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Financial Services and Markets Bill [HL]

My Lords, I am grateful to the noble Baroness, Lady Bowles of Berkhamsted, the noble Lord, Lord Vaux of Harrowden, and my noble friend Lord Bridges of Headley for adding their names to this amendment.

Last week, we debated the need for more extensive regulatory evaluation in order to hold the regulators to account effectively. The noble Baroness, Lady Bowles, suggested a Treasury-convened panel to undertake periodic independent reviews, and my noble friend Lord Bridges of Headley suggested an office of regulatory evaluation, which would assess the regulators’ performance in discharging their duties and meeting the regulatory principles. These would not replace the parliamentary committees in each House but would complement them by providing more in-depth and comprehensive analysis, which could then be built on within the framework of parliamentary accountability. My Amendment 142F would be another way of increasing the amount of the evaluation of the regulators.

I remind the Committee of the background. The volume of regulatory activity has grown significantly in recent years, as the matters that used to be dealt with in the EU have been added to the FSMA model. In addition, innovation is presenting major new challenges, which has the effect of increasing regulator activity.

The ability of Parliament to hold regulators to account was already under strain. For example, the Financial Services Regulation Committee of your Lordships’ House recently undertook a major piece of work on stablecoins, but it would not have been realistic to attempt to encompass all developments in digital assets. We cannot cover everything that we think should be covered.

The Bill is adding to that workload by adding the huge area of consumer credit to the FCA’s responsibilities, all of which will need to be implemented by way of new FCA rules. This will involve very significant issues: the balance between consumer protections; the supply of credit; and the efficiency of credit providers. I do not know how all that will be scrutinised effectively.

Instead of looking to solutions that are external to the regulators, which is what we discussed last week, Amendment 142F proposes that each of the regulators sets up an internal but independent office for regulatory evaluation. Apart from safeguarding the independence of the office and mandating regular reporting, the amendment is deliberately not prescriptive beyond that, leaving it to the new offices to work out how to carry out their work.

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This is a tried and trusted mechanism in financial services institutions. The World Bank, the International Monetary Fund and the European Investment Bank have them, as do several UN bodies and development banks. Internal evaluation offices do not replace external or internal audit. They tend to work on the core activities—the core work—of the bodies, rather than their systems, controls and financial reporting. Nor would they replace the work of the cost-benefit panels, which focus on the way in which the regulators approach the technical task of cost-benefit analysis supporting new rules. There might be some overlaps, but they can always be managed out in a pragmatic way, as already happens.

The Bank of England already has an internal evaluation office, which was set up 12 years ago, so this concept would not be alien to the Bank. The IEO has many of the features that appear in my amendment; for example, it reports to the chairman of the Court of Directors. My amendment would, however, require the Bank to look again at its arrangements, as they currently cover the whole Bank and relatively little resource has been dedicated to the PRA; indeed, only three reports out of 14 in total since it was set up have concerned the PRA. So the Bank’s internal evaluation office has a relatively low output, and a relatively small element of that output is dedicated to the PRA.

Our debates so far have revealed that there is not a meeting of minds between the Government and those of us who have tabled or spoken to amendments. I should say that the Financial Services Regulation Committee greatly looks forward to its discussion with the Minister and his colleague, the Economic Secretary, later this week. The Minister has consistently described the task of accountability oversight of the regulators in terms of overall performance against their objectives. We, on the other hand, believe that it is necessary to interrogate rules, guidance, supervision and all the other activities that regulators carry out in terms of their proportionality and the impact on those affected by them, whether that is the regulated firms themselves, consumers or other market operators.

That was the vision of the 2023 Act, with its carefully designed notifications of rules and guidance to the parliamentary committees. We continue to believe that that model is effective, and we regard a framework that amounts to not much more than scrutinising five-year plans as falling well short of what could be regarded as effective accountability. If the PRA, the Bank of England and the FCA had offices for regulatory evaluation, they could provide a rich source of material for parliamentary committees without the necessity of creating further external organisations. That is why my amendment would provide for the output of the offices to be sent to the parliamentary committees, thus building on FSMA 2023.

At the end of the day, we are looking to enhance the ability of the existing parliamentary committees, which are, as I have explained, already under some pressure, by finding some way of making parliamentary oversight of the regulators have real meaning in the scheme of FSMA as it was originally set up 26 years ago. I beg to move.