Schedule 3 - Prudential regulation of credit institutions etc

Financial Services Bill – in the House of Commons at 6:00 pm on 13 January 2021.

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Amendments made: 27, page 83, line 34, in schedule 3, at end insert—

5A

“(5A) Section 137H (rules about remuneration) applies where the PRA makes rules under this section prohibiting persons, or persons of a specified description, from being remunerated in a specified way as it applies where the PRA makes general rules imposing such a prohibition.

(5B) Section 137I (Treasury direction to consider compliance with remuneration policies) applies where the PRA makes rules under this section requiring financial holding companies or mixed financial holding companies, or a specified description of such companies, to act in accordance with a remuneration policy as it applies where the PRA makes general rules imposing such requirements on authorised persons, but as if—

(a) the references in that section to authorised persons were references to financial holding companies or mixed financial holding companies, and

(b) subsection (7) of that section were omitted.”

This amendment provides that sections 137H and 137I of the Financial Services and Markets Act 2000, which apply where the PRA makes certain general rules about remuneration applying to authorised persons, also apply where the PRA makes equivalent rules under section 192XA of that Act.

Amendment 28, page 83, in schedule 3, leave out lines 40 to 42.

This amendment and Amendment 29 omit from section 192XA of the Financial Services and Markets Act 2000 provision glossing references to instruments made under the capital requirements regulation. That provision will be inserted instead in section 192O of that Act - see Amendment 31. These changes are consequential on Amendment 30.

Amendment 29, page 83, in schedule 3, leave out lines 44 and 45.

See the explanatory statement for Amendment 28.

Amendment 30, page 84, line 35, in schedule 3, at end insert—

7A In section 192Y(1) (power to impose penalty or issue censure), for paragraph (d) substitute—

“(d) the capital requirements regulation or an instrument made under that regulation.””

Under section 192Y(1)(d) of the Financial Services and Markets Act 2000, the PRA has power to take disciplinary action where a financial holding company or mixed financial holding company contravenes requirements imposed by some Parts of the Capital Requirements Regulation. This amendment extends the PRA’s power to contraventions of requirements imposed by any Part of that Regulation or by instruments made under that Regulation.

Amendment 31, page 85, line 27, in schedule 3, leave out paragraph 13 and insert—

13 (1) Section 192O (interpretation of Part 12B) is amended as follows.

(2) In subsection (1)—

(a) in the definition of “Directive 2013/36/EU UK law”, omit the words following paragraph (b), and

(b) after that definition insert—

““EU tertiary legislation” has the meaning given in section 20 of the European Union (Withdrawal) Act 2018;”.

(3) At the end insert—

(3) In this Part, references to instruments made under the capital requirements regulation include EU tertiary legislation made under that regulation which forms part of retained EU law.”.”—(John Glen.)

See the explanatory statement for Amendment 28.

Third Reading

Photo of John Glen John Glen Minister of State (Treasury) (City), The Economic Secretary to the Treasury 6:32, 13 January 2021

I beg to move, That the Bill be now read the Third time.

I would like to build on what I was saying previously and thank all Members for their examination of this legislation since it was introduced in October. The thoroughness with which right hon. and hon. Members have undertaken this task only serves to underline the significance of the measures included within the Bill and the importance to the UK of the financial services industry.

As I set out on Second Reading, the financial services sector is fundamental to the UK’s economic strength. It contributed nearly £76 billion in tax receipts last year and it supports jobs across the country, two thirds of which are outside London, as well as providing vital services to people and businesses across the United Kingdom.

The Bill represents a key part of our wider approach to financial services regulation now that we have left the EU. Since its introduction, Members have clearly outlined their expectations that the UK maintains its position as a leading centre of global financial services, while also maintaining high regulatory standards and ensuring that the sector serves the needs of the people and businesses of the United Kingdom. I believe that this Bill will make an important contribution to that goal.

Let me briefly reiterate the three themes of the Bill. First, the Bill enhances the UK’s world-leading prudential standards and promotes financial stability through the implementation of a new tailored prudential regime for investment firms and through enabling the implementation of the Basel III standards. The Bill will also ensure that the FCA has appropriate powers to manage an orderly transition away from the LIBOR benchmark, providing stability and clarity to financial markets.

Secondly, the Bill promotes openness between the UK and international markets by simplifying the process for marketing overseas investment funds in the UK and by delivering on our commitment to provide long-term access between the UK and Gibraltar for financial services firms.

Finally, the Bill supports the maintenance of an effective financial services regulatory framework and sound capital markets. It does this through a range of measures, such as improving the functioning of the packaged retail and insurance-based investment products regulation and increasing penalties for market abuse.

As I said earlier, this is an important Bill. It is also a very technical one, so let me once more thank hon. Members for their valuable and insightful contributions to the scrutiny of this Bill at each stage of its passage. As I indicated earlier, it is important to note that this Bill marks the beginning of a process. It represents a necessary first step towards maintaining high standards and protecting financial stability now that we have left the European Union and the transition period has ended. The Bill is also a foundation for our wider vision for financial services in this country, as the Chancellor set out to this House in his speech on 9 November 2020.

Much of the future of UK financial services regulation will be the continuation of work we led while we were a member of the EU, and I reaffirm this Government’s commitment to the highest internationally agreed standards, which we recognise as a cornerstone of the industry’s reputation and success.

Although we remain committed to those standards, it is important to acknowledge that there are areas in which we will forge our own path and establish an approach better suited to the unique nature of the UK market. Having left and reached an agreement with the EU on the nature of our future relationship, the UK must now have the confidence to regulate our financial services sector in a way that works for us and best meets our needs and our constituents’ needs.

This Bill provides continuity and certainty to the UK financial services sector, demonstrating to it that the UK remains an attractive and stable environment for its global business.

Photo of Pat McFadden Pat McFadden Shadow Economic Secretary (Treasury) 6:37, 13 January 2021

I will not detain the House for very long. As this is my last contribution to the debate on this Bill, I begin by thanking the Minister and his Bill team for their patience and forbearance throughout our proceedings—it feels like we have been dealing with this for a few months now. I also thank the SNP spokesperson, Alison Thewliss, who has gone through the Bill assiduously and tabled many amendments.

I thank the Clerks in the Public Bill Office, Kevin and Nick, for helping us. They play a particularly important role in helping Opposition Members to draft and discuss amendments. The ideas are our responsibility, but they give us very good and important technical advice.

I thank the Committee Chairs, Philip Davies and my hon. Friend Dr Huq, and all the Members who have taken part in the debates, tabled amendments or spoken in any way. I make particular mention of my hon. Friend Dame Angela Eagle, whom I congratulate on her recently awarded damehood. Finally, Mr Deputy Speaker, I thank you and your colleagues in the Chair.

We have not opposed the principle of the Bill, and we will not vote against Third Reading tonight, because we recognise the need for post-Brexit stability in regulation. We also recognise that this is possibly the first of a number of pieces of legislation of this type. We have sought to improve the Bill in various ways, either in Committee or today on Report.

With the exception of the FinTech and financial crime amendment, the Minister has been, for the most part, resistant to these amendments, but a number of key issues have been raised. I hope that he and the Treasury will consider the broad sweep of issues raised around things such as: crime and money laundering—there is a real desire in this Parliament not to see our financial sector being regarded as an easy place for those things to happen; consumer debt and protection—Members have voiced quite passionate concerns, particularly given the year that we have just been through and the impact on household finances, that consumers are given help with what for many is a growing debt burden, and protection against mis-selling or inappropriate treatment by financial services providers or companies; mortgage prisoners, who we have heard about tonight, many of whom are locked into very difficult and disadvantageous mortgage products; plus the broader issues that we have raised about post-Brexit financial services, equivalence, green finance and so on.

The Government made a big decision—a big choice—particularly in their reincarnation, or incarnation, since December 2019: to place the issue of sovereignty above considerations of market access. We might go further and say that they chose to place the issue of sovereignty above considerations of economic prosperity, although perhaps Ministers and Members abroad would contest that. None the less, a choice like that was certainly made and it has big implications, potentially, for a sector that contributes a significant proportion of our GDP, employs around one in 14 people in the country, earns a lot of export revenues for the country and is a very significant contributor to tax revenues that pay for public services. We all have a great deal of interest in how this sector will be run as we have come to the end of the transition period. As I said earlier, we want this sector to be successful, to be innovative, and also to be responsible.

We want to ensure that the sector does well, but also that the public is properly protected against the risks inherent in an economy like ours, having such a globally significant financial services sector, and the risks if things go wrong, which we saw in our recent history. We certainly do not want to see a slash-and-burn approach to regulation in order to compensate for the decision—I stress the word “decision”— to lose at least a proportion of the market on our doorstep. It is in that spirit that we have approached the Bill, that we have tabled the amendments, and that we have chosen the amendments that we have put to the vote. Thank you.

Photo of Alison Thewliss Alison Thewliss Shadow SNP Spokesperson (Treasury) 6:42, 13 January 2021

I just want to reflect on the Bill and on where we are. There was a lot of cross-party agreement in Committee and in the debate on actions that we want to see. We all agree on the importance of financial services to our economy. We all agree that there needs to be further action by Government on money laundering, fraud and economic crime. We all agree that we want to protect customers, businesses and our constituents from emerging threats and risks. I think that we are getting to a broader agreement on scrutiny as well and I urge the Minister to recognise that putting the scrutiny in place after the framework and the rules are made fails to meet the Government’s promise of taking back control and of giving powers to this House. If we are taking these powers back from Europe, they should be coming to the House of Commons rather than to bureaucrats elsewhere. We have less power in this House as Members of Parliament than the Members of the European Parliament have, and that is very difficult to understand and accept from a Government who made such a great play of this.

I want to take the opportunity also to thank everybody who has helped and supported me in these debates and in the Bill process generally. I want to thank the Minister and the shadow Minister for the spirit in which our debate has been conducted. I want to thank all the Members who have contributed their expertise to the debates we have had—there is significant expertise in the House, which should be lent to scrutiny.

I thank the Clerks, Nicholas Taylor and Kevin Maddison, for the significant advice they have given. I thank Scott Taylor, Linda Nagy and my member of staff Mhairi Love, all of whom supported us greatly in the research that went into this. I want to particularly thank Macmillan Cancer Support and all who gave evidence on the Bill. It was so good to be on a Bill Committee that was allowed to take evidence, which does not happen for the Finance Bill, and I urge the Minister to take that on board when we come back to the Finance Bill later this year. Lastly, I thank Heather Buchanan of the all-party parliamentary group on fair business banking for helping me understand some of the issues in the Bill.

There is a lot yet to be said and done on financial services; this is only the beginning. It is incumbent on the Government, in the areas where there is cross-party agreement, to take on the measures that have been suggested and to deal swiftly with the risks that we see coming, so that we can all ensure that our constituents and businesses have the protection they need to participate in financial services and the fairest possible deal in the years and months ahead.

Photo of Christine Jardine Christine Jardine Liberal Democrat Spokesperson (International Trade), Liberal Democrat Spokesperson (Exiting the European Union), Liberal Democrat Spokesperson (Treasury) 6:45, 13 January 2021

Like other Members, I would like to reiterate my and my party’s support for the financial services sector and its importance to our economy, making up about 7% of GDP. There has been a lot of cross-party agreement on this in Parliament. I hope the Government recognise that it is incumbent on them to take on board the comments from the Liberal Democrats, the Labour party and the Scottish National party. There is a great deal of work still to be done to protect consumers from unscrupulous operators, and this will be vital to not only our economic recovery but the future shape of the United Kingdom’s economy once we recover from covid-19.

Photo of Jim Shannon Jim Shannon Shadow DUP Spokesperson (Human Rights), Shadow DUP Spokesperson (Health) 6:46, 13 January 2021

Unfortunately I did not get the opportunity to speak on Report, but I want to put on record my thanks to the Minister for the prompt responses that he gives us on the matters that we bring to his attention. I believe that the Bill is a step in the right direction—it cements some of the issues that I would have liked to speak about earlier, which other Members have touched on—but there is still much to do. The Minister knows that, and we look forward to working with him.

The Minister talked about how imperative our financial services are and said that we can continue to be the core of financial services in Europe; I hope we can. As we leave the EU, I hope that the financial services industry can attain the highest standards and that we have protections for consumers individually and collectively. I am a person who uses a chequebook and has access to cash, because that is the way that the Northern Ireland man and woman did things over the years. I understand that the Bill puts in place protections for credit cards and so on, but sometimes credit cards do not work; sometimes the system breaks. Those of us of a different generation and a different way of doing things need reassurance that we can have access to cash if we need it and that chequebooks will be available.

The Bill provides protection for small and medium-sized businesses. I have expressed concern that the FCA rules do not protect small businesses in the way they should, and I hope the Bill can do that. Over the years, Kevin Hollinrake has been at the forefront of this issue. He and I have worked together, and with others, to make sure that small businesses are protected from any breach of FCA rules. I also understand his wanting to ensure that multinationals pay their fair share of tax to the UK, instead of hiving it off to tax havens. I hope that, through the Bill, in the future we will see more accountability in the process of ensuring that that takes place.

I am also very much for ensuring consumer protection by introducing ideas of fairness and legality, and I believe that the Minister is very keen to ensure that that happens. However, the individual consumer has no resources for court cases, whereas big business seems to have all the resources, so we probably need something in there for the small man and woman, who I always speak up for—we all do; I am not the only one.

I listened to the Minister earlier on money laundering, and particularly on his point about paramilitaries in Northern Ireland. He said he would come back and give me some details. I hope that, through the Bill, when we try to address money laundering, as Mr McFadden referred to, we do not miss another opportunity to ensure that gangsters, thugs and paramilitaries are put out of business, as they should be.

Question put and agreed to.

Bill accordingly read the Third time and passed.