Clause 36 - Engagement with Parliamentary Committees

Financial Services and Markets Bill – in a Public Bill Committee at 3:00 pm on 27 October 2022.

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Photo of Andrew Griffith Andrew Griffith The Financial Secretary to the Treasury, The Economic Secretary to the Treasury 3:00, 27 October 2022

I beg to move amendment 3, in clause 36, page 49, line 31, leave out

“and the regulatory principles in section 3B,” and insert—

“(ba) demonstrate that the FCA has had regard to the regulatory principles in section 3B when preparing the proposals,”.

This amendment ensures that the notification provisions align with the duty in section 1B(5)(a) of the Financial Services and Markets Act 2000, for the FCA to have regard to the regulatory principles set out in section 3B of that Act.

Photo of Maria Miller Maria Miller Conservative, Basingstoke

With this it will be convenient to discuss the following:

Government amendment 4

Clause 36 stand part.

Photo of Andrew Griffith Andrew Griffith The Financial Secretary to the Treasury, The Economic Secretary to the Treasury

I will speak first to clause 36 and then turn to Government amendments 3 and 4. Parliament, through primary legislation, sets the overall approach and institutional architecture for financial services regulation. This includes the regulators’ objectives and requirements to ensure appropriate accountability. Parliament therefore has a unique and special role in relation to the scrutiny and oversight of the FCA and the PRA. Given the regulators’ wide-ranging powers, which they exercise independently of Government, it is vital that Parliament can continue to effectively scrutinise and hold the regulators to account. This is particularly important given that the regulators will have additional rule-making responsibilities following the repeal of retained EU law.

Parliament has a number of existing mechanisms to scrutinise the regulators, including the targeted scrutiny provided by Select Committees. The Government’s view is that those are appropriate and flexible and should continue to be the principal ways in which Parliament holds the regulators to account. Clause 36 adds to these existing tools to support more effective accountability of the regulators to Parliament. The clause also addresses concerns raised in debates during the passage of the Financial Services Act 2021.

Members of both Houses highlighted the importance of the regulators having sufficient regard to the conclusions of parliamentary scrutiny, and the importance of parliamentarians receiving sufficient information from the regulators to facilitate their scrutiny and ensure that it is effective. The clause inserts new provisions in FSMA to require the FCA and the PRA to notify the Treasury Committee when they publish consultations on proposed rules, setting out how they exercise any of their general functions, or on proposals under a statutory duty.

The new provisions also require the regulators to draw the Treasury Committee’s attention to certain key aspects of a consultation, including how proposals advance their objectives and have had regard to the regulatory principles. The clause also requires the FCA and PRA to respond in writing to formal responses to any of their public consultations from any parliamentary Committee. While it is expected that the regulators would always respond, this will give Parliament reassurance by placing this on a statutory footing. The Government consider that placing those requirements on the regulators on a statutory basis is appropriate due to the unique circumstances of the financial services regulators’ wide remits, and their position as independent public bodies that are accountable to Parliament.

I now turn to amendments 3 and 4, which make a technical change to the new requirements for the FCA and PRA to notify the Treasury Committee when they publish a consultation. Clause 36 contains a minor drafting error, by requiring the regulators to set out how the proposed rules are “compatible” with the regulatory principles. The Government have tabled these amendments to correct that and remove any ambiguity, and to align the requirement in clause 36 with the broader requirements in FSMA.

Photo of Tulip Siddiq Tulip Siddiq Shadow Minister (Treasury)

The Minister has already said that he is open to discussion about this, but I specifically want to turn to the role of the Treasury Committee. The Opposition are pleased to see a strengthened role for the Treasury Committee in scrutinising financial services regulation. However, TheCityUK, in its written submission to the Committee, set out that, while the Treasury Committee has the power to send for persons, papers and records, it does not have the power to mandate the regulators to report on specific performance metrics over time.

TheCityUK argues that the efficiency and effectiveness of regulators, and the impact of their operational performance on UK competitiveness, would be improved by greater accuracy, transparency and accountability in operational performance metrics. It has proposed an amendment to give the Treasury powers to require regulators to report specified operational performance metrics, with the Treasury Select Committee consulted on the metrics to be reported. Those could include the regulator’s performance against its secondary objective or its “have regard” for net zero targets, for example. I wanted to hear what the Minister thinks about those proposals.

Photo of Angela Eagle Angela Eagle Labour, Wallasey

As a member of the Treasury Select Committee and—for an all too brief time—acting Chair, I am also very interested to hear what the Minister has to say about this.

Photo of Andrew Griffith Andrew Griffith The Financial Secretary to the Treasury, The Economic Secretary to the Treasury

I am struggling to add incrementally to what the Government have said earlier today regarding our receptivity to the idea of greater transparency, and an ability to design or influence the metrics that are being reported. I observe that the Treasury Select Committee appears fairly formidable in its ability to compel witnesses and information, and I would be interested to hear more about any deficiencies or impediments that that Committee, under its acting Chair or its permanent Chair, feels exist. This would certainly be an opportunity to rectify those, but I suggest that either I meet with the hon. Member for Wallasey, or she writes to me in a little more detail about what would help the working of that important Committee.

Amendment 3 agreed to.

Amendment made: 4, in clause 36, page 50, line 41, leave out paragraph (b) and insert—

“(b) demonstrate that the PRA has had regard to the regulatory principles in section 3B when preparing the proposals,”—

This amendment ensures that the notification provisions align with the duty in section 2H(2) of the Financial Services and Markets Act 2000 for the PRA to have regard to the regulatory principles set out in section 3B of that Act.

Clause 36, as amended, ordered to stand part of the Bill.