Bank of England and Financial Services (Consequential Amendments) Regulations 2017 — House of Lords, 2017-01-24
Topic: Domestic Commerce
Denis Tunnicliffe (Labour, Centre-left): I thank the Minister for introducing these regulations—and my speaking notes go on to say, "and I thank those who have spoken in this short debate", but it has been short indeed. As has been identified, this is an uncontroversial statutory instrument, which makes consequential amendments to legislation where references to the Prudential Regulation Authority are made. We understand that these are tidying-up changes and have no intention of opposing this instrument I do not wish to keep your Lordships unduly, but it is important to mention what we regard as the wider implications of the primary legislation. The PRA, established by the Financial Services Act 2012—an exercise in which I participated, as I have with every piece of legislation to do with it ever since; that is why I now look so old—will be de-subsidiarised, giving the Bank of England control over microprudential regulation. The board will be replaced by the Prudential Regulation Committee, which will sit on the same statutory footing as the Monetary Policy Committee and the Financial Policy Committee As your Lordships will recall, our main concern was to ensure that those in positions of power and authority within the banking sector were properly accountable. However, we also queried the Government's rationale for bringing the PRA within the scope of the Bank of England. I would like to make two points. First, I start from the same position as I did at the end of 2015, when what is now the Bank of England and Financial Services Act was going through your Lordships’ House. As I said on the second day of Committee on 11 November 2015: "I think the Bank will move its emphasis from the Monetary Policy Committee towards the FPC" The nature of our economy is changing. The powers of the FPC, including controlling the creation of credit, are absolutely fundamental to how efficiently the money system supports the economy, and hence are fundamental to the economy. Under the system which the 2016 Act abolished there were at least checks and balances I went on to say that the PRA was, "a subsidiary—an independent company … governed by company law—and, therefore, there has to be an arm’s-length relationship between it and the FPC. Under the various terms of the Act, the FPC can create various macroeconomic tools, which it then hands down to the PRA. It hands those down not through some side-channels or influence but, because of that independent legal status, in a very formal way to its subsidiary, and I think that is healthy. I do not believe that in effect moving the PRA closer to the Bank—and, by definition, closer to the FPC—is a good thing. The present separation is working, and I think we should continue it".—[Official Report, 11/11/15; col. 2005.] Indeed, one of the benefits of subsidiary status—I should know, having headed a subsidiary company of a large organisation—is that one gets to focus on the business, so that there are clear lines of responsibility. As was brilliantly articulated by my noble friend Lord Eatwell, the 2016 Act muddies these lines of responsibility and, as he said, "renders the governance structure of the Bank of England opaque".—[Official Report, 9/11/15; col. 1851.] The lines of demarcation set out in the Act relating to the PRC seem to add yet another layer of bureaucracy and complication to a new system which for all intents and purposes was functioning as it should. What specific work has been done since the Act came into force last year to ensure the same levels of accountability and transparency, and how will those qualities be visible to the general public Presuming that the Government do not take of heed of my advice, the PRA will be abolished and the PRC created. When will this transition take place? The Act states that an order will be introduced by the Treasury to give effect to the Act. Should we expect that order by the end of this Session? I thank the Minister in anticipation for her response. I am in no way saying that we are not impressed by the performance of the Bank of England. Nevertheless, the reasons she gave seemed rather fluffy to justify giving up the clarity that the present subsidiary status provides.