FSMB debate discusses crypto, net zero and regulatory independence

The debate on the FSM Bill resumed on 27 October. The Committee discussed, in the morning and afternoon sessions:

  • Clause 21: the proposals for regulating stablecoins. The main question came from Tulip Siddiq who queried why the proposed scope was so narrow and feared that the UK could become a centre for illicit activity without appropriate regulation. Andrew Griffith agreed, and said the proposal was only a start and the Government has committed to consult more widely before the end of the year. He confirmed his belief that the definition of “digital settlement assets” encompasses what it currently needs to. Clauses 21 and 22 and Schedule 6 were agreed to;
  • Clause 23: implementation of mutual recognition agreements. Andrew Griffith explained the Bill aimed to allow changes to give effect to MRAs to be made through secondary legislation only, but assured the Committee that Parliament would have the usual powers to scrutinise any proposed instruments. Tulip Siddiq said that Labour supports the amendment but it was not clear how it would help to secure these important agreements. Members of the Committee then pressed to know when there would be an agreement with the EU. Andrew Griffith could not say, but noted he had just met his German counterpart. Dame Angela Eagle asked whether the Treasury Committee could have advance notice of negotiations, which was agreed to be a valid request. Clause 23 was ordered to stand part of the Bill;
  • amendments 43 and 45 were not moved;
  • Clause 24: on competitiveness, the Committee discussed the importance of getting the objective right. Stephen Hammond said the purpose of the proposed amendments was that “facilitating” appeared a more passive word, but there should be active “promotion” of the objective. Given the overall support for the objective, despite concerns raised over how the regulators would be accountable for getting it right, Clause 24 will stand part of the Bill and amendment 47 withdrawn;
  • Clause 25: on regulatory principles and the zero net emissions target. Andrew Griffith noted the Government’s commitment to net zero by 2050 and is proposing to replace the sustainable growth principle with the new principle to specifically require PRA and FCA to have regard to this. Emma Hardy, supporting the principle, also mentioned the need to consider nature. Craig Tracey was concerned that there needed to be tighter management and KPIs. Tulip Siddiq, supporting the proposal, said it needed to go further as it “lacks ambition on green finance”. Clauses 25 and 26 are to stand, with a commitment from Andrew Griffith to take away the points raised;
  • Clause 27: review of rules: Andrew Griffith said it is important that PRA and FCA regularly review their rules to ensure they are fit for purpose and that requiring them to do so should lead to a more systematic approach, which should in turn lead to outdated or ineffective rules being removed or revised more consistently. There is also a proposal that the regulators publish a statement of policy on how they intend to conduct rule reviews, and an additional power for Treasury to direct a rule review if in the public interest. Finally he mentioned the thorny issue of accountability and said the government supports regulatory independence but feels the accountability framework should be strengthened. Angela Eagle asked when the amendment the Government keeps referring to will be published. Tulip Siddiq referred to Sir Jon Cunliffe’s expressed view that the proposed intervention power risked undermining perceptions of BoE’s independence and asked why Clause 27 is not good enough as it is. Andrew Griffith did not answer any of the questions directly, but the Clause was ordered to stand part of the Bill.
  • Amendment 48: regulator reporting metrics: Stephen Hammond raised his proposal that regulators should be required to report on a clear set of metrics, to allow Parliament and the public to ensure it is meeting its objective. He agreed to withdraw it on being given an assurance that the Government takes the issue seriously and that it is being discussed with the PRA and FCA;
  • Clause 28: power to require rules: this clause will allow Treasury to tell PRA or FCA to make rules in a certain area (with similar obligations for BoE and PSR elsewhere in the Bill). The Clause is to stand;
  • Clause 29: matters to consider when making rules: a set of proposed amendments to include specific mention of financial inclusion, including new clauses 2 and 3, were discussed. Emma Hardy had tabled the amendments and noted that existing rules do not adequately take account of those that financial institutions do not want. There was broad support for a version of “have regard to”. Angela Eagle noted that previous attempts to create simple stakeholder products had not worked, because the industry didn’t want them to, and so there is a need for regulators to have regard to the needs of those who cannot access products. Emma Hardy commented that one of the unintended consequences of the consumer duty could be to make marginally profitable products unprofitable, thereby actually excluding more people from them. Andrew Griffith said the Government opposes the amendments, but that he himself was not willing to dismiss any of the arguments he had heard. The Committee divided, 9 to 5 against the amendment. Moving on, Clause 29 and then Clauses 30-32 on further rulemaking powers and safeguards were agreed to stand part of the Bill;
  • Clause 33: responses to recommendations of the Treasury. This is intended to ensure greater transparency of how regulators take into account Treasury recommendations. The Clause was agreed.
  • Clause 34: public consultation requirements: Stephen Hammond also moved his amendment that a list of all consultees be published. He withdrew the amendment after reassurance that his point was understood but that there may be times when a consultee does not want their status known. Clause 34 and 35 were agreed after discussion of the importance of the consumer voice on regulatory panels, and the risk of “producer capture”;
  • Clause 36 and amendments 3 and 4: engagement with Parliamentary Committees: Tulip Siddiq welcomed the strengthened role proposed for the Treasury Committee. Amendment 3, 4 and Clause 36 were agreed;
  • Clause 37: duty to cooperate and consult, between FCA, FOS and FSCS. This was agreed;
  • Clauses 38 to 42 and amendments 51-54: Listing Authority Advisory Panel:  These were all discussed together, broadly to put PRA ad FCA panels and committees on a statutory footing, to require them to consult their CBA panels and to require statements of policy. The amendments introduce specific requirements relating to CBA and FCA’s CBA panel. The amendments were withdrawn, some on promise of further discussions. The Clauses were ordered to stand part of the Bill;
  • Clauses 43 and 45: exercise of FMI regulatory powers: these clauses are necessary as the BoE now has powers that were previously held by EU institutions, and were agreed;
  • Clause 44; BoE rule-making powers: this clause is similar to clause 29 but for the BoE, and was agreed, subject to review once the Government actually publishes its proposed intervention power.

The Committee next sits on 1 November, for its penultimate day.

Emma Radmore