Financial Services Bill

Lord Davies of Brixton Excerpts

Report stage
Wednesday 14th April 2021 Lords Chamber

[Baroness Noakes (Con)]

My Lords, I have added my name to Amendments 45 and 48 in the name of the noble Lord, Lord Eatwell. I also support the intent behind the amendments in the name of the noble Baroness, Lady Bowles of Berkhamsted, and I know that she too supports his amendments. As has been said, these amendments concern one of the key issues that emerged during scrutiny of the Bill: the parliamentary accountability of regulators and the scrutiny of their actions. As already noted, there was widespread agreement around the House at Second Reading and in Committee that Parliament should have a role in scrutinising the rules that the FCA and PRA may make under the new rule-making powers created by the Bill.

Of much greater importance will be what happens when the Government expand the rule-making powers of the FCA and the PRA, as they have outlined in their consultation document on the review of the financial regulation framework. What we do in the context of the Bill is clearly important in signalling what we expect in the context of a larger shift in rule-making powers, if that is what the Government decide to do following consultation. This is particularly important because the Government’s analysis of parliamentary scrutiny in their consultation document was not encouraging; it was largely a defence of the existing committee activities in each House, with no regard to the new circumstances created by the extensive new rule-making powers. The Government—somewhat surprisingly, given their excellent Brexit credentials—seem not to have taken on board that the scrutiny context has changed significantly with the repatriation of financial services regulatory powers from the EU. That context should drive how we see the way forward.

Since our debate in Committee, my noble friend Lord Howe has made available to us the texts of letters from the PRA and the FCA which broadly say that they will do whatever Parliament decides, which is only right and proper. I do not think the letters add much to the analysis of the issues we debated in Committee, but they nevertheless demonstrate a constructive willingness to co-operate with parliamentary scrutiny. When my noble friend responded to our debate in Committee, I was not filled with confidence that the Government really understand the dimensions of the issues around scrutiny and accountability in the context of these additional rule-making powers. I have seen the rather late-in-the-day letter from the Economic Secretary which landed in our email boxes this afternoon. I shall be kind and say that the direction of travel is positive, but we have not yet reached a satisfactory landing point for this debate. I expect we will continue to pursue this issue well beyond the passage of the Bill.

As my noble friend Lord Blackwell knows, I do not support his Amendment 37A because it is a rear-view mirror amendment. I strongly believe that Parliament should have the opportunity to get involved with the rules made by the FCA and the PRA in time to influence their final shape. It is not satisfactory to think that ex-post scrutiny is an effective mechanism for parliamentary involvement. I do not believe the independence of the PRA and the FCA is threatened by this intervention in how rules are made, given the context of the very significant new regulatory rule-making powers expected to be devolved to them. That is why I support the amendments in this group in the names of the noble Lord, Lord Eatwell, and the noble Baroness, Lady Bowles of Berkhamsted, which provide a much better basis for Parliament’s future involvement in additional rule-making powers.

[Lord Davies of Brixton (Lab) [V]]

My Lords, these amendments are all on the same broad theme. As the previous speaker mentioned, there is a broad consensus that something needs to be done to provide a formal role for parliamentary scrutiny in the work of financial regulators. I do not want to detain the House, but I will take the opportunity to emphasise points that I have made at earlier stages. The basic question, to me, is: who regulates the regulators? The question is why we should trust the regulators; the answer is openness and engagement. Clearly, we have a particular interest here but can, I believe, contribute massively to the work of the regulator.

For us to raise these issues is not to question the expertise or good will of the people who serve on the regulators’ boards or work in their offices. It is simply wrong to assume that, once appointed, they can be left to get on with the job. As is apparent in the debate, there is clear consensus about the need for scrutiny. That is not contested. Obviously, there are clear reasons why they would benefit—the expertise of this House is a factor—but my particular concern is to establish systems that minimise the risk of regulatory capture. This is the experience, widely found, whereby regulators tend to become dominated by the interests they regulate and not by public interest.

I emphasise that this is not about corruption; it is more, in my mind, a social and cultural problem. I do not think the concept, in theory, is contested. The answer is to strengthen and develop the widest possible involvement of all sorts of bodies in the work of the regulators. Clearly, Parliament has a particular role and these amendments explore possible approaches to it. I hope the Minister can say a bit more than what was in the letter. Does the Minister consider regulatory capture to be something that occurs, and where the systems that are established address it and minimise the risk?

[Lord Sharkey (LD) [V]]

My Lords, I will speak to Amendments 18, 19 and 20 in this group. I support them all but prefer the more prescriptive Amendment 20. In these matters, it seems to me that ambiguity is not our friend. Wide latitude in interpretation can easily frustrate intent. As my noble friend Lady Bowles has so forcefully explained, that intent here is to ensure that Parliament has some effective scrutiny role in the activities and rule-making of the PRA and the FCA, by requiring that the information Parliament may need to do this is properly supplied. At present, this is absent or insufficient or likely to be post hoc and ineffective.

This is a specific example of a much larger problem in the relations between the Executive and the legislature. There is an increasing tendency for the Executive to bypass, or try to bypass, Parliament or to reduce scrutiny to formulaic rituals with no real influence on outcomes, such as our SI procedures. The seriousness of this tendency has been commented on fairly widely and frequently in the past few years.