Clause 38 - Listing Authority Advisory Panel

Part of 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 will first speak to clauses 38, 39, 40, 41 and 42, and I will then turn to amendments 51, 52, 53 and 54.

Clauses 38 and 39 concern the FCA’s and the PRA’s statutory powers. As we have already discussed, FSMA 2000 requires the PRA and FCA to set up and maintain stakeholder panels, also known as statutory panels. These panels provide valuable insight, advice and challenge to the regulators’ rule making, drawing on the experience and expertise of their respective memberships. The regulators have regular meetings and discussions with those panels, in which most major early policy and regulatory proposals are presented for comment. The confidentiality of the panel’s contributions allows the regulators to engage the panels when policy is in the early stages of development ahead of public consultation, and enables the panels to act as a critical friend. The panels represent a diverse range of stakeholders, including consumers, small businesses and market practitioners.

In addition, the FCA also voluntarily operates the listing authority advisory panel, which operates in a similar manner to its statutory panels, and represents the interests of issuers of securities and advises on the FCA listing function. In addition to its statutory practitioner panel, the PRA voluntarily operates an insurance sub-committee for that panel, which represents the interests of insurance practitioners.

Clauses 38 and 39 amend FSMA, to place the FCA’s listing authority advisory panel and the PRA practitioner panel’s insurance sub-committee on a statutory footing. These clauses also set requirements for the FCA and the PRA in relation to these panels, in line with the existing requirements for other statutory panels. That includes appointing a chair to be approved by the Treasury.

Clause 40 requires the FCA and the PRA each to establish and maintain a new statutory panel dedicated to supporting the development of their cost-benefit analysis. CBA is an important part of the regulators’ policymaking process. It helps the regulators to understand the likely impacts of a policy and to determine whether a proposed intervention is proportionate.

Under FSMA 2000, the FCA and the PRA are already required to undertake and publish a CBA when consulting on draft rules, unless certain exemptions are met. Respondents to the October 2020 future regulatory framework review consultation expressed significant concerns about the rigour and scope of the regulators’ CBAs and supported enhanced external challenge as a way to improve the quality of the regulators’ CBAs.

Clause 40 addresses these concerns and requires the FCA and the PRA to consult their CBA panel on the preparation of a CBA. The Government recognise that requiring the CBA panel to provide detailed comments on all of the regulators’ CBA before publication could cause delays to the policymaking process. To avoid these delays, or an overly burdensome process for minor rule changes, the clause enables the regulators to agree thresholds with the CBA panel for when the panel does not need to review an individual CBA before publication. These thresholds will be set out in the regulator’s statement of policy on CBA, which is provided for in clause 41. The Government consider that the CBA panels can play an important role in improving the production of CBAs by the regulators.

Clause 41 responds to feedback from respondents to the FRF review consultation, who expressed concerns that it is not clear when and how regulators decide to conduct CBA and what the process involves. The clause creates a new statutory requirement for the regulators to each publish a statement of policy on their approach to cost-benefit analyses and sets out requirements regarding the information the regulators must include. This includes the regulators’ methodology for preparing CBA. The clause also requires the regulators to set out in the statement how they ensure that they appropriately consider any comments on CBA in response to the consultations, and provides transparency of the regulators’ CBA processes.

Clause 42 amends FSMA 2000 to require the PRA and the FCA to

“prepare and publish a statement of policy” in relation to how they appoint members to their statutory panels. Ensuring the right membership of the panels is crucial to each panel’s success in providing challenge, a range of expertise and differing perspectives, and to fulfilling their role as a critical friend to the relevant regulator. Respondents to the November 2021 FRF review consultation raised concerns regarding the lack of representation of some groups in the current panel membership: for example, vulnerable consumers. The clause therefore requires the regulators to make sure there is a clear and transparent process for appointing members to ensure that the membership of panels represents the full diversity of stakeholders.

Amendments 51 to 54 seek to introduce specific requirements for the FCA in relation to its approach to CBA and the creation of its CBA panel. Amendment 51 seeks to add a requirement for the FCA, when appointing persons to its CBA panel, to appoint at least two members who are

“external to the FCA, the Treasury, or the Bank of England”.

I agree with my hon. Friend the Member for Wimbledon that the composition of regulators’ panels is crucial. The Committee should be aware that the FCA’s existing panels are already made up of external stakeholders. Given the important role of the panels to act as a critical friend to the regulator, it is implicit that their members are made up of those outside of the financial services, regulators and the Government.

Amendment 52 would require the FCA to consider representations made to it by non-governmental bodies and recognised industry or trade association bodies in relation to its development of a CBA. Section 138I of FSMA requires the FCA to undertake and publish a CBA when consulting on draft rules, unless certain exemptions are met. Therefore, the FCA is already required to consider any stakeholder representations relating to CBA.

Amendments 53 and 54 would require the FCA and PRA to publish annual responses to the representations made to them by their CBA panels. If taken with amendment 52, the FCA would also be required to publish annual responses to representations made to it by non-governmental bodies and recognised industry or trade association bodies. Amendments 53 and 54 would restrict the flexibility for the FCA and the PRA to choose how frequently to publish responses to representations from their CBA panels, which may indeed be the point that is being made.

The Government do expect the FCA and the PRA to publish responses to representations at appropriate intervals. That may generally be annually, but it could be more frequent if appropriate. It may not always be appropriate for the Government to direct the regulators on operational matters such as this in statute.

Although I am, again, sympathetic to the intention behind these amendments and I regret somewhat that we are even in this position—that, as the regulator perhaps does not have the industry’s confidence in its existing CBA process, the Bill Committee would need to discuss this matter—I ask my hon. Friend the Member for Wimbledon to withdraw amendments 51 to 54. I commend clauses 38 to 42 to the Committee.