My Lords, as the Minister has outlined, the three statutory instruments before us make a number of technical changes to the Financial Services and Markets Act 2000, as amended, which relate specifically to the expansion of the senior management and certification regime—or SM&CR—mortgage regulation and the extension of powers to the Prudential Regulation Authority. As my honourable friend Richard Burgon MP said in the other place, we will not oppose the orders—I want to place that on record again today. My party is committed to ensuring that we have a financial services sector that works in the interests of the public and we want to work with the Government to ensure that.
Banking regulation seems—in this House at the least—to be the flavour of the month, what with these orders today and the Second Reading of the Bank of England and Financial Services Bill only yesterday. Last night, we had a constructive and wide-ranging debate on what a modern and effective banking sector should look like. It was encouraging that we should have such passionate, experienced and committed colleagues engaging with this issue.
Some of the observations made last night have relevance today. Without wishing to detain your Lordships for very long, I want to ask the Minister a number of
questions about how these small but nevertheless important changes fit into the Government’s broader proposals.
The Financial Services and Markets Act 2000 (Relevant Authorised Persons) Order extends the regulation governing individuals working in the UK banking sector to cover UK branches of foreign banks and investment firms. I note that the Economic Secretary to the Treasury said on Thursday that these changes would come into effect in March 2016, the same time as changes for senior managers in UK institutions. Can the Minister say today, or perhaps in writing at a later date, how many non-UK institutions which have a branch in the UK this will affect?
As the Minister will know, one of the changes made in the Bank of England and Financial Services Bill is the extension of the SM&CR to the entire financial services industry—not just senior managers in banks but to credit unions and investment firms from 2017. Once the expansion comes into effect, does the Minister expect non-UK institutions which have a branch in the UK be included?
The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No. 3) Order 2015 will mean that from 31 March 2016 mortgages dating from before 31 October 2004, which are currently regulated as credit agreements, are regulated instead as mortgages. The Government claim that the proposed changes are necessary for the EU mortgage credit directive to work as intended. The Economic Secretary to the Treasury stated:
“During the course of that routine monitoring it came to light that, owing to the complexity of layering a new wave of legislation on top of existing legislation, in some areas the order did not achieve what was intended”.—[Official Report, Commons, Sixth Delegated Legislation Committee, 22/10/15; col. 5.]
For clarification, can the Minister confirm that these are just credit agreements which relate to property? Can he also indicate the scope of the aforementioned monitoring and the precise issues covered to bring about such change? I also understand that my honourable friend in the other place asked why pre-March 2004 mortgages were being regulated and not those after March 2004.
Finally, the Financial Services and Markets Act 2000 (Misconduct and Appropriate Regulator) Order 2015 confers powers to the PRA over individuals working in financial services, specifically in cases relating to the alternative investment management regulations. It is also extends to the PRA the ability to take disciplinary action. We understand that the order is required so as to ensure that the appropriate regulators have sufficient powers to carry out their functions. However, I have a number of points on which I seek clarification.
Will the changes in the role and structure of the FPC as a full committee of the Bank and the desubservisation—if there is such a word—of the PRA alongside the creation of the new Prudential Regulation Committee require that these orders be amended again? Paragraph 5(1) of the aforementioned order states that:
“The Treasury must from time to time—
(a) carry out a review of the relevant provisions of the 2000 Act;
(b) set out the conclusions of the review in a report, and
(c) publish the report”.
I would be grateful if the Minister could go into more detail about the process and practice of this, in particular the timing. Does “from time to time” mean once a Parliament, once a Session or once a decade? I understand that the Minister may need to write in order to set this out in more detail.
Throughout the creation of this new regime, the noble Lord, Lord Hodgson of Astley Abbotts, has brought us the worm’s-eye view of the situation. I am not privileged to be a worm in the City, merely a worm at Westminster, but I recall that we spent many an hour layering clause on clause into the various Bills to define the difference between the PRA and the FCA. I am pleased to hear from the noble Lord, Lord Hodgson, that it is as clear as ever. I will be fascinated to hear the Minister’s reply, but I recognise that he may not be able to finesse it too accurately today, so perhaps I may be copied in to any letter he promises to his noble friend Lord Hodgson.