Without a whistle being blown or orange sliced we have reached roughly half-time of Committee Stage of the Financial Services and Markets Bill in the House of Lords.
An opportunity, over the next few days, to summarise the story so far now we have some more detail from the Government on their thoughts on our proposed changes, dare I say improvements, to the legislation.
Day one, appropriately enough, kicked off with consideration of whether there was sufficient parliamentary scrutiny of the extensive legislative changes proposed by the Bill. Lord Sharkey put it well, when speaking to his amendment, he pointed out:
“The purpose of the amendment is to allow debate on the possible means of parliamentary scrutiny of the many legislative changes that will be brought about by the implementation of Clause 1 and Schedule 1.”
There was broad consensus with his point – that there is nothing in the Bill that would enable proper scrutiny of the changes proposed by the Bill.
The whole wider question of parliamentary scrutiny was debated at length in the chamber on 12 January 2023. That debate was on the two reports, one from the Lord’s Delegated Powers and Regulatory Reform Committee called Democracy Denied? and another from the Secondary Legislation Scrutiny Committee called Government by Diktat. The titles of the reports accurately represent their urgent concerns.
Regrettably, there is plenty of evidence that these are valid concerns, and much of it is presented vividly in those two reports. There is also plenty of evidence to support the view that Governments try, when they can, to bypass real parliamentary scrutiny, and plenty of evidence that the balance of power between parliament and the executive has been shifting in favour of the executive.
Lord Sharkey’s summation was completely to the point and must be shared by us all:
“I conclude …. by saying that the structure of our financial services regime is far too important to be left to the Treasury and the regulators alone.”
Another colleague, Baroness Noakes, agreed and suggested a change to the Bill – to focus minds, an addition of a hard stop to this regulatory onshoring (or not) process. She explained
“I have proposed three years later: that is, on December 31 2026. I see that as a pragmatic compromise between getting the issue fixed and letting the regulators do a proper job in turning EU rules into something that works for the UK or indeed, whenever possible, removing the rules entirely. A deadline is a simple device in order to incentivise them to get on with it or risk losing the related law entirely.”
Lord Thomas, a former Lord Chief Justice, perhaps summed up the point most succinctly when he said:
“It seems to me that parliamentary scrutiny is essential. We need to come back to this time and time again. It is essential because, unlike the position of a Minister or that of a government, we have, first, the issue of the accountability of regulators and, secondly, we do not want to politicise regulators. That is Parliament’s job. Therefore, we have to scrutinise this whole area, where we are moving financial services to regulators and away from being dealt with largely through a political process in the European Union. We are hoping to make great improvements, but the one thing we are losing is the input of the political process. One cannot pretend that the direction of financial services policy is not a political question as well as a regulatory question. Politics should be for this House and, although I hate to use this word, we should not taint the regulators with politics.”
Responding for the Government, Minister Penn replied that:
“the Government are seeking the agreement of Parliament to repeal all retained EU law in financial services so that the UK can move to a comprehensive Financial Services and Markets Act model of regulation, whereby the independent regulators make rules in line with their statutory objectives as set by Parliament and in accordance with the procedures that Parliament has put in place.”
“Parliament will therefore play a key role in scrutinising any replacement secondary legislation. Where the Treasury replaces retained EU law through the powers in the Bill, this will almost always be subject to the affirmative procedure, with some limited exceptions specified in the Bill.”
“The Government have made efforts to set out how the framework provided by the Bill will work in practice. As part of the Edinburgh reforms, the Government published their approach in a document entitled Building a Smarter Financial Services Framework for the UK, which makes it clear that they will carefully sequence the repeal to avoid unnecessary disruption, and there will be no gaps in regulation. The Government have also recently published three illustrative statutory instruments under the powers in the Bill to facilitate scrutiny of the powers under which they will be made in Parliament. The regulators have the tools and expertise to make rules at pace, in line with their statutory objectives, within a model of appropriate parliamentary scrutiny and oversight.”
The time this will take, the point raised by Baroness Noakes, was also considered by the Minister:
“I can assure her that the Government intend to act at pace to complete the repeal and replacement of retained EU law, but we must also act in a way that allows everyone to adapt to the new model. That will often require the regulators to make replacement rules, which must be done in line with the appropriate procedures for consultation and engagement.”
The Minister concluded:
“In short, the approach is set out in Building a Smarter Financial Services Framework for the UK, which was published alongside the Edinburgh reforms. A number of those reforms set out where our priorities are. They set out where we have already done consultations and will be ready to move forward with new secondary legislation or regulator rules. They set out where we are starting consultations or calls for evidence in a number of areas where we seek to make changes. They also give a forward look at some of those other areas where we seek to make changes but have not yet published our consultation or call for evidence.”
So, that’s the priority document for now and more than worth a flick through.
Parliamentary scrutiny and the mechanisms to achieve it will be coming back in more detail in the second half and I will report back on whether the Government has conceded any ground on this important issue. This Bill matters the most of any financial services legislation in a generation. Do please be in touch with your thoughts and hopes for the Bill before it becomes law.