dubai and, finally, Mauritius—he is somebody who has been lucky enough to travel much in life. Those jurisdictions have all been identified as presenting high money laundering risks. Mauritius in particular is very concerning: it scored 5.92 out of 10 on the Basel Institute on Governance money laundering risk index. Ten is the highest level of money laundering risk and zero is the least, so it is well up there. Jesse Grant Hester appeared on numerous occasions as a nominee director for companies embroiled in corruption scandals. In the Moldovan bank theft that we talked about earlier, he signed fake promissory notes using an alias on behalf of a UK firm, Goldbridge Trading Ltd, allowing £444 million to be stolen. Atlas Corporate Services is associated with eight people who, between them, have held directorships of 3,613 UK companies. Again, that is a staggering number of companies to be held by just eight people. As we discussed, that scandal caused enormous problems for the country of Moldova.
Another UK resident who became internationally renowned, although not in a positive way, for his company formation activities is Ian Taylor. That is not the famous social policy academic, who I had the pleasure of working with, but another Ian Taylor. He also moved around a lot: he moved to Vanuatu.
Oh, there was a Tory MP as well. Goodness—the name is frequently used. He moved to Vanuatu after he was banned from being a corporate director, first in New Zealand in 2011 and then in the UK in 2015, as a result of his companies’ involvement in numerous scandals, including a land banking scam in Somerset. Vanuatu’s self-assessment on money laundering risk found that its TCSP sector was among the most vulnerable to such activity. In 2015 the Asia/Pacific Group on Money Laundering found serious deficiencies in Vanuatu’s AML system. Despite being banned in the UK, Taylor seems to have retained a UK presence. Various investigations have identified the circle of nominee directors that he works with. One of them is a Vanuatu resident who is a director of more than 61 companies. He took over from Taylor as a director of 20 of them on the same date.
Those examples show that physically moving out of the UK does not result in a lack of activity in the UK. Networks of associates make it difficult to stop the formation of UK companies by individuals who have already been disqualified here. Such individuals, who have been shown to have engaged in money laundering activities or have otherwise been disqualified or viewed as not competent in this arena, can function in other countries and create companies. The checking that should go on does not happen, and there is inadequate anti-money laundering supervision. We do not have a means of dealing with that, because we do not have a regulatory system for TCSPs that are not based in countries with appropriate anti-money laundering provisions. That is not currently illegal, which is why we want to change the legal situation.
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I am grateful to the Minister for those remarks and clarifications. They have been genuinely helpful, but I regret that some areas are still rather unclear to me; perhaps they are not to other Committee members. He stated that the highest-risk TCSPs are assessed to be UK ones, but it has not been spelled out why. Perhaps he could write to me about that.
I am grateful to the Minister for offering to look into that. We must always be wary of talking about a general pattern of activity as necessarily reflecting the risk profile of that overall activity. Among those TCPS, there could be overseas ones that are not appropriately regulated and that also offer a wide range of services, in the same way as some UK TCSPs do.
I am also a bit confused about the professional regulators. As the Minister said, there are about 22 of them, and then on top of that we stick Her Majesty’s Revenue and Customs, the Financial Conduct Authority and so on. As I understand it, the professional regulators do not have members based in other countries; they cover only UK residents. We are talking about, for example, the Law Society of Scotland and the Law Society of England and Wales—professional bodies dealing with UK individuals. We are not talking about professional associations covering professionals in other countries.
The Minister seemed to talk about a process of liaison between these organisations and their counterparts in other countries. I am sure we all want to encourage that, because it sounds like a very good idea. Information sharing is wonderful, but information sharing is not the same as having an appropriate process of regulation to ensure that there is compliance with anti-money laundering requirements.
The Minister said that the approach was an extraterritorial one, because it affects bodies in other countries. That is absolutely right, but those bodies then interact with our company formation procedure. That is the reason why we, as a country, have a stake in this process—a rather large one, given the reputational damage that seems to be being caused by the activities of some unregulated or inappropriately regulated TCSPs. I will be pressing the new clause to a vote.
Question put, That the clause be read a Second time.
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I thank the Minister for that helpful clarification. It is helpful to know the exact locus of FATF activity or the concerns about Pakistan that were focused on terrorist financing. That is not the area we are focused on now, but such financing and money laundering often go hand in hand.
Given the potential effects of such a ruling—we have talked about that in relation to Pakistan—we think it necessary that Ministers should have the flexibility to ensure that FATF standards can be implemented as soon as possible in our country in order to be on top of new international standards. That is particularly important because the UK was a founding member of the FATF, so we need to show that we are at the cutting edge of implementing its requirements.
As I mentioned, we also need to be able to identify or revoke high-risk countries quickly, taking account of the FATF’s standards and given the effect that it can have on the countries themselves and also on our reputation. If we are viewed as not following FATF recommendations, that prevents the co-ordinated approach that the FATF was set up to promote in the first place.
Finally on this amendment, we hope that Ministers will take account of aligning the designations with our EU partners. We have talked consistently in our deliberations about the need for co-ordination, which of course makes all the mechanisms much more effective. When they are not co-ordinated, there can be loopholes. In that regard, it is important to mention the case of Russia. In 2014, the Arms Export Controls Committees—we talked about their composition when we talked about scrutiny arrangements—reported that more than 200 licences to sell British weapons to Russia, including missile-launching equipment, were still in place, despite David Cameron’s claim that the Government had imposed an absolute arms embargo against Russia in alignment with the rest of the EU. We really need to make sure that that alignment is genuine in practice, not just on the surface and rhetorical.
I am grateful to the Minister for his explanation. It may be the fact that we have been in this room for a few hours, but I am struggling a little with, in particular, the suggestion that new clause 16 would somehow tie the UK’s hands in implementing additional requirements beyond the FATF standards.
The Minister referred to the public register of property owned by non-UK entities. We had a discussion about that, but he is right: it would arguably be an innovation in the UK. Of course it is one that we need more than other countries, because of the use of our property market in many such cases, and the exponential rise in house prices. He could have talked—although he did not—about the register of beneficial ownership of companies being an innovation as well, but countries such as the Netherlands and Norway are putting those into practice anyway, so perhaps we are not quite as far-reaching in what we are doing as we might suggest. Particularly in relation to the charges and fines levied against those found guilty of money laundering offences, we seem to be in a different position from that of our North American counterparts, for example, as we have discussed. None the less, it is not clear how the new clause would stop us going further than those other jurisdictions where we wished to do so. It says that we would take account of the
“best international practice including EU sanctions regimes”,
not that we would be led by it.
I understand that the US Office of Foreign Assets Control routinely releases details of licences and other information. It believes it has achieved an appropriate balance between commercial confidentiality and public accountability, and it does not appear to be overly onerous in the US context. I wonder why we view it as being overly onerous in the UK context.
Break in Debate
I am grateful to the Minister for his comments. I know that he is a very sincere and engaged Minister, but I am concerned that the direct questions that we levelled have not been answered. We asked for an indication of exactly how many of these SLPs had provided that beneficial ownership information. We asked for an update on that, but we have not had it. I also asked for an indication of how many of these SLPs have been prosecuted; I did not receive that, either. I did not receive an indication of how many have been fined under this new regime, which was set up last June. Surely we have had a number of months of operation of that new regime in order to adjudge whether it is truly effective.
I appreciate what the Minister said about BEIS conducting a review, but if the existing system is not working correctly, or if we have doubts about its operation, given the huge damage that these structures already seem to have inflicted, surely we need to have a reference to them in the Bill? We need to show that we are taking this matter seriously, and particularly that the Westminster Government are taking it seriously, in the light of comments from Government figures in other nations and their concerns about the use of SLPs.
I give the Minister one last chance to answer those questions and give that information: the number of prosecutions, the number of fines, and the number of SLPs indicating beneficial ownership information. If we do not get that information, we will have no choice but to press our amendment to a vote.
I wish to press the amendment to a vote.
Question put, That the amendment be made.
Break in Debate
I am grateful to the Minister for his clarification. I do not want to go around the houses again, as we did at some length on Tuesday. I am grateful to my hon. Friend the Member for Bishop Auckland for explaining why we are concerned about the lack of accountability in general for measures imposing criminal sanctions throughout the Bill. I recognise what the Minister said about this being a separate regime; it is obviously not the same one as is applied in the case of sanctions. The offences that can be applied are lesser in their extent—for example, we are talking about shorter prison sentences in the Bill—but we still have many of the same concerns that we expressed previously.
There has been some shift on the part of the Government, but I suppose it is difficult for any of us to judge whether the spirit of Lord Judge has been complied with, or whether there has merely been some kind of interpretation of a clutch of some of his words. Certainly we will look at what is written on the tin, but to us it does not appear to constitute recognition of the concerns expressed or the kind of meaningful engagement that we need. We are doing something very significant in the Bill, which in effect creates de novo a sanctions and anti- money laundering regime. Much stronger accountability is needed than is in the Bill, even as amended by the Government. We have the same concerns as we expressed previously, so we will resist the amendment.
Break in Debate
I am grateful to the Minister for that explanation. First, in relation to Government amendments 10 and 11, the Opposition would like the accountability provisions to be much more extensive than they are. However, given that the Government just won the last vote on an amendment, it would be rather self-defeating for us to oppose these amendments at this stage.
I have a question on Government amendment 12; perhaps the Minister can enlighten us a little bit. I understood that the whole Bill, when it comes to its money laundering provisions, amends the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. I am therefore slightly confused about the timing and scheduling. Why are the Government bringing those regulations into the Bill when they were not there in the first place? I wonder whether the Minister can enlighten us.
I am grateful to the Minister for his comments. I shall not dwell on the matter, because we have already talked about the amendment to an extent in a previous debate. I repeat our concern that the regime is not sufficiently accountable. Reference to the previous regime may be inappropriate, because the framework in that case was set at EU level, and it was a question of implementing it in the UK. Surely with the brave new dawn that some see coming as we leave the EU, we should be aiming at a system that is as accountable as possible.
In our previous discussions about offences in relation to sanctions, Ministers suggested that there could be a need for speed in the creation of new regimes or new types of criminal offence, because, for example, a human rights challenge could arise suddenly, or there could be gross violations of human rights in a particular country, and we might need to respond quickly. Surely such a situation does not apply to money laundering. It is peculiar that the same almost fast-track, post hoc style of system should be applied to criminal offences to do with money laundering. It would be helpful to have more information about why the Government believe that in the relevant category of criminal offence, there cannot be the same—or at least movement towards the same—degree of scrutiny as there would be in other contexts, when the question of speed surely does not apply. In fact, the Minister did not mention speed.
I am grateful to the Minister for that explanation. I shall speak briefly on a couple of points.
First, the Minister helpfully stated that the Government do support NGO operations in countries subject to conflict. Will he be more explicit and state that the Government support NGO operations in countries subject to sanctions? That is exactly what we are talking about now. The concern for many in the development community is that the balance is currently towards a presumption against activities occurring in countries where there are sanctions, rather than that being feasible for those organisations when fulfilling international obligations, as we would expect.
Secondly, on amendment 18 on the fast-track process, I was encouraged by some of what the Minister said but was slightly concerned by the reference to the Government continuing current processes, with the suggestion that those are adequate. I have certainly received information, as I am sure other colleagues have—the hon. Member for Glasgow Central referred to some of this—on the impact of fuel sanctions. I understand that delays in getting appropriate licences and exemptions in relation to sanctions on fuel in Syria have led to farcical situations in which, for example, a hospital was destroyed before it was possible to get the fuel that would serve that hospital. The current system is not working at the moment. I wonder whether we may have more of a focus on not following existing practices, which clearly are not operating adequately.
The Minister suggested that the fast-track process would lead to some kind of inappropriate, one-size-fits-all system where, for example, a need for medicine in one situation could be trumped by humanitarian concerns. Surely medical needs could come under humanitarian concerns? What we are really talking about is the need for a fast-track approach to humanitarian peace-building action that will be interpreted sensitively and intelligently, but which could get away from the current impediments for NGOs.
Does the Minister acknowledge that the reasons why a quarter of people on low incomes are currently experiencing significant problems with arrears or debt repayment include, first, his Government not taking on board Labour’s programme to rein in credit card debt and, secondly, the fact that their changes to the tax threshold have been outweighed for the poorest people by alterations to social security?
I absolutely share those concerns and I am grateful to my hon. Friend for mentioning that fact. There is a worrying combination of technical glitches, many of which seem to be ongoing and many of which have lost parents thousands of pounds—we are not talking about small amounts of money. Those parents are so frustrated; they have continually contacted helplines and different team managers, who have just said, “I’m very sorry; there are technical problems that we have been raising with those more senior.”
As well as that side of the issue, as we have heard from other colleagues, many parents do not have access to the kind of internet service that they need for the application every three months. As my hon. Friend the Member for Newcastle upon Tyne North and my hon. Friend the Member for East Lothian underlined, people need a secure, reliable and high-speed internet connection every three months to make this application. Parents I have talked to have told me that this is not a one-shot application, because of the numerous technical glitches that people have experienced.
Can the Minister offer us an iron-clad guarantee that no parent will be locked out of access to tax-free childcare, either because of IT glitches or because of a lack of access to safe, secure and permanent internet services? I would be grateful if he let us know what precisely he has done or will do, given he has just got his feet under the table, to push Atos in particular to speedily resolve these very concerning technical issues. I have no doubt that these kinds of technical problems, as well as many of the others that were referred to by colleagues, offer part of the reason for the low take-up of tax-free childcare.
There are nearly 800,000 families using childcare vouchers, as my colleagues mentioned, and the vouchers are provided by more than 60,000 businesses and employers, including every Government Department. Occasionally, the Government maintain that there is a low proportion of employers offering vouchers. That is the case for one-man and one-woman bands, but if we take them and very small businesses out of the equation, there is a much higher proportion of businesses that offer those childcare voucher schemes. There is an enormous gulf between the usership rate of childcare vouchers and that of tax-free childcare, even with existing restrictions.
Colleagues mentioned that the OBR report before the Budget indicated that the Government would pay out only £37 million this year for tax-free childcare, despite setting aside £800 million for it. There is also a strange issue of exactly how many people actually benefit from tax-free childcare. I am slightly confused, as are colleagues, about today’s announcement and what the figure of 170,000 referred to. In her statement, the Chief Secretary to the Treasury, maintained that 170,000 people have opened an account for tax-free childcare. I am interested to know whether those are live accounts—whether those accounts have paid anything out—because I understand that, as of November, only 30,000 accounts were actually live: a tiny proportion of the people who could have accessed the scheme have done so.
I am also concerned that the parents of disabled children may be considerably under-claiming. I was pleased that my hon. Friend the Member for Stockton North (Alex Cunningham) mentioned that, as well as my hon. Friend the Member for Newcastle upon Tyne North. I was surprised to hear in the response to a parliamentary question by my hon. Friend the Member for Batley and Spen that there are only 1,187 tax-free childcare accounts registered for disabled children. Of course, tax-free childcare is already fully rolled out for disabled children, so it would be helpful to hear the Minister’s assessment of the number of parents of disabled children who used tax-free childcare, compared with those who used vouchers, and why there is a disparity, as I expect there will be. I would also be interested to hear what the Minister has to say about the disincentive effect of the design of the tax-free childcare system. As many colleagues mentioned, parents need to pay around £10,000 into their account before they can receive the headline £2,000 per year. That enormous sum is simply impossible for the vast majority of parents to afford. It does not reflect their working patterns or their wages.
[Mark Pritchard in the Chair]
For that and other reasons, tax-free childcare will benefit people on large incomes who consume large amounts of childcare the most. As many colleagues said, the new scheme will generally leave people on lower incomes worse off. Indeed, the charity Employers for Childcare calculated that approximately 70% of the parents who approach it for help would be better off with childcare vouchers, tax credits or universal credit, or with a combination of those things, than with tax-free childcare. My hon. Friend the Member for Ealing Central and Acton (Dr Huq) rightly mentioned that the new system may negatively impact low-income single parents in particular.
Further calculations indicate that people in lower paid areas and people on lower wages generally are more likely to lose out as a result of losing access to childcare vouchers following the adoption of tax-free childcare. That is because—we might have discussed this issue more—tax-free childcare does not incorporate the progressive elements of the voucher scheme, which enables basic rate taxpayers to save more than higher rate taxpayers, who may in turn save more than additional rate taxpayers. In her insightful speech, my hon. Friend the Member for High Peak pointed out some of the disbenefits of tax-free childcare for low-income parents compared with people on low incomes who are already in the voucher scheme.
I would be grateful if the Minister indicated whether any impact assessment has been undertaken of how the closure of the childcare vouchers scheme will affect people who spend an average amount—not the very high amounts in Government projections—on childcare. It would also help to hear how the Minister expects the new system to affect people on lower incomes, who will largely see the support they receive proportionately reduced by these changes. That assessment should take into account the impact on employees’ ability to progress to higher paid jobs that require them to be more flexible with their working hours, which my hon. Friend rightly mentioned.
I would also be grateful if the Minister explained how the Government are promoting activity by employers to support employees who are parents. A number of colleagues made the point that childcare vouchers start a conversation about employers’ responsibility to consider their employees’ childcare responsibilities. Along with other benefits for working parents, vouchers often play a key part in recruitment and retention. Given that we will lose the vouchers scheme, will the Minister indicate what other measures the Government are putting in place?
We also need a response to the question that my hon. Friend the Member for Stockton North asked: why is there a tighter age restriction for tax-free childcare than for childcare vouchers? Have the Government considered the impact of that on parents who want to ensure that their children are properly cared for when they are not at school? My hon. Friend the Member for Birmingham, Selly Oak ably underlined that point—his speech was very important in that regard.
Given the low take-up of tax-free childcare, the extensive technical problems with its roll-out, its regressive impact and the apparent problems that parents with disabled children are having with accessing it, will the Minister see sense and keep the vouchers scheme open, as the petitioners request?