Peers working for big City firms including Santander, Secure Trust Bank and the London Stock Exchange are sitting on a new Lords committee scrutinising regulation of the financial services industry, the Guardian has found.
The House of Lords financial services regulation committee was formed in January last year and 10 of its 13 members have declared current or recent interests in the sector.
From the start, it has been highly critical of the City regulator, the Financial Conduct Authority, despite a number of the committee members being paid by companies that are overseen by the watchdog.
Established to consider the regulation of financial services in the post-Brexit era, in common with other Lords committees it has the power to investigate and ultimately influence laws and public policy by holding inquiries and summoning ministers and officials to give evidence.
Its chair, Michael Forsyth, was until May last year paid a salary of £230,000 a year as chair of the UK retail bank Secure Trust Bank, which is regulated by the FCA and has 1 million customers. Lord Forsyth is still a shareholder, according to his register of interests.
Dozens of members of the Lords have jobs in the financial services sector as well as being entitled to taxpayer-funded expenses for sitting in the second chamber to vote on and shape legislation. Peers with expertise in a certain area are often drawn on to sit on relevant committees.
Their dominance on the financial regulation committee raises concerns over whether its membership is sufficiently balanced to represent the interests of consumers, taxpayers and the wider public. There are also questions over whether peers should be recused from inquiries when there could be a conflict of interest with their paid work.
The two inquiries it has held so far have focused on the powers and remit of the City regulators. In April last year, Forsyth wrote to the FCA saying his committee did not agree with the regulator’s plans to name companies under investigation in cases where it was in the public interest. He also asked the FCA “not to take further steps” to bring in the plans until the committee had conducted a full inquiry.
At the time, the newly formed committee had not completed any inquiries or taken evidence on any subject from witnesses.
Forsyth wrote as chair of the committee: “In our view, this proposal risks having a disproportionate effect on firms named in investigations, where those firms are subsequently cleared of any wrongdoing, particularly given the length of many investigations.”
He submitted a list of 11 questions to the FCA and asked it to consider a cost-benefit analysis on naming those subject to enforcement action, saying it would be “helpful, both for us and the wider financial services community, to receive answers”.
The letter was footnoted: “Members of the committee have declared interests in relation to financial services. They are published on the committee’s webpage, here.”
Last month, the committee published a report calling on the FCA to halt the “name and shame” policy unless concerns raised during the consultation process were addressed.
UK Finance, the banking and finance industry body, opposes the FCA’s proposals. After intense criticism from businesses and an intervention from the City minister last year, the FCA dropped its proposals on “naming and shaming” on Wednesday.
Currently, nine other members of the 13-person committee have declared interests in financial services companies.
The Liberal Democrat peer Sharon Bowles is a non-executive at London Stock Exchange plc, and the Labour peer Clive Hollick is an adviser to the fund manager Hambro Perks. John Eatwell is an economic adviser to Palamon Capital Partners and a non-executive director of Unity Trust Bank.
Lord Eatwell became a non-executive director of Unity Trust in November but his role at the bank was not declared in the committee’s critical report about the FCA in February. Eatwell, a Labour peer, said he had informed the Lords authorities about the role in December and had “no idea” that it was not automatically registered with the committee as well. “This has now been done,” he said.
Another Labour peer, Jonathan Kestenbaum, appears on the FCA register as a director of Windmill Asset Management, which comes under its regulation, and he is also a director of the publicly listed JP Morgan Japanese Investment Trust.
Anthony Grabiner, a barrister and crossbench peer, declared that he sat on the board of Goldman Sachs from 2014 to 2022, and has shareholdings that include Citigroup, HSBC and UBS in the financial sector.
Peter Lilley, a former Tory cabinet minister, is an adviser to a Shanghai-based investment fund, YiMei Capital, while Jonathan Hill, another former Tory minister, is an adviser to the Spanish retail bank Santander and the payment technology company Visa Europe.
Lord Lilley said YiMei Capital purely invested Chinese money in China and was not affected in any way by the financial regulatory authorities in the UK. He said the committee “benefits enormously from the expertise of those members who are currently or have been more recently involved in financial services”, adding that he “cannot think of any question or point anyone has made which has been remotely self-serving”.
Unlike MPs, peers do not have to declare how much they are paid outside their legislative role, unless they have clients who are foreign governments.
Tom Brake, the director of the campaign group Unlock Democracy, said it would have been “safer” had members with financial interests in the sector recused themselves from the first inquiry.
He said: “This case prompts a wider question about the extent to which members with actual or perceived financial interests that could be impacted by a committee’s inquiry, and recommendations, should be able to serve on that committee.
“I will be raising this with the Lords conduct committee and asking it to consider whether, as is the case for the Lords speaker and senior deputy speaker, it might be appropriate in certain circumstances for select committee members to lay aside any relevant financial interests.”
Brake questioned whether putting pressure on the FCA not to name financial service providers under investigation was in the interests of consumers. The code of conduct for members of the Lords states that “in the performance of their parliamentary duties, members of the house shall base their actions on consideration of the public interest”.
A spokesperson for the Lords committee said its members came from “different walks of life, from across the UK, and represent a wide range of professions and backgrounds”. They added: “Many remain active in their careers after joining the house. This professional experience is an especially useful resource in carrying out committee work.”
They said members’ work was governed by the Lords code of conduct and their interests were declared and published online. The spokesperson said the inquiry on the FCA’s enforcement proposals accepted 40 pieces of written evidence from any interested parties and held an oral evidence session with the regulator.
