Financial Services Bill

Lord Bruce of Bennachie Excerpts

2nd reading & 2nd reading (Hansard) & 2nd reading (Hansard): House of Lords
Thursday 28th January 2021 Lords Chamber

[Lord Bruce of Bennachie (LD) [V]]

My Lords, I join other noble Lords in congratulating both the noble Lord, Lord Hammond, and the noble Baroness, Lady Shafik, on their maiden speeches. The noble Lord, Lord Hammond, showed the insight and intelligence that has characterised his approach to the challenges of the past few years. I particularly welcome the noble Baroness, Lady Shafik, to our House and fondly remember working with her when she was Permanent Secretary at DfID and deputy managing director of IMF and I was chair of the International Development Committee. I look forward to hearing more from her in the future. I am sure her contributions will always be well received.

There is no doubt that as a member of the EU the UK provided the leadership in financial services regulation because of the leading role of the City of London, which was the main capital and euro exchange market for the EU and beyond. But how UK financial services will fare from now is debated. It is argued, I suggest with justification, that the concentration of expertise, innovation and flexibility that characterises UK financial services will ensure that it continues to play a leading role. However, it will be challenging, for how will it maintain its pre-eminence if EU business ebbs away? That means servicing the EU financial services market from the UK and enabling firms and individuals located outside the UK to access its services through the UK.

Scale and expertise have been key factors in the UK’s pre-eminence but, as many people have observed, other centres will seek to pick up business from London, and the scale of New York may enable it to consolidate top spot. I have no doubt that the larger players in the sector will look after themselves, and that will not necessarily be to the benefit of UK plc. It has been said that the feared exit of jobs has not happened on any scale—to which the answer has to be, “Yet”. Without equivalence in key sectors, businesses and jobs will migrate—not that thousands of UK-based personnel will necessarily leave, but jobs that would have been created here will be created in other EU centres, such as Dublin, Amsterdam, Frankfurt, Paris and Malta. It will take time and the key question is, during that time, how will the UK develop to maintain its world-leading role and will the Bill help or hinder that process?

Having served in former times on the House of Commons Treasury Select Committee, and until recently on the House’s Financial Services Sub-Committee, I am well aware of the importance of effective financial regulation and scrutiny. The light-touch approach of the Labour Government contributed directly to the financial crash of 2008 and the blurred separation, or lack of it, between retail and investment banking brought the economy to its knees and threatened the savings of millions. Let us hope that the Bill does not open the door to too light a touch or to cavalier regulation to promote competition and attract business.

Financial regulation is a matter of balance. If it is too tight, it may stifle innovation, but if it is too loose, it may lead to financial disaster and reputational destruction. In the EU, we not only had the benefit of the scrutiny committee of the UK Parliament, but the substantial resources of the European Parliament, in which British MPs played a key role, not least my noble friend Lady Bowles of Berkhamsted. So what assurance can the Minister give that under this Bill regulation will be transparent and subject to effective scrutiny? Will the Government support the creation of a dedicated financial services committee with the resources to staff it effectively? If they do not, any financial failings in future will lie squarely at the Government’s door.

Speaking as I do on Scottish affairs for the Liberal Democrats, I remind the House of the importance of the financial services sector to the economy in Scotland. It is valued at £13 billion—or 9.4% of Scotland’s gross value added—employing between 150,000 and 160,000 people in more than 2,000 businesses. Particularly, it accounts for 24% of UK jobs in life assurance and 13% of all UK banking jobs. While Edinburgh has the greatest concentration, Glasgow, Aberdeen and Perth also record substantial employment in this sector.

Scottish Financial Enterprise, which represents the sector, is bullish about the future, claiming that Scotland is a sought-after location for delivering financial services. Without Brexit, there would certainly seem no reason why the sector should not continue to grow, as much of it delivers cost effectively and reputationally to the domestic market. However, Betsy Williamson, the chief executive specialist recruiter for the sector’s Core-Asset Consulting, says recruitment to the sector has dropped and that key jobs are being relocated or created outside of the UK. Aberdeen Standard has opened an office in Dublin and transferred £17 billion of assets there, and no doubt others are considering or doing the same. Today’s FT shows how many goods-based businesses are struggling with red tape and either deciding to abandon exporting to the EU as uneconomic or planning to transfer some of their activities to the EU.

Financial services are evaluating what is going to happen to them. Some have already moved, and others will. If we get this wrong, the trickle could become a flood. So even if you were bullish about the UK’s prospects, we are going to have to run harder to replace the revenue and jobs that are leaving and then try to grow new opportunities. Will there be enough scope for new businesses to replace these jobs and then add net growth? Will this Bill help or hinder? Will our regulation be lighter or tighter than the EU? Either way, will it be transparent enough and subject to adequate scrutiny to maintain resilience and confidence in the system? A lot is riding on this Bill. When people say it is technical, they mean that most people do not understand it, and that is exactly when things can go wrong.

Financial Services Bill

Lord Bruce of Bennachie Excerpts

Committee stage & Committee: 2nd sitting (Hansard) & Committee: 2nd sitting (Hansard): House of Lords
Wednesday 24th February 2021 Grand Committee

The FCA needs to be helped by an independent assessment of its shortcomings and failures. An investigation by the Treasury Committee provides this help by taking stock of the failures and providing guidance to the new or returning FCA CEO as to the challenges ahead. I have not even mentioned the challenge of shadow banking, which is excluded from this Bill but deserves to be debated. Importantly, the mechanism I have outlined—of scrutiny by the Treasury Committee —gives the victims a chance to speak. It is vital that the people’s cry for justice be heard by Parliament. There is hardly any other mechanism which enables that cry to be heard. I commend Amendment 71 to the Committee.

[Lord Bruce of Bennachie (LD) [V]]

My Lords, that was a powerful speech by the noble Lord, Lord Sikka, and clearly, a lot must be addressed. I served on the EU Financial Affairs Sub-Committee and the Treasury Select Committee, and currently serve on the EU Services Sub-Committee. Therefore, I am well aware of the contribution the sector makes across the UK.

The UK helped to shape the regulations and rules for the EU, but we have now left. The sector has consistently argued that a reputation for high standards and effective regulation is important to the confidence the world expresses in the UK’s financial institutions—notwithstanding the failures that have occurred. The combination of the European Parliament and the UK Parliament ensured that regulators have been accountable. I do not claim to be a technical expert on what is a complicated sector, but I recognise the dangers of regulation becoming an unaccountable closed book.

I support the case for a properly resourced specialist joint committee to ensure that regulators are held accountable, not so much on technical detail but in terms of a prudential framework and overall direction. That would be in the interests of the regulators and government Ministers as well as those who depend on a well-regulated and reliable sector. I share the concern that what the Government are trying to do will ultimately bite back if there has been no proper parliamentary oversight in a future scandal. The Government and the regulators will have nowhere to hide, but that will be very little comfort to people who may suffer from regulation failures.

Financial services are distributed throughout the economy. People often refer to the City of London, but we know that jobs and activities are distributed throughout the UK and have been growing in all the devolved Administrations. Edinburgh is the UK’s most important financial centre and one of the most important in Europe. According to TheCityUK, financial services contribute £13 billion, or 9.4% of GVA, to the Scottish economy. More than 160,000 people are employed in financial and related professional services, which is nearly 6% of Scotland’s national employment. The sector includes banking, fund management, insurance, life assurance and pensions, asset servicing and professional services.

Interestingly, Scotland accounts for 24% of all UK employment in life assurance and 13% of all banking employment. Given that Scotland has 8.5% of the population of the UK, this is clearly disproportionately important. According to Scottish Development International, there are more than 2,000 financial services businesses, supported by 3,650 professional services firms. Scotland’s financial and professional services exports account for 40% of all Scottish services exports.

Having said that about Scotland, tens of thousands are employed in the sector in Wales and thousands in Northern Ireland, and the number is growing in all the devolved areas. My Amendment 137 takes this into account and seeks to ensure that the devolved Administrations are consulted about any proposed changes in financial services regulations. It is clearly in the interest of the sector to have clear and common regulations across the United Kingdom, which is why this amendment looks for consultation only. It merely seeks to ensure that any factors of particular importance to a devolved Administration are, as far as possible, accommodated. I can see no conceivable advantage to financial services companies to diverge from UK regulation. After all, as the figures I cited show, a significant part of the financial services sector in Scotland is serving the whole UK market. The last thing it needs is a distracting push separating it from its customers, either by erecting barriers at the border or by promoting an alternative Scottish currency, which would undermine the raison d’être of serving the UK from Scotland, or a “sterlingisation” agenda that would put huge pressure on the public finances in Scotland.

My amendment seeks to avoid any unintended negative consequences. It is not intended to cause delay or to encourage special pleading. Given the particular importance of Scotland’s role in delivering life assurance and banking, it is surely right that any changes being considered to regulations affecting these sectors are not proceeded with until appropriate consultation has taken place.

That said, it is also important to recognise the role of professional support services, given Scotland’s distinctive legal system and, for example, accounting qualifications. The expertise that exists in Scotland should in any case surely be drawn on to inform regulations if and when changes are being considered. I share concerns that the Government are proceeding to build an architecture that lacks an adequate parliamentary dimension. It is perfectly reasonable to ask the legislatures of the devolved Administrations to be involved in contributing to the shaping of regulations, at least in their broad prudential thrust.

I look forward to hearing what the Minister has to say. I hope he will recognise the force of the arguments put by noble Lords about the need for a significant and effective parliamentary dimension and a recognition that the devolved Administrations, especially Scotland, should be able to contribute constructively and positively to that outcome.

[Lord McNicol of West Kilbride (Lab) [V]]

My Lords, one of the joys of being at the end of such a large group of amendments and a long speakers’ list is that very much of what needs to be said has already been said, so I will be brief.

The contributions from across your Lordships’ Committee, from the noble Baronesses, Lady Noakes and Lady Bowles, and my noble friend Lord Davies, outlined the importance of parliamentary and democratic oversight and the different levels and ways of delivering it. The contribution of the noble Lord, Lord Holmes, on the right levels of oversight also helped move the debate on.

The balance between regulatory authorities’ powers and those of Parliament is critical. My noble friend Lord Sikka clearly outlined in detail many of the failures of the regulators and of the FCA, so getting the levels right is critical. I add my support for those amendments that I am pushing forward. I look forward to the Minister’s response and to how we move this forward to Report and Third Reading.

Financial Services Bill

Lord Bruce of Bennachie Excerpts

Report stage
Wednesday 14th April 2021 Lords Chamber

[Lord Naseby (Con) [V]]

I thank the noble Baroness, Lady Bowles, for raising these issues. All three of the amendments that she has tabled are important. They are to do with the FCA and PRA regulators, and I agree with them. However, I am particularly concerned about the FCA and its linkage to the Financial Ombudsman Service, the FOS, and how that is reported to Parliament. There seems to me a particular concern in this area.

I will take just one key case history. The leading company in the home-collected credit market has been around for 150 years. It has basically produced a credit product of choice for working-class communities for all that time. It is small-scale. It is now suffering from regulatory indifference. There is a model here for home-collected credit that works. It is flexible and forgiving and is the right design for consumers on a low income. The FCA has traditionally supported it and given it a tick all along the line. To put what has happened bluntly, the Financial Ombudsman Service has ignored the understanding of this market, which is part of the consumer credit loan market, and lumped it all together.

The net result is that the FOS is basically taking a summary judgment approach to complaints involving all HCC firms. It is therefore faced with a huge volume of complaints manufactured by the claims management companies. To get round this huge volume, instead of playing its statutory role and looking at each claim on its merits, it is taking a short cut. It is saying, “Okay, we’ll look at 25 properly; anything above that, we won’t”—and so it goes on. That is quite wrong—so wrong that there must be some parliamentary means of ensuring that the FCA carries out its role in relation to what the FOS should be doing, in the knowledge, of course, that the FOS is an independent body. So there is a lack of linkage somewhere in this, which should be another area for parliamentary scrutiny.

That was only a shorthand case history, but it demonstrates that what is behind the amendments tabled by the noble Baroness, Lady Bowles, has great value. I shall think very seriously about supporting them, depending on what my noble friend on the Front Bench chooses to say in his closing words.

[Lord Bruce of Bennachie (LD) [V]]

My Lords, I am happy to speak briefly to the amendments moved by my noble friend Lady Bowles. I am grateful to her and to my noble friend Lord Sharkey for their expertise both in drafting the amendments and in explaining in detail why it is important for the Government to consider the points behind them.

As a member of the EU Financial Affairs Sub-Committee and, until last month, of the EU Services Sub-Committee, for the last four years, I have been involved with scrutinising the financial services sector. Nobody should doubt the importance of this sector to the UK economy; it is worth reminding people of that, even though this is a technical amendment. I will not rehearse the statistics on the share of the economy, jobs, tax revenues, the balance of payments and so on. Apart from that, it is also the lubricant of the whole economy, and when it goes wrong, a few people make a fortune but most people suffer—some severely.

The regulation of the sector has been subject to the scrutiny of this House and, importantly, as has already been mentioned, the resources of the European Parliament, with British MEPs taking the lead in many instances. My noble friend Lady Bowles was one of the most distinguished of them in that department. Yet the financial crash was the consequence of light-touch regulation and there are concerns that this Bill may be creating a framework for similar mistakes. Certainly, without effective accountability to Parliament there is a danger that regulators might—intentionally, but more likely otherwise—allow financial services to be regulated in ways that could put individuals’ pensions and savings at risk and prejudice the viability of businesses, especially SMEs.

Outside the European Union, it is more important than ever that financial services regulation is effectively scrutinised. Without the resources of the European Parliament, we need a dedicated committee, with the necessary resources and expert support, to ensure that regulation is understood and fit for purpose. We all know that the Government want flexibility in the post-Brexit age in order to compete globally. Of course, that is not wrong in principle, and the sector repeatedly argues that its ability to do so will depend on transparent and effective regulation, because that is what gives confidence to the users of financial services. Get it wrong and, as we stand alone, it could have disastrous consequences.

I also support the argument that requiring financial regulators to engage with Parliament as part of the process of implementing regulation is not obstructive. It actually serves the regulators’ and the Government’s interests much better, because it ensures a better understanding of their purpose and helps highlight whether or not there may be consequences which had not been thought through and which could have negative implications for the sector.

By positive contrast, if the Government, regulators and Parliament can work together as partners, we can consolidate and enhance our world lead. We have been one of the most important financial sectors in the world and we all want that to remain the case, but we have created a challenging and difficult circumstance for ourselves. If we get this wrong, we could suffer a great deal. We need to get it right and it is important that the Government acknowledge that these amendments are designed to support the regulators and the Government in ensuring that our financial sector still has the confidence of the world market it seeks to serve, and is not subject to a closed, unconsulted, unscrutinised form of regulation that, without intention—or maybe with intention, if some Ministers wish to push it—could compromise the integrity of the sector. That will serve nobody’s interests, and I hope the Government recognise that.

[The Deputy Speaker (The Earl of Kinnoull) (Non-Afl)]

I call the noble Baroness, Lady Bennett of Manor Castle. We are having difficulties with the noble Baroness, Lady Bennett. We shall move to the noble Viscount, Lord Trenchard.