All 1 Lord Cromwell contributions to the Financial Services and Markets Act 2023

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Tue 10th Jan 2023

Financial Services and Markets Bill Debate

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Department: HM Treasury
Lord Cromwell Portrait Lord Cromwell (CB)
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My Lords, how do I follow that? It is always a pleasure to follow the noble Baroness, Lady Bowles, with her knowledge and her forensic contributions. I also look forward to the three maiden speeches we are going to hear this evening.

In the time available, I will speak about two things—including, perhaps perversely, one that is not yet in the Bill—and then say a few words about crypto. I saw in the Financial Times today that the new chair of the Treasury Select Committee rather humorously described crypto as:

“The freedom for people to do silly things with their money”.

The absent area is the urgent need to tackle the use of dirty money to prevent public interest investigations into market participants. It is widely recognised that the UK legal system is used, often with money very questionably obtained and possibly laundered in UK markets, to suppress the publication of matters in the public interest. We discussed these activities—which have become known as SLAPPs or lawfare—during the passage of the economic crime Act, so I do not propose to repeat what was said then. Nevertheless, the use of such intimidation to suppress, in the context of this Bill, matters of keen investor need-to-know interest is a distortion of the information and accountability that should underpin efficient financial markets in the UK.

The Bill seeks to address the senior managers regime standards and conduct rules. It should also address this area of coercion, which prevents markets and investors being properly informed about the activities of some leading business figures, illegal activities, market abuse and corruption. For example, there are newspapers which today will not publish stories about so-called oligarchs for fear of the lawfare that will then be waged against them. The consultation following the economic crime Act resulted in a statement from the Secretary of State on 20 July last year that primary legislation would be introduced at the earliest opportunity to enable an early dismissal of such cases. This was recently and vigorously reiterated in response to an Oral Question in this House.

There is both government and cross-party support for cleaning up this abuse of our financial markets and the associated legal system. I should inform the House also that the necessary clauses to give effect to this government commitment have already been drawn up by lawyers and could be included in the Bill. So far, so good. However, the noble Lord answering the Oral Question I referred to a moment ago described the selection of the right legislative vehicle to bring this into effect as “above my pay grade”. Therein lies the problem. It seems that everyone agrees that this legislation is needed, but where is the government impetus to get it done? The matter has become a legislative Cinderella, but the pantomime season is over and it is high time that the promised legislation was enacted. I therefore ask the Minister, when she winds up today’s discussions, whether she will agree to meet with me and others to review the clauses proposed, with a view to arriving at an appropriate amendment to the Bill.

I turn briefly to digital assets, and declare my membership of the APPG for crypto. Blockchain and digital assets are already here, and here to stay. I have long advocated UK regulators getting a better understanding of them, so it is encouraging to see the Bill making some steps in that direction. The Bill introduces a new term, “digital settlement assets”, and appears to put the regulator’s toe in the water with stablecoins, albeit only as a medium of exchange. However, it then makes provision for going far wider—and using secondary legislation—to enable engagement, seemingly with any other digital and crypto assets. Despite my interest in this area, I must sound a note of caution. The constant evolution of digital assets represents not just a financial revolution but a technological and conceptual one that will not fit simply into existing regulatory categories and approaches. Managing emerging innovation and opportunities while preventing abuse is going to pose serious capacity and structural challenges to the regulators. I say candidly that I have my doubts as to whether the FCA is really ready for this.

Today, in brief, I have just two questions for the Minister. First, stablecoins sound so inviting, do they not? However, in reality some have proved to be far from stable, and even those backed 100% by a fiat currency are subject to fluctuations in that underlying currency. I therefore ask the Minister to clarify whether the Treasury is concerned about this and, in particular, whether it has a clear definition of what tests an asset must pass to be truly worthy of branding itself to retail investors as a stablecoin. Finally, and more succinctly, the Treasury surprised us all some time ago by announcing that it was going to produce its own non-fungible token. Can the Minister confirm that this is still the case, and if so, why, or was it just a passing fancy of the Government to be down with the crypto bros?