Clause 13 - Testing of FMI technologies or practices

Part of Financial Services and Markets Bill – in a Public Bill Committee at 3:30 pm on 25 October 2022.

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Photo of Peter Grant Peter Grant Shadow SNP Spokesperson (Europe), Shadow SNP Deputy Spokesperson (Treasury - Chief Secretary) 3:30, 25 October 2022

Thank you, Dame Maria, for clarifying earlier that we are talking about sandboxes, not sandwich boxes. Some Members seem to have been a bit confused about that. I am intrigued by the use of the term “sandbox”. To me, a sandbox can be a road safety feature: it is literally a gravel or sand pit on a bad bend in the road to allow someone who loses control to get off the road safely. Alternatively, a sandbox is something that any cat owner will be familiar with. I am genuinely intrigued as to which of those metaphors somebody thought was appropriate for what we are discussing.

The principle behind these measures is absolutely sound. By this time next year, new practices in financial services will have evolved that none of us can begin to imagine just now. That is how things are moving. I take the point made by my hon. Friend the Member for West Dunbartonshire that the technology itself has not significantly changed—it is certainly not new—but the way in which people will use the technology is. The kinds of products that people will start to devise may well mean that existing regulatory practices need to be changed very quickly. The idea of being allowed to pilot something that is genuinely new in a safe space before letting it loose on the wider world is absolutely correct in my view. However, the devil, of course, is in the detail.

I am a bit concerned that the first in this group of clauses says that the purpose of the sandbox will be to test

“for a limited period, the efficiency or effectiveness of the carrying on of FMI activities”.

It does not say that one of the purposes is to test the effectiveness of any regulation that may go with it, which concerns me. Obviously, if someone knows that the activity they are carrying out in a sandbox will be looked at very carefully, they are going to behave themselves. How can we be sure that as well as being effective, it will work for the purposes of the providers? How do we know that the regulation that goes with it will also be effective? Again, that has to be effective as soon as the thing goes live. We cannot wait and regulate it effectively a few weeks later, because it will be far too late by then.

I hear the Minister’s comments on amendment 38. That is not my reading of its wording; it certainly was not intended, and I would not interpret it as saying that the precise wording that the regulator sent back to the Treasury has to be replicated in its entirety. If that is genuinely the only issue, I am minded to withdraw the amendment and bring it back with a slightly different wording at a later stage. If we did not put that in, think of where it would leave us: with the possibility that we could be asked to agree to the extension or the permanent implementation of a set of financial practices when we would not get to see what the regulator thinks of them during the test period. The Treasury would, but it would not have to pay any attention to them.

There have been instances recently where other Government Departments have completely ignored the strongly declared views of regulators elsewhere. We could have a position where the regulator says to the Treasury, “We don’t think we can regulate this properly just now,” and for its own reasons the Treasury decides to go ahead. We, as Members of Parliament, would be given the opportunity to vote on an affirmative motion, but we would not be told what the regulator is saying. I know that we will get assurances from the Minister that that would never happen, but if the law allows it to happen, my concern is that sooner or later it will. I will not push amendment 38 to a vote today, but I hope that something similar that deals with the concerns raised by the Minister and clarifies the wording will be brought forward; otherwise, the affirmative procedure does not carry the reassurance that it needs to.

I have a couple of queries on other parts of the clauses. Clause 15 appears to say that, having gone through the process of setting up a sandbox, the Treasury can decide to implement it wholesale without waiting for the end of the pilot process. Why would someone set up a pilot process to test something if they then needed the power to implement it wholesale without necessarily waiting for the end of the pilot? If that is not the intention behind the wording of the clause, I am sure the Minister will put me right. I am never happy, as I have mentioned, with the likes of clause 15(4), which allows regulations to be made that change primary legislation to an Act of Parliament. I can take a bit of comfort from the fact that this case is covered by the affirmative rather than the negative procedure. If Members do not have full information on how the pilot was assessed, they will not be able to make an informed decision on whether to support a vote under the affirmative procedure; if it is not an informed decision, it is unlikely to be a good decision.

Following those remarks, I will not ask the Committee to divide on any of the clauses. I have concerns about the wording of some of them, and I hope that in not pressing amendment 38 the Minister might see fit to bring in something similar that achieves his intent a bit more clearly at a later stage in the passage of the Bill.