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Financial Services Bill - Sitting 1

17 November 2020

Proposing MP
Philip Davies Con
Shipley
Type
Public Bill Committee

At a Glance

Issue Summary

Philip Davies, as Chair of the Public Bill Committee, introduces the schedule and rules for the Financial Services Bill's consideration, including timings and private sessions. The statement discusses the process of onshoring EU financial services directives into UK law and explores differences in regulatory approaches between the EU and the UK. Sheldon Mills from the FCA discusses the need for changes in primary legislation to remove dormant firms from the financial services register efficiently. The discussion focuses on the challenges and opportunities for UK financial services post-Brexit, including regulatory equivalence with the EU and the Financial Services Bill. Sheldon Mills discusses the accountability framework for the Financial Conduct Authority (FCA) as part of the Financial Services Bill and future regulatory reforms. Sheldon Mills discusses the Financial Services Bill and its impact on consumers, particularly regarding debt respite measures and regulatory practices. The statement discusses the challenges of transitioning from LIBOR to alternative reference rates and the implications for tough legacy contracts. The discussion centres on the transition away from LIBOR and the Financial Services Bill's provisions to ensure a smooth transition for contracts referencing LIBOR. The Financial Services Bill aims to implement Basel 3.1 in a coherent manner across the UK, addressing concerns about international competitiveness and regulatory consistency. Philip Davies is examining the transition from LIBOR to SONIA with Paul Richards from ICMA. Paul Richards discusses the transition from LIBOR (London Interbank Offered Rate) to SONIA (Sterling Overnight Index Average) as a benchmark for financial transactions, addressing concerns about manipulation and legal protections. Philip Davies is closing the Public Bill Committee session on the Financial Services Bill.

Action Requested

The statement is informational about the procedural details for the upcoming committee meetings and oral evidence sessions. No specific action beyond these announcements is proposed.

Key Facts

  • The Committee will meet on specified dates between November 17 and December 3.
  • Oral evidence will be heard from various organisations, including the Prudential Regulation Authority, Financial Conduct Authority, UK Finance, and others.
  • The proceedings shall conclude at 5.00 pm on Thursday, December 3.
  • The Financial Services Bill includes provisions for onshoring EU financial services directives.
  • Traditionally, UK regulators have had a secondary objective of facilitating competition while preserving safety and soundness.
  • Regulatory independence is correlated with stronger financial stability.
  • The FCA regulates tens of thousands of firms, upwards of 60,000.
  • Dormant firms can be used for fraudulent activities such as cloning.
  • The Bill will help accelerate the removal of inactive firms from the register.
  • The UK financial services sector faces fierce competition due to Brexit.
  • The FCA is engaged internationally through bodies such as ESB, Financial Stability Board.
  • The EU will not offer equivalence certification until at least mid-next year.
  • The FCA aims for outcomes-based regulation rather than line-by-line equivalence.
  • The Financial Services Bill grants rule-making powers to regulators.
  • The FCA is consulting on an enhanced accountability framework for future regulatory reforms.
  • Three new 'have regards' regulatory principles are included in the Bill for the FCA and PRA.
  • The FCA will conduct a cost-benefit analysis after the Bill passes.
  • Rules are in place for unaffordable lending, with caps on high-cost credit forms.
  • The Financial Ombudsman Service plays an important role in providing redress to customers.
  • The statement focuses on the transition from LIBOR to alternative reference rates.
  • Daniel Cichocki discusses the challenges related to the wind-down of the LIBOR benchmark.
  • The Bill aims to address issues with tough legacy contracts.
  • The Financial Stability Board acknowledges the need to move away from LIBOR on a smooth and timely basis.
  • Many contracts did not have clear terms addressing what would happen if LIBOR ceased before 2017.
  • Without FCA powers, customers might fall back on last available LIBOR rates or cost of funds post-LIBOR cessation.
  • The Financial Services Bill implements Basel 3.1 in the UK.
  • Coherent implementation of Basel 3.1 is crucial for international competitiveness.
  • The PRA must consider both international competitiveness and financial services equivalence.
  • Paul Richards is a managing director at ICMA, the international bond market association.
  • The transition from LIBOR to SONIA aims to minimise risk of disruption and litigation.
  • Three main points for strengthening the Bill: continuity of contract provision, safe harbour against litigation risks, and provisions drawn as widely as possible.
  • LIBOR is being replaced by SONIA as a benchmark rate.
  • SONIA is more robust and representative of market liquidity compared to LIBOR.
  • A credit adjustment spread will be used to account for differences between LIBOR and SONIA.
  • The session is part of the Financial Services Bill sitting.
  • Philip Davies thanked the witness for their evidence.
  • The Committee will reconvene at 2 pm on the same day.
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