I thank my noble friend Lady Noakes for her amendment. It is a good opportunity to talk about the Government’s proposals for mitigating the systemic risk posed by critical third parties in the finance sector, such as cloud service providers. The Government agree with the spirit of what my noble friend and the noble Baroness, Lady Kramer, have said.
The critical third parties regime has been designed with the aim of minimising the burden placed on these parties, while mitigating the systemic risks that could be posed by the use of these services. Rather than bringing, for example, a whole cloud services provider into the financial regulators’ remit, the regime instead gives the regulators powers over only the services that a critical third party provides to the financial services sector. I believe that that approach contrasts with the EU approach known as DORA, which I thought was the name of my parents’ dog. DORA bears similarities to the UK’s approach, but I am told that it is less proportionate than our regime, which targets only the services provided to the finance sector and not whole firms.
Proportionality and resource-effectiveness are therefore built into the design of the regime. I draw all noble Lords’ attention to the obligations that the regulators already operate under, including those resulting from FSMA, and the Bank of England Act 1998. In addition to public law obligations to act reasonably and proportionally, the regulators must also have regard to their regulatory principles. These include the principle that burdens or restrictions imposed on a person should be proportionate to their expected benefits. As the noble Baroness, Lady Kramer, indicated, we will come back to this question of proportionality and effectiveness as we go through our debates in Committee.
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In addition to this, the obligations in Clauses 138I and 138J of FSMA require the PRA or FCA to consult on proposed rules, meaning that third-party service providers, including those that might be designated as “critical” under this regime, will have an opportunity, through public consultation, to comment on and help to shape the requirements and expectations they will be subject to.
I hope that this goes some way to reassuring my noble friend that, in the wider regime, the intention of her proposed amendment has already been fulfilled through existing public law obligations and requirements
in FSMA and the Bank of England Act 1998 around proportionality. I also pointed to the example that, in our design of the regime, we took the opportunity to make it more targeted than, for example, the EU regime. I hope that she will therefore withdraw her amendment now, although I feel we may return to it on Report.